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tv   Key Capitol Hill Hearings  CSPAN  December 16, 2013 8:30am-11:01am EST

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some of the sites that you put out a challenge like i'm going to floss more, and you sort of like vie against your friends to see if they can also meet their own goals. so, yeah, i'm an enthusiastic user personally, yeah. >> host: where do you see this going in health technology, the whole kind of system, where do you see it in three to five years? >> guest: um, hopefully, it will be widely, even more widely embraced. i hope where this is going is that there will be a greater flow of information from the traditional health care systems to consumers and back and forth. right now i think you have two slightly separate worlds where, like, you've got the traditional doctors, hospitals, etc., they don't necessarily share the information that folks are collecting through these apps and tools. and i think through policies that are increasing ehr adoptions in which we're requiring that consumers be able to view and download their data through blue button, we'll get that flow going hopefully in both directions. so that's one thing i hope, a
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real knitting together of these worlds. >> host: lygeia ricciardi is the director of health and human services office. you've been watching "the communicators." if you want to watch this program or any others, go to our c-span web site at >> c-span, created by america's cable companies in 1979, brought to you as a public service by your television provider. of. >> coming up next, a look at the influence of the federal reserve on the economies of global markets. then a live discussion with former trade representatives from the george h.w. bush and clinton administrations as they discuss the effects of the north american free trade agreement 20 years after its implementation. and later, the senate returns at 3 p.m. eastern for debate and votes on executive branch nominations including homeland security secretary and assistant
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secretary of state for near eastern affairs. >> also today the chairman and ceo of general motors, dan akerson. he gives an update on his company's progress and investment plans as well as the state of the auto industry. he'll be speaking to a luncheon at the national press club in washington d.c. you can watch it live at 1 p.m. eastern over on c-span. >> now, a look at the role and influence of the federal reserve in global markets. you'll hear from a former director of the federal reserve's international finance division who's now the global head of international economics at citigroup. he's joined by former officials with the central bank of cyprus and the bank of england. this event was part of a symposium held recently at george washington university. it's about an hour. [applause]
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>> well, thank you. thank you all for coming. i know you've been focused on ba the fed all day, but we're going to try and pull the lens back now, go global.comi here we are, five years after the crisis.e're and the world's major central bank withs are still the biggest players in the economy and thegb markets. i'm sure that's to their chagrin, they wish they hadd's moved on, but they still are. but major central banks -- not just the fed, but the bank of japan, the european central bank and the bang of england we'll focus on. now, to start they had a lot in common. they all had to deal with the crisis, the recession and have struggled to revive their economies during the sort of sluggish recovery. wit they talk together all the time, they meet together at various conferences, they share notes on how their policies are working, they borrow pages from each other's playbooks, and many of them know each other because they studied together, they taught each other, they worked together in academia, they --
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they're in some ways a special club right now in the world of economic policymakers. at the same time, there are differences. each one of them has a differenr mandate, that's sort of the o mission statement or marching orders from their respectivehere governments which affects their ability to that mover, they obviously have very different politics at home which constrain their actions and present other challenges in implementing policy, and they have different economies and banking systems that present special challenges. so i think what we'd like to dos is talk about how these differences affected their response to the crisis, whatat lessons can p we learn from thoe responses, and is there any way to consider how that might affect policy going forward. so if we could start, maybe,r mr. orphanides, you can explain the different mandates and how did the fed's evolve to be so different from the others? >> thanks. let me, first, spend a few to seconds thanking george
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washington university for this event. and since this is about the fedt just to show how small this universe is, all three of us really started our careers in the federal reserve system, and this is what we share in common. now, going back to the question, really before the crisis a consensus had evolved, i would say globally, about how central banks would operate and in particular about how monetary policy would be designed around, around the globe. that consensus recognized the primacy of price stability alonw the lines of what has been mentioned this morning as theus key mandate for the central bank for the medium term, the long termty and ten also the abilityg monetary policy to helpum economies grow as long as they kept their focus on price stability. monetary policy to help economies grow as long
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as they kept their focus on price stability. start with that because this was, in my mind, the consensus, at least before the crisis, the consensus that we arrived at both as a result of academic work but also very much the practical experience of the various decades before that. but the actual legal mandates of central banks, here we have the federal reserve with so-called dual mandate that was developed in the 1970s as opposed to with a mandate already essentially extracting the federal reserve to place attention, full employment or maximum employment mandate as well as price
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stability mandate. that is in contrast to what we see, for example, in the european union where we have bank of england. talk more about that, but european central bank. everybody matt european union. this is something specified in 1922 gives the mandate of central banks throughout the european union to be the price stability primary ability of the central bank legally price stability of central bank and facilitate other objectives of governments. this before the crisis was interpreted roughly, similarly, i would say, in the united states and in europe and in many other countries and economies. during the crisis, we could see
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differences. clearly in the last couple of years when the federal reserve has introduced the language with explicit mention of the unemployment rate as a threshold for policy and exclusive mention in the statements they put out this january and last january about the attention to maximum employment, i think we have seen the federal reserve go closer to the legal text but further away from what the european banks are. this, i think, is a difference that and right now that was not there before the crisis. >> can i pick up on that. very generous, i was merely at the federal bank of new york when i was at the federal reserve board. i didn't get hired by the board. it is interesting there was this convergence, and to be a more
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apparent divergence in the last couple of years. there's a mistake we're making here, which is to emphasize the mandates. if you go back through recent history and last 100 years, central mandates had very little power for anything. the most price oriented banks, delivered very low inflation, it had a mandate of about eight different targets in it, something to do with agriculture milk prices. if you go back, it's not that the fed is interpreting employment mandate, it's that the ecb is more ostentatiously ignoring the mandate. the ecb is supposed to have a mandate -- he knows better than i. supposed to pursue price stability inflation rate close
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to 2% measured in the particular way they specify and supposed to be having monetary pillar, reasonable rate of monetary growth. below inflation target by a significant amount and below the money growth target by a significant amount for years. the ecb has decided -- decided they are not going to do anything about it because they have other goals to pursue. the idea of the mandates is very misleading. >> does it not matter? >> only for law abiding banks of central bank. bank of japan ignored mandates, too. >> let me let nathan. >> i appreciate that. so i think that adam is right in 99% of the cases. but i really do believe in recent years we've seen some of the 1% manifest itself and specifically i think if the fed had a single mandate, it would
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have been much harder for the federal reserve to justify it's qe3 program. at that point inflation was very close to 2%. if that was the only objective for the federal reserve, coming in with big guns of $85 billion a month would have been very, very difficult to justify. this was very much about helping the labor market and other leg of the mandate. if the ecb had a dual mandate, i think there would have been additional precious on the ecb to respond to the soft economic performance we've seen there over the last several years. now, i agree with your point. if you think hard about this -- about the mandate that they have, that they haven't been vigorous in trying to achieve it. i think if there had been another leg there, i think there would have been additional
