June 7, 2018

House Foreign Affairs Western Hemisphere Subcommittee “Advancing U.S. Business Investment and Trade in the Americas”

Key Topics & Takeaways

  • China Presence: Chairman Cook (R-Calif.) expressed concern that China has significantly increased its economic outreach in the Caribbean and Latin America, enabling it to promote an agenda that is not aligned with U.S. market-oriented and democratic principles.  Eric Farnsworth, Vice President, Americas Society/Council of the Americas said that China is becoming an increasingly attractive partner of choice to the region. Kellie Meiman Hock, Managing Partner, McLarty Associates added that if the U.S. does not provide development financing to Latin American countries, it will create a regional “vacuum” which China will fill.
  • U.S. Trade Policy: Ranking Member Sires (D-N.J.) said the rhetoric and the dialogue on trade given by the Trump administration is putting U.S. businesses and jobs at risk in region. Farnsworth said “the decisions of the Trump administration to go ahead with steel and metal tariffs with the possibility of future tariffs and anticipated renegotiation of NAFTA have roiled western hemisphere trade.”  Hock said that the failure to modernize NAFTA and instead initiate a trade war with regional partners has sent a signal that the United States is no longer a reliable partner. 

Witnesses

Opening Statements

Chairman Paul Cook (R-Calif.), House Foreign Affairs Western Hemisphere Subcommittee

In his opening statement, Cook said the western hemisphere presents “tremendous opportunities” for further economic growth and U.S. business engagement in the region.  He expressed concern that countries with aggressive trade strategies, such as China, have significantly increased their economic outreach in the Caribbean and Latin America, enabling them to promote an agenda that is not aligned with U.S. market-oriented and democratic principles. However, according to Cook, China only accounted for 1.1 percent in foreign direct investment (FDI) in Latin America in 2016, whereas the U.S. accounted for over 20 percent of the region’s FDI. He expressed particular interest in economic relations with Chile, Peru, Columbia, and Mexico because of their market-oriented policies. While there are promising changes in the Americas, he cautioned against corruption, poor regulatory frameworks, and a lack of transparency and accountability in government processes. 

Ranking Member Albio Sires (D-New Jersey), House Foreign Affairs Western Hemisphere Subcommittee

Sires asserted that policymakers should ensure the U.S. is the preferred commercial partner of choice in the Americas, while also protecting American key business interest in the region. He said the U.S. should do more to promote economic development, democracy, and financial transparency in business practices throughout the Latin American. He added the main challenge to U.S. engagement is the rhetoric and the dialogue on trade from the current administration, which has put U.S. businesses and jobs at risk. He continued to say that “insulting our friends and allies does nothing but make the U.S. seem like an untrustworthy business partner.” He noted that imposing tariffs places tensions on crucial business partnerships between American companies and Latin American partners. “Where China is investing billions in Latin America infrastructure needs,” Sires noted, the Trump administration is “punishing key economic partners in the region” and “pushing the world into China’s hands.” 

Testimony

Eric Farnsworth, Vice President, Americas Society/Council of the Americas

In his testimony, Farnsworth said “the decisions of the Trump administration to go ahead with steel and metal tariffs with the possibility of future tariffs and anticipated renegotiation of NAFTA ([the North American Free Trade Agreement]) have roiled western hemisphere trade.” He said that as America retreats, other countries will fill the void, with China taking the lead. He pointed out several opportunities for the U.S. to advance its commercial interests and called the Vice President’s upcoming trip to the region “effective commercial diplomacy to advocate U.S. commercial business interests.” He also said the U.S. should refrain from taking steps to reduce its regional business presence and pointed to the investor state dispute settlement mechanism as a disincentive for private sector energy investments. He concluded by advocating for increasing developmental finance to compete with China.

