International Trade Policy: A Conversation With Representative Sander Levin
Representative Sander Levin discusses the future of U.S. international trade policy.
HILLS: We are honored to have Congressman Sander Levin, whom I’ve known for many, many years—
LEVIN: Many, many. We won’t say how many. (Laughter.)
HILLS: Yeah. Ranking member of the Ways and Means Committee in the House of Representatives. And as you all know, it has jurisdiction over taxes, trade, economic policy, entitlement spending. And the congressman has had a long and distinguished career in public service. He represents the 9th District of Michigan and was first elected to Congress in 1982. Prior to his congressional service—
LEVIN: Don’t read all that. (Laughter.)
HILLS: —he was elected to the Michigan State Senate and served as its minority leader. And earlier, he served four years as assistant administrator of AID.
And we are so very honored to have you with us today. We’re interested in your views on trade or, in fact, anything else you want to share with us. So we thank you for joining us. And you wanted to make some remarks, and we’re just dying to hear them.
LEVIN: Well, thank you, Carla, and I’m so glad to be here with you. You’ve been at this trade issue for quite a few years, and we’ve been at endless meetings together, right?
LEVIN: And I think both of us have a passion for this issue, to understate it. You’ve devoted your career, and I think have made public service a brand that is sometimes undermined, but is something we’re proud to be part of.
So I thought I’d do this. I just came back from Ottawa, and I was in Mexico before that, and I thought I would say a few words—I wrote some thoughts down—and I then I guess you and I are supposed to have a back and forth.
But let me just say I think the more discussion with all of us we have, the better. Trade has been too often, I think, kind of in the backroom, and I think that’s true now of the NAFTA renegotiation. It wasn’t expected, and when I was in Mexico, there was little public discussion of it. There’s been more of it in Canada, but very little here. And these issues, I think, are of sufficient complexity and significance that I hope today is really kind of a new beginning of a much broader and deeper dialogue about these issues. So, Carla, I think you and I are going to have some back and forth, but the more all of us—all of you and us participate, I think the better. And then take our discussion out into the public, because if that doesn’t happen it’s hard to know where all of this is going.
So I’ll just—I was supposed to do this in eight or nine minutes, and I think I can, and then we’re going to have a good hour of back and forth. One of my former colleagues said: Shall I throw you a softball? (Laughter.) And I said we should throw each other—not throw, but raise hardball issues.
So I want to first of all say thanks to the Council. I was here some time ago—what was it, a year and a half ago or so?—and I did the same thing, read some remarks and then we had some, I think, useful back and forth. It was then about TPP.
So I’ll kick it off this way. I’ve just returned from the NAFTA negotiations in Ottawa last night. Before that I spent a week in Mexico, where I talked with a wide variety of interests—very wide: the government, civil society, management, labor, lawyers, academicians. I was able to meet with negotiators—the chief negotiators from Mexico, the U.S., and Canada. A wide variety of issues was discussed, including procurement, dispute settlement mechanisms, and rule of origin.
On this last issue, rule of origin, which was a significant topic in my conversations with negotiators from both Mexico and Canada, concepts included whether coverage under the rules of origin need to be updated, because they’re old rules, including the limiting—limiting the extent to which content is increasing from China and elsewhere outside of the three NAFTA countries, and whether there should be content rules among the three. And you may want to ask what’s meant by that. It was clear these issues are of significant importance, and there are some deep differences among the three countries.
The major focus of my discussion in both nations was on the issue that was most central and divisive in the U.S. debate on NAFTA 25 years ago. And I would be curious, looking about, there are some of you who will remember what that was, but my guess is others of you maybe not. It was the lack of enforceable labor standards and environmental standards.
NAFTA was the first U.S.-negotiated bilateral or trilateral free-trade agreement with a large developing nation, Mexico—developing nation—with a very different economic structure, especially in terms of its labor market. It reflected the rapid spread of globalization, where in my judgment there was a general failure of traditional trade policy to respond. And that failure became increasingly evident as NAFTA unfolded. And let’s have a discussion; Carla was a key participant in that. Mexico’s industrial policy of suppressed low wages, combined with increased security of investment, became a magnet for its industrial growth. A (key ?) factor has been the maintenance of very low labor costs engrained in a structure that suppresses any voice to workers in the workplace.