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institutional pressures on them to stimulate. >> just to be clear, the bank of england while i was there, we had an inflation target. but we interpreted the mandate to say we were not going to kill the economy. >> medium term inflation target. look forward, come down, satisfying our mandate. right? >> i agree with you and i agree with the underlying point, you can't sacrifice your price stability anchor. but to say that we were somehow constrained by our target i think is wrong. >> that was actually my next question. >> i want to respond at least a little bit to adam's suggestion. you say ecb is violating? >> yes. >> i should respond. >> you should admit it's true. that would be progress. >> it's not true. i want to highlight one of the major difficulties i see central
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banks including federal reserve facing. central banks are incredibly overburdened. politicians in different countries have different problems. we have fiscal problems in the united states, for example. many, many other problems. >> none of which is in the ecb's mandate. we have a major structural flaw in the way it's structured in that the governments haven't figured out how to help each other get out of the crisis and they haven't managed four years of the crisis to set up fdic entity to take care of the banking crisis. we need to realize ecb is really asked to hold the area together, that is the secondary objective we have subject to price stability and it's an impossible job. so yes, i agree with you, adam,
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that it would have been nice if ecb engineered higher inflation, i fully agree with that. i think basically has been trying to do that. they eased policy further recently. the question is how much they can with a dysfunctional banking system. >> that's not in their mandate. >> everything is in the mandate subject to price stability, then the policies of the ecb is to contribute -- >> you're ignoring. >> -- to the welfare of the union. >> let me jump in here on the overburden point. i think one of the upshots of the global financial crisis is that now central banks throughout the world recognize at least an implicit additional
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mandate. that's a mandate for price stability. so now you've got a federal reserve pursuing full employment, price stability and financial stability. i do think there's a risk as you layer on additional responsibilities on top of a central bank. one risk is you've got to choose, which way do you go? how much human capital can one institution have. >> let me turn that into a question, some people would argue, and some do in washington, the fed should have a single mandate. giving them a dual mandate you are setting them up for failure. they can only control inflation and there's one argument saying the fed is overburdened by its mandate or the other banks are too restricted by their single mandates if they took them seriously. >> i agree with the proponents of single primary mandate for
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federal reserve for a very simple reason. we just heard in one of the earlier sessions today how politics interferes with central banking. the importance of looking at central banks in the kmex econo of a country. think about loosening policy and tightening, you need to be symmetric for price stability but the process is not symmetric for the attention it gets. it's always much harder to tighten policy when a central bank needs to tighten policy to maintain price ..stability. this is where prime comes. asymmetric in that way. i think that the -- i'm not a religious fanatic. >> you believe in the -- >> i actually believe in the
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policy we've seen. i'm believing how the fed has operated. >> lets be clear what's in your catechism and how it totally is unrelated to reality. your catechism is what's called time and consistency model of inflation, dominated academic discourse for 30 plus years. it has never had any empirical support. it's not true the phillips curve is vertical in the short-term or medium, nottrue inflaon and most importantly your political claim which is supposed to be the real basis for the bias is not true either. we see right now based on some things nell get sick. the federal reserve under worst attack right now from the right wing you should have a single mandate and has been stymied from doing things they would otherwise want to do because there's such a huge political reaction.
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that is what's happening right now. you look at your of right now. as you agree, it would be more aggressively reacted to the banks but the political pressures are all about making sure the german banks and the french banks and the dutch banks don't get losses. that is totally deflationary. so you're saying things that are demonstrably false. >> let me jump in -- >> i don't agree with you spend this is like the last comment on the mandate issue. >> not quite as violently. i do believe mandates matter. given my religion, my background, i like the dual mandate and they think the justification for it is that in reality central banks do have to trade off price stability against something. i think in the spirit of honesty you might as well make it explicit. i think it makes sense to say it's an equally weighted objective. two legs of the mandate i think is manageable.
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once you get into three i get nervous. >> we agree on mandates. we're going to move on. there have been books written, more books written about the banks response to the crisis so let's try to keep this condensed. how would each of you rate the central bank's response to the crisis either collectively or individually? in retrospect, if there's anything you would do differently tell me one thing, one thing you would recommend they could have done differently. let's go from here to there. >> okay. you really need to break up the crisis into two parts. the first part is the severe seizing up of the financial system from may 2007 to the end of 2009. and on that one i think that central banks were fabulous. they were innovative, creative. i think it was true of all of the major central banks. i'd say we give them an a+ through that period.
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when it gets more difficult without a judge and how to grade the 2010-2012, 2013 period. and, frankly, i think the u.s., history is very much out on this. we will have to see. i think ph.d students will be writing their dissertations about this for decades ahead. personally i would probably give the fed an a. the ecb i think responded to passively to its financial crisis. particularly under trichet. i would probably give maybe a b- for the ecb. and i'll give the bank of england the a- >> what would you do differently? one thing. >> the one glaring mistake that i think that the central banks made was the ecb's lagging response to the financial
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crisis, the fiscal crisis that emerged in the spring 2010. i think if it can't end a aggressively, this would have required support from governments as well, that if they had gone in early in 2010 and extinguished that, i don't think there was necessarily any predetermined mandates from the heavens there would've been an enormous european crisis. i think the lagging, slow response opened the door and let some of those fumes that we put back in in 2009, let them out again, and we had another round of crisis. so i think that was the big mistake. >> so i would first agree with nathan that the response following the lea lehman episodn the united states was phenomenal. this was probably the best example in global corporation among central banks. it was very core naked effort to
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keep the system afloat, swap lines that in the past where generated a lot of conflict and questions. beyond that, i think really am going to go back to the issue of what do we expect central banks to deliver when they do not have the tools. we have a fiscal crisis in my view in japan, for example. do we expect the bank of japan to fix that? i'm going to talk a couple minutes about europe. in europe we did have what was really a very tiny hiccup in late 2009. greece, only 2% of gdp. even if you thought they had a problem equal to 50% of their gdp, there would still be 1% of gdp of the euro area. and there it was handled terribly, terribly mishandled.
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was that an issue for the central bank? here's where i would differ with nathan. i don't think that this was a problem that the central bank would fix. the euro area was designed where governments have to figure out how to help each other. and they failed miserably on that front. you could ask the central bank, should the central bank try to predict that the governments are going to handle the crisis so badly a year or two later and try to undo some of the damage with monetary policy, or doing things outside monetary. i don't think this was feasible to do. said even though the outcome is terrible, it's really not clear to me that they are terrible because the ecb could have done things in 2010 or 2011, and did
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not. >> just 30 seconds? >> boys, boys. all right. gentlemen, gentlemen. weight. why don't you wait? tell me one thing you would change and then we will go to adam. >> well, so -- >> he's impatient. >> first of all i will agree with adam, looking at the inflation of the country in your area i agree the overall monitor policy could've been somewhat more expansion it. i don't think we'll solve existential problem for the last three years. in terms of the ecb the question is, this is something hong kong was asked this morning on a panel that i was -- dawn was asked. should ecb have confronted the governments in 2010 and explained to governments, look, we can't help you.
