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Diplomacy in Action

Remarks to the Association of American Chambers of Commerce in Latin America


Remarks
Jose W. Fernandez
Assistant Secretary, Bureau of Economic and Business Affairs
Miami, FL
February 7, 2013

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Introduction

Good afternoon. Thank you for the kind introduction. I am thrilled to be here in Miami with you. I know many of you traveled from countries throughout the region, and it is great to see you.

Two weeks ago, I was in Mexico with assistant secretaries from the Departments of Commerce, Treasury, and Transportation, and we had the pleasure of meeting with the AmCham. As the Department makes economics a corner stone of our foreign policy under the Economic Statecraft initiative, I have found that some of the best insights into local economies as well as global trends come from local AmChams.

When I travel in Latin America, I frequently hear concerns about our so-called “pivot” towards Asia and what it means for the region. There is a great deal of misinformation about the pivot, which is better described as a rebalance, particularly the common misperception that it signifies Latin America is less important to the United States than it was in the past. Nothing could be further from the truth. Our relationships with our regional partners running from the Arctic to Tierra del Fuego are more important than ever. Let’s look at the numbers. Forty percent of America’s exports stay in this hemisphere. We export six times as much to Latin America and Canada as we do to China. We sell more to Colombia than to Russia. Last year, our trade two-way goods trade with Canada and Latin America totaled more than 1.3 trillion dollars. Our total goods trade with Canada is valued more than twice as much as our goods trade with India. These numbers show the importance of the Western Hemisphere for U.S. trade, but there is more to the relationship than just dry trade statistics.

We are bound by history and common culture. Millions of American families have ties to other countries in the region. The degree of these linkages creates unique opportunities for cooperation that we do not have with any other region.

However, we are not willing to rest on common culture and the current strength of our relationships with partners in the region. We want to broaden and expand our interaction with countries and economies throughout the Hemisphere. We want to reframe the relationships for a changing world. The rebalance to Asia should more accurately include the word “Pacific.” We are thinking increasingly of the Americas and Asia as an integrated whole – a broader Pacific with commonalities beyond geographic links. The Asia-Pacific region is central to foreign policy because of the role it plays in powering global economic growth. The Broader Pacific is home to more than half of the world’s population, as well as many key economies, a number of our closest allies, and emerging powers.

Although the Pacific is vital, our focus does not mean we plan on ignoring our Latin American and Caribbean partners in the Atlantic. We fully recognize our valuable partners on the Atlantic side – our Caribbean neighbors, Brazil, and others. The Asia-Pacific region isn’t the only side where relationships with key partners are changing.

U.S. economic policy in Latin America is vast and multifaceted, and so I will not attempt to address all of it. Instead, I want to touch on seven areas: 1) economic success stories, 2) the emerging middle class, 3) harnessing the power of the diaspora, 4) infrastructure opportunities, 5) improving government finances, 6) working together on a common international agenda, and finally 7) what we at the State Department are doing to help support U.S. business abroad. These are areas where I believe the U.S. can increase engagement and have an impact in the region.

Economic Success Stories

Mexico and Brazil are only two of the economic success stories in Latin America, but they are two where I am most frequently involved. Since I was just in Mexico, I want to focus there. Mexico, a major regional power that is pro-market and actively engages on global economic issues, offers huge possibilities for increased economic cooperation. The United States and Mexico share many similar interests and concerns. It is in both our interest to increase economic integration among the NAFTA partners in order to make our economies more competitive.

President Peña Nieto has made clear that one of his top priorities is economic reform and a more robust Mexican economy. A key element of this is to prioritize the economic side of the U.S.-Mexico relationship. As I already mentioned, when I traveled to Mexico City two weeks ago along with my colleagues we went to engage the new Peña Nieto administration on how we can deepen and elevate our already close cooperation on economic issues. We discussed ways to work together on transportation, regulatory cooperation, and telecommunications. We want create a 21st Century Border that promotes the efficient flow of legitimate goods. I heard a desire from government officials and the private sector to learn best practices for supporting entrepreneurship. We are looking to establish an Entrepreneurship and Innovation Dialogue for this purpose. Finally, we are seeking opportunities to work together on global issues, such as regional trade and development.

Enormous regional economic growth has produced a strong middle class that forms the basis for continued political and economic reforms, and I’d like to turn to that next.