I went through the debate of 25 years ago, and I was struck how intensive the discussion was but how relatively little knowledge there was of the details of what we were talking about. Pervasive today are so-called, in Mexico, protection agreements covering workers without a voice as to a contract or even of their existence, often signed before there are any employees. The designated employee representative has almost always been the Confederation of Mexican Workers, CTM, allied with the political party PRI. That party has been almost always in control of the government, except for eight years, and it is again. It is no wonder that while Mexican manufacturing productivity increased 80 percent, real compensation—wage and benefits—slid 20 percent between 1994 and 2011. We don’t have much data since then.
In May of this year, BMW signed a contract with CTM that set a starting hourly wage of $1.10, phases in at $2.53 for assembly-line workers, and that contract was signed before the plant was fully opened. In one instance—and the only instance in the Mexican automotive industry where there is a union selected by workers and where there is collective bargaining on behalf of workers, wages are 30 to 40 percent higher than elsewhere in the industry.
This Mexican industrial policy of suppressing wages completely distorts any notion of comparative advantage—that if each country concentrates on what it does best, every country and its people will benefit. Mexico’s so-called comparative advantage not only condemns numerous Mexican workers to working in or near poverty, but it lowers wages and rips away jobs from workers in the United States. And that’s been especially true in automotive, both assembly and parts.
Mexico is a democratic nation with an authoritarian-type labor structure. Mexico has recently undertaken some constitutional democratic labor reforms. They include replacement of federal and state tripartite boards. Usually they had a representative of PRI, CTM, and the employer. So if you can put three fingers together, that’s the way it was. It was a system that suppressed employee rights. The reform process has just started. There are thousands and thousands of protection agreements, both in the maquiladora areas—and those are the areas that we went to when NAFTA was negotiated. There wasn’t much industry south of there, but there were hundreds and hundreds of plants along the maquiladora, the border area, industrial and of a wide variety. You could just go and see the pollution, because it was in the streams. You’d see it. We tried to go into the plants and talk to the workers, and we weren’t able to do that. So, anyway, these thousands of protection agreements are now not only on the border, but throughout Mexico.
When asked about this at my meeting with the Mexican Labor Department—I met with the labor secretary. He was just going to say hello. We talked for an hour.
HILLS: Oh, that’s great.
LEVIN: For an hour. That was useful. And when I asked the person who’s working with him on the secondary legislation to carry out the constitutional amendment how to reform dramatically a system based on the proliferation of protection agreements, the answer was, in quotes, they “had to be respected during their duration.” So you’re talking about thousands and thousands of agreement(s), 90 percent of them between the employer and CTM. Nobody has a total list of all the agreements, including, I think, the Mexican government, but I’ve been told there were 4(,000) to 5,000 in the maquila areas alone and then thousands beyond.
And so I was—asked: What happens if the parties simply renewed these thousands of contracts? There was no answer as to what they would do. And I think and told them it was wholly unsatisfactory. So my judgment is that without dramatic changes occurring before there would be a vote on a revised NAFTA, under these conditions, I don’t think there would be virtually any Democratic support in the Congress.
Mexico now produces 3 ½ million cars every year, with expectations that it will produce 5 million by 2020. It will become, I think, the fifth-largest auto producer in the world, something like that. The movement to Mexico of auto suppliers—and this is auto suppliers—has been pronounced, with many of the largest having shifted huge numbers of blue-collar jobs to Mexico. Several of the largest auto suppliers in this country once had, from what I can determine, 60(,000), 70(,000), 80,000 blue-collar workers in the United States. Now they maybe have 10(,000). When I was in Canada, Magna, which is a Canadian company, I saw the material which indicated they now had 40,000 of their workers in Mexico.
Carrier has become recently a symbol of job loss to Mexico.
