Assessing Hemispheric Trade: The View from Washington

“Assessing Hemispheric Trade: The View from Washington”

Good afternoon everyone. It is a true honor and a privilege to have the opportunity to be with you today to discuss whether foreign trade is good for the economies of the Western Hemisphere. Let me give you the bottom line first: it is. But before I explain why, let me first thank the Baker Institute, and specifically my good friend John Diamond, for the invitation to be with you today. Let me also say what a privilege it is to be on the same program with Commerce Secretary Carlos Gutierrez who has worked tirelessly both in Washington and outside Washington to promote trade and investment expansion, and U.S. relations generally with the Western Hemisphere. Mr. Secretary, thank you for your leadership on these critically important issues. It is also a privilege to be with such leaders such as Secretary Robert Mosbacher, and also [Colombian Vice Minister of Trade] Eduardo Munoz and [former Rice University President] Malcolm Gillis. And it’s also good to have the opportunity to return to the Baker Institute for such a timely, and important, conversation. 

Indeed, as we have already heard, this is a watershed moment in the hemisphere, as the region is undergoing significant transition. In recent years, the United States has lost some ground in Latin America. This is due in part to circumstances beyond our control, but it is also due to circumstances well within our control. A deep frustration in Latin America fueled by income disparities and a sense that only the wealthy benefit from globalization, coupled with new democratic access to political power for a majority of people long denied equal representation, has formed a potent cocktail that has brought a new generation of leaders to power through the ballot box.  Venezuela’s Chavez is the prototype, as well as Bolivia’s Morales and Ecuador’s Correa. Elections last year in Mexico and Peru also came close to bringing similar leaders to power.  Though not inherently a set-back for U.S. interests, nonetheless after their elections each of these leaders has pursued, to a greater or lesser extent, policies that have led to a breakdown in hemispheric consensus and they have also actively promoted political and economic models at odds with the model of open market democracy. While these changing circumstances have been outside the control of the United States, we must still be mindful of the changes taking place, the reasons therefore, and the challenge to U.S. interests they represent.   At the same time, issues over which the United States does have a measure of control—trade expansion, agriculture policy, and immigration—continue to vex our hemispheric relations, particularly with our friends. Hemispheric observers continue to lament U.S. agriculture policies that undercut their own ability to compete, as well as immigration policies they see as mean-spirited and unfairly targeted against their citizens seeking a better life. Leaders have begun to question the upside to close cooperation with the United States; at high political cost, regional leaders who have sought closer relations with the United States have in some cases been undercut politically when the United States has failed to respond. This can only be bad for our long-term interests in the Americas.  Which brings me to trade and investment expansion. Because one of the issues that is the most divisive at this point is actually one that should unite us, namely, the desire to expand trade and investment in a non-discriminatory manner across the Americas, as hemispheric leaders agreed by consensus at Summits of the Americas in Miami, Santiago, and Quebec City. Even at the last Summit, two years ago in Mar del Plata, Argentina, fully 29 of 34 participants expressed the desire to move forward for a free trade area linking the nations of the Americas. But that’s not the impression one gets from virtually any discussion of trade, driven these days by polls, elections, and self-interest.  But if you look at the economics of trade in the hemisphere, the advantages have always outweighed the disadvantages. NAFTA has increased trilateral trade three-fold, and US exports to Mexico now surpass US exports to China, Great Britain, and France combined. The bilateral agreement with Chile has expanded trade and investment beyond even the most optimistic forecasts. CAFTA is only recently in place, so our record is limited, but even so, we are already seeing a jump in the trade statistics between the United States and Central America and the Dominican Republic. We would expect similar results once the agreements with Peru, Colombia, and Panama are passed, hopefully, at least in Peru’s case, as early as next week. In fact, those who complain the loudest about free trade in the hemisphere are, ironically, those nations which don’t have an agreement with the United States—those which do, or which are in the process of getting one, are the loudest advocates for additional hemisphere trade expansion. The benefits of open trade have been shown again and again. Economic gains and job creation. Access to technology, management, and improved standards, lower capital costs, and exposure to global competition which sharpens producers and improves efficiencies. New market entrants and a breakdown of closed business practices. And with increased economic empowerment, people begin to demand political empowerment. As we saw in Mexico after NAFTA and in Chile after unilateral market opebnings there, that is good for democracy.    