Middle Class

Strong regional economic growth led by Mexico and others has produced a strong middle class that forms the basis for continued political and economic reforms. Between 2000 and 2009, 50 million people joined the middle class in Latin America and the Caribbean. This brought the total middle class population in the region to over 165 million or roughly one-third of the population. For the first time in the region’s history, there are as many people in the middle class as there are in moderate poverty. As their incomes increase, members of the middle class will demand better government services, better education, more transparency, and less corruption – all areas where the U.S. has engaged on in the past. A recent study has shown that, all else being equal, an increase in the proportion of the middle class in a society results in more active social policies on health and education and improvement in the quality of governance regarding democratic participation and corruption. As the demographics of Latin America changes, so too must our policies and priorities change.

An increased demand for quality education offers us the opportunity to promote U.S. universities as a destination for Latin American students as well as joint programs between U.S. and Latin America schools. President Obama’s 100,000 Strong in the Americas initiative is expanding opportunities for educational exchanges, including for historically underserved populations to develop a new generation of “Pan-American” business, scientific, and political leaders. As the home of top flight business and Silicon Valley, the U.S. is ideally situated to engage students and the policy makers on entrepreneurship and innovation as engines for economic growth and job creation.

In order to facilitate trade and meet the rising middle classes’ desire for U.S. goods and services, we must also focus on regulatory cohesion. One area where we are making progress is the High-Level Regulatory Cooperation Council with Mexico, where we work together to identify specific sectors where we can improve regulatory cooperation. This will make it easier for companies on both sides of the border to sell their goods. Regional regulatory cooperation, where appropriate, presents real opportunities for cost savings to businesses, and greater market access for goods in key markets, such as medical devices. Costa Rica, for example, automatically approves medical devices certified by the U.S. Food and Drug Administration. There may be opportunities to work with other countries to implement a similar program.

Diaspora

Another area of great opportunity is harnessing the power of the diaspora. Latino immigrants around the world sent over $60 billion in remittances back home last year. With the largest Hispanic diaspora population in the world at 52 million, the United States was the source for over $47 billion of those remittances. In Mexico, Central America, and the Caribbean remittances often account for over 10 percent of GDP. There is a broad consensus within the development and NGO communities that remittances represent a significant opportunity to help meet development and economic growth goals. As the World Bank, Inter-American Development Bank, and other development experts have recognized, in an era of fiscal austerity, we cannot afford to ignore the development potential of remittances. We also believe that migrants are highly effective advocates for U.S. products and investments in their home countries. Immigrants are often among the first to be willing to invest in challenging markets, which brings me to the next topic.

Infrastructure

We are also focusing on the tremendous opportunity American companies have in regional infrastructure projects. Virtually every Latin American country has targeted infrastructure as essential for increased economic growth. Brazil, Colombia, Peru, and Mexico have unveiled several billion dollars of water, port, airport, railroad, electric, and roads projects.

Under the second phase of its Growth Acceleration Program, Brazil will spend approximately 470 billion dollars from 2011 to 2014 to develop its energy generation and distribution system, roads, railroads, ports, and airports, as well as stadiums for the 2014 World Cup and the 2016 Olympics. As Brazil grows its middle class and prepares to host these international games, demand for transportation services is likely to overwhelm the country’s inadequate infrastructure and framework of antiquated air transport agreements. For this reason, we are working to leverage our new Aviation Partnership Memorandum of Understanding to open opportunities for U.S. firms in the areas of air traffic management, airport infrastructure, equipment and software, and air services technology.

In Colombia, the government has advanced plans to invest roughly $26 billion (nearly four percent of GDP) in infrastructure projects over four years. Only 15 percent of Colombia’s roads are paved, and the nation has just 1,000 kilometers of dual-lane divided highways. Colombia has just 900 kilometers of railroad, and river navigation cannot transport goods on a large-scale.

Mexican president Peña Nieto repeatedly stated during his campaign that he wanted to increase investment in infrastructure through public-private partnerships. He has also made it clear that facilitating cross-border trade will be a central focus to his economic agenda. To do this, Mexico will need to carry out a comprehensive review of existing roads, bridges, and interior infrastructure with the aim of reducing traffic bottlenecks and increasing the efficiency of border crossings. Peña Nieto in his inaugural address already announced three new rail projects. One of which, the Transpeninsular Yucatan-Quintana Roo line, is estimated to cost U.S. $850 million. It is unlikely the Mexican government will be able to fund the projects on its own, so they will likely look to develop public-private partnership ventures.

