Commercial Diplomacy: A Conversation with Penny Pritzker

Commercial Diplomacy: A Conversation with Penny Pritzker

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Penny Pritzker, secretary of commerce, joins Richard N. Haass, president of the Council on Foreign Relations, to discuss the United States’ global commercial approach as it relates to exerting influence on world markets and trading partners. Delving into the domestic effects of globalization and digitization, Pritzker discusses how a growing wave of public antagonism toward free trade and new trade agreements can be addressed and mitigated.

HAASS: Well, good afternoon. I’m Richard Haass. I want to welcome you all to the Council on Foreign Relations on this textbook, picture-book spring day here in New York. Thrilled to have the 38th, I believe?

PRITZKER: Yes.

HAASS: Do they call you 38 at work?

PRITZKER: No. (Laughter.)

HAASS: Secretary of commerce, Secretary Pritzker, who I will have trouble not calling Penny.

PRITZKER: No, you should call me Penny.

HAASS: Since we go way back. Has been in this job for nearly three years now. And before that, she had a long and successful career in the private sector. And indeed, that’s one of the things that distinguishes her from some of her predecessors, is she’s actually worked in both worlds—the for-profit world and government. And most important, in terms of her background and apex of her achieve, I would say, was the fact that she served on the board of the Council on Foreign Relations. (Laughter.) So individually and institutionally thrilled to have her. I’m going to ask a few questions, then we’ll open up.

Let’s start with something we actually just mentioned there for a minute, which is trade. Here we are—you know, trade was something that over the decades and longer, almost a century now, there was a general consensus that free trade was pretty good. And you go back to Cordell Hull in the 1930s, the Reciprocal Trade Agreements Act, a lot of support. Somewhat fraying at the seams bipartisan support, but you always had enough to get it. And suddenly now, here we are in April of 2016, and the two Democratic candidates and the two leading Republican candidates, one of the very, very few—conceivably the only thing the four of them share is opposition to TPP and to free trade.

So I guess the question is, one, what happened? And, two, is there any way to resurrect a sufficient political consensus in this country so the United States could pass not just TPP, or something very close to it, but ultimately do a European agreement and other trade agreements? Or do we have to now live with the, I would say sad reality, others would see it differently—the fact that trade is just no longer feasible politically?

PRITZKER: Well, I think TPP is feasible politically. So I’m not going to buy into the fundamental premise, but I would say that there’s a lot of work to be done to make the case for trade. And it’s a hard case to be made at a time when the average American worker is being effected also by globalization and also by automation. And I think that trade is bearing the brunt for a much bigger and more complex situation than just the implications of trade.

Because when you step back, and for those of you in this room you probably know this, but you step back and you say to yourself: How can you possibly deny helping American companies have access to the fastest-growing markets in the world? I mean, TPP reduces 18,000 tariffs in the Asia-Pacific region. That’s an ability—these are markets where China already has free trade agreements, where they’re paying no tariffs. So our companies are at a disadvantage. How can you deny the fact 95 percent of customers are outside the United States? It’s no longer sufficient to just sell within our own country. How can you ignore the fact that the middle class in the Asia-Pacific region is going from 500 million to 3.2 billion in the next 15 years?

So what’s going to happen is the companies that are serving those markets are going to grow, because it’s not like nobody’s going to serve those markets. They are going to get, you know, everything from consumer products to pharmaceuticals to agricultural products. It’s just a question of from where. And the companies that are able to serve those markets are then going to become significant competitors here, because we don’t have significant trade barriers in this country.

Second thing is, it’s ignoring the fact that TPP is addressing labor standards and environmental standards. So if you raise the environmental standards or labor standards in Vietnam or Malaysia, you’re making the American worker more competitive, relatively speaking. And so this is—it’s about a lot more than market access. It’s also about leadership within the fast-growing part of the global economic—

HAASS: So when you go around, and you’re wearing your hat as secretary of commerce, and you meet with groups that are not inclined to support free trade, do you find that by the end of the meeting that you have brought them around? Do they kind of hear every single point you’ve made and they go, I hear you, but I’m still against it? Do you feel like there’s anything that works?

PRITZKER: Yeah, I think the facts work. But I think that the other challenge is, and this is actually something that we’re meeting on later this afternoon, is that I don’t think we’re doing a good enough job. And we’re obviously losing the public rhetoric because of the strength of the voice of all these campaigns out there that are dominating with, frankly, I think, not telling an accurate story or telling part of the story and blaming trade for something that’s larger.

But the thing that is not going on sufficiently is companies are not explaining to their employees, and their employees are not getting out and explaining to their congressmen and congresswomen that, hey, my job depends upon our ability to sell our goods and services in other parts of the world. And 11 ½ million jobs in America depend on exports alone. That’s just solely depend on exports. And that is—number has got to keep growing, because those are some of the fastest-growing markets in the world, outside the U.S.