Neil Herrington, Senior Vice President of the Americas, U.S. Chamber of Commerce

In his testimony, Herrington highlighted the Chamber of Commerce’s global business rule of law dashboard which identifies the five factors critical to business success as: (i) transparency, (ii) predictability, (iii) stability, (iv) accountability, and (v) due process. He said the U.S. should expand its commercial and diplomatic relations across the Americas, and identified the rule of law, economic certainty and sound trade policy as keys to success, and said that tariffs do little to address China’s or any other countries unfair trade practices.

Kellie Meiman Hock, Managing Partner, McLarty Associates

In her testimony, Hock said that 14 million American jobs depend on U.S. economic relations with Mexico and Canada, which are by far the U.S.’s largest export markets. She stressed the importance of ensuring U.S. companies can access these markets, are fairly treated, can compete for government contracts, and have intellectual property (IP) protections.  She pointed to the failure to modernize NAFTA and said that actions to “initiate a trade war” with regional partners have sent a signal that the U.S. is no longer a reliable partner. She stressed how the U.S. is damaging its ability to forge new commercial agreements and enforce existing relationships, and added that this leaves the field open for other national investors, such as China. Hock called on Congress to stand against policy that deteriorates U.S. commercial and national alliances in the region.

Question & Answer

Mexican Presidential Elections

Sires cited the upcoming Mexican election and expressed concern with the nationalist rhetoric of leading presidential candidate Andrés Manuel López Obrador, which he said is “a direct result” of the White House rhetoric on “trade and people.”  Farnsworth acknowledged that if Obrador wins, it would “fundamentally change” the relationship between the U.S. and Mexico.

Herrington acknowledged the business community is watching the Mexican elections closely, and while Obrador’s comments on NAFTA have been relatively moderate, Herrington expressed concerns about the candidate’s respect for ongoing reforms in Mexico in which many U.S. companies are deeply invested, especially in the telecommunications and energy sectors.  Herrington affirmed the U.S. and Mexican business communities are “100 percent committed to a bilateral relationship” given the 500 billion U.S. dollar (USD) a year bilateral trade balance, and quoted Tom Donohue, the President and CEO of the Chamber, who said that “failure is not an option” in reference to the bilateral relationship.

NAFTA

Farnsworth said NAFTA is powerful in part because it “created bumpers” which established norms of behaviors between countries and allows conflicts to be successfully resolved.  He added that NAFTA prevented the Mexican economy from closing during its Peso crisis of the 1990s, which allowed for a much quicker economic recovery.  Farnsworth cautioned it would be a “strategic mistake” to pull out of NAFTA not only because it would hurt the U.S. economy, but it would challenge the U.S. ability to maintain a mutually beneficial relationship with Mexico.  He urged policymakers to look at the tools available to help the U.S. “build this relationship in a positive way” and not “back out in a negative way.”

Hock said the U.S. tariffs imposed on Canadian imports “puts a chill” on NAFTA negotiations.

Hock also said that the U.S. has tried to raise issues such as intellectual property rights and market access in negotiations, but Canada and Mexico have rebuffed these topics in the face of U.S. pressure around investor state dispute resolutions, a government procurement policy, rules of origin, and a 5-year sunset clause.  These so-called poison pills have prevented U.S. negotiators from addressing issues that are in the U.S. interest. Herrington agreed with Hock’s assessment, adding that there are opportunities in the NAFTA space for offensive interests, such as increasing Canada’s IP standards, that are being “held hostage” to very unconventional U.S. proposals.  Farnsworth also emphasized the importance of reaching a consensus on IP in NAFTA.  He said this would unify North America on the issue and would provide a deeper, more powerful platform for the U.S. to address “legitimate” IP concerns with China.

Tariffs

Rep. Gregory Meeks (D-N.Y.) expressed concern over the impact of tariffs on Canada and Mexico on American jobs and businesses.  Farnsworth said that the United States used to create the conditions for orderly commerce in the region but is now a regional “disruptor.” He cautioned that investors cannot make decisions based on uncertainty, and that tariffs will hurt job creation and the ability to grow the economy after tax reform.  As for the on-job creation, he urged policymakers not to favor one sector over the other, where the negative implications on other sectors would overpower the positive implications for the favored sector.

