Securing the Promise of the Western Hemisphere

Monday, April 23, 2007

ANN M. FUDGE:  Good morning, everyone.  Thank you for joining us on a Monday morning.  I would again just like to welcome you to today's Council on Foreign Relations meeting.  It's part of the C. Peter McColough Series on International Economics and is cosponsored with the council's corporate program and the Maurice Greenberg Center for Geoeconomic Studies.

Before we begin, please remember to turn off your cell phones and other wireless devices.

I would like to remind the audience today that this meeting is on the record.  And what I would like to do is very briefly introduce our speaker this morning, Secretary Gutierrez.  He will be talking about Latin America, which has been a topic that has been of interest to many of the council members.  So without any further delay, I will bring Carlos up and begin the program, so we will have much time for question and answers.  (Applause.)

SECRETARY CARLOS GUTIERREZ:  Thank you.  Thank you, Ann, and thank you and good morning to everyone.  I appreciate everyone's interest and being here early on a Monday morning.  I also want to recognize Ted Kassinger.   Is Ted here, Ted Kassinger?  Ted.  Former colleague of the Commerce Department.  And it's great to see you again, Ted, and great to see many of you who had not seen in a while.

This is a topic that is near and dear to our hearts.  We spend lot of time on the Western Hemisphere.  We spend a lot of time on Latin America, a lot of travel, a lot of focus.  And as you know, it is also a region of the world where a lot of progress has been made.  And it's also a region of the world where there is still a lot to do.  And we believe that it is at a bit of a crossroads, that this is a wonderful time to seize opportunities and to really get into a period of growth, or it could be a time of stagnation in the area.  But it is at a crossroads.  And if -- and many of you who have been associated with Latin America for a time will remember the times of hyperinflation and cross-border violence and civil unrest.  A lot of that is in the past -- a lot of that. 

Today 34 out of 35 independent countries of the Americas have democratic constitutions -- big change from, you know, 20 years ago.  Widespread support for democracy.  Fourteen leadership elections were held between November of '05 and December of '06.  Mexico, of course, was a great example of democracy in action the way that the 2000 elections were managed and -- very important -- the way the 2006 elections were managed, and the fact that they were able to deal with the troubles they had and the confusion they had, and they dealt with it peacefully, and they got through it.

In the 1980s, one example of what was wrong in the 1980s:  Nicaragua had 13,500 percent inflation.  Many of you remember that.   I remember well doing business in Argentina when inflation was measured in the thousands.  I ran our Kellogg business in Mexico when inflation was a hundred percent per annum.  Those days are pretty much hopefully behind us.  Argentina -- Nicaragua, for example, today has an inflation rate of 9-1/2 percent.

Peru, I think, is another great example -- low inflation rate, stable exchange, and has experienced -- and I'm sure you've all noticed -- under President Toledo, tremendous amount of growth for a string of years.  And our understanding is that President Garcia is very much committed to growth, committed to prosperity.  And you know, the violence of the '80s and the authoritarian measures that we saw in the '90s, we hope and we believe, are pretty much in the past.

And we could just go on and on about why the hemisphere is different today than it was 10, 15, 20 years ago.

We have been extremely engaged.  The Bush administration has been engaged, and President Bush has taken tremendous interest in this area from day one.  And I know there's been a lot of discussion about how our focus has been on the Middle East and not so much on the Western Hemisphere.  It's actually been quite different.  Let me just give you some highlights.

Six of the 11 countries with which we have implemented FTAs have been Latin American countries.  President Bush has taken seven trips to the region, and he has visited 10 Latin American countries.  We have formed The Security and Prosperity Partnership of North America with Canada and Mexico, which is going quite well and very functional.  We've got the private sector involved, and we believe it's the type of organization that can yield real results.  We are hosting the inaugural Americas Competitiveness Forum in June in Atlanta, and we expect representatives from just about every single country in Latin America, private sector and public sector.  So we are extremely engaged, extremely engaged in the hemisphere, and this is a time of a great deal of activity.