HAASS: So we’ll come back to that. Let me touch on a few other subjects. You were just recently in a—visited a small island nation approximately 90 miles off the coast of Florida, if my geography serves me well. (Laughter.) So what’s your takeaway?

PRITZKER: So my takeaway, first of all I’ll talk about the visit and then I’ll takeaway about the country. It was a historic visit. And it was amazing for so many reasons. Step back and say, you know, the president’s fundamental premise has been that isolation wasn’t working, and engagement is a way for us to have more influence and to better benefit the Cuban people. And I think that fundamental premise is absolutely right. I jokingly said there’s absolutely no need to invade. And Secretary Carter when I said that he was like—he perked up and said: What’s she talking about it? And I said, all we had to was show up. And you know, whether it’s—

HAASS: It’s the Woody Allen theory of foreign policy, by the way. (Laughter.)

PRITZKER: Right. But in this respect, I think there’s a lot that Woody Allen may have to, you know, be right about, which is, you know, basically by increasing telecommunications, increasing direct mail, being able to make direct phone calls, having people be able to fly back and forth, being able to pay a Cuban-American here in the—being able to pay a Cuban here in the United States, changing the rules within the limits of the embargo is going to have a significant effect.

Now, it’s going to take time. They are a socialist government. And they have been very isolated. And the place has got a long way to go, and needs an enormous amount of investment. The biggest advantage we have is it needs an enormous amount of investment. It’s 90 miles off our shore. And the most interesting thing politically, I think, is the Cuban-American population, and particularly those who are leaders in those communities, have changed their tune. And they are—they see the momentum coming as with a relationship with Cuba. So you see a big change occurring.

And the other thing I will tell you about the visit, the streets were lined with Cubans with cameras, waving and taking photographs. The Cuban people welcomed the presence. And then to have—I don’t know how many of you saw the press conference that occurred with President Obama and President Castro. Keep in mind this is the very first time President Castro has taken questions from the Western press. And so for the Cuban people to see their leader taking questions from the Western press was an extraordinary event. And so I am bullish on the move that the president has made to establish relations—or, normalize relations. And I think that it’s going to take time, though. This is not going to happen overnight.

HAASS: But it’s quite possible, given exactly what you said, that the Cuban government will get uneasy. They will—if you will, if the president’s gamble, or bet, or hypothesis plays out and we begin to set in motion some dynamics of change in that society, there could well be a government effort to resist or clamp down. How do we work through that? We saw it a little bit the other day with dissidents being rounded up. How is it, if you will, we don’t lose the ability to sustain the policy if, in fact, the Cuban government reacts in a fairly negative way?

PRITZKER: Well, I think that every step that’s being taken makes it harder and harder to put the genie back in the bottle, because you’re exposing the Cuban people to, frankly, more—you have no idea. You know, imagine—just take Major League Baseball. I know something that, you know, unfortunately I think it’s opening day and it’s not happening.

HAASS: Opening day was closed, yes. (Laughter.)

PRITZKER: Yeah, today. But 150 Cubans—remember, the country’s 11 million people. This is not—you know, it’s not a huge population. A hundred and fifty Cuban baseball players—and baseball is the national pastime in Cuba, much more so than it is in the United States—and can now—you know, are hired every year into Major League Baseball. And they now can be paid, and the money they will make even if they’re not stars—if they make an average salary for a baseball player—will make them a wealthy person back in Cuba. The fact that remittances have now been uncapped, the fact that you can now do U-turn transactions is going to change—you know, there is entrepreneurs in Cuba as much as there are here in the United States. And they are excited about what’s happening.

So I think this change is—it will be more gradual than anybody—you know, that we Americans would like. We want, you know, everything to change like this. And it will be more gradual. Frankly, they want the embargo lifted. In a funny way, it’s going to take time for them to absorb all this. So I don’t think it’s a straight shot. I don’t think this is a hockey stick. There will be puts and takes. But I think this—the momentum will be all in one direction.

HAASS: OK. One of the interesting parts of Penny’s job is just how many different issues it covers. It actually is one of the most varied jobs in the Cabinet. So let me turn to another area, which is the Internet and cyber. And as many people may not know, the Commerce Department has historically overseen what’s called ICANN, which is the agency that provides the whole designation of domains and so forth, the Internet. And you made the decision, I think it was on your watch, early on in your watch, to let go of that.

PRITZKER: Let go. (Laughs.)

HAASS: So how is that going?

PRITZKER: (Laughs.) Well, let go sounds like I’ll just throw—take your hands off the wheel and let the auto go wherever you want. The decision that we have made is that—step back. What’s important? What are we trying to accomplish here? A free and open Internet is absolutely something that we all take for granted. It’s something we assume is going to be available. And whether it’s our own personal communications or it’s our business communications, or it’s our banking or whatever, we just assume that we’re going to be able to use the Internet.