Of course, not everyone wins when trade is opened, but the answer is not to prevent the gains that trade expansion brings to the broader population, but rather to focus efforts to prepare citizens to compete and win in the global economy, while working to cushion the blow for those who are negatively impacted.    With that in mind, the question is where do we go from here. In the first instance, we need to complete the tasks currently before us. We have to pass trade agreements with Colombia, Panama, and Peru. Since the first Bush Administration and continued in the Clinton Administration, the United States on a bipartisan basis has supported economic growth in the Andean region in opposition to drug traffickers and guerrilla movements.  These agreements are controversial, but they can—and must—pass. Under all of these agreements, once implemented, US exports would increase, economic opportunities among all the parties would be created, and cooperation against illegal narcotics would be maintained, ultimately supporting democratic governance in a troubled region. On the flip side, walking away from these agreements would undercut some of our best friends at exactly the time when the opponents of the United States are claiming that we are an unreliable partner. But beyond these important agreements, in my view we should also consider what comes next. As a practical matter there just aren’t that many nations left in the Americas which want a bilateral trade deal with the United States, and only one—Brazil—which would potentially mobilize the US private sector in support. As the largest Latin American economy and market, Brazil should be our primary interest in further regional trade expansion, and Secretary Gutierrez has taken the lead in moving this agenda forward through the US-Brazil CEO Forum. As well, once the agreements with Peru, Colombia, and Panama are passed, we should then look to bring together existing regional trade agreements, including NAFTA, DR-CAFTA, US-Chile, and Colombia, Panama, and Peru, to bind together our trade partners, create larger markets, shorten supply chains, simplify the rules of trade and investment, and build a larger stepping stone to an eventual hemispheric trade association.  But we should not stop there. The United States and many of our hemispheric free trade partners also have existing or potential free trade agreements with various nations in the Asia-Pacific Region, including Australia, Korea, and Singapore. By stitching together our free trade partners in the Western Hemisphere along with such partners in Asia, we have the opportunity to build a pan-Pacific trading zone among those parties most interested in collaborating to promote mutual economic growth. A free trade zone encompassing North America, Central America, and the West Coast of South America, with free trade partners in Asia, would generate new momentum to the trade expansion agenda by advancing liberalization more quickly with willing partners.  In the meantime, countries which have been able to sit out the trade expansion game in the hemisphere would then be more likely to come to the table once it became too costly to remain outside an expanding free trade zone.  Which brings me to my final, and perhaps most important point. Latin America is a far different place today than it was when I first began my career at the State Department in 1990, when Jim Baker was Secretary of State. Then, democracy was a fresh and exciting new reality for much of the Americas. In the words of Ronald Reagan, democracy was not a “fragile flower,” but it nonetheless required cultivating. By the Miami Summit of the Americas in 1994, as I noted earlier, all nations of the Americas except Cuba were able to come together to agree on a common agenda for the Americas. That agenda has now broken down, but the need to support and indeed nurture democracy in the Americas remains.    But if you look at the tools we have available to support democracy, there really aren’t that many left. In that context, trade and investment expansion are critically important, and must be seen for what they are: one of the most effective means we have to support growing democracy in Latin America while strengthening our own economic security here at home. Despite the obvious challenges, the Americas today offer hope—hope for the future for the people of the region as they strive to improve their daily lives. But the success of the region is not guaranteed unless we work with purpose and resolve, in partnership, to achieve it. And trade and investment expansion, while not the panacea, must nonetheless be part of that critical equation. Thank you again for letting me join you here today.