We think that where countries need to start and those countries that are succeeding, those countries that are moving forward, that are making progress, that what they have done is agreed that goals like growth and prosperity and economic growth and GDP growth and very key indicators are worthy and noble goals, and not everyone will agree with that.  If you go around the region, not every country is after growth, not every country is looking at economic performance as a measure of success.  And what we have seen time and time again, that without growth in the region, without sufficient growth, everything is a problem, as you well know.

When you have growth, it seems like everything is possible.  If you have growth, you could invest in social programs, you could invest in education, you can invest in health care.  If you have growth, you can invest in the environment.  And without growth, Latin America becomes a very, very dangerous place.  And as you well know, there is no substitute for results and there is no substitute for growth.

Like business -- I spent 30 years in the business sector, and we measured our progress with numbers, and there is no substitute for performance in numbers, and we believe governments are pretty much the same.  Real results in Latin America are happening in those places where the challenge isn't to have a(n) equal distribution of poverty, and I think a lot of people have sort of mistaken that as what -- you know, social justice.  Let's just make everyone equally poor, and we have -- you know, we have achieved our goal.  We think the real challenge long term and what we have not been able to see in a breakthrough sense has been lifting people out of poverty and really having progress in that regard; not so much, you know, the Cuba model, which is we're all poor and we're all equal, but really getting everyone to participate and people to get out of poverty and grow.  That is the real challenge, and there are some countries that have seen things that clearly and that are making a great deal of progress, and other countries, frankly, that are stuck in an old model.

We think that trade and investment are solid foundations, and if we can make progress on trade and investment, especially on trade, two-way trade, that that is a great start.  That's not the end game, that's not the only thing that we're planning for, but it's a great start.

Our trade agreements with the region, starting with NAFTA, which has been a great step forward and a very solid success as seen by numbers, as seen by performance -- NAFTA, and I know many of you here -- Maurice -- were very involved in NAFTA and very involved in making it happen and making it a reality.  After NAFTA came Chile.  Most recently, we added CAFTA.  Those free trade agreements have delivered real results.  NAFTA has had a tremendous impact on regional trade.

Just to give you an idea, today the amount of trade that goes across Canada, U.S. and Mexico is about $880 billion.  And today NAFTA is essentially our largest trading partner.  We do more business and more trade with Canada and Mexico than we do with the whole European Union, and this is, you know, 12, 13 years into it.  So you can imagine what this can grow to be over the next 10, 20 years.

In 2006, our exports to Chile -- the Chile agreement was I believe in 2001 -- were up 30 percent, and this has been -- you know, year after year, we've seen double-digit growth; Chilean exports to the U.S. up 43 percent, so we're seeing two-way trade increase.  And here's an interesting number:  CAFTA -- two-way trade with CAFTA numbers -- this is Central America plus the Dominican Republic -- $40 billion.  That's significantly more trade than we do with Russia, significantly more trade than we do with India, and we are just getting started. 

So, 2005, U.S. companies invested over $350 billion in Latin America and the Caribbean.  The estimate is that U.S. affiliates employ about 1.5 million people throughout the region, and that's to be able to serve consumers in the region.  And hundreds of thousands of jobs are tied to trade and investment, and we believe that we are contributing -- "we" as in U.S. companies, U.S. government, U.S. businesses -- contributing to elevating the quality of life for people across the hemisphere.

And trade does a lot more than just, you know, the exchange of goods and services across borders.  It helps create well-functioning legal systems, transparent regulations, respect for property rights and accountable governance.  So the whole idea is using trade and investment as a foundation. 

And it is important that this is a time to prove that our system, that our philosophy, that our approach works, you know.  And there's a lot of comparison.  And of course the debate is that there's a separate and a different approach that works more effectively, and we do have the pressure.  And I hope we all feel a certain sense of pressure and opportunity to demonstrate that freedom and free enterprise and an entrepreneurial spirit and giving people a sense of ownership is the way to go and not, again, the idea of these -- you know, these models of equal distribution of poverty.

We now have pending free-trade agreements with Colombia, Panama and  Peru.  Once enacted, of course, this will give us access to 77 million consumers.  And again, it's the growth potential of these countries.  Twelve months ending '07, two-way trade, these three countries and the U.S., $28 billion.  And that's before a free-trade agreement, before the focus that comes with a free-trade agreement. 

