The Honorable Ambassador Roger Noriega's Speech at 2015 Trade Symposium
Thursday, October 8, 2015
Posted by: Alessandra De Souza
Remarks of Ambassador Roger F. Noriega
Visiting Fellow, American Enterprise Institute for Public Policy Research
CHLI's 4th Annual Trade & International Affairs Symposium
Washington, DC, September 30, 2015
"The economic benefits of free trade among nations are very clear. Take, for example, an historic deal that we all know very well: NAFTA (the North American Free Trade Agreement). Intra-NAFTA has more than tripled in 20 years, exceeding $1 trillion today.
U.S.-Mexico two-way trade accounts for half of that, $530 billion—up from just $80 billion before NAFTA—which makes Mexico our third largest trade partner. Trade agreements also prepare the terrain for direct investment. U.S. investment accounts for about half of all of Mexico’s FDI in the last 15 years. And it is a two-way street: Mexico’s multinationals are making an impact on the U.S. economy, with investments in 40 of our 50 states.
The hope is that the new Trans Pacific Partnership—made up of countries that comprise 40 percent of the world’s economic output—will be the motor of continued global growth. So, in spite of the global financial crisis, we remain believers in a rules-based trading system. Just in our Hemisphere, freer trade and free market policies have helped pull 70 million people out of poverty and expanded the middle-class by 50 percent.
However, recent news from the region suggests that regional economies losing momentum. Earlier this month, I met on Capitol Hill with one of the principal architects of U.S. trade policy, who urged that after the Trans Pacific Partnership is in place, global policy makers should focus their energy on making these agreements work for people on the ground rather than tinkering with global trade policy.
Folks here in Washington might say, like politics, “All prosperity is local.”
And, to a certain extent, that is the biggest challenge for all of us today. How do we work together as economic partners to unlock the potential of global trade, by starting at home. So, my central point is this: It is more important than ever to recognize that trade agreements and trade itself are no substitute for a more proactive, energetic, multilateral U.S. strategy to help our partners to adopt internal reforms that protect and promote economic freedom, incentivize entrepreneurship, reduce taxes and regulation on the productive sectors of the economy, and empower job creators as well as the workers.
These domestic policies will help countries build more mature economies, create better jobs, and cultivate healthier internal markets. They also are more capable of taking advantage of global trade, but less dependent on the volatile commodities markets.
Why are these internal reforms so indispensable? Think about it…. Nine short years ago, we advocated the Central American Free Trade Agreement as a means for securing market access and fueling long-term economic growth. Unfortunately for our CAFTA partners, transnational organized crime has overwhelmed Central America—corrupting their institutions and destabilizing their economies. The public-security crisis in these countries has undermined popular confidence in elected officials and overwhelmed local security forces.
The latest figures show that Honduras and El Salvador are less competitive than they were before CAFTA. Most of the local businesses there are struggling to survive, so very few have the luxury of tapping the potential benefits of international trade. Clearly, I’m not saying this phenomenon is a “failure of CAFTA.” But it does make clear that opportunities cannot be maximized among countries, if governments in these partner countries are unable to protect commerce and promote opportunity within their economies.
Of course, Mexico is confronting its own persistent security challenges—which can make it harder to attract foreign capital. Mexico’s president was credited by foreign observers for emphasizing economic modernization of his country—including in the energy sector. The problem is, he let down his guard to organized crime that continues to overwhelm institutions and sow corruption in many parts of the country.
As a result, his central reform—allowing private involvement in the energy sector—has lost much momentum, as doing business in Mexico is as complicated as ever. In spite of his best efforts on economic reform, Mexico’s economic growth this year is projected to be half of what it was just five years ago. Security is not the only problem countries face when it comes to sustainable growth.
The South American giant Brazil slipped into recession 20 months ago, its economy will contract by nearly 3 percent this year, and it is not expected to recover for several years. Although the Petrobras corruption scandal is widely perceived as the proximate cause of the political crisis there, the fact is President Dilma Rousseff barely won reelection among an electorate that widely opposed virtually every aspect of her economic program.
When she was first elected, she doubled-down on the social programs devised by her predecessor Lula da Silva—even if it meant milking Petrobras of capital that it needed to sustain exploration and production. Moreover, like Lula, President Rousseff failed to retool the Brazilian economy to make it more competitive. For decades, economists have identified unfinished business in Brazil’s reform agenda, including improving government efficiency and accountability; taming costly public pensions; simplifying the labyrinthine federal and state tax systems; liberalizing the labor code; removing regulatory obstacles to doing business, and attracting foreign capital and technology into the promising energy sector.
These examples show that the benefits of international trade cannot overcome domestic mismanagement. So, as we ponder an economic agenda for this new century, there is simply no substitute to local leaders making the hard choices to retool their economies.
I suggest strongly that we change how we think of global economic policy. There was a time when trade agreements consciously excluded value judgments about democracy and the rule of law. Today, I would argue that these are essential ingredients to sustaining equitable economic growth.
Democracy confers significant benefits on its citizens, usually resulting in more effective, restrained government, improved security, and better prospects for economic development. Independent courts are indispensable to an enforceable contract and essential property rights—two building blocks of the private economy. Responsible and accountable governments are more likely to value public order and transparency, both of which are critical to investment.
With that values-based foundation in place, we can help jumpstart private sector and free-market economic growth—by complementing existing trade agreements and traditional aid programs with market-driven solutions that help economies grow, extend opportunity to people from all walks of life, and promote trade and investment.
Imagine if Head of State tasked their ministries of finance to work together to develop regional capital markets that will increase the availability of private financing for business expansion, budding entrepreneurs, and innovators. Governments should share best practices in the use of “enterprise investment funds” to provide equity and debt capital directly to private entrepreneurs quickly and on commercial terms—especially in locations traditionally neglected by private capital because of high risk.
Scientists, researchers, engineers, and innovator-entrepreneurs should be encouraged to identify commercially viable technology and innovation;
International aid programs should encourage countries to break down internal barriers to economic growth—stressing self-sufficiency and reform rather than encouraging dependence on foreign assistance.
Finally, we must confront insecurity and corruption as critical obstacles to growth. We should consciously and systematically promote the rule of law as an indispensable element of representative democracy, citizen security, and sustainable, broad-based growth.
For example, I think our next president should launch an international campaign to put real resources and innovative cooperation to combat transnational organized crime—which fuels local corruption, undermines institutions of government, stunts economic growth, and costs lives.
Although this sounds like an ambitious blueprint, the fact is, I have just scratched the surface of the kind of new economic growth agenda that will generate sustainable, broad-based prosperity.
Of course, before we can advocate this sort of agenda with our partners, the United States must recover its credibility by making bold decisions to restore its own fiscal solvency, while aggressively promoting trade, energy interdependence, technology transfer, and economic growth.
In conclusion, trade agreements of the 21st century cannot be mere mercantile arrangements. The blessings of capitalism are more sustainable if they are shared. And there will be more opportunity to go around if policy makers are prepared to retool their economies to make them more competitive in a global marketplace."
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The Congressional Hispanic Leadership Institute (CHLI) is the premier organization founded by Members of Congress and corporate executive leaders to advance the Hispanic community's economic progress with a focus on social responsibility and global competitiveness. Founded in 2003, CHLI is a 501(c)3 non-profit and non-partisan organization.CHLI is dedicated to fostering a broad awareness of the diversity of thought, heritage, interests, and views of Americans of Hispanic and Portuguese descent.