That is not an assumption that should be taken for granted. And so—and part of the challenge is we have governments around the world that would like to take over the Internet. And part of the problem—we play a function of verifying that when domain names are assigned that they’re assigned right. The truth is, we subcontract that out anyway. So the question is, can ICANN, which is an international multi-stakeholder organization, take over the responsibility for that? And can that remain independent and not biased by governments?

So what we have done, which you called get rid of our role—

HAASS: I said let go of, not get rid of. (Laughter.)

PRITZKER: Or, yeah, let go of our role, or whatever, is—(laughter)—what we’re doing is—

HAASS: The friendly part of this meeting is clearly concluded. (Laughter.)

PRITZKER: Yes. Richard and I have known each other for a long time.

Is that what we have said is, no, there needs to be a governance process where we’re confident that the IANA functions that you described will be handled and managed in a way where the multi-stakeholder community can effectuate that, which they’re doing now with us watching over their shoulder, without us watching over their shoulder. And the question is, can ICANN—do you have confidence in the governance of ICANN. So they’ve made a proposal to us in the last I think two or three weeks, which we’re now studying as to whether we think that that can—we can make this transition in a way that it is—does not put the free and open Internet at risk.

HAASS: And ultimately, do we ever—is this transfer of authority, however one wants to describe it, is this conditional? And if we get worried that governments will play too large a role, the Internet becomes a splinternet, do we basically say we’re not going to go ahead with this? Is this past the point of no return, or do we still, do you think, keep a lot of leverage?

 PRITZKER: I think we—I think the structure that we’re going—will buy into will keep leverage and take away the arguments by other government that would like to take control of the Internet that we currently—you know, because it’s a fallacy the way it’s being positioned. So I think this is very much you have to finesse this, but I think in the end we’re not going to let the Internet go to the control of another foreign government.

HAASS: Somewhere in there there’s an atrocious pun saying: Yes, ICANN. And I’m just trying to work on it. That’s an Internet pun. (Laughter.) Very subtle. Clearly was so subtle it didn’t go over well. OK, moving right along.

One of the other things you do, which again not everyone is necessarily aware, is you run one of the biggest startups every 10 years in the U.S. government, called the census. And so here we are now. I assume it happens, you know, with every decade. So as the Constitution requires—

PRITZKER: According to the Constitution we have to do a census every decade.

HAASS: Yeah, every decade. And we’re coming up—I assume it’s time with, if you will, the next one will be—

PRITZKER: 2020.

HAASS: 2020. So what’s the big challenge this time around? What keeps you and thousands of people, and ultimately tens and hundreds of thousands of people busy?

PRITZKER: So the opportunity with the 2020 census is to actually have the census acknowledge that we are in the digital age, which it has not. The 2010 Census basically was run pretty much like the 1980 Census, if you will. And so what we’re trying to do is we think by greater use of administrative records—so, you fill out your tax forms or you fill out lots of forms for the government. Why should we need to go and ask you again what’s your address? Those are what we call administrative records.

If we can use more administrative records, if we can automate the process of deciding when do we—if you did not fill out your census, when we’re going to send someone to your house. And if we know that, Richard, you’re not at home from nine to five because you’re working very hard at CFR, we need to show up at a certain time to talk to you because you didn’t fill out your census form. Automating that and assigning that process is something else that we’re working on. We also have to—so there’s a number of things that we’re doing to modernize the census.

To do that well, and every one of you who runs a business here knows when you go through some kind of a transition and process you need to test it and you need to pilot it. So we—the census, it’s not like every time it’s a startup. We are now testing—we’re in Los Angeles and Houston doing a big test on the 2020 Census, using these new mechanisms that we think have the capacity to save $5 billion. The trick for the census is you have to invest $500 million to save $5 billion. To give you an idea, if we ran the 2020 Census like the 2010 Census, it would cost $18 billion. We think we can do it for 13 billion (dollars), if we can use a number of techniques that we’re testing right now, as to their validity and veracity.

So we’re in the middle of all that. We run an end-to-end test in 2018. And that will then lockdown the 2020 Census process. So we’re in the middle of a very critical period. And obviously for those of you who are familiar with the budgeting process, I’m in full sell mode with Capitol Hill as to you got to invest the money now for me to save the money in 2020.

HAASS: OK. I could ask more, but I’ll move on to two last issues, and then I want to open it up. Yet another area you have a lot to do with is the weather.

PRITZKER: Oh, yeah. (Laughter.)

HAASS: We’re not going to blame you for today, but the question is: You’re a scientist. What are they concluding about weather in this country in terms of frequency and severity of storms? And, you know, you run the Commerce Department, so it’s not weather narrowly done, but obviously it’s connected to the economy. What is it—what is it they’re seeing?

PRITZKER: Well, the first—and we’ve gotten a lot of political blowback about this—is that climate change is real. That’s what our scientists have come out and said. And so severe weather is a huge, huge byproduct of climate change. And one of the biggest things that we’re trying to do at the—

HAASS: Can you just explain for 10 seconds what your role is in weather?