At some point we will be able to take NAFTA, CAFTA, Chile, Colombia, Panama, Peru and sort of stitch them together and essentially have a free trading area with about two-thirds of the hemisphere's economy, which would be a tremendous -- tremendous achievement and a tremendous platform for future growth and creation of prosperity in the hemisphere.

As much as the hemisphere's at a crossroads, frankly, we believe that the crossroads is in our Congress.  These agreements are going to determine how effective we are in implementing our policy, how effective we are in actually being a leader in the hemisphere and whether we are able to take that path. 

The administration's position on these trade agreements are very clear.  I mean, these are very straightforward.  Most of the products coming in from these countries are coming in with preferences.  Our products going there are going in with duties.  So from an economic standpoint, it is just -- it's a little bit like CAFTA -- (inaudible) -- just very, very straightforward. 

And again, it's the symbolism and the political message that we would send if somehow we did not get these agreements approved.  We've got tremendous amount of focus in Colombia.  We have the Plan Colombia.  A tremendous amount of money going into Colombia.  Imagine the contradiction if somehow for political reasons those free trade agreements do not get approved in Congress.

So if there is anything, anything that any of you can do to get that word out, it would be very much appreciated, the importance at this time to get those agreements through and to continue moving forward in the hemisphere.

The other thing about getting these trade agreements through, from our standpoint, just to give you an idea of what these agreements do for us, we have agreements -- trade agreements with about 7 percent of the world's economy, but we do over 40 percent of our exports with those countries.  So free trade agreements work.  They deliver results.  They create jobs.  And the exciting thing is as an economy -- as a country, we are doing about $1.4 trillion of trade, of exports, and in spite of our size, in spite of the fact that we are the world's largest economy, we are growing exports at double-digit rates.

And what we're seeing is that these trade agreements are adding up, and they're creating momentum, and they're rolling up to really mean significant growth: 13 percent last year, our export, 13 percent off a $1.2 trillion base.  Last year in fact for the first time in almost a decade, our exports grew faster than our imports, so we are becoming a major exporter.  We're becoming, you know, a country that is behaving almost like a developing nation when it comes down to being agile and being aggressive about opening markets. 

And it's not a coincidence, we believe, that unemployment in the U.S. is below the average of the past 40 years.  Our growth rate over the past five years exceeds all G7 economies, and we are at a time today when our economy is demonstrating the wisdom of engaging in free trade and opening markets and continuing to be a leader in the world and in the world trade.  So Colombia, Peru and Panama are also close political allies if we reject these agreements, and we should be very clear about that.  If these agreements are rejected, it would carry huge political consequences and create an opportunity for those in the hemisphere who don't share our democratic values, and would give them a great excuse to point to the fact that people cannot rely on our system, and that we are not consistent partners with those countries. 

So the challenge, as you well know -- trade is a beginning.  Trade is a good foundation; trade will help us move forward.  But the key ultimately, and for those of you who have been involved in the hemisphere for years, and I've had the opportunity of being associated one way or the other with the hemisphere for decades.  The problem of course is, how do you get full participation of the population? 

You know, in many countries you've got a very small percent of the population who are running things, and a big portion of the population are not part of the mainstream.  They're not part of the education system; they're not running businesses; they're not part of the government; they're not participating in the mainstream of society.  And ultimately I believe that is the long-term challenge: if you could get a bigger proportion of people in these countries being part of the mainstream of society. 

Interesting that some in the region have sort of hijacked the term of "social justice," and I say that quote-unquote.  It's a very popular term; it's very fashionable to talk about social justice in the context of kind of radical left-wing policies.  And when these so-called social justice policies fail, the blame is on what they call today the neo-liberal policies.  But I find it quite interesting that it's almost like they've got this trademarked, you know -- social justice -- without really defining what that means. 

We believe that social justice, and this is the message that we are taking out to the hemisphere, that social justice is about equal opportunity, and that when we give everyone in these countries the opportunity to get a good education, the opportunity to run a business, the opportunity to lead organizations, that then we will have true social justice, but not the easy way of sort of driving resentment and bringing everyone down to a level of equal poverty.  This was a driving message that was behind President Bush's recent visit, and just to give you some points as to what we're doing beyond just free trade agreements. 

