Testimony – Strengthening U.S.-Mexico Relations: The Unfinished Agenda

Statement of Greg Lebedev, Chief Operating Officer and Executive Vice President for International Policy, U.S. Chamber of Commerce on Strengthening U.S.-Mexico Relations: The Unfinished Agenda before the Senate Committee on Foreign Relations Subcommittee on Western Hemisphere, Peace Corps, and Narcotics Affairs


April 26, 2002

Mr. Chairman, thank you for allowing the United States Chamber of Commerce to submit this statement today. I am Greg Lebedev, Chief Operating Officer and Executive Vice President for International Policy at the United States Chamber of Commerce, which is the world’s largest business federation. On behalf of our three million member companies of every size, sector, and region, I appreciate this opportunity to comment not only on the spectacular success of the U.S.-Mexico partnership over the past decade but on the unfinished agenda our two countries face today. My testimony will address three major areas in the U.S.-Mexico relationship: trade, border management, and migration.

A Decade of Progress

First, I would like to survey the dramatic improvements in this vital relationship in recent years. The tremendous progress in U.S.-Mexico relations over the past decade is a bipartisan success story. The first U.S. President named George Bush changed the relationship between our countries forever by proposing and successfully negotiating a completely new economic partnership under the North American Free Trade Agreement (NAFTA). Likewise, President Clinton deserves credit for his leadership in making the case for NAFTA’s passage before the Congress and for standing by Mexico during the 1995 financial crisis. But more than his predecessors, President George W. Bush has signaled a new perspective on the U.S. relationship with Mexico. By choosing Mexico as the site of his first foreign trip as president, President Bush showed that Mexico and the other nations of the Americas would be a principal focus of his administration’s foreign policy. Mexico’s President Vicente Fox shares this commitment to finding new approaches to longstanding challenges.

The key to the progress of the past decade is clearly the enormously successful North American Free Trade Agreement. In the eight years since the NAFTA came into force, trade between the United States and Mexico has nearly tripled, with bilateral commerce topping $245 billion last year.

The explosion in U.S. trade with Mexico has allowed U.S. companies to generate hundreds of thousands of new jobs. By one calculation, the boom in U.S. exports to Mexico alone generated over one million new U.S. jobs, to say nothing of new jobs created south of the Rio Grande. Indeed, NAFTA was one reason why the U.S. economy generated over 20 million new jobs in the 1990s. There has been no giant sucking sound — just the noise of three nations working together, raising incomes, and building a prosperous, shared future.

Also, the NAFTA has boosted international investment. By 2001, U.S. companies had direct investments worth $35 billion in Mexico. Among emerging markets, the level of U.S. investment in Mexico is second only to Brazil (by less than $1 billion) and is more than four times the amount U.S. companies have invested in China. Partly as a result of this new flow of investment, Mexican sovereign and corporate debt is receiving investment grade ratings from international agencies, and Mexico has paid off all its IMF debts years ahead of schedule. After growing by nearly 8% in 2000, Mexico today has followed its northern neighbor into a recession, but it is a North American recession characterized by a contraction of less than 1% of GDP. It is not a classic Latin American recession, in which economies can contract by 5%-10% of GDP. North America is moving toward a true single market.

NAFTA’s Unfinished Agenda

But more can be done to enhance the value of the trade and investment partnership Mexico and the United States are building. Our two nations took a step forward a year ago, when the U.S. Overseas Private Investment Corporation (OPIC) announced that it would offer long-term financing to small U.S. businesses investing in Mexico. This was a historic decision because OPIC support was not available to U.S. companies operating in Mexico until now. President Fox welcomed OPIC’s announcement, which comes in response to strong demand by U.S. businesses to expand into the Mexican market.