PRITZKER: Oh. We are the Weather Service. So we are the—we run the Weather Service. We are the sensors, the satellites, the buoys, all the measurements that have to go on to produce the baseline weather information. So every day we produce somewhere between 20 and 40 terabytes of data, which is about two to three Libraries of Congress of day, of information about the weather. And to do that, we have to run all kinds of sensors. And then we put them in, simply put, our—then we have algorithms and we have to have computing power, and that will produce weather information that then gets prettied up by the weather on your television or on your iPhone or whatever. That’s the private sector portion of the weather. They tend to—we have our own deliveries, but they tend to be more scientific looking and not as commercial looking. That’s what we do with the weather.

So as it relates to severe weather, and drought, and flooding, and a number of issues that we’re experiencing and that you get to see on your nightly news regularly, is what we’re trying to do is evolve the Weather Service to not just produce the accurate information, and not only have it available with enough warning so that there’s something that can be done about it, but now we’re into really what we call weather-ready nation, which is producing the weather and then working with the first responders and working with the mayors and governors and other people who are in your government to be able to make sure that they’re using that information to make decisions that can save lives and property. And so we’re becoming far more of a service organization, as much as a data organization.

HAASS: Interesting. OK, this is a little bit of a bait and switch, because what Penny really wanted to do was come here and talk about commercial diplomacy. So let’s talk about your core mission and what you’re tried to do with the Commerce Department, and what is, in a sense, the basic definition or yardstick for what someone in your job has to do, which is to facilitate, promote, otherwise support American commerce?

PRITZKER: Well, thank you for giving me that opportunity. Let me step back, new to this administration is an approach that has come from a perspective that we’ve developed, which is that, you know, as I’ve traveled somewhere between 35 and 40 countries around the world, what you hear from every leader around the world is: I want more American businesses present here. I want more American products here, and services. And they also want greater prosperity and job growth in their own countries. And so commercial diplomacy is this simple idea, which is it’s the opportunity for the U.S. government to work side-by-side with the private sector on developing policies with foreign governments that can lead to economic growth both here at home, as well as in foreign countries around the world.

And so we’ve been working—and this is not a company working on their book of business. It’s working on behalf of general American businesses. So they work with us on strategies, they travel with us, they’re at the table. So I could give you an example. For example, when the president recently had the ASEAN leaders to Sunnylands, we brought Satya Nadella and—Satya Nadella from Microsoft, Ginni Rometty from IBM, and the new CEO from CISCO to the table. And we had a long discussion with the leaders of the ASEAN countries about the—they’re all interested in innovation, and digital economy, and that kind of growth. But they don’t understand that the policies that they’re putting in place are preventing them from having the kind of digital economies in their countries that—and the kind of innovation and entrepreneurship that they want to see.

And rather than just the federal government wagging our finger at these countries, and saying please do not adopt digital localization policies, but instead please to think—to have American companies sit-by-side with us, and it’s not just in the digital economy. We’ve done it agriculture and other places, other industries, and say, look, here are the policies that you’re taking that are inconsistent with the goals you say that you have. And if you change your policies, whether it’s around intellectual property protection, rule of law, trade secret protection, on and on—I can, you know—data localization, et cetera, that will encourage greater innovation not only within your company, but also greater trade back and forth with the United States.

And so it’s a simple concept. It’s borne out about—where did the lightbulb moment come for me? It came for me when I’m sitting in Indonesia, Tom Wether (sp) and I are there in Indonesia. And the Indonesian government is saying to us: We want an Apple store. And I said—and I’m sitting there. And, please, would call Apple and see if they’d put a store in Jakarta? (Laughter.) And I just thought to myself, how am I going to call Tim Cook and ask him if he would be opening up in Indonesia, when their foremost policy that they want to adopt is data localization? And as you know, data localization is your servers and your information used in that country has to sit in that country. But Apple is in the—Apple is a big cloud provider.

And I thought to myself, they don’t have any clue that what they want and what their policies are are completely inconsistent. And the best way to make it real—and we’ve seen this over and over whether it’s in India, or in China, or in Ukraine, or in Tunisia—I mean, countries of all different sizes and all levels of sophistication. When you sit with American business—and often it’s not just American business. It’s often the local businesses—together with that local government, and begin to discuss the policy environment against their objectives, there’s an inconsistency. And we found that we’re having greater leverage by doing it.

HAASS: Lots more I could ask, but I will show uncharacteristic restraint and open it up. So wait for the microphone, raise your hand, and let us know who you are. Keep your questions brief.

Ron, why don’t you take the first one?

Q: Ron Shelp, filmmaker, author, and a few other things.

My question concerns Cuba again. As Richard said in the very beginning, our two leading Republican candidates on trade—would cut off trade, in a sense. On Cuba, and all those candidates—almost all those candidates who more or less suspended, as they call it, their campaigns have the same view on Cuba. Could they and would they be able to roll back what the president has done on Cuba?