Since 2004, the U.S. has provided more $150 million for education programs in Latin America and the Caribbean, and ultimately we believe that the key here is education.  And if we can break through and really get momentum on education, that's probably the single biggest thing we can do.  Last year the State Department launched a hemisphere-wide English teaching initiative.  Treasury and State are partnering on microlending programs to support entrepreneurs and create jobs.  Through OPEC we are launching an effort to help build a market for affordable housing.  And we're seeing that in some countries, interestingly, the whole idea of a long-term mortgage is beginning to take shape, which is actually a new phenomenon in many of these countries, so just some examples of what we're doing. 

Again, the key is to have an impact on the whole population, not continuing to expand the wealth of a very limited group of people but to think about these countries as the whole population.  The irony is that for opponents of our system, the role model is still Cuba, which is, I find, actually quite surprising and quite remarkable, that Cuba is still being held up as something for which to strive.  And let me just give you some thoughts on Cuba, because it's tough to talk about the hemisphere and not at least mention the role of Cuba. 

We think -- you know, I get the question very often -- when is the U.S. going to change its policy on Cuba.  And it's interesting how the focus is on Washington; it's very clever.  You know, when is Washington going to change its policy on Cuba?  We think the question is:  When is Cuba going to change its policy regarding Cubans?  That's the question.  The focus should be on Havana.  The focus should be on the plight of the Cuban people, not on Washington.  It's when is the regime in Cuba going to change, not when is Washington going to change.

Let me just give you an idea of policies in Cuba that have nothing to do with the U.S. embargo or U.S. policy, and then think about why should the focus then be on Washington's policy.  Cubans.  Cubans cannot.  They don't have the right to travel abroad.  They can't change jobs whenever they want.  They can't visit tourist hotels or resorts, so they have this tremendous, you know, tourism apartheid.  They can't access the Internet.  They can't watch independent television stations.  They can't read unauthorized books, magazines or newspapers.  They can't seek employment with foreign companies on the island.

What does that have to do with the U.S. embargo?  Those are the policies that need to change, and we shouldn't get confused about, you know, where the focus should be.  The focus should be on the regime in Cuba and what are they going to do to improve the lives of Cuban citizens.

Last year we issued a compact with the people of Cuba, and we stand ready to work.  And we have got great plans to be able to work as part of a Cuban transition, and it's important.  President Bush has made it very clear, unlike what you may hear coming out of Cuba, that the U.S. government has no imperialist intentions regarding Cuba.  We have no military plans to occupy the island.  We will not confiscate property; we will support any arbitrary attempts to reclaim property.  And that, of course, is just the opposite of what you hear coming out of Cuba.

We believe it's just a matter of time before the regime crumbles, before they -- they agree or they realize that there is no way that they can keep people in this day in age kind of locked up living in conditions that are reminiscent of 50-60 years ago.  So that's a very vivid example of the flipside, where the flipside of the -- where the other model takes you.

Let me just talk about one more area regarding the hemisphere.  We typically don't relate immigration when we talk about the hemisphere, but immigration is -- should be talked about when we think about the future and the prosperity and the promise of the Western Hemisphere.  Most advanced economies in the world are facing declining populations.  Just look at just about any advanced economy -- Western Europe, Japan, Russia's population is actually declining.  In this country, our working-age population -- so the guts of our working population, 25 to 54 years old -- is increasing at a mere .3 percent every year, .3 percent every year.  We cannot grow our economy at 3 percent if our workforce is drawing at .3 percent.  That is just a mathematical economic reality, and that's probably the simplest case you can make for immigration.  If we don't have immigration, we will not grow our economy.

According to the U.N., by 2150 China's share of the world population will be reduced by a third, Europe's will shrink by more than half, Russia's population is already declining.  So every country in the world, every advanced economy in the world is thinking through how are they going to deal with their demographic problem, and I think what we're going to see over the next 10, 20, 30, 40 years is a tremendous shift of populations from developing or emerging economies to developed economies because that's where the workforce is needed.