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we will not refund help temporarily with interventions in the secondary bond market for greece, for example, if you recall, very controversial decision. the ecb started buying greek bonds in order to coal markets all of it. in retrospect, in retrospect i would daresay that it would have been better for the ecb not to do that because they allowed governments to get off the hook and postpone the resolution of the crisis, which they keep doing all the way through. so i would've gone back to 2010 and said in retrospect, that decision was the wrong decision. the ecb should not tried to help the government to postpone the problem by being in this gray area really for the mandates of the ecb. >> i basically agree. i think most writers, there is this division between immediate
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crisis response and the subsequent response. like most people i would emphasize that was a very common response occurring in late 2832000. i give the ecb credit in that period. the ecb had a lot of facilities and a lot of things they were doing at the fed and think of him to have to play catch-up and learn from over the course of 2008-2000. what i would say is the i would change two things. i would give an a- to everybody than and i would give a c- to the ecb now. and 82 the fed and the beat to the england. for the second grade. so one of the things i would change, so one is that i think the fed and particularly the bank of england really messed up in the first of 2008, that we knew from the time bear stearns went down it was only a matter of time, particularly lehman was
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going. there's all kind of debate about the record. my reading is there was not enough action taken by the authorities, including the fed. certainly the ban bank of englai wasn't they had but i'll sign up for responsibility, that leading northern rock will play games with moral hazard and not getting out made things worse. so think there was a very bad situation. i just have to briefly disagree and then we'll talk ad nauseam. he said the choice was between should the views osha did not used -- the choice was should they use a tiny amount or should have used more. what they could've done in 2009-2010 was by a lot more government bonds and end of the panic the only reason they didn't was, they thought -- force them to do something else. if that central bank instead of crying about how terrible everyone else, had kept interest rates down, a lot of human
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beings would have been better off. >> wow, let's talk about the politics because each of these central banks is operating in very different political environment. we don't have to go through all of them, but how do those differences play ou out in the crisis in terms of either limiting are pressuring them to do different things? >> to use this to respond to adam. if you were to compare the ecb reporting of 18 governments now with multiple language and so forth, it's so vastly different from the plain vanilla problems that the ban bank of england is facing or the federal reserve is facing. so what adam suggests policy could've been much easier, and if i hear you correctly you would have wanted them to do much of the government bonds of the countries and the stress. the question is whether this is legal for the ecb to do for well.
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[talking over each other] >> the are actually very used interpretations of this for the very simple reason that the european treaty states, that monetary financing is prohibited. and i know that monetary financing is -- this is a problem that bank of england might have faced but it doesn't. that is another issue that is much more pressing for the area, that the assumption of debts is prohibited by other countries. and the idea of the ecb purchasing, say all of the greek debt in order to stop being greek crisis, essentially would have shifted the cost of the greek government to the other governments. this is something that's not as clear-cut at all. i think that it's not allowed by -- [talking over each other]
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buying bonds by the size of the country would not have stopped the crisis. this is where -- they would not have stopped the crisis at all. you would have run out of german debt if you really wanted to -- [talking over each other] to calm the greek situation but we have to look at the difference operating procedures. so the ecb could have expanded the balance sheet. because of the much broader collateral, technical issues, only to get -- so this is not a matter of easing monetary policy. this is a matter of good ecb to get country -- doesn't have to be greece. could be portugal, ireland, and say we're going to put all of our firefighting in saving this country without having a prior agreement of the other governments that they were willing to let the ecb actually
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impose those costs on the. and, frankly, i do not think the ecb had either legal or the political legitimacy to do this. this is something that's a political crisis. >> the political legitimacy to force berlusconi out of power. they had to legitimacy to w.'s unemployment increase speed and the government council did not force berlusconi out of his job. even though some actions interpreted it as contributing to that. and clearly, most clearly you cannot blame the northern council of the ecb for the terrible out, we have on unemployment. they are terrible. spent of course you can. spent going back to the question, the 30,000-foot statement, very much agree with you that the institutional structure that the ecb faces it is far more complicated than
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that federal reserve and the bank of england, the bank of japan have. and on the one hand, you have a germany economy that's performing very well, and you have these peripherals that are struggling intensively. and how to put together a monetary policy on the one hand and a financial crisis response on the other hand that's adequate and acceptable to everyone. and i think what ended up happening for the ecb is the ecb has been a little bit like the guy who's got one foot in scalding hot water and another one in ice cold water. and on average they are doing pretty well. of necessity, that's where the ecb has been. but i think that reflects some deeper kinds of institutional problems and questions about whether it really is an optimal currency zone. >> one more point in response to what you folks have said, that
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i've heard athanasios and i think that and i've somewhat different view on this, we've argued our central banks, the crisis fighters of last resort. so i think adam and i would agree that the governments were not coming through. and my feeling is if the only thing worse than the central bank being the crisis fire blaster is not being the crisis flight of last resort. given the institutional framework with no. it would be great if the euro area were overtime and the united states and globally were developed mechanisms to fight crises that a lot of central banks to step back and say oh, that's too dirty for us. we don't want to get our hands into that. they might even grace the moral hazard's. but i don't think we are there and i think europe would've been better served if the ecb had been more aggressive. >> i'm going to first start by want to agree with you.
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even going back to the very first question. what were central banks doing, what were they created for? they were created to preserve stability and help fight crisis. this is the job. and i fully agree this is what they should be doing when there's a crisis. the question is how do you do this when you're being asked to shift resources from one country and given to another country? i don't think the ecb, again, either the legal or the political legitimacy to solve this particular problem. this would be like asking the federal reserve, why don't you take some use taxpayer money and shifted to brazil or argentina when they have crisis 10, 20, 30 years ago? this is really very -- [talking over each other] >> the citizens of argentina if they agree to this, then the federal reserve would be able to do this. >> so let's get back to reality. first point, the ecb is the most
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independent central bank in the world. it has no parliament -- the european parliament only sits over balcony. the european parliament has no power to change the ecb than the rules, prerogatives, anything. would have to reach open international trade. said the bbc -- said the ecb should be more gutsy, not less. second when ecb has wanted to ignore politics, democrats, popular mandates, it is done so. so this idea that this is the ecb understanding that limits of politics, a should not be that. whenever central bankers do you think i could obligate that hard for technical reasons, you should hear a warning sign go off in your head. that's what the bank of japan did throughout the 1990s into the 2000s. we can't really do anything,
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inflation, deflation, and china, we're having tools. the government changed the leadership and said please will you mandate. and wow, inflation is rising in japan. never trust a central bank that winds to you about its tool. that's like a military whining says i can't build a war because the don't have enough tanks. that's not the issue. finally, when we start talking about these issues of transfers, it is not a fair statement to say it's transferred from u.s. to argentina, because of course the members of the euro area are members of the mandatory unit and are members of a political partial. and it's ridiculous to say that putting stuff on the ecb balance sheet is equivalent to a transfer. overtime those debts get paid off and those deaths would not be in trouble if you bought the bonds during the panic. if that was driven ecb couldn't
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have the target balances that are always talked about which occurred between how much ecb money can how much german money is in greece versus in spain. i don't -- don't believe any of that. focus on the fact that central banks need to be held accountable from meeting their goals. their goals have to fulfill a political process. the ecb has been too cowardly to do what it should. >> okay, so we agree on that. let's move onto policy. let's talk qe. shorthand for monetary easing. it means buying bonds to keep interest rates very low hoping to spur more growth and hiring. all the major central banks are pursuing some sort of form of this. the ecb -- you explain how they are approaching this differently and how effective do you think it is. let's start at this end and go that way. >> so, i think the framework for
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cutie is that these -- qe is that these major central banks adverse cases, took their policy rates to an effective lower bound you. the ecb seems reevaluating that in recent months but they took their policy rates to very low levels. and then the next question is, well, what do you do to stimulate your economy from there? and in some sense following the lead of the bank of japan through its qe perry, the federal reserve and the bank of england went into their aggressive access purchase programs. the fed has purchased at various kinds of mortgages in government securities and so forth. and its balance sheet as a
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result of this has grown from a little less than a trillion dollars before the crisis to almost $4 trillion today. so i think that's the general framework. the underlying idea is the fed goes into the market or the central banks go into the market, they take safe assets out of private hands. and the desire is the person who had asked it just goes a little bit further out the risk curve, all of it further out the maturity structure and so on and so forth and taking a little more risk. and honestly, it seems like it's been moderately effective incinerating economic activity. i think if the united states hadn't seen qe from the federal reserve, the level of gdp there might be a couple of percentage points lower than it is today. so i think the qe has provided meaningful stimulus, but it hasn't been the silver bullet.