 PRITZKER: I think it’s very hard to put the genie back in the bottle. I think, first of all, when you—and I’ll say this for a number of reasons. The regulations that are allowing the kind of activities, direct flights back and forth between Cuba and the United States, or travel to Cuba, where you self-certify which of the 12 categories you’re in, direct mail, direct telephone—you know, very basic things—the ability for a tractor company to go and manufacture there because they’re providing agricultural machinery, which is allowed under the embargo. I think it’s very hard to just turn that off.

The regulations that—technically how this is done is Treasury really does the regulations that allow you to pay for goods, and we do the regulations that allow the sale of goods or services. And all within the limits—we’re limited by the embargo. So there’s at some point a limit to what we can do based upon the language of the embargo. I think it’s very, very difficult, because you’re going to have more—because there’s going to be more and most constituents within the United States who’ve taken advantage.

So now you’re going to say to United Airlines, or American Airlines, or whomever, I’m sorry, no more direct flights. Or you’re going to say to America—I mean, Americans are visiting Cuba in droves—no, you can’t go anymore. Or Starwood and Marriot just signed deals to, you know, manage hotels. Oh, no, you’re not, because the embargo still sits in place. So the change has been regulatory. And so are you going to basically cut off all those businesses. And what I think is particularly influential is the Cuban-American community, which had been the biggest opponents of opening up relations with Cuba, their attitudes have changed dramatically. And so I think it’s very difficult to, as I said, put the genie back in the bottle.

HAASS: Let me ask the question from the other side. If we actually got the embargo repealed, how much of a delta would that be in terms of what you could do that you can’t now do?

PRITZKER: Significant. So for example, under the embargo you could—there’s, you know, who sectors of our economy that cannot—you can’t do business with Cuba. Second is, as the Department of Commerce, we’re prohibited from working with American business to help them do business. We’re regulatorily lifting—we’re changing regulations, but we can’t—I couldn’t take a trade mission to Cuba.

HAASS: Sure.

Q: Wendy Leurs, Foundation for Culture and Society.

There is great concern—this is also on Cuba. And this may be a Pollyanna question, but let me see if you can answer it. There’s huge concern that with this great influx of investment that is hoped for by the U.S., especially tourist industry, that—and because the military in Cuba are the people that own and run all of the foreign investment areas, that there’s going to be huge cruise ships pouring people in, that there are going to be hotels built on the Malecon. Is there any way that you and the Commerce Department can talk about urban planning and zoning and other things that will help to protect that beautiful city?

PRITZKER: I’ve raised that very concern with the minister of commerce, with the lifting of—you know, cruise ships and their ability, and what could be anticipated as a significant influx of people into, you know, old Havana and areas like that. They have a—you know, a city architecture process. So they do have some of the planning protections that we would—the kinds of mechanisms that are used in parts of the United States, some to more success and some not. It’s an area of conversation that we’re having, to help them with technical, you know, advising. The reality is, is it’s probably an opportunity for a private sector company or an NGO to help them more. I don’t know under the embargo what’s allowed for us to do, but I’ve raised the subject with them because you do worry about this—if you have too big a change, can they handle it?

Now, the flipside is something very positive. You’re starting to see paladares and other private restaurants being formed and created. And it’s wonderful to see, you know, the people who are getting employed and getting hard currency. So there’s a flipside benefit. But it’s definitely—it ought to be something that should be on their radar screen. Remember, the Cuban government is cautious also. They’re not—they do not have a wide-open arm to every idea. They are trying to digest this normalization in a way where they can handle it. And, frankly, that’s OK from a commercial standpoint. So, you know, I think we just—it’s not going to be as rapid as one could, you know, imagine, just turning on a light switch.

HAASS: Zach?

Q: Hi. Zachary Karabell, Envestnet.

So Richard opened the wonky-door question. So on the Commerce Department overseeing the Bureau of Economic Analysis as well as trade figures, what is your perspective on how well we are doing either in capturing the changed nature of trade and services? And so, you know, we focus a lot on manufacturing. That’s part of the campaign. It’s much harder to focus on the export of tourism, right, which you can get into or not.

And then also on GDP, how are you—I know you’re doing a lot of work on Internet and digital diplomacy, but there’s also this issue of how do we begin to change the way we think about our economy to factor in these things that are completely new relative to the way we measure output and productivity and GDP with the Internet age?

PRITZKER: Really good question.

So another thing that we do at the Department of Commerce, we run the Bureau of Economic Analysis. And we basically put out GDP and statistics about trade and things like that. This has been a significant area of focus for us and we’ve begun an effort to really look at the underlying factors that make up—I’ll start with GDP—GDP, and talk and really analyze how accurately we are capturing not only sectors of the economy that are old but—or that are new, but looking even at retail sales and other things:  Do we have the most sophisticated methodologies, and how accurate is the information that we’re using?