Helping Latin America achieve its infrastructure development objectives will encourage growth, increase regional integration, and create opportunities for the U.S. private sector. The State Department recently created a newsletter that publishes information on multilateral development bank projects, especially in infrastructure. In addition, Brazil and Colombia are both part of a nine country infrastructure initiative we developed in partnership with the Department of Commerce. Through this initiative, we are coordinating U.S. government agencies’ efforts around key infrastructure projects in both countries, as well as engagement on broader issues that prevent U.S. companies from entering these markets. This wave of infrastructure development will not only meet the needs of Latin America’s new middle class, it will also help create high paying U.S. jobs in areas such as machine tools, engineering, and project management.

Government Finances

Many countries in the region are facing difficulties due to high debt levels. Poor tax administration in Central American and Caribbean countries hampers efforts to finance public investment, improvements in security, and disaster assistance. To address these challenges, President Obama announced the Domestic Finance for Development, or DF4D, initiative during his 2011 trip to El Salvador to engage partner countries on tax administration while also promoting budget transparency and fighting corruption, recognizing that these objectives are mutually reinforcing. Activities under DF4D include working with partner countries to strengthen the political will for reform and to providing technical assistance on tax issues to help countries to take ownership of their development agendas. We partnered with Brazil on a DF4D event in Brasilia last year with officials from El Salvador, Honduras, and the Dominican Republic. In Latin America, we have DF4D programs running in El Salvador and Honduras. Building on this initial success, we have plans to expand programming to more countries in the region later this year.

Common International Agenda

One area of great potential in Latin America is the opportunity to partner with countries on common economic agendas. A great example is the Trans-Pacific Partnership. This 21st century trade agreement will bring together developed and developing countries from across the Pacific – from Asia and the Americas – into a single trading community. It will address new cross-cutting issues, such as helping small- and medium-sized enterprises take advantage of international trade. And we are working to ensure that TPP includes protections for worker rights, the environment, and intellectual property. The TPP aims to promote a level playing field so private companies compete in a fair and transparent system. Our hope is that the Trans-Pacific Partnership can serve as the global standard for future trade agreements, and will serve as a platform for broader regional integration.

The OECD also provides an opportunity to advance pro-market policies throughout Latin America. Many countries in the region have used application to join the OECD or recommendations from various OECD committees as a catalyst for economic reform. Colombia, for example, adopted the OECD Investment Codes of Liberalization in November as part of their preparation for their application to join. The OECD is looking to work with countries in the region in a number of areas including fostering innovation, regulatory coherence, and stronger revenue mobilization through tax reform.

Economic Statecraft and Support for U.S. Business

We strongly encourage American companies to take full advantage of opportunities in Latin America. U.S. companies can be some of the best ambassadors for American ideas and values, especially in the areas of transparency and model corporate governance. More importantly, as American companies enter new markets and export more, they create jobs both in the United States and in other countries where they operate.

We are committed to helping our small- and medium-sized businesses take advantage of the great opportunities that exist overseas. In many states, the majority of companies exporting are small- and medium-sized enterprises. We know that it is not always easy for these companies to develop the know-how to break into overseas markets, especially to learn about opportunities abroad and how to take advantage of them. That is why about a year ago, we started a program called Direct Line. This program provides a unique opportunity for American businesses, particularly small- and medium-sized firms, to engage directly via teleconferences and webinars with U.S. ambassadors and foreign government officials overseas. There is always time to ask questions. We recently held one on renewable energy opportunities in Chile with over 100 participants. We held one last week on opportunities in Brazil’s port concessions with 80 participants. Our posts throughout the region have hosted calls including Canada, Mexico, Haiti, Honduras, Colombia, and Uruguay. I encourage you to engage with your local embassy and support this effort, especially by sharing information about the program with your contacts here in the United States. Local AmChams are often one of the first sources of information for American companies looking to enter a new market. We view you as our partner in spreading information about trade and investment opportunities. We are also working to help small businesses in the U.S. and overseas get access to expertise and new markets to grow their enterprises.

Conclusion

The United States’ relationships with its neighbors in this Hemisphere are as important as ever. We seek new ways to work together to advance our common interests be it trade and investment, development, or harnessing the power of our people. As representatives of American companies working in these countries, you are our partners and advocates in furthering these ties. We need you to identify new markets of opportunity, encourage new American companies to enter your countries, and most of all, to continue to be good corporate citizens.

Thank you.



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