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the qe by itself isn't going to fix things. it can provide support. they can provide stimulus and help, but at the end of the day we need to have consumers who are willing to consume. and we need businesses who are willing to deploy their balance sheets through investment and hiring. my feeling is that the policies that have been pursued are well advised, have been helpful, have helped the economy through a very difficult time but ultimately we are waiting to see whether that next leg of recovery kicks in. the final thought, everything that makes me just a little bit nervous about where we are, and a little more nervous about qe3 than qe1 and qe2, as i've argued i deeply there are benefits up front that we experienced. but to the extent they are
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caught, i think those are things the financial market distortions, managing large balance sheet, i think the costs are something we're going to be stronger with and dealing with and evaluating. maybe they are small, we don't know. we're in uncharted territory, but they will be factors will be dealing with over the next decade or so. so it's too early to say for each one of these programs whether it was a good idea or a bad idea. >> well, let me first start by saying all three of us were involved in suggesting that, of course, if the central bank reaches zero rate, then you fall in love with conventional measures supporting the expansion of the ballot she. were talking unconventional. so unconventional measures fall on expansion of the bank's balance sheet. how exactly engineering e-zine. the unconventional measures are not as precise -- precisely
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calibrated as conventional policies to this is what creates some of the side effects, about how much you were supposed to do. but clearly, quantitative easing or other measures of expanding the balance of the central banks have been very important tool. how exactly do this depends on the framework. the ecb did not do the expansion of its balance sheet the same way as the fed or the bank of england. why? because they do not have a sovereign market for the euro as a whole. so when we criticize some people are criticizing ecb for not buying greek debt, for example, and this would be like asking the federal reserve in the united states by buying detroit bonds and puerto rico bonds. and i'm not sure how well this
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policy would have gone. if this is what you're suggesting to the central bank. so in the case of the ecb, the ecb used this collateral framework to essentially give cheap money, very cheap money and expand its balance sheet in this way. it could have done more. i'm going to repeat. i agree with adam that the ecb policy could've been more expansionary. one key indicator of that is just looking at the balance sheet of the ecb that a forgery in my view was allowed to decline over the past year at the same time where the fed's balance sheet have actually accelerated with the qe going to stratosphere. so quantitative easing has been effective. it's more uncertain than conventional policy. there are reasons involved.
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i would agree also with adam, i should mention that you should never trust a central banker who tells you that they cannot generate inflation over a very, very long period. this is indeed the issue with japan. you can have this calibrations for one, two, three years. you cannot for 50 years. i think we're still on the same page. 10 years ago, that they're now doing. history will tell. third, with the fed. yes, quantitative easing was extremely powerful in providing the additional accommodation to use economy needed at a result of the crisis. i'm not sure that the same reason it applies for the qe infinity program that started a year ago, and actually do have a deep concern about the current way of even king indicating the
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policy. right now since a year ago, if the ecb does nothing, they keep expanding the balance sheet. i cannot recall during traditional times -- that meant having it for the. this is really the equivalent. i think we change the definition of what being neutral is. and this is of concern to me. >> how effective is qe? >> as on many of these things, i'm a bit of an outlier. but if you were to go back to the jackson hole conference a year ago, august, chairman bernanke gave a speech about qualitative teasing in which he very clearly summarized the available literature and the empirical literature. to the best that because india, qe is actually effective. now, what there's a bit of sleight of hand there to be
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clear about, that when you're trying to measure the impact of policy where the conventional monetary policy by cutting rates, or job owning or purchasing essence, whatever it is, it's always difficult to determine what the impact is because you have to take into account what people's expectations are and all the other factors like fiscal policy. this is why they won a nobel prize for what is called identification of moderate policy. so the thing is, and do not by any means -- many people go out and tell you there's no proof that qe works. odyssey is certain interest rates move in certain is pregnant and you don't know what happens to the economy. the real economy is not doing well so it can't be effected. that's setting too high of a bar because w we go back a look at when the federal reserve or the bank of england or the ecb cut interest rates, use the same methods and you get the same results. sometimes the economy doesn't expand the way hope it does because of these are going on. so just to say i think it is a
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misnomer to get all row company id that the qe didn't work, there are very obvious terms we usually use, headwinds that were out there like balance sheet deleveraging him like the euro crisis, like fiscal policy being tightening interest places at race times. and so the idea that qe is not demonstrably not worked, i think that is misguided. i agree with athanasios and nathan. that doesn't mean he did qe at any and everything would be solved. that's not my point. but just the discussion that central bankers have allowed this, to get into the rhetorical trap, start apologizing, we are using unconventional policy. i wish we weren't getting our hands so dirty. but i'm with him on what he said about the crisis, the idea is to get the job done. that are more or less political populace to do it but get the job done. and qe roughly speaking is
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getting the job done. >> i be happy to continue to ask questions but i want to let a couple of you. i think we have microphones around the room that can be passed. and if you get by, first of all, please wait, raise your hand if you want to ask the question. right here. if you could just identify who you are. >> can you hear me speak with the is spent my question is about a simon johnson 13 bankers question. in the u.s., part of the strategy seemed to include the steps where banks were allowed to consolidate and get larger. in europe, less so. is that a correct impression? and if it is a correct impression, did the united states make a mistake by
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allowing banks to get larger? >> why don't i go first this time? i'll be quick. it is a natural and disruptive immediate response in a crisis to do banking consolidation. because usually at least ideally which are doing is you're trying to avoid systemic disruption. so what you're doing is you hope it's a weaker bank, somebody is stronger in the system who can quibble take who can quibble to get overcome with their somebody left. thethey put in so many to keep t operating. it is an understandable vices response, but even more so the what we talked about qe, i think you and others have a point, which is over the long term, it's a problem. the has been a great deal of variations across monetary zones and that's not all of to the central banks come and anyways it's not mostly up to the central bank.