And so we have a big initiative going on bringing in new data sources and working—because surveys are dying and so we need to have a more modern approach, more digital approach to capturing information about what’s going on in the economy. And I would say we have work to do, but we’re on it.

And in terms of services, we’re not where we need to be in terms of capturing exports of services, but we are improving. We’re very focused on the fact we need to improve. And what we’re engaged with is we’re engaging, frankly, with everybody from Palantir to Google to, you know, a number of our—Microsoft, IBM and others, so that we can have a more accurate analysis of our economy and our trade by capturing better data feeds and more real-time information and not doing the kind of estimating that was going on as part of particularly the early quarterly data information, GDP and other information that comes out.

We’re not where we need to be. It won’t get done—completed in this administration. But the good news is our career staff is very bought-in. We’re working with—oh, we’ve brought in NBER and another big NGO to help us, as well as I think we’re working with McKinsey on this. So we’ve brought in outside folks to help us get better, as well as partnering with really state-of-the-art companies.

So there’s just a new approach going on. It won’t all get done, but I’ve made data and the using—and our data responsibility in terms of providing information as well as the way that we’re collecting information a real priority during the time that we’ve been there to really bring it into the 21st century.

HAASS: What’s your gut instinct on this—if you’re ready to say—in terms of to what extent we’re undercounting or missing? Do you get the sense it’s at the edges or it’s actually quite significant?

PRITZKER: I think we get it right over time but we’re not getting it right early enough is the way I would say it. And the folks that work with me have heard me talk about this ad nauseam because, you know, the corrections and the updates and things like that are too significant for my taste and are, frankly, not—and too many—there’s too much both politics and decision making being made on the early outputs and we need to get it right sooner.

HAASS: Tony Coles?

Q: Madam Secretary, you’ve talked about the tech-based scientific innovation industries, but if we think a little bit about the biological science industries, how do you think about some of the rhetoric in this country around the pharmaceutical and biotechnical industries and distinguish that from the important role that they play in driving GDP and its unique scientific and business leadership perspective around the world? Is there a role for the Department of Commerce to expand that?

And what’s your thought—we talk about Microsoft and IBM and Google all the time, but what’s your perspective on the biological science innovative industries?

PRITZKER: Well, obviously the United States leads the world in biological science innovation, and that needs to remain the case. The reality is we are—we’re probably senior partners in the fight for intellectual property protection and things like that, patent protection. We’re probably junior partners to the role of HHS or FDA or other organizations that play a more leading role with the biological sciences.

Where we do engage—and this is another thing that we do—is we are—as part of Commerce, we run the National Institute of Standards and Technology, so we create measurements in partnership with the private sector. So we have a very active—with the biological community. In fact, I think we have 15 or 20 people at Stanford. And we’re busy creating measurements for different sectors of the biosciences as well as nanotechnology so that you can create products and then be able to work either to replicate, right, and have standards around replication, or measurements, so you know how to measure or so that you can work across companies working together.

So that’s a role that we play. It’s kind of a funny but unbelievably critical role for American industry of all sorts, whether you’re making a fire hydrant or you’re making a biologic product. We also play a significant role in terms of trade when it comes to the whole biological science area and we’re intimately involved right now in the whole TPP issue about biologics and how long the protections are.

HAASS: Do you feel like what you’re doing in patents has kept up with the science?

PRITZKER: I think that we’ve had a big initiative, you know, over the last year to improve the quality of our patents so that—because the best way—there’s two major innovations, I think, that we’ve done over the last year or two—couple of years, is first is the PTAB, which is a quick review of a patent, once issued, to make sure—so if a challenge is going to go on, it can happen quickly, which I think is very important for anybody who has a patentable asset of any sort.

And the second is the best way to protect a patent is make sure the patent is good and well defined. And we really went through—we have 10,000—9(,000) or 10,000 patent officers. We went through a massive training over the last year to try and improve the quality of patent—a patent’s initial issuance.

HAASS: Maurice?

Q: Hello. Maurice Tempelsman.

PRITZKER: Hi, Maurice.

HAASS: Want to wait for a microphone, sir?

Q: Maurice Tempelsman, Leon Tempelsman & Son.

Switching the focus on China, we seem to be at sort of crossroad in policy toward China. I think one of the important elements in it really was to try and get China to define its national interest to be part of the global system to participate actively and play its role. And the other part of it of course was containment and making sure that military activity stays within the bounds.

We seem to be at a crossroads now, both for their internal reasons and maybe some of our policy, for example, the TPP, our opposition to the Chinese effort to create a duplicate world bank. There seem to be many areas where that part of the equation—the commerce, the trade play a less important role. How would you react to that?

PRITZKER: Well, I don’t think we play a less important role, so I would disagree with the final conclusion. But I think your fundamental point that the Chinese economy is at an inflection point and—you know, they recognize their export model is not sufficient to sustain the kind of growth that they need in order to continue to bring the millions of people out of poverty that they’re trying to do. They’re moving to a more consumer-driven economy.