At present, OPIC is authorized to lend from $100,000 to $200 million for small business projects in Mexico in which U.S. businesses have at least a 25 percent ownership interest. However, the business community is still waiting for an inter-governmental agreement to allow OPIC to provide a complete array of investment services to U.S. companies operating in Mexico. Over 140 countries around the world have signed such agreements with the United States, but outdated concerns in the Mexican Congress about such an agreement infringing on national sovereignty have made Mexico one of just a handful of countries where OPIC services are not generally available.

It’s time for to leave these antiquated views behind. Thanks to its free trade agreements with 32 nations, Mexico is already showing the world that free trade is an engine of prosperity. Outmoded thinking should not stand in the way of mutually beneficial trade and investment.

One item that some critics of NAFTA believe ought to be placed on the “unfinished agenda” for further work is the NAFTA’s Chapter 11. Even some members of Congress have criticized Chapter 11’s “investorstate claims” process, asserting that it gives foreign companies rights that are denied to U.S. firms. What these critics overlook is that the United States is by far the biggest beneficiary of investor-state claim mechanisms. Such mechanisms are included in literally hundreds of bilateral investment treaties around the world and are an established and beneficial part of international commercial jurisprudence. Why is the investor-state claim process so important to the United States? First, because the United States is the world’s largest overseas investor, with annual sales by overseas affiliates of U.S. companies surpassing $2.5 trillion, a level roughly two and half times that of our merchandise trade. While foreign investors in the United States can count on our legal system to ensure due process, U.S. investors in many foreign countries cannot enjoy similar security without effective treaty provisions. This is why such provisions have been included in 45 U.S. investment treaties with other countries. Even as we speak, U.S. investors in Argentina are invoking the investor-state claim process laid out in the investment treaty between the United States and Argentina, to the great benefit of U.S. companies and workers.

Let me repeat this crucial point: that the United States is the primary beneficiary of these protections against discriminatory treatment. Rules permitting investor-state arbitration grant U.S. investors access to an impartial, independent decision-making body when they make claims against foreign governments for breaking rules established in trade agreements and investment treaties. Why the United States should want to rewrite these rules is unclear, and the U.S. Chamber urges the Congress to think long and hard before making any changes to Chapter 11.

An additional area where our two countries are just beginning to live up to the NAFTA’s promise is cross-border trucking. The U.S. Chamber of Commerce was pleased last year when the Bush Administration and the Congress reached a consensus on legislation that will allow the United States to live up to its NAFTA commitments on cross-border trucking. Under NAFTA, the United States and Mexico pledged to liberalize cross-border trucking, but the United States retains full authority to inspect — and reject — trucks that do not meet U.S. safety standards. However, beginning in 1995, the Clinton Administration hid behind safety standards to deny Mexican trucks entry to the United States. That policy maintained a cumbersome, environmentally damaging, and costly system that has put a brake on further trade growth. With over 80% of our trade moving by truck, neither country can afford to block our trucks at the border.

In the wake of a NAFTA dispute panel ruling that unanimously found the United States in violation of the agreement, President Bush has pushed forward with plans to bring our country into compliance with our solemn commitments under NAFTA. The Department of Transportation has rolled out regulations that will allow the United States to do just that beginning in the second half of this year.

Clearly, the time has come for our countries to open our borders to a modern cargo transportation system that will allow our economic partnership to reach the next level of success. We must insist that our countries make adequate — and smart — investments in border infrastructure to accommodate the ever-expanding volume of trade.

A Secure and Efficient Border

Border Management has become not just a buzzword in Washington but also an imperative in the wake of September 11. In many ways the renewed focus on the operations of our borders has been a boon — for too long policymakers in Washington have paid little attention to the functioning of our borders, or, when they did, it almost always dealt with stopping the flow of illegal immigration or contraband.

Little has been done over the past decades to update our border management policies, border infrastructure or staffing to facilitate the millions of legitimate travelers and billions of dollars in legitimate trade that crosses our borders each day. Specifically, over 800,000 people cross the U.S./Mexico border each day. That includes 250,000 personal vehicles and over 12,000 trucks. Truck trade with Mexico amounted to $171.1 billion in 2000.