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this is a place where other agencies get involved. but let me be very clear. nell was asking as earlier to give grades. this is a place where the combined bank of england, uk government, including while i was there, it's a very poor grade. we ended up with four big banks running the entire financial system in the uk, and it's been very problematic. now, whatever you say about euro area, i'll let athanasios speak about that, or on the u.s., i'll let nathan speak about that, that is the most passionate even japan after the crisis did nothing like that. it is a very real costs. i'll -- i thought uk, told ineffectively. i think the uk made a major mistake. >> so if i were to add, i broadly agree with what adam just mentioned.
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if you have a weak bank, it's only natural to ask if they stronger bank would take it over and take over the problem. unfortunate it's true in europe as well we ended up with larger banks. in terms of giving rates, frankly for the euro area, i would have a hard time choosing between a c. and a f on how the government handled the banking crisis as opposed to live in. this is again, goes back to the dysfunction of the euro area. you have banking interests that are very different in different countries, and are really fighting it out with each other. so it's a very different situation than the one you had in the united states where you may have one banking lobby and one government in the euro area which has been very, very clear
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the banking lobbies in different euro member states have been trying to shift losses and gain competitive advantage to banks and other lenders states. and it has been a disaster because in government collectively have allowed these things to happen. going forward, we have larger banks, the banking situation is terrible right now. we are asking the ecb to take over the banking system and stabilize it. without having created an fdic, just to give you an idea of how expansion of this area is, about what the central bank is being asked to do. impossible things really. and, frankly, i don't think we have the vision yet of how the year is going to get out of this mess, that is there at present. the banking system. >> i very, very much agree with
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athanasios about the situation with the european banks, but i think the ongoing deleveraging of the banking system in the euro area, on the one hand, because these banks have very large balance sheets, and on the other hand, capital injections haven't been forthcoming. and these banks are shrinking their way to glory. they are bringing their balance sheets size down by reducing a variety of assets, including lending but and i think that this is creating a credit crunch that's a powerful headwind on euro area growth, given the dependence that the euro area economy has on bank credit. and other than that i hear my compliance officer saying, no comment. >> is there a another question? do you want to move on? here's one right there.
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>> i was just wondering if you guys can address, especially in an age of unconventional bollettieri -- monetary policy such as qe, can you address the current debate tha that is goinn what you say that a lot of the stuff the central bank is doing and also central banks around the world are helping but they're basically on helping the financial sectors of economy and assets sectors of the economy that are disproportionately going -- that's a lot of the income inequality arguments that you hear that the gains have basically all gone to the top 10% because they are really the only path that helping class, and they are not really going to trickling out to the rest of the economy. so but i just want to get your opinion on the velocity of money and the effectiveness of getting the banks to get the money out to the people tell the rest of economy? i know that's more of a fiscal policy discussion and, obviously, you guys have all commented on how absent they been doing from doing the job to complement mantra policy.
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but i want to know if you guys could talk about that challenge? >> i think you put your finger on it. what you're facing our structural and fiscal questions, not monetary policy questions. so when the economy is in a mess, the central bank, the best they can do is try to fix the economy over all. and ordinarily with normal possessions that are some distribution were consequences to any mantra policy decision. they are fairly minor compared to the broader impact on the economy. in the situation we have been with the crisis, many of the operations of central banks are doing virtually interesting washable from fiscal operations. a few words about the distribution of operations, the central banks have their own agents in the economy to ask. this is the question that i think people -- not only in the united states but everywhere should be saying to their
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government and saying come on, we have seen a distribution issue. fix it while the central banks are trying to figure out the economy. >> i think the federal reserve, caveats are very well taken. there are plausible arguments about how far in the central bank go to solving these problems. i very much think the fed use its mandate as in some sense unconditional, that at every point in time the fed feels a responsibility to pursue a policy that brings the economy closer to do a band-aid -- to do a mandate, there's a structural problem, we'll pass it onto the fiscal authority and we will watch and wait. but the fed feels an obligation because of the dual mandate, to be active and to be engaged. so specifically on your question, i really think that if you would've put our finger on one sector of the economy, that
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the fed has particularly focused on with its qe policies, it's been the housing sector. and i think housing is very much a main street issue that influences people right at the center of the income distribution. second, i would say that the primary driver of the fed's policy, particularly as i said earlier, it's been laid your -- labor market concerns and tried to meet the full employment leg of the dual mandate. and i think that that is very much a mainstream issue. and then the final point, for the fed, would they been happy if they had some other tool which worked in comp lit to what they had and didn't necessarily work through financial markets? i think the answer is absolutely they would've been happy if they have that tool. at the end of the day they felt, as i said, a responsibility to
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respond, to move the economy towards dual mandate outcomes. and they had to use the tools that they had. >> a follow-up question. is it possible, however, that the nature of the crisis itself not impairing credit markets exacerbate the dish additional effects, distributional distortions that occurred to monetary policy, that before the crisis generally you low rates and to generate more growth that benefits kind of everybody, wert has because credit markets are so screwed up, that particularly qe did boost stock prices which benefits the upper tier, and mostly people who are already affluent and have great credit records were able to refinance or buy are as a lot of the people who were underwater or people who would like to enter the housing market can't because they are either credit impaired or they've got some student debt or the banks have tightened the standard spent i think that's why but i think it's also important to go back to what the gentleman's question, he
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mentioned signification of -- essentially what you're saying, that we were not getting the kind of money multiplier, the kind of credit into the real economy. they are i very much agree with some things that athanasios and nathan said, which is it you have had proper government action to recapitalize banks you would have seen more of that and the fed policy. so i'm agreeing with you. the nature of the crisis exacerbates, but i think another piece of it though that has to be recognized is, yes, there are -- [inaudible] but the alternative, and this is, this makes a more even extreme version of nathan's point, and kill at least this year i would argue at least in
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2011, probably as well 2012, the alternative to the fed or the ecb or the bank of england or whoever doing this was protracted long-term unemployment for a lot of people. and it's very hard to compare apples and oranges, but we know that long-term unemployment, particularly for young people, it is probably devastating. and so in a sense maybe it's a tools issue, maybe it's the nature of the crisis, but the bottom line is, if you're a central bank with any sort of broad -- if your choice is well, we're going to unfortunately make some people richer, but prevent long-term unemployed from going up versus were going to let long-term unemployment -- the dish visual impact of that is terrible. i think we have to allow for that. maybe not -- is why people debate the qe three or the qe