The challenge they face is they’ve laid out a reform agenda, you know, with their various pronouncements—the Third Plenum, the Fourth Plenum, the various plenums that they’ve had. The question is whether they’re actually going to execute on the pronouncements that they’ve made.

And the challenges with their growth, do they have the political and social will to actually execute? And it’s unclear. It’s unclear at this point. You know, they continue to revert back to a state-controlled economy, whether it’s the stock market—you know, the things that have happened over the last year in the stock market, whether it’s state-directed investment, you know, which gets—how does that reveal itself in so many different ways?

But take steel, for example. They have probably a hundred percent—you know, they probably need, you know, 50 percent less steel capacity than what they have. And how are they going to go from that kind of over-capacity? How are they going to let market forces influence, which is what they’ve said they want to do?

The other challenge they face is they really need reliable and transparent data. You know, the way to change an economy and the way to evolve an economy and have it, in essence, evolve itself is greater transparency in information so that the market is really playing a more significant role. Without that data it’s very hard for—you end up with the alternative, which is—and when I say the state, it could be at every level of the state, as you know better than I do.

And without that data it’s hard to attract investment, or you attract investment that is more skeptical of what the potential is. And what I mean by that is, you know, the issues that we face and companies are facing today around intellectual property protection and trade secret protection in China mean companies are wising up. They’re saying:  Am I going to take my most precious intellectual property and actually take it to China, recognizing what can happen?

And so I think China is really, from an economic point, at a real inflection point and decisions need to be made about reform. And you see it in the capital outflows.

HAASS: Lucy Komisar?

Q: Lucy Komisar. I’m a journalist.

On the issue of TPP, this is the first time that I can recall that it’s even been mentioned on this platform. And I would suggest to Richard it’s time that we had a debate with a critic and a supporter of TPP. There are plenty of critics.

My question to the secretary, who might be one of the debaters, is we were talking about facts misstated. I heard a lot of facts that I thought were misstated from your presentation.

HAASS: Do you have a question?

Q: My main question is you didn’t mention the issue which is really roiling the opposition, which is the investor dispute resolution mechanism, which many people feel would really destroy a national—an American sovereignty when companies could say, this law, which is for environmental protection or health protection or worker protection, would cost our company a lot of money—such as fracking in Oklahoma causes earthquakes—and therefore, you have to pay us millions, even billions of dollars for the money that we would lose. You didn’t address that and I wish that you would.

PRITZKER: I’m happy to talk about investor-state dispute resolution. You know, investor-state dispute resolution is as much a protection for American companies around the world as it—and for any time that investor-state dispute resolution has been used against, let’s say, an interest in the United States, they’ve lost and the United States has won. So I don’t see that it makes us more vulnerable. What it does is give our American companies greater rights in countries around the world that don’t have the kind of judicial system that we have.

HAASS: Michael Levin?

Q: Hi. Michael Levin.

PRITZKER: Hi, Michael.

Q: Hi. How are you?

Over the years, coming to meetings here, I seem to have gotten the opinion that—or come to the conclusion that very often the State Department, leading the debate overseas to make treaties for the benefit of the United States, leave the Commerce Department holding the responsibility of back-filling. Maybe I’m wrong, so is that true?

And secondarily, are you allowed to go overseas to—pick a country of your choice—make a trade agreement or propose a trade agreement and say, by the way, as long as I’m here, here’s a treaty that we’d like to propose for you that comes along with this, for nuclear disarmament or something?

HAASS: We’ll give Mike Froman equal time after you answer this. (Laughter.)

PRITZKER: I was going to say, so the trade agreements—you know, the leader—lead negotiator for trade agreements in the United States is the U.S. Trade Rep Mike Froman. The USTR is, by statute, limited in its size, and so the Department of Commerce plays a significant role that surrounds the U.S. trade rep.

For example—and I’ll then get to the State Department. I’m just trying to explain how this works. So, for example, we do all kinds of trade dispute resolution short of litigation, right? If we’re going to go to the WTO, that’s the U.S. trade rep that’s going to actually bring that litigation, but the reality is any kind of trade impediment that your companies are facing, we tend to get involved first with our foreign commercial service on the ground working through those problems. If it ends up in litigation, then we tend to be the support structure for the, let’s call it, law firm that is, you know, the USTR legal apparatus to support their efforts as they bring a, you know, WTO case. So that’s how we tend to work together.

As it relates to the State Department, you know, the State Department, we partner. There’s a lot of things that go on in government that are interagency processes. And as you said, sometimes, you know, we may or may not agree with the outcome, but as the president said, at the end of the day he gets to make those decisions. But the way that—whether it’s a treaty or something to that effect, it’s not just the State Department making an, oh, by the way, the Commerce Department is holding the bag. If a treaty is negotiated, there has to be an interagency process in terms of determining what’s in those agreements.