As I stated in the first part of my testimony, under NAFTA, these border crossings represent a significant portion of our international trade and our domestic economy. While we must ensure our physical security and protect our country from the devastation that could be caused by another terrorist attack, we must also protect our economic security, and ensure the continuation of the legitimate travel and trade at our borders. We must remember that the terrorists also targeted our economy when they struck at our national symbols. In the wake of the September 11 attacks, our nation’s ports of entry have been on a Level 1 Security Alert. This increased security has meant that commercial and passenger traffic at our nation’s land borders has been subject to increased scrutiny. While this security is necessary, it has also resulted in significant disruptions to the normal course of trade and travel across our borders.

In December, the Chamber conducted a survey of local and state chambers of commerce on the Mexican border to assess the economic impact of the post-9/11 security measures. Every locality reported significant delays immediately after the attacks. Delays have gone down since then as Customs and INS have been operating on 14-16 hour shifts, mounting uncountable overtime hours, and stretching resources to the limit. National Guard and local law enforcement have been called in to assist with managing the traffic flow. But even so, border crossings are still down as much as 30% in some areas and local economies that are heavily dependent on the border traffic are continue to suffer. We are gravely concerned that the current border situation is unsustainable in the long term.

In response, the U.S. Chamber has created the Americans for Better Borders (ABB) coalition. The coalition brings together over 100 regional business organizations, companies, and national trade associations representing manufacturing, hospitality, tourism, transportation, recreation and other industry sectors to work to ensure the efficient flow of exports and tourism across our borders while addressing national security concerns.

The Chamber and ABB support S.1749, the Enhanced Border Security and Visa Entry Reform Act, sponsored by Senators Kennedy, Brownback, Feinstein and Kyl, which we believe takes good, reasoned steps toward security while ensuring the continued flow of legitimate travel and trade. The House passed a version of this bill in December and we urge the Senate to do so as well. But this bill is only a first step. We cannot address our border security from our side alone. We must work in concert with our neighbors. The Bush Administration has acknowledged this need and has moved forward in a positive way to address border issues by engaging Canada and Mexico in the creation of “smart border” accords. The 22-point accord with Mexico, announced during President Bush’s trip to Monterrey last month, commits the United States and Mexico to moving forward on an expedited clearance program for shipments by firms that participate in enhanced compliance regimes, dedicated lanes for frequent border crossers with “smart cards,” and exploration of joint border infrastructure. This new agreement also provides a framework for future border cooperation and communication between the United States and Mexico.

Many in Congress and in the Administration have also urged the creation of a new border agency to achieve the dual goals of improving security and facilitating trade at the border. The Chamber is supportive of all measures that would move toward those two goals, but we do not favor reorganization for the sake of reorganization alone. Any agency consolidation or reorganization should be undertaken with specific goals and outcomes in mind. We are also aware of the good work being done at the agencies now toward improving border processes, and we would not want to see those efforts derailed in the rush to make organization changes. It is a daunting challenge to reform both the procedures at our borders and their management oversight at the same time, and in an urgent manner. But let me say this clearly — when it comes to our borders we cannot afford to make mistakes. So we must think carefully about all such moves and gauge their impact before we undertake them.

The Chamber can serve as a forum for bringing together lawmakers and policymakers with the private sector to accomplish these objectives. Later this month we will host a daylong forum with Members of Congress and representatives from business and academia to discuss cargo security and how to achieve the dual goals of security and efficiency. We would like to work with Congress and the Administration on any broad reforms of border oversight that might be proposed.

