Chairman, International Advisors, Goldman Sachs & Co.; Former President, World Bank Group; Task Force Co-Chair
Senior Fellow for Latin America Studies, Council on Foreign Relations; Task Force Project Director
General (U.S. Army, Retired); Chairman, KKR Global Institute; Former Director, Central Intelligence Agency; Task Force Co-Chair
Anchor and Global Markets Editor, Fox Business Network
Task Force Co-Chairs David H. Petraeus and Robert B. Zoellick and Task Force Project Director Shannon K. O'Neil join CNN anchor Maria Bartiromo to discuss economic growth potential in North America. The task force members describe more deeply integrating Mexico, Canada, and the United States in the areas of economy, energy, manufacturing, security, and human capital, to increase the competitiveness of the North American platform.
BARTIROMO: Good morning, everyone. Good to see you. Welcome to the Council on Foreign Relations-sponsored Independent Task Force Report, "North America: Time for A New Focus," with co-chairs General David H. Petraeus and Ambassador Robert B. Zoellick and project director Shannon O'Neil. Good to see you all.
A couple of housekeeping items. A special thanks to task force members Jodi Bond, James Taylor, who are in the audience today. We also have the honor of being joined by Mexican Ambassador Eduardo Medina-Mora. Ambassador, thank you very much for being here.
I would also like to welcome the CFR members around the nation and the world participating in this meeting through the livestream. This meeting is on the record.
I think the big idea here that we want to kick off is the idea that when looking at America's government policy, foreign policy, we should be looking at North America for growth opportunities and for opportunities to see a much bigger advantage when looking at the United States, Mexico and Canada.
General Petraeus, why don't you kick us off? Talk to us about why North America is so important and the growth potential.
PETRAEUS: Well, first of all, the real big idea here out of this task force is that we've got to pay much more attention to North America. Again, our number-one and -two trading partners are right here, our neighbors. They're not the big economies of the world.
We have shared values. We have a demographic situation that is vastly more positive than those of, say, Japan, China, most European countries. And we have this energy revolution that's going on in the United States which is breathtaking and still not fully appreciated, I don't think, in all of the implications that it has for our economy and also for those of our neighbors, Canada already a big energy producer and Mexico, because of the sixteen reforms that President Peña Nieto has got through in his first year, among which energy is prominent, but all of the others, all of them focused on improving productivity for Mexican workers.
You look at all of this and you realize what an extraordinary opportunity all three countries have, not just our country. The fact is, I actually teach a course called The Coming North American Decades at the Honors College at the City University of New York. And I must confess that in the very first semester—this is my third semester doing this—in the first semester, it was a question. Are we on the threshold of the North American decades? Well, both in the course and through the work that Bob and I and the team did, we answered that question. And as I said, the title now is The Coming North American Decades.
In fact, just one final comment. I was at a conference in London about two or three months ago, and the question that was posed to me was, after America, what? And I think the expectation was that I would answer by saying the Asian century, the Chinese century. I said, after America, North America.
BARTIROMO: I think you hit on so many things that we want to expand during this conversation. Ambassador, let me get your take on this opportunity and really why it is that we are talking about this today. What has changed specifically since NAFTA?
ZOELLICK: Well, let me start by thanking David and Shannon and the task force for doing this together. And just to put that a little bit in the context, as David mentioned, you know, we've both spent our career around the globe. And, frankly, while we both work with Mexico and Canada, probably a lot of our life has been spent, frankly, on other regions.
I think what's significant about this is, we try to look at the role of North America in the global context of U.S. policy, building off a number of the items that David mentioned there are changes. And I think—it's the 20th anniversary of NAFTA, but one of the things that NAFTA represented was, given the history of all three of these countries, there's a very strong sense of history and sovereignty.
So the policy challenge is, how do you get deeper integration, where you have three countries that are very sensitive to their sovereignty? That's different than the European model, where you have a shared sovereignty.
And so what we've tried to explore is what we can then do twenty years after NAFTA to deepen that. And as David mentioned—he and I have come at this from a slightly different set of policy perspectives—you know, in some ways, is the world is looking at growth markets, this is a new type of growth market, because you've got developed countries that are on the cutting edge of innovation and technology, the U.S., but, frankly, Mexico has really been a leader in terms of doing the structural reforms.
So I think the reason this moment captures this is, first, what David mentioned. All three countries are in the midst of energy revolutions. Mexico is in a policy state; it hasn't yet been able to implement it. It's very important the United States help that implementation.
Second, Mexico's launched a broader set of structural reforms. David mentioned all the constitutional reforms, telecommunications, education, and others. That's very much not only in Mexico's interest, but U.S. and Canada.
Third, I do think that if you look at Japan and Europe and others, the United States is still an area of technology, and sort of the possibility of moving beyond the technological frontier, it's distinguished among developed markets.
Fourth, as David mentioned, you got the demographics. You know, we're now approaching about 500 million people in North America. If we start to think about a common workforce and human capital, all of a sudden 1.3 billion Chinese looks a little different.
And fifth, in the global context...
PETRAEUS: Which is going down, by the way.
ZOELLICK: Yeah, China's going down, Japan's going down, EU, Russia. So this gives you a little sense of the geopolitics of this, or geoeconomics, too. And then the last point is the dynamics of the world economy, so wage rates are going up in China. Conditions are changing throughout East Asia and other regions.
And so, frankly, you're starting to see more investment come into Mexico because of the nature of the reforms, which are also connected with the North American market, with U.S. and Canada. So what the heart of the report is, is trying to, first, get people to recognize the changed circumstance, as David mentioned, that this should really be kind of the fundamental basis for U.S. policy looking across security, economics and others, and then we start to get doing a series of specific scenarios, so competitiveness, energy, community, and security, where Dave's had the most experience.