Whether or not it was just the tip of the iceberg, it’s clear that traditional trade policy has been sitting on a powder keg. Unexpectedly, the renegotiation of NAFTA has become, I think, an opportunity to embrace a trade policy less associated by the concept of comparative advantage and more what can be called mutual benefit. Ensuring labor rights in Mexico will help workers there climb out of poverty while protecting American jobs and wages from a race to the bottom. This would create more consumers for the very products these workers are producing, not to mention providing them with greater economic opportunity. This effort to harmonize upwards—to harmonize upwards—to the mutual benefit of the U.S., Canada, and Mexico should not only be our focus for renegotiating NAFTA, but should more generally guide our trade policy as we seek to navigate globalization.
And I close with this thought, and I think you may gather my meaning. Globalization increasingly requires that effort, especially in view of those whose answers to globalization are either hyper-nationalism or reliance on notions of sovereignty.
OK. Carla, fire away.
HILLS: I think we will all agree that that was very interesting, and it reflects an interest of what you gained in talking to both Canada and Mexico. And I was impressed with your op-ed last week in The Financial Times where you made some of these points, and I was particularly pleased that you—I think your lead sentence was you’re not out to throttle trade with Mexico. But you went on to say that Mexico has gained its comparative advantage via suppressed wages, which you mentioned with the protection agreements. And that, you explain, gives Mexico the trade surplus, notwithstanding Mexico has a global trade deficit that is quite substantial—large, in percentage terms, than our very own. And most economists would argue that the exchange rate moves as—the exchange rate moves to offset the competitive gain from wage suppression unless the government also suppresses the currency, the peso. And it doesn’t appear—at least the peso’s pretty strong today. So my question would be: Do you believe that Mexico, the government, has taken action to hold the peso down? And if it has improved its competitiveness—that you believe it has—through suppressed wages, shouldn’t it have a global surplus with the rest of the world the way China does? Because China was manipulating its currency before 2014. I’d be interested in your views, especially in line with your remarks.
LEVIN: So a few of us have discussed that, and I think economists need to talk it through. I think one problem with that notion is that there’s been enough profit within industry so that there hasn’t been that impact in terms of the peso.
But let me just say this. I think we need to take an entire look at labor structures, and we need to take an entire look at how so-called comparative advantage works. I don’t think that Mexico would like it to be said of it that its comparative advantage is a result of and part of keeping wages low in Mexico.
I think everybody should understand what the wage structure is in Mexico. I looked at a pay stub, and the take-home pay—and this is in the industrial sector; it was a global auto supplier—was 85 cents an hour. That’s the take-home pay. Now, if you add social security to it, it may become a dollar and a quarter, dollar and a half, maybe. And then there’s a bonus structure in Mexico, but it’s unclear whether the companies pay the bonus. I don’t want it to become too complicated, but it relates to your question.
When we talk through with the Mexicans, including the economists, there’s this structure in Mexico. Essentially, there’s a lid on wage increases. It’s de facto. It’s 4 percent. How that’s carried out is a little bit unclear, Carla, but that has been essentially a structure that has been applied, if not imposed. And it was recently broken when there was the contract between the VW and its union. It essentially said we’re not going to be bound by that informal or formal structure of a lid on wages, and so they—as I said, they increased their wages rather significantly compared to the wages in other places.
So I don’t think Mexico would like to say that they are competing based in part on the greater security of investment under NAFTA, but by this structure that keeps wages either at a—at a living level that is hardly feasible for the individual Mexican or less than enough for them to eat on.
HILLS: Interesting, because Investopedia International reported for this year that the Mexican middle class accounted for 47 percent of total country household income in urbanized areas. And I think you made the very good point it’s better in the north than it is in the south, which is rural and has much more poverty. But they go on to report that the average minimum wage level in urban areas is $5.13. And that they define the middle class as having an annual income between 15,000 (dollars) and 45,000 (dollars), so the average would be 26,000 (dollars). And this morning the minister down in Mexico—not the labor minister, but the economic minister—said he’d like to see the labor system improved. So you’ve obviously made a point.