The interesting thing is that many countries do not have experience with immigration.  We've seen what's happened in Europe.  Think about, you know, China's immigration, Japan and immigration, Russia and immigration -- we have experience.  This could be probably our biggest competitive advantage over the 21st century if we do it right.  And today, as you know, we're working very hard on a comprehensive immigration reform.  I am more optimistic than I have been before.  The president has been leading this effort since the first day in office, and we hope that we can get this done.

This will be -- we get it done, we get it done right, it's the kind of thing that will give us an advantage over the rest of the world not for the next five years, but it could be for the next century.  So we see it as probably the single-biggest economic activity that we're doing over the next year.

So it is with great pride that I will commit to you that the Bush administration will stay focused on the hemisphere to the last day.  There's a lot of work to do.  We feel there's a lot of promise, a lot of growth, and a tremendous amount of opportunity.  And I thank all of you for the leadership role that you play in the Western Hemisphere.

So thank you for being here, and we'll open it up for questions.  Thank you.  (Applause.)

FUDGE:  Thank you, Secretary Gutierrez.

One of the things that I'd like to mention as we get started is please be sure you wait for the microphone so that we can all hear your question.  And second, when you stand, please give your name and identify your affiliation and limit yourself to one question, please.

Yes, sir.

QUESTIONER:  My name is John Brademas.  I'm president emeritus of New York University, was a member of Congress from South Bend, Indiana, for 22 years.  A few years ago, I led a group of four former members of Congress to visit Cuba, and we did a report that at some point I'll inflict on you with our recommendations.  I was struck by what you said about Cuban policy, because it seemed to me you were saying that there's nothing the United States can do to open up Cuba, but we have to wait for the Cubans.  Isn't there anything that we in the United States can do that would contribute to that opening-up process?

GUTIERREZ:  Sure.  Yeah, and that's -- I did not mean to imply that there's nothing we can do.  There's a lot we can do and there's a lot that we are doing, both -- diplomatically around the world, trying to get a critical mass of countries to support change in Cuba.  We are working as much as we can with dissidents in Cuba and supporting the idea of democratic change in Cuba, and so we are very active in doing what we can within the policy that was stated.

There are two things that I think we should be -- we should know about Cuba and keep clear.

One is you never get credit for what doesn't happen.  And when the embargo was put in place in the early '60s, there was -- the intent of the embargo was to deny Castro resources.  Why?  Because we felt that Castro was a declared enemy of the U.S.  When he had access to nuclear weapons in '62, we know he wanted to keep those weapons.  What he would have done with those weapons, we don't know.  When he had enough money for a military campaign, he went to Africa.  He was exporting revolutions around Latin America.  When it looked like we were getting close to a deal in the '90s -- and, Maurice, you were probably pretty close to this -- he shot down a place.  So on one hand, the embargo has been tremendously successful in denying him resources.

And on the other hand, it's been kind of obvious throughout history that any time we have made an overture to get close to Castro, he has done something to make us regret it.  So I remind people of that when there's this insinuation that the fault of Cuba -- the problem with Cuba's plight is somehow related to Washington's policies.

Thank you.

FUDGE:  Be seated.  Your mike --

GUTIERREZ:  Oh, thank you.

FUDGE:  (I think you need to ?) -- be seated.  It's easy --

GUTIERREZ:  Well, it was good to stand up for the Cuba question, so --

FUDGE:  (Laughs.)  Next question.


QUESTIONER:  I'm Teresa Clarke with Goldman Sachs.  You commented about immigration, and I have a question for you about immigration from a little bit different perspective.  I know that the Commerce Department has done a lot of work in the area of innovation.  And I know that you have an upcoming conference on the competitiveness of the Americas, and you'll be focusing on innovation there.  And my question is, given that innovation is so closely tied to our ability to graduate Ph.D.s in the sciences and given that so few of the Ph.D.s in this country in the sciences come from the United States, could you comment on U.S. immigration policy as it affects our ability to compete and graduate Ph.D.s in the sciences?