BARTIROMO: So a lot has changed for the better in the three countries, and things have gotten more challenging for some of the hotspots, the growth areas that we've talked about for so long, like China. Shannon, can you further expand on the human capital element of this? Because Bob is talking about the workforce and expanding that. I think you've got some good ideas on that.
O'NEIL: Well, one thing we talk a lot about in the report—and it's quite important for the United States—we've had a rough couple of years here, as we know, with the recession. And when you think about projecting U.S. power, one of our key levers has been our economic prowess. That's one of the reasons people look to the United States, is that economic prowess. So how do we return to a very strong economy in the United States?
And given the changes that have happened over the twenty years since NAFTA, frankly, we've seen a deepening of the economic integration between the three countries. So we really today do have in so many different industries—and particularly advanced manufacturing industries, in cars, in aerospace, in computers, flat-screen TVs, electronics, and the like, we have a North American platform.
But that means not just do companies have different parts of their productions on one side of the border or the other, or do they produce something crossing the border many, many times?
It also means that the people that work in those factories are connected, whether they know it or not, and the productivity and the expertise and the human capital of someone in a Mexican factory will very much affect the jobs of someone in, say, a Kansas City factory. There's—those connections are starting to happen.
And as we fast forward or think about the next twenty years, how are we going to become economically competitive with China, with Asia, with others around the world? Part of it's going to be deepening this North American platform. And that will have to do with increasing or speeding the back-and-forth across the border, so physical infrastructure or regulatory changes, but it will also be creating a North America workforce where everybody comes up the human capital scale.
So it's going to depend on schools on all sides of the border. It's going to depend on exchanges between the programs. It's going to depend on making it much easier for executives or technicians or others within companies to go to the other countries, to work with their counterparts in those countries, to allow this production that's happening jointly to really prosper.
PETRAEUS: And keep in mind that labor costs in Mexico now are very favorable with those of China. China has had a decade—each year, there was a double-digit increase in the cost of labor. China is no longer the low-cost labor provider to the world. And, in fact, Mexican labor again, which is quite good quality and uses a ground line of communication, rather than sea or air, is actually very, very competitive.
There's a reason that Mexico is now the number-four car exporter in the world. And it has a great deal to do with the labor costs and, indeed, the quality of the labor. And, oh, by the way, a car that is exported from Mexico actually I think, Ambassador, is something like 40 percent or 45 percent U.S. content, so—which gives you a sense of what Shannon is talking about, the integration of these economies and how many times back and forth the border an end product actually transits.
ZOELLICK: One of the topics that you were picking up on, Maria, before when we were discussing this is, you know, often in the—in a context of Mexico, it's all immigration policy. What we're trying to also get people to recognize is kind of a workforce approach to this and a human capital development.
And so we make some specific recommendations about approach to immigration. But, for example, when we were up in Canada, which has had its own energy revolution, one of the Canadian officials mentioned to us how difficult it was to get petroleum engineers even from people from the United States that had the qualifications, but because of the professional certification process, were ruled out.
And when we were talking with the head of Pemex, which given its changes they need sort of additional petroleum engineers. So you start—the light bulbs start to go off about, you know, the idea of, what skill sets do you need? What sort of training systems? NAFTA had a special TN visa process that was put in, but it's rather cumbersome, and it's not used as much as the H-1Bs and sort of others, so we talk about changes in that.
We talk about mobility, of course. This doesn't mean necessarily citizenship. This is the ability to work and move and participate, whether at higher ends or lower ends, and take advantage of the human capital.
And then the last part is, at least—you know, David and I have talked about this in other contexts—I personally believe that the whole education establishment is ripe for a transformation. So you're going to get changes in technology, competition, cost, and whether it's private markets, public markets, there's a whole series of possibilities in competition. There are some interesting things going on in Mexico, in that way in the private sector ready.
And so what we're partly trying to do is get the governments to recognize something that's a little hard, which is these types of issues are sort of beyond the traditional national government to national government. One of the challenges of North American policy is we're dealing with what scholars would call the transnational actors. You've got state governments. You've got local governments. You've got the private sector.
And part of the challenge for steering the policy is how the United States learns how to do foreign policy a little differently, to be able to engage that broader set of actors and constituencies.
BARTIROMO: We want to talk more about deepening the platform and highlight some of the recommendations from the task force report, but can you touch on some of the challenges like immigration and what that immigration policy should look like and also security?
PETRAEUS: Immigration is a huge challenge. I mean, I think it's broadly recognized in the United States, Capitol Hill and the White House and everywhere, that there is a need for comprehensive immigration reform, whether it's passed issue by issue or all together, that everything from the H-1B visa—in other words, raising the limit of those who can come into the country at the very high intellectual end—and then literally the unskilled worker having a legal path to employment in the United States.
And a lot of these do have big issues here in North America. There are obviously issues of border security, as well. What the task force talks about is, how can you expand what are in some cases bilateral initiatives with Canada to be trilateral? How can we talk about actually defending the borders of North America, not just the borders of the United States? And there are quite a few specifics in there on those different issues.
But these are issues that we do have to grapple with, and we have to do it in our own country, too. The fact is that we have this enormous opportunity because of the energy revolution, in particular, but also, as Bob mentioned, the IT and the manufacturing and the life sciences revolutions, but we have headwinds. And these headwinds are the difference between, say, 2.5 percent growth and 3.5 percent growth, and they are the need for immigration reform, the need for investment in smart infrastructure. There's a need for tax—all of these are national issues, but these have huge effects and ramifications for all three of our countries, if we can get those right and, again, take the perspective that is more North American than just United States of American.
BARTIROMO: Bob, you mentioned the four items that we want to really look at and deepen the platform in terms of better capitalizing on North America, energy, economy, security. Let's—and community. Let's talk about energy. How big is the opportunity? And what do we need to do to better capitalize on it?
ZOELLICK: I'll do that, but also because Dave's got some limitations on this, given his experience, so, if you want, I'll come back on the security, because I think it's a very important one, too.