LEVIN: Two points. First of all, I mean, I’m not quite sure that fact about the middle class, but it’s utterly clear that the people who work in the industries that compete with us are not part of the middle class of Mexico. If you’re making—just add it up—even if you include social security and if you did get a bonus 2 ½ bucks an hour, you can’t possibly be a part of the middle class. And we met a number of workers when I was in Mexico from the border area, and they essentially said that they have trouble living on what they earn; that they have a choice between food or other necessities. And they just pleaded that there had to be, for the benefit of Mexico, a dramatic change in the structure there.
So I met with the—this was the economics minister.
LEVIN: So I met with him. And I’m glad he feels that way. I’m not surprised. As I explained when I was there—and I don’t want to bore you with it—our families had longtime connections in Mexico. I’m dating myself. Our beloved parents took my brother, sister, and me to Mexico when we were kids by train.
HILLS: Oh, fun.
LEVIN: And then I traveled 6,000 miles with my brother and best friend and honeymooned there. My father did business with Mexico and was a lawyer for the Mexican consulate in Detroit pro bono.
But then the challenge is: How do you change a structure where you have thousands and thousands of so-called contracts where the workers have no say, where you essentially have a structure that is controlled by the party in power, a union in 90 percent of the cases that is affiliated—I’m being careful; it’s not clear it’s affiliated, it’s aligned with the government in power? And that’s why I said I thought it might be controversial, but in that democratic country you have essentially an authoritarian labor structure.
HILLS: Let me ask you about some of the issues that you say are in controversy. And I don’t think you’ve been in favor of the investor-state dispute settlement mechanism, which—that’s Chapter 11 of the NAFTA, which provides for a panel when a company or an investor has a complaint that a NAFTA government has violated one of its commitments under the agreement. And yet, many trade specialists believe that when companies are doing business in countries with a less-developed legal system, that they need to have the protection of a panel that is outside the legal system. And although the investor-state dispute settlement mechanism has been in place for several decades, we’ve never lost a case, so we as Americans ought to perhaps not want to give it up too fast. But tell me, what are your concerns about it?
LEVIN: No, I’m glad you raised it because it was very much part of TPP. So it is a tradition. The problem became that there were more and more investor-state cases. We actually did lose a case recently relating to Canada. But—
HILLS: Oh, that was Chapter 19.
LEVIN: Well, no, I think there was a Chapter 11 investor-state.
But then, in the dispute over the pipeline, the Mexican—the Canadian company essentially used investor-state, and filed both a legal action and a(n) ISDS case against the United States government. So essentially that illustrated the problem with ISDS, whether in that controversial case you were going to allow the Canadian pipeline company to sue claiming either expropriation or undermining of their rights, not through the American court system but through a panel under ISDS. And so that helped to spark a lot of concern.
We proposed a number of reforms to ISDS when we were having discussions about TPP. The administration accepted a few of them, but not all of them. For example, we wanted to provide that if the two governments involved wanted the case essentially eliminated, the two governments would be able to do that and force the investor to go through the courts of one of them instead of a panel. That idea wasn’t adopted.
So it’s become more and more controversial, and some want to eliminate it entirely. Others would like to seek major reforms. Clearly, the status quo is unacceptable because you have panels where there is little control over their processes, there’s little transparency. And that kind of a—kind of a(n) anti-judicial process is not, I think, defensible.
So now we’ll have a debate. The negotiators are going to see whether that provision should stay, plus two other issues relating to judicial procedures. And all of them—all of them are controversial. They also want to eliminate—I think the—they haven’t come forth. I don’t think they’ve actually put down publicly their position.
HILLS: No, I think you’re right.
LEVIN: So since I’ve seen it, I’m not supposed to say anything. (Laughter.)
HILLS: Well, I only have a few more minutes to have our discussion just bilateral, but there are many critical issues in the NAFTA, and—apart from labor standards, and you note that in your Financial Times op-ed. You say there are many critical issues. So how would you prioritize them? I know labor is number one. What’s number two?
LEVIN: I’m not sure. I think you have procurement issues that are very sensitive, including buy America provisions. We argued this out in TPP relating to Canada. I think these panel dispute—dispute panels issues are another one.
I think medicines may or may not become a controversial issue. We have a 12-year protection for patent in our American law. Canada has essentially, I think, close to zero.