But I’m not a treaty expert so I defer to Tom Wyler sitting in the front row. He could probably answer your question in more detail.

HAASS: Yes, sir.

Q: Masazumi Nakayama, Citigroup.

Madam Secretary, I have a question about ISDS again on TPP. A country like Japan, I see that many media or politicians are anti-TPP, using ISDS clause as a reason for targeting or attacking, sometimes promoting anti-TPP or anti-U.S. sentiment. What can we do to make counterparty countries to feel more comfortable on ISDS? Which is very new concept, I believe, that.

PRITZKER: For Japan, yes.

Well, I think, step back—as I said, the United States has never lost an ISDS case. And, you know, Japan’s judicial system I think would have—you know, I can’t opine but I think you should take cues from what you see has happened historically in the United States.

But for your companies to be able to have that mechanism available to them when you’re dealing in countries that don’t have the kind of developed judicial system that either Japan or the United States has is really critical in order for there to be a fair hearing. I mean, rule of law is a very, very important concept that is—you know, for all of you who have done business around the world, you know how challenging it can be when you find you’ve done a contract and someone’s not living up to it, or the government expropriates something and now you’re trying to get some kind of judicial redress, but the court systems are not—or let’s say have biases built into them.

HAASS: Yes, sir.

Q: Thank you, Madam Secretary. Jun Liota (ph), Princeton University.

And what about the other acronym, TTIP? Is that completely dead, because the political climate seems toxic, both here and in Europe. Thank you.

PRITZKER: No, TTIP is not dead. In fact, Ambassador Froman and his counterpart, Commissioner Malmström, are meeting almost weekly at this point with the goal of trying to conclude negotiations for TTIP by the end of the year. Now, will it get passed this year? No. I mean, that’s not the—that’s not enough time. But the goal is to actually try and resolve the issues.

You know, one of the challenges—this is something that the Commerce of Commerce is involved in—is the U.S.-EU Privacy Shield, or the replacement for Safe Harbor. For example, the digital portions of TTIP are not being dealt with yet because we need to get past the completion of the Privacy Shield passage through the Article 31 group, you know, the states within Europe.

But no, there’s a lot of momentum. Yes, are there, in certain countries like Germany or Austria, a lot of public outcry about TTIP? Yes, but the negotiations continue. And one of the things that we are working with our European partners is to not let the rhetoric get out of hand in these countries.

And I think Hannover Messe, which is coming up in April, where the president will be, is an opportunity for all of us, and particularly for Chancellor Merkel and President Obama, to talk about the importance of TTIP.

HAASS: Speaking of our European partners, one of them, in approximately 80 or so days, has a rather big decision to make. I speak obviously of the Brits and “Brexit.” What’s your take on that in terms of—if you were going to weigh in, what would you say?

PRITZKER: Well, our administration supports the idea of the U.K. staying in the EU and is, you know, trying to help Cameron and others with this election or referendum that’s going on in their country.

HAASS: Yes, sir. You’ve been patient. Last question.

Q: Yeah, I’m Mike Posner from Center for Business and Human Rights at NYU Stern.

I’m very sympathetic to your opening comments about the importance of opening up trade, and TPP is part of that. One of the things that critics of TPP focus on is the labor issue in Vietnam in particular—Vietnam and Malaysia. Unlike NAFTA and CAFTA, it’s part of the agreement, but I think a lot of people are skeptical about whether the Vietnamese, who are like the Cubans, who are like the Chinese—it’s a central state economy. There’s one union. They’re not likely to be very easily persuaded to open up the system.

What do you say to people who are skeptical about how TPP is going to be implemented with regard to the labor provisions, especially in Vietnam?

PRITZKER: So our labor secretary is actually quite active with the various countries. You know, there are a number of countries within TPP that have what are called plans, labor plans, steps that they need to take in order to come into compliance with TPP. And we’re actually working with our administration, and the labor secretary taking the lead, with those countries.

Remember,Vietnam, you know, is very supportive of being part of TPP. Their government acknowledges what they’ve agreed to and the lift that’s necessary for them to be compliant. What we’re trying to do is give them technical assistance to actually achieve that. You know, the proof will be in the pudding, as it always is, but, you know, their government wants—they see that to benefit their own populace and their own labor environment by elevating standards. And instead of them being, you know, a place where you can outsource your production because of the poor labor standards, they’re trying to improve that for their own population’s benefit.

HAASS: Well, I have two things to do. I want to first of all say that Penny Pritzker has one of the cooler jobs in theU.S.government—(laughter)—the sheer range of issues and the intellectual content. This is about as cool as it gets. Maybe Tom Vilsack or one or two others could compete with you, but I think yours is—

PRITZKER: It’s pretty cool.

HAASS: It’s pretty cool.

And second of all, thank you for spending an hour with us.

PRITZKER: Oh, thank you. (Applause.) It’s been great. This is fun, very fun. Thank you.

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