Well, on energy, you know, newspapers are told today that the United States is now going to be the global biggest petroleum liquid producer, so that includes sort of beyond oil, so the tight oil has increased, I think, about 50 percent, maybe even more since 2008. People are very aware of the natural gas revolution. It's had a great reduction in cost.
PETRAEUS: And we're number one in the world in that.
ZOELLICK: Natural gas.
PETRAEUS: As of last year.
ZOELLICK: Now, what we talk about in the report is kind of the different degrees of benefits of that—production and exploration, for jobs, lowering costs, but we also identify some of the regulatory and safety and environmental and carbon and other issues that have to be dealt with in a way so as to get the next tier of capital investment, which is a long-term investment, also requires a greater degree of certainty.
In Canada, you've also had, I think I would say in that theirs—I don't know, maybe doubled or 50 percent, 60 percent since the past few years, because of a lot of the oil developed in the west. And Mexico has actually been declining, even though that was a key part of the Mexican economy, and that's where President Peña Nieto's reforms offer a huge opportunity of turning this around, but it's going to take some time for the follow through.
But what we emphasize here is, if we're going to make this a single market, we have to focus on the integration. So we talk about issues such as pipeline, including XL pipeline, which we came out and were positive about, but there's also issues related to electricity grid.
So one that was brought to our attention in Mexico I found particularly interesting. The United States already has pretty good electricity grid connections with western and eastern Canada. It's a small amount of the total—about 2 percent—but it gives resiliency. And there's some, I think, in Baja California and a little bit in Texas with Mexico.
But one of the ideas here is we're already getting natural gas pipelines, as David mentioned, that would go down to Mexico, which give lower cost natural gas. But if in a—in a quicker timeframe, if we got some of the clearances done, if you expanded the electricity grid to Mexico, you'd be able to have lower cost electricity in Mexico because of the lower cost natural gas in the United States. That would help some of the manufacturing capacity and, as David mentioned, about 40 percent of all their exports include—are basically U.S. products, so you get a mutual benefit. And, frankly, it would help the politics of Mexico, so it would allow people to see the benefits of this.
We talk about this more broadly for the United States. So we talk about the limitations on exports of crude oil. We talk about things that move sort of the natural gas. The picture is—while there's been a reasonable amount of attention to the energy sector in the United States, in some ways, we haven't even begun to capitalize on some of the potential benefits, but what we're trying to expand the concept is, is to see this in a North American context.
And then there's geopolitical dimensions of that in terms of security and the ability to provide energy to Europe, which now depends on it from Russia. So it's a good example of how what might seem as a narrow sectoral topic not only has continental dimensions, but has continental to global dimensions going forward.
And one other one—I've worked with Central American countries over the years in different capacities. You know, their energy costs are very high. They have development problems. We see how that contributes to children coming across to the borders. So if we could extend those pipelines for natural gas to Central America, you could lower lost the cost there and help with Central American stability. So it's a good example of the interconnectivity.
BARTIROMO: Did you want to touch on security?
ZOELLICK: Well, I was just—I think it's a key issue to sort of recognize that the Calderon administration and the Peña Nieto administration have taken on what's a very, very tough issue. And the Mexicans have identified this ultimately as being a question of rule of law in the society. We talk about the different dimensions of that, of dealing with courts, of dealing with the different levels of police forces. There's been a lot done at the federal level. There still is a lot of work to be done at the state and local level.
We talk about the types of organized crime networks. We talk about the resilience of communities. We talk about the problem of smuggling arms from the United States and narcotics demand, which sort of contributes to this.
So our point is, obviously, this is an issue that is at the heart of Mexican decision-making. The United States through the Merida Initiative and things that Dave's been involved with has actually been supportive. We try to encourage more of that.
But also, as we start to think about security more broadly, over time, we're going to have issues of cybersecurity, we have issues of disease, people coming in. You've got issues of terrorism and sort of the borders. And, frankly, you have issues of Central America and the stability there. You've got issues in the Arctic.
So while we're trying to expand the concept of not just see security as something we have to defend against, but how we can actually use North America as a platform looking ten or twenty years out for a stronger policy.
And a personal sense on this. I worked on NAFTA and worked with Mexico before that. And, frankly, the U.S. relationship with Mexico on some of these issues twenty-five years ago was workable, but it was not always the easiest. When I came back in public service at different points or at my work on the World Bank, frankly, on international economic issues, Mexico and Canada were the United States' closest partners. There's others around the world—Australia and others.
I think, you know, part of the point of this report is to see how we can set a strategic direction for the United States, and I'd like to think twenty years from now, if we do the types of things we're doing, build that partnership, that on broader security issues, that North America would also play that role.
BARTIROMO: So the integration of the three countries really helps all three. Why haven't we seen better integration? What have we been missing and need to do?
PETRAEUS: Well, there are some issues that really arose in the wake of 9/11. And if you look at the movement back and forth across the border in the wake of 9/11, of course, somewhat understandably, it went down. We have still not worked our way all the way through that. We're not using the kind of technology that we use nationally and, to a degree, with Canada, with Mexico. And we've got to make progress in these areas. This should be a much more efficient transit not just for people, but also for long-haul truckers.
There's a whole variety of different bureaucratic issues that have been discussed, but not resolved. And that is the kind of area we've got to attack if you want to, again, pursue greater integration, which is generally better for all of us.
You know, to come back—to just put an edge on one of the points that Bob was discussing, Mexico pays 75 percent more for electricity than the United States does. And so with our cheap natural gas flowing to Mexico and the two pipelines that are under construction now will bring that cost down. If there could be a smart grid that goes across as well, as Bob discussed, that could help further.
And that will be another boost, another catalyst for the manufacturing revolution that's going on in Mexico, a revolution that, as we mentioned, uses lots and lots of items produced in the United States in the process of the production and, in many cases, we get better goods, lower price, and everyone is going to benefit from it.