But I just want to emphasize, in terms of what is sensitive to the public—and let me just emphasize that—as important as these other issues are, the question has become increasingly how, in a globalizing economy—economic world, can the U.S. compete with a country which has a wage and benefit level one fraction of that of the United States, and a structure that has it so engrained that the loss of jobs—in a sense, China helped to illustrate this. Economists, I think, hesitated to put a—put a number on the jobs lost in the United States because of China’s rigging of its currency, its state-owned enterprise system, among other things. And essentially, you could write it off as comparative advantage. That wasn’t sustainable. And so now you have economists who once, I think, hesitated to do it saying that the U.S. lost 2 (million) to 3 million jobs in terms of the interrelationship economically with China.
Whatever the number is as to Mexico, number one, it’s sizeable. It isn’t the same as China. But number two—and that’s why I mentioned Carrier. Why did Carrier become such a dynamic issue politically? Why did it? It’s because it reflected a reality in the lives of people, a reality. And all of us in this room need to understand that reality, especially those who have a more international approach to things, who don’t believe that sovereignty is the answer to every issue, who have some doubts about hyper-nationalism, who have been trying to wrestle with globalization.
I think it’s up to everybody who comes from that point of view to understand, as I said, if I might say so to the negotiator for Canada. He’s an immensely talented person. I had to remind him that I had an uncle who was a member of parliament in Canada for 25 years in that same party. I said to him, we all need to internalize the feelings of the grassroots, who may not have ever heard of a protection agreement but if you begin to describe what it’s all about and that it doesn’t protect the employee but it essentially protects the employers and the system that keeps wages at a buck and a quarter an hour—all you have to do is describe that, and then the reaction comes.
And if we don’t understand—as I said, there needs to be a new trade policy that talks about benefits and maximizing benefits, and leveling up. I think what we’re going to find—and I’ll close with this if we’re going to now, all of us, join in. I think we’re going to find those of us who understand the benefits of trade, if we don’t really fully emotionally, as well as intellectually, understand its detriments and its possible negative impacts, we’re going to be in a continued position of not even being able to talk to ourselves, let alone to the public in general.
HILLS: I wanted to ask you, but I’ve got to go to the audience, but you and I should talk about what kind of strategic training would you give our workers? I’m told there are 6 million jobs that need to be filled in the United States. Some have talked about a stipend for relocation. Some have talked about a stipend during training. Others have talked about earned income tax credits. I’d be very interested, if it slows down out in the audience, to know your views about what programs would you recommend that would help displaced workers—displaced for whatever reason, trade, automation, technology, or just the product they were making nobody wants anymore.
LEVIN: OK, I can answer it in a couple of sentence.
HILLS: OK. I’m talking notes.
LEVIN: You know, I’ve been among those who have urged much stronger worker training, who have said we need to expand it so that those who are displaced because of trade are covered beyond the present, rather limited, structure of it. I say this to people who say they favor international trade, but want to cut funding for worker training in this country—and they’re often one and the same. I also think we need to carefully examine this number of 6 million, because a number of economists indicate it’s not so simple. And I’ll send you a recent article on that.
But let me conclude with this: Those who essentially say don’t worry about the impact of trade, simply look after the retraining of those who are laid off because of it, that won’t work. You have to get trade policy on the right track as well as training those who suffer from any problems. To simply say: Ignore the challenge of trade in a globalized economy and we’ll simply take care of those who suffer, that ducks the basic issue that you’ve been wrestling with, and many in this room for a long time, how do we get trade policy right? And I’m determined, as I work hard on worker training and try to get more funds for it in effective ways, to work to make sure we also get trade policy on the right track.
HILLS: All right, well—yes. There’s a question over here. Nelson.
Q: Thanks, Ambassador. Thank you, Congressman. Nelson Cunningham with McLarty Associates.
Right now with the talks underway, there seem to be three potential outcomes. One, a renegotiated agreement that then comes to the Congress for its review. Second, discussions that fail and they fail in a way that we’re stuck with the old agreement, or the existing agreement. Or third, where they fail and we’re stuck with no agreement, but we go back to the WTO GATT rules and essentially NAFTA goes away. Of those three outcomes, what are you—what do you predict, A? And, B, what do you hope for?
