Remarks
Robert D. Hormats
Under Secretary for Economic, Energy and Agricultural Affairs
New York City, NY
October 6, 2011


Thank you John [Negroponte] for that kind introduction. It is an honor to be here tonight with the Council of the Americas. Your leadership and commitment to open markets, development, and democracy makes you an extraordinary partner throughout the Americas.

I know that this distinguished audience fully understands how the world of the early 21st century is changing. We are increasingly linked and transformed by new technologies, rapid increases in trade and financial flows, global supply chain networks, and the rapid proliferation of innovation and competitive companies. All these generate tremendous opportunities for expanded trade and investment – and job creation— here in the United States and throughout the Americas.

But all these developments also challenge both governments and businesses throughout our Hemisphere to respond with creativity and strategic vision. With our increasingly integrated production and markets—and our complementary strengths, shared values, and converging interests— the Americas are a vital platform for prosperity and global competitiveness for all our countries. But to understand better what is required in this Hemisphere, we first need to understand the larger global strategic and economic environment.

Latin America’s growing success is occurring against the backdrop of historically significant power transitions in the world, particularly in Asia. We are in a new global landscape-- very different from that of recent generations. Power is becoming more balanced between developed and developing nations. Economic influence can matter as much as, or more than, military might. Sound economic and financial management have become critical deteminants of national success and international stature.

Economic competition is intense in the emerging global system. We all face a wide range of competitors. But, in a networked world, many of these competitors can also be vital partners. Increasingly innovation and production is a cross-company, cross-border phenomenon.

A handful of rising economic powers has accounted for much of the world’s growth in recent years. While China and India are the most frequently mentioned examples, it is worth noting that, in our hemisphere, countries such as Brazil and Mexico are playing growing roles in the global economy. Countries such as Colombia and Panama are also exercising important regional leadership-- and are rapidly growing in importance as international economic players.

How we all respond to this changing landscape will have enormous implications for our shared prosperity, security, and influence around the world. For the U.S., to have a successful foreign and national security policy we must have a strong economy here at home – with robust job creation and sustainable finances. At the same time, a well-constructed international economic policy that proactively engages the world, and especially our vital partners in the Americas, is also critical to our success at home. I believe that the same can be said of any country in the Hemisphere. Indeed, in a globalizing world, these two goals -- a strong domestic economy and an effective foreign economic policy -- are interdependent. Each reinforces the other. And both are critical to inclusive growth and security for all countries.

Tonight, I want to speak to you about what we in the Obama Administration are doing to address the challenges we face in meeting these goals -- specifically in the Americas. I will focus on seven key areas:

  • First, we are committed to gaining congressional approval of our FTAs with Colombia, Panama, and Korea, together with necessary Trade Adjustment Assistance, as soon as possible. We are pleased that yesterday the three FTAs were passed out of the House Ways and Means Committee by sizable majorities.
  • Second, the growing role of China.
  • Third, strengthening regional supply chain integration by reducing regulatory, trade, and non-trade barriers in the region.
  • Fourth, assisting our companies increasingly to take agreater part in the massive infrastructure investment occurring throughout the Hemisphere. We are very proactive in supporting their efforts.
  • Fifth, mobilizing to build a more secure and sustainable energy future with our hemispheric partners.
  • Sixth, using our partnership networks to make the region’s growth more inclusive, a goal that is vital to overall stability.
  • Finally, working with leaders throughout the Americas to use the April 2012 Summit of the Americas to further consolidate the hemispheric consensus around promoting more inclusive and sustainable economic growth.

Trade and FTAs

Let me first address our three pending free trade initiatives. These agreements are a major Administration priority. They are vital to the credibility of America’s international economic policy and foreign policy leadership. They will cement closer ties to key partners. And they will produce many well paying jobs here at home.

As President Obama said on Monday when he submitted the trade bills to Congress, “These agreements will support tens of thousands of jobs across the country for workers making products stamped with three proud words: Made in America.” Of course, we also believe that Latin America’s trade with the U.S. is a benefit not just to us but to all of our trading partners in the region.

Passing the pending Trade Agreements—which include significant protections for workers and for the environment— allows us to strengthen intra-regional trade and reap the important benefits of that trade in our region.

China

Let me now say a few words about China. Much has been made of China’s growing trade with Latin America and its increasing investments in the Hemisphere. China’s trade with Latin America and the Caribbean has grown faster than its trade with any other region. For several of our Latin American neighbors, China is now their number one trading partner. This has been a significant boon to the Americas and helped Latin American economies to grow rapidly despite the recent global recession.

Overall, according to China Economic Quarterly, China’s share of Latin American trade went from 2 % to 10% between 2000 and 2010. Most of the region’s exports to China are raw materials. This has been enormously helpful to some countries but has distracted others from pursuing policies to diversify their exports and move up the production ladder to more value-added goods.