ZOELLICK: But you also—one of the things—you asked what's missing. And Dave and I were just comparing notes about this as we came in. There's an irony. For all the opportunity for North America and all the importance, a lot of the issues that we're talking about are not crises.
ZOELLICK: And what drives the U.S. government and what drives the principals meetings and others that David attended are crises, OK? So I assure you—I mean, if you go probably look at the national security advisers sort of agenda for the next couple months, it's going to have ISIS, it's going to have Russia-Ukraine, you know, it's probably now got Hong Kong and China on the list. I bet North America doesn't make it, OK?
PETRAEUS: Unless there's a summit, is typically the—as sort of a crisis, a North American summit...
ZOELLICK: The preparation crisis.
PETRAEUS: That's right. What are we going to talk about...
ZOELLICK: But we actually talk about that, because there was an effort in 2005 to build a bit of an infrastructure around summits. Then, in a sense, they kept the summits, they did away with the infrastructure, and we tried to learn some lessons from that.
And, you know, at least I'm normally very reluctant to kind of just talk about government structural reorganizations to deal with policy, but one of the things we recommended was to actually have one of the directorates in the National Security Council and one of the offices in the State Department focused on North America. We also talk about the role of a high-level champion.
And it, frankly, just reflects our experience that unless you create an institutional basis to focus on these issues, they will always be an afterthought. And we don't want them to be an afterthought. We want them to be in the forefront and a forethought.
BARTIROMO: Shannon, you wanted to add something.
O'NEIL: Let me just add onto that. One thing I think is quite important, what Bob was just saying. You know, another aspect is that when we do engage with Canada and Mexico, we almost always do it bilaterally. We will sometimes have a summit once a year, but almost every policy, whether it's economic policies, regulatory policies, security policies, even immigration policies, we do it in a bilateral way.
And in part, it's the way our government's structured. In part, it's that each country does have its differences. We have different histories with them. But one of the recommendations of the report, an overriding one, is that we should begin to do much more trilateral. So bilateral when we must, but trilateral when we can. And that would get us to think more about—along with structural changes in the U.S. government, but get us to think more about North America rather than just our neighbors as individual neighbors.
ZOELLICK: Let me give...
PETRAEUS: Can I just make a point? You know, we should remember how unique a situation we do have. Again, three countries, we don't really have big security issues. Yes, there is a rule of law problem in Mexico, as Bob discussed, but, again, this is nothing like the kinds of disputes that exist in many other places in the world. And you see this, because you don't see Mexico asking China to balance with it against the United States. And with Canada, goodness, we're part of the same alliance, the most enduring alliance certainly in modern history.
Contrast that, again, with the situation most places in the Middle East, many of the places in the Far East, and you see what an advantageous situation we do have with our neighbors.
ZOELLICK: And let me give you real practical examples. So I was a U.S. trade representative. I know how hard these trade negotiations are. The U.S. has a trade negotiation going on now with Europe, OK? It's the TTIP, so it's the Transatlantic Trade and Investment Partnership. Mexico and Canada are not part of that, OK?
Now, as David mentioned, we don't really have a U.S., Mexican or Canadian auto industry. It's an integrated industry. Canada has a parts industry. Mexico is active on a lot of the assembly. But we're talking about kind of how we can think of innovation, design, production, service, all the interconnections.
So one of the things the TTIP is supposed to focus on is go beyond tariffs and quotas, and go to some of the regulatory and standards issues. So as a practical matter for the auto industries, which are transatlantic, you should have Mexico and Canada at the table.
Now, as a negotiator, I know that sometimes this makes life more difficult. But it's a good example—if you're thinking North American and you're thinking about how you're trying to build North America as a continental market, and with the logistics and supply aspects and other aspects, you would take that step. We were slow to support Canada and Mexico joining the TPP, the Trans-Pacific Partnership.
So, you know, structural aspects of government can never totally solve this. But one reason why that was is there's nobody in the U.S. government whose prime job is to say, look, we have to watch out for Canada and Mexico as part of this. And that doesn't mean you're always going to decide in their favor, but it means you need to create an institutional process that raises the profile.
PETRAEUS: Champions matter, you know? In our system...
BARTIROMO: Good point, yep.
PETRAEUS: ... at the table, if there's a champion, those issues will be surfaced. If that's not the case or if the champion is championing too many different activities or too large an area, obviously, then the specifics in this case of, say, North America will not get the attention that they clearly seem to do, again, given the importance of these two countries to us and our importance to them.
BARTIROMO: And the population—we're talking about a big community.
PETRAEUS: A huge community. Again...
BARTIROMO: Five hundred...
PETRAEUS: ... as was mentioned, nearly—it's going to approach 500 million in a period of time. And, again, it has much healthier demographics than do the populations of virtually all of the other major economies of the world.
ZOELLICK: There's a cultural aspect of this, too. I mean, you know, so we actually talk about in the report that it's not a common culture. We're not trying to build the European culture. It's a shared culture, OK? Each country is going to be very sensitive to its own culture.
But, you know, all you have to do is look at the demographic statistics of the United States and say, this is part of our society, and we should welcome it and try to make it into a plus.
BARTIROMO: Let's open it up to our members. Please state your name and your affiliation. Microphones are...
PETRAEUS: Coming to you.
BARTIROMO: ...coming your way.
PETRAEUS: Yep, right up here to right there.
QUESTION: Thank you. William Haseltine, Access Health International. One of the aspects of the trilateral agreement is that all parties speak well with each other. And when I was part of the Trilateral Commission, there was difficulties between Mexico and Canada in dialogue. And I wonder if you guys can address that and how you address that, because it's not just United States with both partners. It's both of those two partners with one another.
PETRAEUS: There still are some of those, without question. And that's really the foundation for Shannon stating trilateral when possible, bilateral when we must. It's an admission or recognition that there are issues between our two neighbors and, indeed, issues that we have with them, as well.