LEVIN: I won’t predict. I would favor a renegotiated NAFTA that really addressed the outstanding issues. And I want to emphasize what was the basic line of separation 25 years ago. It was the argument over enforceable labor and environmental standards. And we pleaded with President Clinton, before he became president—right, Mike? We pleaded with him to address this issue. And because the incumbent administration refused to do it. We had been talking about labor and environmental issues for a long time. Charlie Rangel and I were the authors of May 10th, and negotiated with the secretary of the Treasury, a Republican, because USTR refused to negotiate it, refused to accept it. In those days, labor and environmental issues were called social issues. And I would look at people and I would say, social? And that comes from Michigan, but you don’t have to come from Michigan. The standard of living, wages, benefits are not social issues.
So we need to address what was a major issue 25 years ago, as well as others. And I would prefer that we address them. And that’s why, if I might say so, I’m trying to spend so much time wandering about this country and beyond. I’ll tell you a quick story, do you mind? I went to Australia. I guess—and I work with the Republican and Democratic staffs. I was the only member there. So I sat down with the chief negotiator for Vietnam. And I said to him: Among other issues, there is no ability of workers to organize in Vietnam. And we had received information about they were thrown in jail.
And I said to him, unless Vietnam allows workers, if they want to, to form independent unions, there will be, at least within my party, no support for TPP, whatever else was in it. And he said to me, there will never be independent unions in Vietnam. Just the two of us. I always met with staff, that time it was one-on-one. And I said to him, if that’s your position I don’t think there’ll be a TPP. And then the administration began to try to work with that issue. So my preference is, when it comes to trade, I think is always it’s better to meet these issues head-on. And my hope is we’ll do that. It’s going to be very difficult. I hope—I think that would be preferable.
HILLS: Other questions? Yes.
Q: Thank you. Ted Alden from the Council on Foreign Relations.
Listening to Ambassador Lighthizer last week, he made it pretty clear that he thinks the United States was in a better position back in the early 1980s, before we had binding dispute settlement procedures, in the GATT or in bilateral trade agreements. Because we’re the biggest market, we were able to use that market power to get other countries to reform their trading practices. Do you agree with that evaluation? Was the United States in a stronger position before we had these binding dispute resolution procedures?
LEVIN: No. But, Ted, and you’ve done so much work on it, the problem has been that the dispute settlement system has been really defective. You take the WTO, and some of its conclusions—I mean, it’s been the opposite of an open procedure, right? And there needed to be major, major reform of those processes within the WTO. And the same is true of ISTS. The same is true of the processes under NAFTA. And so those who say no, if you leave it at that, the answer will be no. I mean, if you say yes, and you just—however you phrased the question—if you disagree with that, if that’s all you say you’re going to end up with that view prevailing.
And I think Bob Lighthizer, who some of us have known for a long, long time—I think what he’s trying to do when he says that is to—is to light a fire under people who understand globalization is here to stay, and who hopefully know that if you don’t work to shape it it’s going to essentially shape you. And what people in this country think is we haven’t shaped globalization in terms of their lives. Globalization has shaped their lives. And so you—I mean, you’ve done so much work on this issue, and you’re working on the whole issue of worker retraining. Everybody who cares about this is going to have to acknowledge the deficiencies and really be in the league to cure them.
Q: Thank you. Paula Stern. And thank you very much for your view thoughtful comments.
I have a kind of pure, raw politics question to ask you about trade. President Trump, and his positions, have been particularly appealing to many leaders in the Democratic Party, thinking of the 232 comments of Chuck Schumer. I’m thinking of the comments of Sherrod Brown, and others. Do you foresee a situation where President Trump and strong Democratic leaders will eventually come to certain agreements on trade policies—be it on NAFTA or any of these other—at the expense, if you will, of the Republican leadership taking a walk? In other words, is there a wedge here within the Republican Party that Trump, working with some of the Democratic leaders, may create?