Moreover, to take the case of Brazil, according to a study conducted by Brazil’s National Industrial Confederation, one-fourth of Brazilian manufacturers face competition from Chinese firms in the domestic market, and two-thirds of Brazilian exporters have lost foreign buyers to China. The Federation of Industries of the State of Sao Paulo estimates that competition with China has led to the loss of approximately 70,000 Brazilian manufacturing jobs in 2010 and $10 billion in expected earnings for local industry. Brazil recently imposed additional tariffs, in part to protect local industries from declining further.

Despite these recent gains by the Chinese, the U.S. remains Latin America’s most diversified export market. While China has been the primary export market for some Latin American nations, only eight percent of the region’s total exports went to China in 2010, compared to 41 percent of its exports going to the United States and 13 percent to the European Union.

Importantly, 60 percent of Latin America’s exports to the United States are manufactured goods helping to diversify Latin American economies and bring countries up the economic value chain. By contrast, 87 percent of Latin America’s exports to Asia (mainly to China) are raw materials. This is a less-diversified basket of export goods than with any of the region’s other trading partners.

Going back to the Brazil example, a recent study by Oxford Analytica found that 98% of Chinese exports to Brazil were manufactured goods while 85% of Brazil’s exports to China were commodity products. Over time, trading patterns like this become worrisome.

Looking at the investment side, China is also starting to ensure its flow of these raw materials by increasing its investments in Latin America. Based on estimates from the Chinese Ministry of Commerce, China invested over $10.5B in Latin America in 2010 up nearly 600 percent from $1.7B in 2004.

While it may make good business sense for the Chinese to protect against price increases and supply chain disruptions by investing locally, it may also have the unintended consequence of delaying the growth of some countries beyond “extraction economies.”

China, of course, is also increasing its investments in Latin America to ensure market access for its exports—as many countries in many markets do. I still believe that in most cases, trade with and investment from China has been a good thing for the Americas insofar as it has boosted growth and infused new capital. But we also recognize that there could be negative implications. So adherence by China to global norms related to labor and environmental standards and emphasis on inclusive growth remain important to ensure broadened sustainable benefits for all.

Our common challenge now is to identify new ways that enable the benefits of this trade and investment to be enjoyed by all segments of society and that the economic growth currently funded— in part—by commodity exports, evolves into sustainable growth in well-diversified economies.

Broad-based growth would not only benefit the Americas but would benefit also China and our other trading partners over the long run as increased prosperity in the hemisphere drives future trade and investment opportunities.

We would encourage our neighbors throughout the Americas to engage in a thoughtful dialogue on Chinese trade and investment to ensure that the benefits are far-reaching and serve their long term needs. Our goal is to encourage responsible investment that adheres to international norms and standards and reflect a commitment to our shared values. We have a common goal of achieving growth—inclusive growth that supports good jobs and lifts people out of poverty.

Strengthening U.S. Competitiveness by Deepening Supply Chain Integration

My next point relates to the importance of effective supply chain integration. NAFTA is one of the largest free trade areas in the world. Total trade with our NAFTA neighbors stands at nearly $1 trillion per year. In the United States, we tripled trade in the region and had the largest expansion of jobs in our history in first seven years after the passage of NAFTA. Coming out of the recession, U.S. exports to Canada and Mexico in 2010 increased by nearly $80 billion, from $334 billion to $412 billion. This is more than four times our exports to China. One of the most important aspects of NAFTA is that it has enhanced our ability to make products together. But the NAFTA of the late 20th century can be improved still further in the 21st century through improved regulatory cooperation. We are working with our NAFTA partners to achieve this objective. Harmonized regulations and testing standards, for instance, can significantly boost efficiency and reduce trade difficulties. This will make us all more competitive with Asia and other regions as well.

But our trade with the region doesn’t end with just our immediate neighbors to the north and south. Overall, about 84 percent of our trade in the Hemisphere takes place with our FTA partners. Much of this trade is in intermediate goods. For instance, roughly 50 percent of Chile’s exports to the United States are inputs into finished goods in the United States. That boosts job creation in Chile and in the United States. Chemical products, electronic components, brake parts, and textiles that U.S. manufacturers import from Latin America all reflect the extent of our integrated supply chain with this region.

It is the natural progression of our trade partnership in the region to pursue policies that will reduce transport time. We are working with our regional partners to reduce and eliminate such barriers and improve our regional competitiveness—which can boost employment throughout our region.

Crucial to our effort to deepen supply chain integration is building a strong intellectual property protection regime in the Americas. We are working hard with governments, union leaders, and industry to strengthen IPR protection. In today’s knowledge-based economy, all of our greatest assets are the ingenuity and creativity of our peoples. All nations benefit by protecting that creative drive.