So there's a—we don't come at this through rose-colored glasses. We come at it through, I think, a pretty realistic perspective, but with a recognition that there is possibility for much more trilateral activity than I think has been the case in the past.
ZOELLICK: Yeah, when we were up in Canada, one of the points that Canadians mentioned is, look, you know, we have developed a workable relationship with our big neighbor to the south, and we don't that to be impeded with, but, you know, I recall actually when we launched NAFTA, we had done the Canada free trade agreement in '88. And so it was President Salinas who then urged the free trade agreement with the United States.
The Canadians at that time—Derek Burney was the ambassador—were adamant about not leaving Canada out. We and the United States and the Mexicans were first cautious, because we were worried it would slow down what we knew would be a tough negotiation. As it turned out, I think the Mexicans found the Canadian involvement to be a plus, and I think Derek Burney and the Canadians were right in terms of trying to create a continental market.
You know, so no—you can't generalize from any one experience, but I think part of our thought is, we need to try to push and pull together sort of a continental perspective, but be practical.
PETRAEUS: You know, and if I could now, again, just focus back on Mexico just for a second, the—the achievements during President Peña Nieto's first year are truly historic. They're really breathtaking. He did more reforms in a single year—these are constitutional reforms that require a two-thirds majority to pass. They put together the Pact for Mexico with all parties involved, and they were able to do this. Sixteen reforms in one year is more than all three of his predecessors achieved in their eighteen years together and then got the implementing legislation through in quite expeditious manner, as well.
To be sure, some of these reforms—education, that's a generational change. Others, the telecommunications breakup, if you will, the financial, fiscal, electoral, judicial, and energy, these will take a variety of a number of years. You'll see some early gains in energy and, essentially, the easier to explore and exploit areas, deep offshore on the other hand will obviously take a number of years. But you'll see the major oil companies now engaged in Mexico, after having been shut out for many, many years, and Mexico will benefit enormously from this, but so will the major oil companies, many of which, of course, are based right in the United States.
ZOELLICK: Let me also just add...
BARTIROMO: It's a terrific point, yeah.
ZOELLICK: ... one other thought to try to give a sense of how we're trying to use this to stretch strategically. So I talked a little bit about the history of NAFTA. Mexico has joined something called the Pacific Alliance, which is both a free trade and economic integration with Peru, Colombia, and Chile. The United States has free trade agreements with all of those countries. So does Canada, I believe.
One of the things we talk about is, in a way, sort of NAFTA and Mexico is the hinge that interconnects Latin America with North America, so this can be a Western Hemispheric idea. There's discussion now going on in the Brazilian election about whether the policies of the past have been a little bit too protectionist, a little bit too insular.
There will be debates over coming years. One can't predict exactly when. But if we start to see North America and the Pacific Alliance perhaps working on common issues in Central America, as well, all of a sudden you start to have a different hemispheric viewpoint. So that's where we're trying to stretch strategic thinking.
BARTIROMO: Yes, sir. A question here, and then I'll come to you.
QUESTION: Stephen Schlesinger from the Century Foundation. The American labor union movement has had great reservations about NAFTA. How do you deal with that in your report?
PETRAEUS: I'll let the architect of NAFTA answer that.
ZOELLICK: Well, I'm not the best one to deal with this, because fundamentally they're wrong, but—but Shannon talks about this. Shannon can—in the report highlights a number of different issues.
We talk about sort of what it's done, and we review the literature in terms of trade, investment, living standards. There was a big concern in Mexico about its effect on campesinos and some of the rural communities. We talk about the literature of this.
But we also say, it's an incomplete effort. But, frankly, I will say, you know, the labor unions have—we talk about integration—the labor unions have fought tooth and nail a trucking provision of NAFTA that the United States has never implemented, which frankly is bad for carbon, it's bad for the efficiency of the markets, and it's based on the supposed idea that Mexican drivers aren't safe. And all the examples have proven sort of the contrary to that.
So part of the argument here—actually, we talk about this—is that NAFTA clearly is a divisive or an argumentative subject in the United States. I think people should stand up for NAFTA. And when the administration doesn't stand up for NAFTA, I think that's a very big mistake.
Now, to go to the other dimensions, it goes to the human capital development and inclusive growth. And so, frankly, what Mexico is trying to do in the educational system, what Mexico has done in a path-breaking way with Oportunidades, which is a program that helps the 15 percent to 20 percent poorest people through conditional cash transfers. It's been replicated in forty other countries. These are the types of things that the United States should support. But similarly, on the United States side, you also have to help people adjust, so that's another part of the human capital dimension.
But, frankly, you know, one of the issues that the politics of America are going to have to come terms with, are we going to be protectionist and isolationist or are we going to be international? And I come down on the international side.
O'NEIL: And let me just add to that, I think when we have these NAFTA debates, which we should in a healthy democracy, is we always do a very poor job at specifying the counterfactual. So if we had not signed NAFTA twenty years ago, would we still have textile factories in Lowell, Massachusetts? Would we still have, you know, a huge furniture-making industry in the Carolinas? Would we have drill bits made in Cleveland, Ohio? And the answer is no, because all of those jobs went to China, which we do not have a free trade agreement with.
And so I think in some ways, disaggregating some of the effects of globalization and the competition around the world is very important as we have these debates. And many of the industries that we still have, including the car industry, aerospace, electronics, flat-screen TVs, many of those we have precisely because of NAFTA, because we can do this joint production on all sides of these three borders.
ZOELLICK: That's actually interesting—going back to the energy—there's a difference, as some people may know, between textile and apparel. Apparel is the sewing, and textiles are the materials. You're actually—because of some of the energy costs and some of the design—actually getting some increase in the textile sector in the United States. It suggests that what you have to have is an open, innovative economy. If you try to close off, if you try to say we're not willing to compete, you know, you cut off 96 percent of the rest of the world.