LEVIN: We’ll see. I think—you know, we’ve had discussions with Bob Lighthizer and with the commerce secretary. I think they have some understanding of what I’ve laid out, and others deeply believe, that as you globalize, and more and more there’s competition between countries like China—they’re not the same—or Mexico, you have to have different trade policies. We’ll see where that leads, because there are countervailing or counteracting feelings. For example, I don’t want to spell it out too much because I’m not quite sure where they’re coming from when the chips are down and whether what I’ve laid out here they will really embrace, and it’s not only myself. We’ll see. And we’ll also see whether the Republican Party will essentially take another look at trade policy. I’m hopeful that that may happen.
I just want to just illustrate the problem we’ve had. With China, a number of us pleaded with the Obama administration to address the currency issue. And we threw up a number of suggestions. And it never happened. And so it left open, in the political arena, for a candidate to push essentially five buttons—China, currency, jobs, Mexico, jobs. So where we go from there in terms of really wrestling with the issues, we’ll see. It would be nice if at least some Republicans would essentially now open their minds. I hear—you know, we had—I don’t think it’s a secret. With Mexico—Mexico refused to negotiate the labor and environment, or maybe the labor issues, through TPP. They said they’d only discuss them outside of TPP. The Obama administration agreed to do that outside of the TPP. They made a serious mistake. I’ll leave it at that.
HILLS: Fred Bergsten.
Q: Fred Bergsten, Peterson Institute for International Economics.
Sandy, when Carla asked you for your priority list of NAFTA issues, you studiously, I assume, did not mention the number-one goal of the Trump administration, namely reducing the U.S. trade deficit with the NAFTA countries. Now, your higher wages in Mexico won’t do it because, Carla implied, higher wages in Mexico will hurt their competitiveness, will lead to a weaker exchange for the peso, so it will net out. It may be a good thing. Certainly good for Mexican workers. Won’t do anything about the trade balance. So my question is, do you support the Trump objective of using renegotiation to get the trade deficit down? If so, how would you do it? Or, as Carla implied, do you recognize the fact that Mexico’s a deficit country not a surplus country, so how do you get blood out of that particular stone?
LEVIN: So you and I have talked a little bit about this. And I’ve talked to other economists about your point. I don’t think your notion about the peso is necessarily correct. And I’m going to put you in touch with economists that I’ve talked to. And you can argue it back and then be back in touch with me. (Laughter.)
Q: I’m happy to do it. Happy to do it.
LEVIN: And you can kind of guess who it might be. But I—after we talked I discussed it, because I think you make an important point. The answer is, I do think—two-thirds of our deficit, or close to two-thirds, in Mexico relates to automotive. And so I do think that addressing that issue effectively can have an impact on the deficit. And we’ll have—this is one of the issues we have to talk through. I think if we had started on this 25 years ago, as we should have—remember, if we had put enforceable labor and environmental standards in NAFTA 25 years ago, as a number of us urged, you would not have the same dynamic as you do today, either in terms of the living scale in Mexico—not for whatever—I don’t think the middle class, I know it’s somewhat well in Mexico—
HILLS: Medium. Medium.
LEVIN: Medium? All right, so that’s different. If we had started that 25 years ago, I think you would have had a different pattern in terms of the economics and in terms of where automotive production was in the United States and Mexico. So I think we need to talk through your point, because I’m in favor or reducing the deficit as part of an overall, realistic, economic strategy. And you can press me on other aspects of it because the rule of origin also relates to that issue.
HILLS: Question here.
Q: Guy Erb, Berkeley Research Group.
One of the factors driving private companies’ insistence on investor-state dispute resolution has been that they don’t have confidence in the courts of countries in which they might—
LEVIN: Can you talk louder?
Q: Sorry. They don’t have confidence in the courts in the countries in which they invest, and they’re seeking an objective forum. It’s one thing to say you prefer American courts, which we would all would, if there were American courts in Uruguay, or Mexico, or Cuba, or Peru. There are not. And so the idea of the state dispute settlement mechanism was to give companies a forum that was neutral. We might lose one or two, but overall the complaint one hears in the developing countries is they lose too many because they would rather have it in their court system. So if you’re doing away with this court system—the ISDS, you’re liable to force companies to rely on the foreign courts. And that’s, to them, unpalatable, it will decrease investment, and decrease the interaction we have with those other countries.