GUTIERREZ:  We have -- that's a great question.  And because the -- immigration reform is not just low skill -- we tend to focus a lot on the low-skilled part, but it's also the high skilled -- and we have -- as you know, we have a cap on the so-called H1-B visas, which tends to be for students who come in, and they can stay for a certain of time, up to six years.  And at some point, many of them, once they graduate and get their Ph.D. or their master's in the best universities that you can find in the world, they're forced to go back home.  And we have a tradition throughout the years of attracting the world's best minds, and I think we've done that very effectively.  We did that after World War II.  We've done that throughout different periods of time.  And we have that opportunity again today, to attract the world's greatest minds to come and help us innovate in the U.S., in addition to improving our own system and producing more of our own engineers and scientists.  But we've always accessed and brought great scientists from around the world.  We should be doing the same today. 

So the immigration reform that we are working on includes a section to increase the cap for high-skilled students, for high-skilled workers.  And we think that there is an opportunity to be a little bit more merit-base in our approach, to bring folks to our country that are going to help us in our quest to innovate.  And you know, everyone wants to come to this country.  We've got a tremendous opportunity.  We can leverage that a lot more than we're doing today.  It's just a tremendous opportunity to give us an advantage. 

So thank you, appreciate that. 

FUDGE:  Wait for the --

QUESTIONER:  Why wouldn't the -- why is there a cap on bringing in talented people into the U.S. to begin with?  It makes no sense. 

GUTIERREZ:  You're right.  I mean, there are a lot of things that we do that you can claim don't make all the sense in the world.  I think there's a political reality, and there is a -- the arc of what is possible.  Not having caps, I think, is a very difficult thing to sell, to gain consensus on.  There is a concern that at some point if you don't have caps, that starts impacting local employment.  It starts impacting salaries.  So the idea of an uncapped anything, I think, is very difficult to achieve. 

So you know, on immigration policy, if we get a good bill, I can assure you that most people will be a little bit unhappy, because not everyone will get what they want, you know?  There are so many different constituents.  There's the high-skilled constituents; there's the farming constituents; there's the business groups; there's the Hispanic groups.  Everyone wants something different, and this is going to have to be the art of compromise. 

So I appreciate the point.  Thank you. 

FUDGE:  Sir. 

QUESTIONER:  (Audio break.)  Last week I was at a meeting -- (audio break) -- evaluation -- (audio break) -- a lot of the companies there, which is a household name -- (audio break) -- telling the group that for the first time, they're seeing -- (audio break) -- a lot of what they're being asked -- (audio break) -- what are they doing about -- (audio break) -- in terms of -- (audio break).  My question for you is, are you hearing the same thing?  And if so or if not, should there be something that the U.S. government is doing as a competitive motivator?  (Audio break.) 

GUTIERREZ:  We are, and this of course is -- you're thinking about environmental sustainability and leading into global climate change.  We have just taken a trade mission to India and China, focused specifically on clean energy technology.  So we've got U.S. companies that are going to China and saying, here are, you know, here is a broad array of technologies that you should be picking from to help you in your environment.  We know -- China's economy is about 25 percent the size of ours, but their greenhouse gas emissions are 80 percent of ours. 

So as we think about global climate change, a lot of it is -- the focus is on the U.S.  and yes, the U.S. can do a lot, and we've done a lot, but this has to be a global solution.  So you're absolutely right, and we have got great companies with great technologies that can be transferred to countries around the world.  There are still many countries around the world that are building coal plants and that are building them at a very alarming rate. 

So this is an example of one of the areas, one of the things that we can be doing and that we will be doing a lot more of, is using the private sector to introduce technologies that can be extremely, extremely helpful for these nations.  Because it's just a matter of years before China overtakes the U.S. in greenhouse gas emissions, in spite of the fact that the economy is a lot smaller.  So we need to get on that, and we are.  And this trade mission, I believe, is just the first step in a series of actions that we'll be taking.

FUDGE:  The young lady has a question there.

QUESTIONER:  Hi.  Ann Lee.  Thomas Friedman --

FUDGE:  And your affiliation?

QUESTIONER:  Oh.  Pace University.  Thomas Friedman has written a book, as many others have talked about, that labor is borderless these days, as well as capital, and so -- and he's obviously detailed lots of outsourcing trends.  So I'm wondering, is immigration and population growth in the United States not as correlated to growth as it used to be?