BARTIROMO: Question right here?
QUESTION: Thank you. Earl Carr, representing Momentum Advisors. I wanted to pick up a question—Shannon, you had discussed—the United States and China do not have a free trade agreement, but there are talks of a bilateral agreement that they're discussing. How would countries like China or India or even U.S. partners in Europe view a stronger economic and political relations with U.S., Mexico and Canada?
O'NEIL: Well, TPP, which we're negotiating today—and we'll see where that ends up—is precisely that, with other countries, as well. But the idea of getting closer and really deepening NAFTA and other free trade agreements, and you know, you've seen some of the reactions from the countries you named, that some people are interested in it, and some people are not interested in it, but when we think about these issues, we should think about from our own national security issues, from our own economic prowess, and what would make us, the United States, much stronger and put us in a better negotiating position with China, with India, with other places.
And I do believe that focusing on our neighbors—and what we already have, these economic benefits, these energy benefits, these human capital ties, focusing on those would then make us much more successful and much stronger when we go and negotiate with allies and also with those that we sometimes have much more difficult relationships.
ZOELLICK: It's a bilateral investment treaty. That's what's sort of in the process. And it's an interesting example, actually, for what we're discussing. It's part of the—on the Chinese side, the idea that they might use a bilateral investment treaty, just as Zhu Ranji used the WTO accession to support their own internal reforms.
So when some people say should China be part of the TPP, the reality is, the TPP would include investment provisions, so this could be the types of sort of cornerstone you would need. There's a similar effort in the WTO in the services sector.
But a really good example—and, by the way, if we create better bilateral investment for China and the United States and North America, that's a plus. It takes advantage of this. And a good example that I just learned of last week, when I was at the World Bank, there's an arm called IFC, which is the private sector, and we created an asset management company, because, frankly, on our equity investments, depending on what region, it was about 22 percent to 25 percent IRR, which was almost as good as his business.
And so we couldn't expand the investment without going to governments for another capital increase. So we created an asset management company to draw in investments from sovereign funds and pension funds. And what I learned last week was the Chinese have wanted to invest in Mexico. And rather than do it bilaterally, they asked IFC to create a fund that I believe Mexico, as well as IFC, and China have put in money to invest in Mexico.
So that's a great idea. I mean, and so, frankly, from a broader perspective, that reflects the Chinese recognition of what David was talking about that helps North America and, frankly, it's a constructive thing for China to do. Win, win, win.
BARTIROMO: And that fund is investing in the countries?
ZOELLICK: In Mexico.
PETRAEUS: In Mexico.
BARTIROMO: In just Mexico.
PETRAEUS: In Mexico, yes.
BARTIROMO: Got one here, and then I'll go to the back.
QUESTION: Thank you. I'm Allen Hyman, Columbia Presbyterian Medical Center. We physicians always favor communication, even across international borders. The recent epidemics—Ebola, SARS, different influenza—indicate how important it is to have an integrated health care system.
But I'm also interested about drugs and vaccines that cross borders, as well. So would you have a comment on that?
O'NEIL: Well, we talk about some of these health issues. And actually, we see that as a real success for North America. We already work very closely through PAHO, through the Pan American Health Organization, through our CDCs, the complementary organizations. And we have a great example of how we cooperated successfully in the H1N1 epidemic that spread. And, you know, as my colleague here, Laurie Garrett, has shown in her research, it actually started in Wisconsin, went down to Mexico, and then came back to the United States and Canada.
But Mexico was really an incredible leader on that in terms of helping contain that and taking a huge economic hit in the process. So I think we already have quite strong cooperation on health.
We do in the report make some recommendations on how we can deepen that. And one of those is this issue of vaccines. So if we did face another health epidemic and perhaps a flu that was much stronger or much more fatal, say, than H1N1, how would we both produce and then disperse vaccines? Because the North American population is so integrated with families, through labor, through migration and the like, we will see the spread of such a contagious, you know, bug very quickly. So how would we disperse that in an equitable, but also in a rapid manner? So I think there are things they could do.
The other issue that we do talk about on the health side is we have an agreement with Europe to do immediate sharing of information on tainted products. So, you know, when you get cases of toothpaste or things coming from China that actually had very harmful things within it, but we don't have one of those for North America, and so you think about, again, the integration of our markets and products that flow back and forth. Could we set up something that would allow sort of a rapid response to that type of issue?
ZOELLICK: It's a good example, though, as you get the deeper integration, you're going to have this with all three countries. We had this with mad cow disease, first with an outbreak in Canada, then some in the United States. And it's actually interesting.
Part of the reaction going back to the protectionist theme is that there was legislation passed that would have country of origin labeling on all different stages of the cattle raising, the slaughtering, so on and so forth, that basically has now almost destroyed what was an integrated market with Canada in terms of livestock.
So if you think about the broader question, you know, whether it's humans, whether it's chickens, whether it's a whole sort—whether it's, frankly, in terms of wildlife and sort of bird movement, it's exactly the type of idea that we're trying to suggest that if we have a deeper continental view that it will expand the notion sort of beyond some of the traditional foreign policy categories.
BARTIROMO: Back there?
QUESTION: Thank you very much. Mahesh Kotecha, SCIC. President Zoellick, your experience at the World Bank may help here. I think on a sneak preview shows page 71, you talk about North American Development Bank. The whole idea of using this kind of a construct to develop the border regions to help alleviate and hopefully solve part of the immigration problem, I wonder if you could comment on how serious potential there is, because NADB I don't think has been very effective.
ZOELLICK: Yeah, I agree with you. Well, when—let's start with the basic challenge. What we were trying to identify was the broader need to invest in infrastructure in all three countries, but also in terms of the integrated infrastructure. We talked a little bit about things in the energy area, but we also—one of the areas where Shannon has been a particular expert is in some of the crossings and some of the port and other facilities.