Infrastructure

This brings me to the importance of infrastructure investment, because without a good infrastructure—in the U.S. and elsewhere—economies will not operate at maximum efficiency and even the best idea may not be able to be taken to market. Whenever I meet with business or government leaders anywhere in the Hemisphere it is clear that investment in infrastructure is a key priority. We all understand that a country’s ability to safely move goods, people, and ideas—internally and internationally—is a key driver of economic growth. And people all over the hemisphere recognize major infrastructure deficits.

Colombia, Panama, Mexico, Brazil, and others are committing truly enormous resources to build modern infrastructure in areas such as transportation, communications, energy, security, and trade. Success will make trade more efficient and reduce its costs. Half a century ago U.S. companies were the partners of choice for such investment. Today we face a much more competitive environment.

Here in the U.S. our trade and commercial policies must help our firms compete fairly and successfully-- and we will advocate vigorously for U.S. companies. We also believe in a rules-based international system in which any company that follows the rules shall be able to compete fairly. And we believe that our companies have the comparative advantages to compete and win important contracts that will benefit our workers and those in countries throughout the Hemisphere.

As a government, we are also eager yo assist countries of the region to develop infrastructure. I have been working closely with our Overseas Private Investment Company, our Trade and Development Agency, and our Export-Import Bank to facilitate US companies seeking to benefit from infrastructure investments throughout the Hemisphere. Another example is our support for the Inter-American Development Banks’s new Crossroads Fund, focused on reducing transport and logistics costs in Central America. This Fund seeks to develop more efficient and more secure regional transport networks.

Energy and the Environment

Just as we are committed to working with our partners to improve infrastructure, we are also committed to strengthening our cooperation on Energy. We have enormous opportunities to cooperate in ways that achieve a more secure and sustainable energy future for our entire region—which also serves to diversify American, hemispheric, and global supplies.

The Americas are rich in energy resources, but many countries in the region are energy poor. We are committed to encouraging innovation in clean and renewable energy resources as well as helping the region mitigate the effects of climate change. This goal is at the center of the President’s Energy and Climate Partnership of the Americas—or ECPA. ECPA is designed to promote clean energy technologies and low carbon development, mitigate deforestation, and encourage climate-resilient planning.

Since the President launched ECPA in 2009, the United States has committed approximately $61 million to support clean energy and climate change activities under ECPA. Indeed, already the United States and other governments have begun approximately 40 different energy and environment initiatives throughout the region, but we believe that more can be done.

Inclusive Growth and Pathways

Throughout all these efforts, the United States Government believes that all of us— as governments and as the private sector—have a deep stake in ensuring that growth in the region is more inclusive. A cornerstone of our policy in the Americas is the “Opportunity Agenda” that Secretary Clinton laid out, which includes:

  • opportunity for the region to build on its progress toward democratic governance and macroeconomic stability and address its social deficits;
  • opportunity for the region to knock down barriers blocking social mobility, especially for women and young people;
  • and opportunity for the United States and the Americas to cooperate in tackling common problems.

The centerpiece of our “Opportunity Agenda” is the Pathways to Prosperity initiative, a flexible and expanding network of initiatives encompassing countries in North, South, and Central American countries. As Secretary Clinton remarked in her address at the Pathways Ministerial in Santo Domingo yesterday, “Each of us is taking a hard look at what we do and what we can do better, clearing the pathway for greater social and economic mobility, opening up our economies to trade, making that openness more sustainable so that we see benefits for the greatest number of people.”

The Secretary also announced that the United States will be committing $17.5 million in technical assistance funding to promote small businesses, facilitate trade, develop a modern workforce, and increase environmental cooperation.

Summit of the Americas

Let me also say that on all these issues—and many more-- we see a unique opportunity to collaborate in advance of the upcoming Summit of the Americas, in April 2012 in Cartagena. There has probably never been a stronger consensus among citizens all over the Americas on basic priorities. These include inclusive and sustainable growth, safe neighborhoods, and effective institutions of democratic governance. The Summit, gathering all 34 of the hemisphere’s elected leaders, can be a platform to demonstrate the strength of that unity. It will showcase the unprecedented practical ways people in our very diverse hemisphere are coming together and connecting to solve problems. It is a chance for all of us to increase our cooperation in the lead up to the Summit and beyond.

Conclusion

In conclusion, let me say that it is an exciting time to be working on international economic issues, and in particular on issues related to Latin America. We face some unique challenges but hidden in those challenges are many opportunities. It is all our duties to work toward inclusive security prosperity throughout our Hemisphere so that all of our citizens can take advantage of opportunities in this changing global landscape. Let me also say that I am particularly excited to have had the chance to address the Council today. Groups such as yours are helping to inform and shape the dialogue around key trade, investment, and social issues in the Americas. I thank you for your attention.

[This is a mobile copy of Speech to the Council of the Americas]