Creating a Legal Migration Framework

Although the challenges of border management are enormous, arguably the biggest area of “unfinished business” in the U.S./Mexico agenda is migration. The United States and Mexico share almost 2,000 miles of border in addition to cultural, historic, economic and familial times that go back generations. The links between our economies also extend to our workforce. These factors have resulted in the patterns of migration that have evolved over centuries. And yet our legal and regulatory mechanisms have been largely out of step with this phenomenon, resulting in terribly unfortunate consequences: millions of people living and working in the U.S. without legal status, but building our communities and economy; hundreds of people dying each year on our border trying to achieve the same American dream; and a thriving criminal underclass to take advantage of this system.

It is time for us to seriously address this reality. We need comprehensive, fundamental change in our immigration system — not just more small band-aid fixes that create more problems than they solve. We need to make it legal for, as President Bush says, “willing employers to get together with willing employees.”

And once again, President Bush has shown leadership in this difficult area. He and President Fox announced in February 2001 the creation of a High-Level Bi-National Working Group on migration, and tasked these senior cabinet officials with developing a new immigration framework for the United States and Mexico. We have supported these discussions from the beginning. Last fall, in fact only four days before the terrorist attacks, U.S. Chamber President and CEO Tom Donohue testified before the Senate Judiciary Committee, along with AFL-CIO president John Sweeney and representatives of the Hispanic and religious communities to urge comprehensive immigration reform in the course of the U.S./Mexico dialog. And, last Thursday, these groups came together again for the first time since the attacks to renew their call for immigration policy reform. We continue to state reality: we need these workers and they are not going anywhere.

Month-to-month changes in the unemployment rate have not changed the fundamental reality that America’s population is aging and our pool of available workers is shrinking. According to the Bureau of Labor Statistics, by 2010 we will have 167.8 million jobs, a more than 15% increase from current levels. But our workforce is expected to grow only 12%, to 158 million, in the same period. And the median age of the workforce will be over 40 years old! We need to change our policies, make legal immigration the norm, and expand — not limit — immigration to meet our labor needs.

New immigration policy must satisfy three important requirements.

First, we need to address the need for employers to hire foreign workers legally when U.S. workers are not available. We need to allow employers to fill jobs quickly and workers to have the rights and dignity that come from having legal status.

Second, we need workable temporary and long-term visas. We need to create new visas that go beyond seasonal needs and that have streamlined processes that do not create additional, unnecessary burdens. We also need to assure that everyone is playing fairly: offering the required wages, looking first within the U.S. and treating workers well. We need a system that is flexible to allow employers to train and promote these workers, to allow workers to find the best employers for them, and for both employers and employees to make the arrangement permanent, when both agree.

And third, but possibly most importantly, we need to address the status of those who are already here and contributing to our economy. We believe that those who have already demonstrated their commitment to the United States by living here, working and paying taxes, should have a means by which they can earn permanent residence. There are many possible ways to accomplish this that are being discussed by the policy-makers; but we simply want to ensure that these individuals can continue their contributions to their employers and communities.

Now there will be some who will say that in light of the terrorist threat against us, how can we propose such a broad expansion of our legal immigration system. The Chamber has been at the forefront of creating a security framework in which business can continue to operate and I would argue that immigration reform is fully consistent with our national security imperative.

A regulated, structured immigration system will tell us who is coming to our country, where they are living, and assure us that they are not terrorists. We need to bring into the light hard working, upstanding immigrants who deserve protection under our laws, while exposing criminal gangs and terrorists that use the current system to their advantage.

The relationship between the United States and Mexico cannot flourish with this large issue remaining unaddressed. As Tom Donohue said on Thursday to President Bush, President Fox and Congress: “Do it. Work it out. And we … will be here to work with you. But don’t leave this unfinished business.”

Conclusion

In conclusion, Mr. Chairman, the U.S. Chamber of Commerce believes, as the President does, that we have no more important relationship in the world than with our neighbors in Mexico, and we need to do all we can to perpetuate and strengthen that relationship, through increased trade, secure and efficient borders and a migration framework that meets the needs of both nations. And we look forward to working with Congress and the President to achieve those goals.

Thank you, and I am happy to answer your questions.