We talk about actually trying to have an open skies arrangement to deal with some of the air traffic. And so we looked at the NAD Bank as sort of one possible item that—frankly, the history of this was there was a very expensive vote. There was one member of Congress we needed to get, and we created the NAD Bank for them, but it was very constrained in terms of its role.
And my sense—and Shannon probably has a better current sense of this—it's been seen, I think, as performing OK in this rather sort of narrow confines. And so what we were trying to suggest is that it should be part of a broader examination of potential sources, but we looked at others. So I mentioned IFC and the public-private partnerships. We talked about the role of the Inter-American Development Bank, maybe the World Bank with some of its type of work, and we're not sort of prejudicing one sort of source of capital, but we're noting that this is an opportunity for all three countries to deepen their integration with infrastructure, and this is one that should be looked at.
My recollection is NAD Bank also had some focus on some of the environmental issues, and those were also very important in the border region.
PETRAEUS: You know, it's worth mentioning that, in the past year, for the first time I think in certainly in anyone's memory, the net flow between Mexico and the United States was actually to Mexico, not from Mexico.
ZOELLICK: Of people.
PETRAEUS: Of people. And this reflects, again, the economic opportunities that have been expanding in Mexico, particularly, again, in the manufacturing arena.
BARTIROMO: Huge opportunities.
BARTIROMO: Yes, sir, right here.
QUESTION: Excuse me. Stanley Arkin. General, you alluded early on—swiftly, to be sure—to the rule of law problem in Mexico. Could you define that or flesh it out a bit more?
PETRAEUS: Yeah. I mean, the rule of law problem is, I think, the broad way of describing what is more than illegal narcotics trafficking organizations. These are really criminal cartels, criminal enterprises that are active well beyond the transmission of and transit of illegal narcotics.
They're a little bit like any empire. They're expansionist powers. And, of course, they collide with one another. There are turf wars and so forth. But this has been a very, very serious challenge for Mexico, and as Bob mentioned, each of the last two presidents has really tried to take a comprehensive approach to this, because that's what's actually required.
And this is not just about the police cracking down on, again, drug traffickers. This is about reforming the judicial system, which is actually ongoing. There is an important transition that will take place over the course of the next two years. It's about national penitentiary systems, not state or local.
The fact is that anything state or local in these—in the most challenged of areas literally can't stand up to the members of these very brutal, almost barbaric organizations. And so it takes a very national approach to this national police, as well. The three legs of the rule of law stool all have to work together to combat what is a very, very serious problem.
Mexico has made some progress particularly in going after the—you know, what the military would have termed high-value targets, the very heads of a number of these different organizations, and in very impressive, sometimes joint operations has taken some of these individuals off the playing field.
But the fact is that it requires a huge effort, but it will be aided enormously by economic growth that provides opportunities for people to do something legitimate to earn keep for their family, rather than getting desperate and ending up in one of these criminal organizations.
But it's a very, very serious problem. It is in a number of different areas. It's kidnapping for hire. It's not just carjacking. There's actually people that will put a pistol to somebody's head until they go to their ATM and take their money out. So there's a variety of innovative tactics and techniques, sadly.
But again, Mexico has been combatting this. There is a very substantial initiative in the state of Michoacan as a result of issues there. And in the state of Monterrey, there's a very innovative approach that's actually a state-run approach that involves the business leaders of that very, very important manufacturing region, and that is an initiative that is the focus of a lot of attention from those of us who are watching Mexico to see, if it can succeed, perhaps it can be replicated in some other areas, as well.
QUESTION: Thank you. Bhakti Mirchandani, One William Street. The U.S., Canada and Mexico have very different foreign policies, and their energy and economic policies generally support their foreign policies. And as you note in your report, Mexico is much more noninterventionist. So how would you recommend further integrating the economy and kind of the energy policies, while still giving each country leeway to have its own foreign policies?
PETRAEUS: I would have said that those were actually somewhat different, with respect, that the energy policy is all about the economy. It's much less influenced by whether or not Mexico is willing to contribute to international peacekeeping or join NATO or wherever else it might be.
This is really about how it can best provide energy for its people in the form of electricity and then energy for the manufacturing and other industries that are there. And so you see Mexico, again, really focusing, though, not just on that sector, but, again, President Peña Nieto—and we met with him as part of the study—we did trips to Mexico, as well as to Canada—and in Mexico, he was explicit that every single one of his reforms, all sixteen of these, are aimed at improving productivity of Mexico's workforce.
And he went through in some detail with some of these—and, of course, prominent in there is the energy sector—and we think that it has enormous potential. And, candidly, on the business side, we see that, too. And we're very active in terms of looking at these opportunities.
O'NEIL: Let me just add onto Dave's point. What's interesting, we've seen a transformation on the economic side in that model. We've recently seen the changes in the energy and opening up. And actually, President Peña Nieto, when he was here for the U.N. General Assembly, announced that Mexico will begin participating in peacekeeping operations, which is the beginning of an opening and perhaps leaving of that nonintervention philosophy that's really guided their foreign policy for decades.
So actually, I think there are changes on that side, too, that will allow Mexico to join in some of these organizations in a peacekeeping security way, as well.
ZOELLICK: One other dimension. As you may know, former President Calderon actually hosted one of the few successful climate change summits in Cancun. And this was right after Copenhagen and the world was somewhat in disarray. And he worked to develop a series of building blocks, everything from sort of energy efficiency to soil carbon to avoiding deforestation to technology to help some of the fund for the developing world to adaptation.
And it was actually quite a complement. I think his foreign minister was the person who was in charge of the effort, but they were very effective. They had the energy, the environment, the foreign minister, the finance minister, and all led by President Calderon.