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and 50 i think they were calling it. because the question is, did it matter in the last term in this last you was there enough to justify it? >> another question? >> please, help me thank the panel for a terrific session. thank you, adam, athanasios, nathan and nell. [applause] >> what's going on today comes down to two words, and they are not my keywords. fundamental transformation. those are obama's words. and i asked a couple of questions. you look at the constitution and the power of the president, does the president have the power to fundamentally transform american? of course not. and why would you want to fund another transform america? that means you don't like america very much, do you? that made you don't like capitalism, private property rights very much. that means you don't like our
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constitutional system very much. when you keep hearing this fundamental transformation change is hard, we need more time for change, you need to understand this is a direct attack on our constitutional system. that's what he's talking about, that's what he means spent sunday january 5, best selling author, lawyer, reagan administration official and radio personality mark levin will take your calls and questions, "in depth," life for three hours starting at noon eastern. booktv's "in depth" first sunday of every month on c-span2. spent an online for december's booktv bookclub we want to know what your favorite books were in 2013. throughout the month join other readers to discuss the notable books published this year. go to and click on bookclub to enter the chat room. >> and we are live now on this monday at the center for
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strategic and international studies for discussion with former u.s. trade representatives from the george h. w. bush and clinton administration as the review the 20th anniversary of the north american free trade agreement, or nafta. it was signed into law by president bill clinton in 1993. to 93. the trade deal had a goal of pulling together the economies of u.s., canada and mexico. we expect this discussion to get underway in just a moment. live coverage here on c-span2. [inaudible conversations]
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[inaudible conversations] >> it could be a few minutes before the start of this discussion market 20th anniversary of nafta. we will have live coverage when it does get underway. while we wait a look at what is coming up on our communicators program this evening. >> sec was the first, provided the first country in the world to provide allocated sector for medical body every network. this is something that allowed monitoring vital signs without having to have interested. it could be a game changer in terms of tracking people's health and health care. >> we are remote wireless remote patient monitoring solution to be able to the devices in patients homes, to be able to monitor and keep them well and have better outcomes and keep
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him out of the hospital. this device does readings. and typically a patient that is on to me then would have to go to the top -- to the doctor may be what's week to get a blood reading and then that day because into this device and they can go to our service center, our nursing center where they can help monitor the patient. if there's a problem they can alert the patient's cardiologist. >> one of the things my office is working on is providing a model notice for health out. so, for example, when you go to buy a can of food, you know how there's that consistent fda label that lets you look for the things that you're interested in, some people care about sodium, other people care about sugar or fat. so similarly we are developing a tool and we've already done this for personal health records over now expanding it to address other kinds of mobile and non-mobile apps and tools. this can help you say, okay, these folks do not resell my information, or this is how they use it so that again a consumer
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can help to kind of navigate this newly growing and exploding field. >> the governments role in supporting mobile health care technology tonight on "the communicators" at 8 p.m. eastern on c-span2. >> once again we are live awaiting the start of a discussion marking the 20th anniversary of the nafta trade agreement with the u.s., canada and mexico. it will get started here in just a moment. it is hosted by the center for strategic and international studies. [inaudible conversations]
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[inaudible conversations] [inaudible conversations] spent while we wait for this conversation on nafta to get underway this monday morning, a look at what's next in our first
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ladies series. >> i wish you both a very happy christmas and a bright and prosperous new year. >> it's a pleasure to read you, mr. santa claus, and to have here help on the sale of seals which begins on thanksgiving day. >> would you mind autographing somebody christmas seals as a special favor for santa claus? >> why, i should be delighted. is one of the things that i do best. [laughter] >> it's a good thing you've got santa claus. spend yes, indeed,. >> must have performed like this before. >> my father gave it to me. >> and it's got some of the dog hair in it. >> first ladies influence in image season two.
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this week, edith roosevelt to grace coolidge, weeknights at nine on c-span. >> live pictures once again from the center for strategic and international studies for discussion with former u.s. trade representatives from the george h. w. bush and clinton administrations as they review the 20th anniversary of the north american free trade agreement, nafta, as it is been called but it was signed into law by president clinton in 1993 with a goal of pulling together the economies of the u.s., canada and mexico. we expect this to start in just a moment. live coverage here on c-span2. [inaudible conversations]
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[inaudible conversations] >> good morning and want them to csis. but i ask everyone to take their seats, please. >> thanks for joining us early
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this monday morning. my name is scott miller, i'm the scholl chair in international business. i run the international business here at csis and i'm delighted to welcome you to today's event entitled "nafta at 20". the north american free trade agreement injured into force january 1, 1994 -- entered. the nafta was a breakthrough in its copper into scope and high standards. it was a platform for finally important regional integration that was at the economic level and also in the form of greater political cooperation between the three north american nations of candidate, the united states and mexico. 20 years after nafta, it still remains a format for all comprehensive, deeply integrated trade agreements, negotiated by the united states. many in the business community to operate in north america will
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tell you the trade agreements in general are a good thing and useful, but nafta is essential. and nafta remains essential to competitiveness in north america. today we bring together a group of experts to examine where the north american relationship stands after 20 years, 20 years from the nafta launch. and to explore ways to intensify and improve competitiveness in north american trade region. we will begin with remarks today from one of nafta's principal architects, ambassador carla hills. ambassador hills is chief executive officer of hills & company, co-chairman of the council on foreign relations and also a co-chair of the advisory board here at csis. she was u.s. trade representative for george h.w. . bush from 1989-1993. among her many accomplishments, you will note, if you know your history or actually google nafta you will find a photo from the signing ceremony in 1992, you
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will find carla hills at the table. you'll also notice that carl is the only one who managed not to age during that period of time. so she has him doing something right with her life but she brings not only experience of leaving the u.s. team as the negotiations on nafta but 20 years of professional experience since then helping companies navigate this trade agreement and improve their business. so please welcome ambassador carla hills. [applause] ..