GUTIERREZ:  Yeah, you're probably right that there are some tasks that don't necessarily -- or aren't necessarily done within the boundaries of a country.  But there are many tasks that need to be done within the boundaries of a country.  So we see a very -- still a very important correlation between population growth, workforce growth and the ability to grow your population.  So from the standpoint of the outsourcing and those types of activities, you could make a case that there is work that can take place outside of the boundaries of a country. 

Aside from that, the idea of labor flows and labor movements are still not as fluid as the theory would suggest; I mean that most -- even within countries it's not easy to move labor from one province to the other.  Not every country will accept labor coming in from another country.  Not every country welcomes immigrants from other countries.  So I think it's a good point, but I wouldn't discard that physical preference -- presence in a country. 

We've got tremendous amount of farm labor coming in.  Either you farm in the U.S. or you don't, but if you're going to farm here, you need the workers here.  There's a tremendous need for construction.  You know, that's the kind of thing you can't outsource the actual building to another country.  Tremendously in the hospitality sector, in the service industries, where you need physical presence in the country.  So, yes, I think that the physical presence here will still correlate to our ability to grow as an economy, especially in the areas where we have the need.

FUDGE:  Yes, sir?

QUESTIONER:  Brian O'Neill with JP Morgan.  Good morning, Mr. Secretary. 

GUTIERREZ:  Good morning.

QUESTIONER:  Good to see you again.  You spoke to us eloquently about the benefits to the United States of passage by U.S. Congress of the three free-trade agreements, and you spoke to us about the risks and consequences of a failure to pass.  We have heard from the leaders of Peru and Colombia -- and while I've not heard personally from Panama, I imagine their position is the same -- that just about any possible compromise in the U.S., particularly on the labor issues, is going to be acceptable to them.  So as they see it, the principal risk is a failure to compromise in the United States.

From the executive branch of government's point of view, what are those so-called deal breakers that would lead the executive branch to say, "I'm not going to agree and there won't be a consequence, and therefore -- there won't be a compromise," and therefore we won't get the free-trade agreements that we want?

GUTIERREZ:  Well, without getting into specifics, you've touched on the areas that are potential deal breakers.  And any time you get into the possibility that our labor laws could be subject to change or that a free-trade agreement can drive fundamental changes in our labor environment, that would make us very concerned about the future.  And what we have to be aware of is that this is about Peru, Panama and Colombia, but this is also about future trade agreements, and we've got to draw the line as to what policies are you going to drive with a free-trade agreement.

This is about trade, it's about exports and imports and commerce, not about using a free-trade agreement to drive changes in our labor laws.  It's not a labor strategy.  And we will draw the line.  And as much as we need and want these free-trade agreements, we have to draw a line, and we have. 

And it would be very unfortunate, but if we don't reach a compromise in these areas, then we will not have free-trade agreements with these countries, and that would be a tremendous step backward.  So we hope that we're able to reach some kind of an agreement.

FUDGE:  How do we deal with a country like Venezuela?  You didn't mention Venezuela today.

GUTIERREZ:  Well, the way that -- you know, again, what we are doing is demonstrating that allies of the U.S. can prosper and that there is a benefit in being an ally of the U.S.  As you know, there's this -- as we've talked about CAFTA and our free trade agreements, there's this alternative free trading area.  I believe it's called ALBA.  And so the idea is to demonstrate that if you're a part of CAFTA, that you will do a lot better than if you're a part of ALBA. 

We are focused and -- we spend a lot of our time with our friends.  And we are focused, and we spend our time, our energy, our resources on those countries that want to do business with us, that want to grow with us, that want to make progress on the basis of what we are offering. 

So to be perfectly frank, in terms of my travels, my energy/time, our resources, they're focused very much on building relationships with our friends.

FUDGE:  Yes?

QUESTIONER:  Maria Murillo, Columbia University.  Regarding the free trade agreements, I have worked on the effect of GSP on labor laws in Central America and the Caribbean.  And in fact it's really been good for the countries in terms of enforcement of labor law and reform of labor law.  So why is not the free trade agreements perceived as an instrument to help people in those countries enforce their own labor laws and improve their own labor laws, because it gives them the incentive or the ability to use mechanisms of trade sanctions to try to get this done?