So it's an interesting example of, again, you know, given Mexico's history for understandable reasons in the 19th century, there's been a sensitivity about this with the United States. And I've just seen a huge transformation of this even in my career, and I think part of our idea here is if you deepen the partnership—everything from dealing with health to education to sort of people issues—this is only going to go in the direction of deeper cooperation, just as, frankly, you know, Canada and the United States had conflicts in the 19th century, too. But when they started to see their commonalities versus the rest of the world, now they've become the closest of partners.
PETRAEUS: By the way, none of what we say should be seen as aspirations to turning North America into the North American version of the EU. There is clear recognition of the sensitivity to sovereignty that is in each of the three countries of North America. And you don't see the same kind of impulse towards the very high levels, you know, of a common market, if you will. But we do very much promote the idea of greater integration of economies that are already very, very highly integrated and that will further benefit each in each country.
ZOELLICK: Just a diplomatic experience. For those of you that have been to Ottawa or Mexico City, you probably have this sense or worked in the public—with the government, it's sad to say is that, you know, people in Mexico City or Ottawa think the United States and Washington doesn't pay any attention to them.
So part of this—if you're going to build friends and if you're going to build relations, you got to watch out for the other guy a little bit. And so part of what we're talking about is just an attention to some of the interests—and Mexico now—as David said, there's lots of reasons why this is moving forward.
But, frankly, it should be true for Canada. David ran the operations in Afghanistan. There were 150 Canadians who died there.
PETRAEUS: It's the highest per capita loss rate of any of our alliance partners. Very important contribution in a very difficult part of the country in Kandahar, very important players in the Balkans prior to that. And yet, again, it's understandable, because, again, the crises of the day push everything else off the situation room table.
And so one of the central issues here is to promote the idea of paying more attention to those who are, again, our number-one and -two trade partners.
ZOELLICK: Yeah, don't (inaudible) friends is not a bad diplomatic principle.
BARTIROMO: Final question. Yes, sir?
QUESTION: Michael Skol of Skol and Serna. Following up on what Bob Zoellick said about, when there's no crisis, there's little attention and less work. It's one thing to have a champion within the U.S. government to mobilize the government, but how do you champion this—this marvelous idea within the American people? How do you do something about the fact that Americans don't think about Canada, they don't think about Mexico, and they are largely, I think, except for this audience, unaware of the enormous opportunities that—that we face right now. What...
BARTIROMO: It's a good question.
QUESTION: What can you do?
BARTIROMO: Yeah, getting buy-in.
PETRAEUS: One initiative is, of course, to have a Council on Foreign Relations task force.
PETRAEUS: Another is to leave from this meeting and go to the Wall Street Journal and do an editorial board. Another is to have a great news person from FOX as our, you know—again, so it's all of that. I think this is now sort of the strategic communications campaign, essentially. And we will do this tomorrow in Washington. We will do a certain amount of work.
Frankly, the ambassadors from each of the countries have been not only active participants in this, but literally culling this report so that they could share it, as well. And I think it will be received very positively in both Ottawa and Mexico City. And, in fact, we're going to go back to each of those locations, as well.
And then, you know, frankly, Bob and I are both on the speaking circuit in a—and a common topic, actually, is to surprise people by telling them, you know, there's actually something very, very positive going on and it's not just the energy revolution in the United States. It's really the opportunities for North America writ large.
ZOELLICK: And let me just add, since David was a general that served his country extremely well over many years in a nonpartisan capacity, I add a little political perspective, OK? And let me just suggest this. You know, I don't know how much we're going to change over the next couple years, but I—we want to try to make this an issue in 2016 across the political debate, OK?
And then let's start to think a little bit about the politics. I don't know. You think there's no connection between Mexico and the United States? I think there's a huge connection. And I think any politician worth his or her salt will start to think about the Hispanic community in the United States, what type of country we want to create.
So if we give them an argument that is economy, pro-growth, you know, pro-security, but also pro-Hispanic and trying to treat allies well, you're already starting to see some candidates—or potential candidates go down to Mexico, and they should go to Canada, too.
So part of the idea of this is to get—get this into the debate. Get people to think about foreign policy not just in terms of Asia or Europe or the Middle East, but think about a new type of foreign policy in North America.
BARTIROMO: Our closest friends.
PETRAEUS: We have both surfaced this as the Republican Governors Association. I was there in a—no, I was there in a nonpartisan way, because I also have offered this to the leading candidate on the Democratic Party side, as well, and also to several other members of that party. So, again, I'm not registered with either. I won't vote with either. And I will—but I will offer ideas to either.
ZOELLICK: And Congress, by the way, I mean, it's very important, you know, because a lot of the things we're talking about, you know, go back to Congress. And I've had some conversations, again, with members of both parties and, actually, Council will—hopefully with the event in Washington, we're going to try to follow up with some of the people.
Because one of the unusual things about, quote, "foreign policy with Mexico and Canada" is that a lot of it's going to be done at the state level by the governors. It's done at the local level. It's done by private parties. And Congress has got a big hand in it.
So one of the other very respectful recommendations we make is that there be a subcommittee in the Foreign Relations Committee and others dealing with North America, but very respectful, since Congress...
PETRAEUS: You know, just beyond that a little bit, I mean, we've both also talked about this with the cabinet-level members in a variety of different—I'd even single out Commerce Secretary Penny Pritzker has been a huge champion of this whole idea. We've discussed this in detail with her. She's eagerly looking forward to the report, and she has been a champion, of course, for our businesses, needless to say, with both of those countries, and Mexico in particular has welcomed her, embraced her with open arms.
O'NEIL: Let me say one more data point to yours, which is getting away from Congress, getting away from the cabinet side, when you look at poll after poll of Americans, of Canadians, and of Mexicans, they generally like each other, and particularly compared to other populations around the world. So I do think there's fertile ground for this type of message, given that there is a trust among the three populations.
BARTIROMO: It's a huge opportunity. Thank you very much for your work on this. Thank you to the members.