Rep. Robin Kelly (D-Ill.) asked witnesses to provide their insights on the veracity of the President’s claim that Canada poses a national security risk to the U.S.. Farnsworth replied emphatically that Canada is not a national security threat to the United States; it is a strategic ally. He explained that the U.S. has trade disputes with Canada, but that shared basic values including the rule of law means that there is a process by which to resolve trade disputes.  He added that President Trump’s recent unilateral actions are unhelpful to the broader bilateral relationship.

Hock alluded to the Commerce Department’s recent announcement that it would commence a study on applying Section 232 to autos and auto parts. She said that never in the post-WWII era of trade relations has the United States initiated a Section 232 case on a finished product like autos and auto parts.  What’s more, she added, the United States has a $2 trillion trade surplus with Canada on these very items.  Herrington quoted Chamber of Commerce CEO Tom Donohue’s response to this announcement, saying, “…this isn’t about national security. The administration has already signaled that its true objective is to leverage this tariff threat in trade negotiations with Mexico, Canada, Japan, the EU and the UK. These allies provide nearly all U.S. auto imports and are among America’s closest partners. Neither they nor these imports endanger our national security in any way.”  Hock said, “we’re damaging our credibility as a national partner and that will be very difficult to recuperate.”  Farnsworth echoed this sentiment and said, “we’re doing damage to our relationship and it’s not going to be easy to restore that.”

China Presence in the Americas

Kelly expressed concern about President Trump’s statement that Canada posed a national security threat to the U.S., to which Farnsworth replied that the United States has put its credibility and reliability at stake with such comments, and that Canada and Latin American countries will begin to look for other more reliable trading partners such as China.  He said the idea that China could replace the U.S. as a partner of choice is “astounding and something that is absolutely happening right now.”

Reps. Ted Yoho (R-Fla.) and Rep. Adriano Espaillat (D-N.Y.) also expressed concern about Chinese influence in the hemisphere. Farnsworth said China has inserted itself into the region through its state-owned enterprise financing of infrastructure projects, which U.S. companies identify as the primary obstacle to competing in the region. He explained that the Chinese have the ability to underbid U.S. companies because many are state owned enterprises with government support. Hock added that if the U.S. does not provide development financing to Latin American countries, it will create a “vacuum” which China will continue to fill.  Herrington agreed and said U.S. companies “can no longer fight with one arm tied behind their back.”

Yoho applauded the BUILD Act, which expanded the U.S.’s lending capacity from $23 billion to $60 billion and allows for government partnerships with private enterprises, and asked how this vehicle can be used to build projects in the Americas. Herrington expressed the Chamber of Commerce’s support of the BUILD Act and commended Yoho for his involvement in the legislation.  Farnsworth and Hock did not directly address Yoho’s question, but both advocated for increased government funding to restore the Export-Import Bank and fill senior commercial diplomatic positions.

Meeks commented that the Trans-Pacific Partnership (TPP) put a check on China to make sure it would “play by the rules” and asked witnesses whether the U.S. would have benefited by staying in the TPP.  Herrington said the Chamber was a vocal supporter of the TPP, adding that it established a rules-based trading system where the U.S. could have exerted its leadership on trade along with likeminded economies, which could have encouraged the adoption of similar policies across Asia and Latin America that were not involved in the agreement.

Increasing U.S. Investment in the Region

Yoho said the U.S. needs to strengthen its relationships throughout the western hemisphere and “show a strong force coming out of the U.S. in business and security.”  He also said it is “imperative” that Members of Congress work through their committees to generate policies that “make us stronger for our allies.”

Espaillat recalled a recent conversation with a former president in Latin America, who challenged him to cite “real U.S. investment” in the hemisphere over the past 20 years, saying that “even the banks are no longer there.”  Espaillat agreed with the president’s assertion and emphasized the need for increased investment in Latin America to ensure the U.S. remains its partner of choice.

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