LEVIN: I think there are two answers, quickly. We’re going to hit 1:30. Let’s see everybody—if everybody can particulate. You and I are used to putting a cover over the close for a few minutes. I think there are two answers. One answer is: Let them buy risk insurance. And it’s a serious answer. I’m not sure how workable it is. Secondly, is to dramatically reform ISDS. It’s going to have to be dramatically reformed. It really is not at all transparent. It really isn’t. And we can’t defend non-transparent procedures.
HILLS: Yes, in the back. I can’t see who it is.
Q: Irving Williamson, U.S. International Trade Commission.
Could you address the rule of origin issue, since you invited that question?
LEVIN: One problem I have is—
HILLS: Only one.
LEVIN: —some of what I’ve seen I can’t talk about. I’m sorry. And I want us—I think we need to change that. It should not be hidden. And so I’ve seen somewhat what USTR is thinking about, but it’s classified, I think. I’m not sure the latest.
So, you know, I think we need to very much look at it, though. For example, it’s 62 ½ percent, right, but that doesn’t apply to everything. And there are recent articles that indicate that it’s essentially evaded when a number of products aren’t covered at all. Remember, it goes back kind of a long ways and has never been updated. And so I think we need to take a very clear look at it and really see how it’s working. And then we need to ask ourselves: Could we have a different set of rules for one of the three countries from the others?
Also, I haven’t seen all of the proposals of the administration. So let me, if I might—because I want to be careful that I don’t violate what are supposed to be my obligations—but my suggestion is that in the coming weeks we spend a lot of time talking about that, OK? And my office, all of us will be very available.
HILLS: Well, we could spend the whole afternoon.
LEVIN: You didn’t hear my colleague, though, my former colleague.
HILLS: You want one more question, sir?
LEVIN: Oh, it’s up to you. You’re running the show. (Laughter.) I just—I just—
HILLS: I’m told that our time is up.
HILLS: But I see a hand in the back. Can you make it a three—a three-word question?
Q: Yes. Len Bracken, Bloomberg BNA.
I know you’re limited in what you can say about what’s in the agreement. Are there any conspicuous absences? And could you just talk about the overall scope between the three countries, you know, whether they did sufficient preliminary work to decide what they would negotiate?
HILLS: Get that? I didn’t get it.
LEVIN: Yeah, no, I did.
No, I think there’s a lot of—I think there’s a lot of work to be done. I think it relates to what I said at the beginning. I think a lot of work—a lot of work has to yet be done on the labor-cost issue and how it fits with this unique situation of essentially having competition as well as interaction between two sets of economies that are very different, and that are structurally very different, as much as there are problems with the U.S. labor structure. They’re very different, and how is that going to be addressed?
I also think there’s a lot of work to be done in terms of rules of origin. I think there’s also a lot of work that has to be done yet on intellectual property. And then we have the outstanding issues that always crop up, whether it’s sugar, I’m not sure plywood—you’ve been doing this for 25 years—I’m not sure.
So let me just say that I think we’re at the start of meaningful negotiations. And when people talk about optimism, as I look about, some of you have been through this before. I went to the first—the opening of the Doha Round.
HILLS: Just the other day. (Laughter.)
LEVIN: And I guess foolishly I was the only member there. It was right after 9/11. And how many times where they—did they say it’s close to being finished?
LEVIN: And I remember that wonderful head of WTO coming to my office three or four times, and he would say we’re this close. And it turned out “this” was this. So I think we need to really put our mind to the substance and not, essentially, think we can be guided by the calendar.
Because, Carla, has there ever been a trade negotiation you’ve been in where it was the rigid calendar that worked rather than the substance?
HILLS: Substance commands. And time commands, and some of these people have to get back into their labor. (Laughter.) And you know what that means.
LEVIN: I hope you’re making more than a dollar and a half an hour. (Laughter.)
HILLS: But we’re very grateful.
LEVIN: Thank you very much. (Applause.)
HILLS: You were terrific. (Applause.)