GUTIERREZ:  Well, I agree.  The free trade agreements -- wherever we've seen them take place, we have seen real wages increase.  And the irony is, real wages increased on both sides.  Because there is a focus and U.S. companies usually go -- become more of a presence, that tends to transfer ideas about labor.  They tend to put in place labor practices that are in the U.S.  And what -- and that has a spillover effect in the country.  And we have seen that countries benefit from the free trade agreement and the General System of Preferences.

So today, with the agreement the way it is, it will have a tremendous amount of benefit.  And we don't see the need to change the model.  I mean, it's just -- if we're trying to help workers in Colombia, the best thing we can do for them is to give them the free trade agreement.  We don't need to start changing the essence of a free trade agreement because we're worried that workers in Columbia aren't going to get a good deal.  They do get a good deal.

And that's part of why we're just not pleased at why we're taking so much time and why we're not moving forward on these agreements.  And we're focused on changing labor so that somehow workers in these countries get a better deal. 

QUESTIONER:  (Off mike) -- from the Dominican Republic who have changed the labor law and who have increased enforcement in terms of labor inspectors without the threat of U.S. trade sanctions through the USTR.  So I think, you know, you are doing more than that, and you should be selling it.

GUTIERREZ:  Thank you.  And you're correct --

FUDGE:  Question?

QUESTIONER:  John Mbiti from UBS.  You mentioned the role of free trade in alleviating poverty in Latin American countries.  However, I wonder how you would reconcile the rhetoric of free trade with the reality of agricultural subsidies as contained, for example, in the farm bill.

GUTIERREZ:  Well, there are -- we all have opportunities.  And I know the farm bill -- I know people point to the farm bill, and they'll say, "Look, your farm bill -- and how can you be critical of others if you have a farm bill?"

Now, what I will say is that the U.S. is the most open market in the world.  So yes, you can point to an exception, but I would say look at the whole.  And there is no market our size that is as open as ours.

And if you look at numbers, look at the average tariff that people pay coming into the U.S. for a basket of products, that is well below what people pay -- what companies pay going into the European Union or going into other developed economies.

So yes, you can always point to exceptions, but I think the important thing is look at the rule, look at the broad picture, look at the big picture.  And we would love economies to be as open as ours.  I mean, this continues to be the most open economy in the world.

FUDGE:  We have time for one more question.


QUESTIONER:  Yes.  It's Julia Preston from New York Times.  I wonder if you would give us an update on the immigration negotiations that are going on.  The white paper talking points -- that document that came out -- is that -- should we understand that those represent the administration's position?  And do you agree with the timetable that you really need to see some kind of a bill on the Senate floor by the end of May in order to think about having legislation this year?  What's your feeling about the (bill table ?)?

GUTIERREZ:  Well, first of all, whatever documents people are getting their hands on are, you know, work in progress, and there -- it's not a reflection of a proposal.  This is a very dynamic process, and every day we're putting something different on the table, every day we're talking about something.  You know, these are fluid conversations, so I would not take any document that's out there and use it as a proposal.

In terms of timing, I believe that Majority Leader Reid has talked about a May timetable in the Senate.  President Bush's position has been very clear:  We need to do this as soon as possible, and we need to get it done as soon as possible because the problem isn't going to go away by ignoring it.  And we continue to see it grow, if anything, every day that goes by.  So timing is -- I would say the timing goal is as soon as physically possible.

In terms of the status of the negotiations, I can just tell you that I have never seen the amount of engagement and involvement from members of the Senate and some members of the House, and I say the Senate because we've been focused very much on the Senate.  But there is real engagement.  There is a real commitment to getting something done on both sides.  These have been bipartisan discussions.  And I can tell you, we've had, you know, two-hour sessions every day with members of the Senate, members of the White House staff, Secretary Chertoff, myself, so there is real engagement here, and that's why I'm optimistic that we will be able to get something done soon.

FUDGE:  Well, great.  Thank you, audience, for great questions.  Thank you, Secretary Gutierrez, for joining us today.  (Applause.)

GUTIERREZ:  Thank you very much.  Thank you.








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