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>>'s already reminded you that president h.w. bush, herbert walker bush, signed the trade agreement, the nafta, in 1992. it was signed into, it was put into effect by president clinton in '93, and it became in force in '94. there are and so with 20 years of experience, the question that scott has put to me is what has the nafta meant for the united states, and does it have significance for the future. and in making this assessment, i think that we need to be clear about what the agreement actually did. by joining the economies of canada, united states and mexico, the nafta created a $19
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trillion regional market with 460 million consumers. it was the first comprehensive trade agreement to join developing and developed countries. and it has served as a template for the future free trade agreements by achieving wider and deeper market openings than any prior trade agreement up to that time by eliminating tariffs on all industrial goods, guaranteeing unrestricted agricultural trade between united states and mexico, opening a broad range of services including financial services and providing national treatment for cross-border service providers, providing a high standard of protection for patents, trademarks, copyrights, trade secrets, and it was the
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first international trade agreement to do that. and it established clear rules to protect the rights of investors by prohibiting barriers such as local content restrictions and import substitution requirements. and as a result of the market openings that this agreement created, the economic activity between the three nations exploded. today canada is america's single largest export market, and canada sends us roughly 98% of their energy services and products. more than eight million u.s. jobs depend on our trade with canada. mexico is our second largest export market and some six million u.s. jobs depend on our trade with mexico. and over the past two decades, a highly efficient, integrated supply chain has developed among
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the three north american economies. interregional trade flows have increased roughly 400% from about $290 billion in 1993 to over a trillion dollars in 201. 2012. and more than $2 billion in goods and services cross our northern border every single day. and more than $1 trillion -- excuse me, $1 billion per day cross our southern border. and about half of our trade with canada and mexico take place between related companies. and the resulting specialization has increased the productivity in all three economies. we not only sell things to one another, we make things together. and quite remarkably, for every dollar of goods that our two neighbors export to us, 25 cents
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worth of u.s. inputs is in canadian goods that come across our border and 40 cents in the mexican goods is u.s. content that comes across our border. by way of comparison with respect to imports from japan, that figure is two p cents. and with china, it's four cents. and mexico has made a substantial investment in the united states since signing the nafta in sectors of cement, bread, dairy and retail which have contributed to our tax revenues and jobs. and u.s. investment in mexico has grown substantially, about half of it in the manufacturing sector and most of that in the auto sector. and much of the output of our investments in canada and mexico come back to us in imports of interwith mediate goods which --
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intermediate goods which add to our competitiveness and production of final products. and our investment in canada, i should add, is canada has invested about $200 billion in the united states since the nafta which makes it the u.s.' fifth largest investor, and we've invested about $310 billion in canada to become its largest investor. and in spite of this really remarkable intraregional growth that can be traced to the nafta's opening of the regional markets, the agreement still has its critics. most of those who attack the nafta on economic grounds focus on mexico, not on canada. and they claim that the partnership is one-sided. that the agreement is mexico's gain and america's pain. but the economic data proves
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that having mexico as a nafta partner has served u.s. economic interests extremely well. last year roughly 13% of our nation's total exports went to mexico. that's exceeding our sales to brazil, india, china and russia, the brits combined. indeed, mexico buys from us more goods than all the rest of latin america combined and more than all the goods bought by germany, great britain, france and netherlands combined. and although the debate continues about how many jobs the nafta actually created, it is, i think, generally agreed that the market openings created by this agreement generated a
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substantial increase in the jobs related to exports which pay on average 15-25% more than jobs that are purely domestically focused. and with 113 million consumers and a purchasing power of over a trillion dollars, mexico offers opportunities that are quite substantial for entrepreneurs whether they be large or small. but it's the small entrepreneurs that particularly men be fit from mexico's -- benefit from mexico's proximity. mexicans purchase about 11% of the exports produced by our small and medium-sized enterprises which account for more than half of this nation's job creation. and making this economic picture even brighter, for every dollar that mexico earns from its exports worldwide, it spends 50 cents on u.s. goods.
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and the economic integration that has occurred among the three north american economies if the past two decades -- in the past two decades has made the north american region one of the most competitive in the world. but we must remember that the rest of the world is not standing still. supply chains encircle the globe, and bibe lateral and regional trade agreements where the united states is not a party have proliferated, continuing to open global markets to products, services, investment ideas and people originating in this hemisphere is -- and insuring that our supply chains work at maximum sufficiency is vital to our nation's continued growth and competitiveness. and there are a number of actions that we could take that would maximize our opportunities to build on the and a half a that platform and -- on the
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nafta platform and create new commercial opportunity, cut costs, create jobs and generate substantial economic benefit for all of our citizens. for example, when we evaluate the benefits that we might secure for our nation from future trade agreements, we should assess the potential benefits not only from a national basis, but from a regional basis lest we lose substantial new competitive opportunities that we could secure by using the nafta platform. and that connection having mexico and canada join the trans-pacific partnership was a positive development that will better enable us to take positions to maintain and advance the unique competitiveness of north american region. and similarly, as we move forward to negotiate the trans-atlantic trade and investment partnership with the 28 states that come prides the european -- comprise the
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european union, we would benefit substantially from having mexico and canada join those negotiations. and i think the reason for doing so are very persuasive. first, it would strengthen the agreement, give it more heft, by adding 150 million consumers and a trillion dollars in gdp and thus expanding market opportunities. second, it would reduce the complexity that would result if our two neighbors are excluded. because mexico already has a free trade agreement with europe and has had one since the year 2000, and canada announced that it had negotiated a new trade agreement with europe just this past october. and having to deal with three separate agreements with different rules of origin and different customs measures would not only create a headache, but an unnecessary be cost burden for our entrepreneurs. and it would erode the unique and hugely beneficial economic integration that we have
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achieved with our two neighbors as a result of the nafta. third, having all three north american governments around in the negotiation -- in the negotiation would give us all an opportunity to expand the nafta. significant advances have occurred in the areas of data flows, telecommunications and other areas that weren't on the table when we negotiated the north american free trade agreement. and fourth, it would provide us another opportunity to provide greater regulatory coherence. that's the focus of the trans-atlantic agreement. because our tariffs between the united states and europe are roughly about 3%. high in some areas -- higher in some areas, but a handful. but our regulations are very burdensome and quite different on both sides of the atlantic.
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and that could have a tremendous effect on half the world's trading volume. and finally, having our two neighbors join this negotiation could facilitate president pena's program of economic reform that we so strongly support. pointing to the benefits that mexico could potentially gain from this mega-agreement would be rather similar to how president salinas used the nafta to begin the economic reforms. and we strongly support what mexico is trying to do in the economic region not only in the areas of energy and telecommunication, but expanding political participation. so as we move forward in the 21st century, we need to take steps that will maximize future growth, and that will require our governments, think tanks, business organizations to
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educate our populations about the tremendous benefits that can result from thinking about and dealing with trade and investment opportunities not only as a single nation, but also as a highly integrated region that knot america has -- north america has become. and there's no better time than the 20th anniversary of the nafta to move forward on this, and i'm grateful to csis for picking up the banner and starting the process. so thank you all for being here, and i look forward to listening to the panel. [applause] >> thank you, ambassador hills. i'd like now to invite the panel to come forward. we have several experts in the
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north american region to discuss the topic today, but i'm delighted to be joined in -- >> [inaudible] >> ambassador hills made the comment in the green room that a lot of people at washington din kerr parties would like -- dinner parties would like to do this very thing, rearrange the name cards. [laughter] we're going to do that. what i'd like to do, it's my great pleasure to turn this panel over to our moderator, ambassador charlene barshefsky, senior international partner at wilmer hale. was u.s. trade representative for president bill clinton and has both her career prior to government service, after government service and this government service has helped u.s. businesses deal with the north american free trade agreement. so without further ado,
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ambassador barshefsky. >> thanks so much, scott. let me, first of all, start by congratulating carla on her remarks and, of course, from her tenure as ustr. let me also say that every organization with which carla is affiliated builds a new building. [laughter] the peterson institute, new building. council on foreign relations in d.c., new building. csis, new building. so if you live in the district and you are pleased to see your property values not decline, this is why. [laughter] let me also thank scott for hosting this event. as carla said, it's very timely, and for your work on the nafta in so many -- and so many other trade initiatives. so before i introduce our panelists, i thought i'd make a few remarks. let me also acknowledge bill brock, another former ustr and
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one of the great people of washington, truly. let me start by recalling what john kennedy said about canada. it alies with equal -- applies with equal force to mexico. hello, jim. and jim colby. and sal ma -- i mean, this is ridiculous. i could introduce all of you to each other. [laughter] john kennedy said with respect to qanta -- but as i said, it applies to mexico as well -- geography has made us neighbors, history has made us friends, economics has made us partners and necessity has made us allies. one of the strongest, concrete expressions of this observation and this partnership is nafta. now, as carla said, that have that's trade liberalization -- nafta's trade liberalization was deeper than any previous free
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trade agreement. it covered not only goods, but also services, investment, ip and so on, is and it began to tackle issues of labor and the environment which were new to the trade agenda. it was also the first fta between a developed and developing country. and critically, it included robust enforcement measures that the gac, which was the precursor to the wto and in existence at the time, that the gac failed to have. the results, of course, speak for themselves. overall, inter-nafta trade in goods has more than tripled since the agreement took effect, and it topped the trillion dollar mark for the first time in 2011. trades and services has also thrived, nearly doubling. with respect to mexico, two-way trade has surged over 500% compared to half that for
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non-nafta countries. this reflects one of nafta's most enduring contributions to economic competitiveness; the rationalization of north american supply chains and the accompanying growth in the trade of intermediate goods. today, largely thanks to nafta, more and more manufacturing processes span both sides of the border, and factories are able to achieve greater economies of scale. at the same time, mexican per capita gdp more than doubled, and we have seen a fivefold increase in inward fdi into mexico from the united states. with respect to canada, two-way trade has also increased. about the same as trade globally, but bear in mind canada started from a very high base. it was already our number one trading partner at the time nafta was negotiated. so the 270% increase in trade since is saying a lot.
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in addition, if you look at specific sectors of trade, the agreement with canada has proven extraordinarily beneficial on both sides. agriculture is a case in the point where two-way trade is triple that compared to trade with non-nafta countries. and today, of course, canada is the single largest market for u.s. agricultural products, and not surprisingly, mexico is number two. so overall, nafta has been a resounding economic success and has enhanced north american competitiveness and cooperation. but there is quite a bit of room for improvement. the ftas that have followed nafta -- and korea is a good example, the chorus agreement -- has far more robust disciplines in areas like ip, state-owned enterprises, labor and the environment.
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and, of course, nafta never addressed 21st century challenges. there was no internet when nafta was negotiated. the internet that existed was among universities. social media, there was no social media. right? iphones, ipads, all the rest weren't there. cross-border data flows, not an issue. biologics, not an issue. of biotestimonying, not an issue -- biotechnology, not an issue. nafta's beginning to show its age, and without repair be, it will erode. unfortunately, there are also areas where nafta hasn't achieved its promise. for example, if you look at ip, canada provides innovative pharmaceutical companies with only a very limited right to appeal marketing approvals for generics, and canadian courts have recently been a pose toking very -- opposing very high utility orders for patents, in
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effect discriminating against pharmaceuticals. until 2013, canada was on the ip priority watch list with russia and canada -- with russia and china. canada has since graduated to the ordinary watch list, but come on. for nafta countries, nobody should be on any watch list in areas like this. these deficiencies need to be cleaned up. another area of concern, of course, is security related and security restrictions on the flow of goods and people across borders. after nafta's implementation and in the wake of 9/11, border security increased to such an, - to such an extent that it began to hamper trade, create long wait times at the border and prevent goods and people from crossing freely. we certainly need to insure security, but we also need to insure that border bureaucracy does not unnecessarily stifle
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economic growth. so there are many items that are or should be on the trilateral agenda to insure that nafta's foundational status is maintained for the good of all three countries. i think it would be unwise and unnecessary to reopen nafta formally. i don't see any particular point in that. but i do think there are four main paths for building upon nafta's success and updating nafta. first, adopt targeted solutions to specific outstanding irritants in the trade relationship. ip is an example. movement of personnel is an example. the obama administration should rededicate itself to effectively using existing ad hoc, bilateral forforums including the forums it itself have created which have been underutilized and are not yet producing concrete
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results. second, we should make incremental improvements in nafta including chapter by chapter by updating agreements as needed particularly where those updates can be implemented by regulation rather than legislation. these kinds of updates can be negotiated in the existing forums and working groups and take their cue from more recent ftas and from agreements that are on the table. third, we can use tpp as a vehicle to enhance nafta disciplines. canada, mexico and the u.s., as carla pointed out, are all parties to tpp which will involve deeper liberalization in areas including services, investment, competition policy, ip and a range of 21st century issues. where tpp imposes a higher standard, i think it should be the governing discipline in north america.
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where tpp conflicts with nafta but does not impose a higher standard, the nafta party should negotiate as needed to resolve the conflict. but this approach would make it only to dramatically improve upon the nafta while maintaining its primacy in north america. and fourth, we can use ttip as a potential template for enhanced talks among nafta countries. to a certain extent, of course, regulatory talks are underway in the forums that have been created. but ttip can provide a much more robust example and provide a means, a template for accelerating and deepening regulatory reform. so these four strategies -- targeted solutions, chapter by chapter improvements, tpp and ttip -- can together insure the vibrancy of nafta while, most
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importantly, driving convergence between the legal frameworks governing trade in north america, europe and asia. convergence here is absolutely the key. it'll facilitate greater consistency in treatment and outcomes and avoid the regional vulcanization of trade. convergence will help guarantee the future of north american competitiveness globally and insure at the same time that our trilateral partnership remains robust and forward looking. so with that, i'd like to turn to our distinguished panelists who i will now introduce. laura dawson on my left is president and founder of dawson strategic, an ottawa-based consulting firm specializing in cross-border trade, investment and regulatory issues. laura was previously a senior adviser on economic affairs at the u.s. embassy in ottawa.
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he also keeps one foot in academia, serving as a public policy scholar at the woodrow wilson center and a senior fellow at the mcdonald lauria institute. second, chris wilson, an associate at the mexico institute of the woodrow wilson center where he develops the institute's research and programming on regional economic integration and u.s./mexico affairs. he's also the author of "working together: economic ties between the u.s. and mexico," and he is co-author of the state of the border report, both published by the wilson center. he has written op-ed columns for the wall street journal, politico, cnn and the "dallas morning news". our third panelist is chris sands, another chris. senior fellow at the hudson institute where he specializes on u.s./canada relations as well as north north american economic integration. crystals teaches -- and this list is unbelievable -- at johns
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hopkins sais, at the american university of lick affairs, at the state department's foreign service institute, at the department of homeland security. he's a frequent commentator in print and on television. and last but not least, our captain -- [laughter] scott miller. scott is senior adviser in international business and the scholl's here at csis. before that he was the director of global trade policy at procter & gamble where he led, i think, every campaign supporting u.s. free trade agreements. he has also serve as a liaison as well as the state department's advisory committee on international economic policy. he has been and he remains a leader in our field. so with those brief introductions, please, laura. >> thank you. good morning. i think you'll forgive me a minute to just sort of catch my
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breath and be dazzled. having to speak after ambassador barshefsky and ambassador hills is quite an honor. these two women have led the united states and canada through many important trade initiatives, and it's a bit overwhelming for a trade policy professor from carlton university in ottawa to be the third speaker. i'd also like to thank scott and csis for the, for the invitation to speak this morning and for putting this program together. it's lovely to see so many friends and colleagues from government of canada, mexico, the united states, various organizations. this is like the a-team or the nafta all-star team in this room. this is quite incredible. so if i say anything wrong, please, throw something at me. of -- we are here, the three -- the two chriss and i -- because we were involved in the creation of a report that was
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commissioned by the government of qanta, although it doesn't reflect the opinions of the government of canada, to do some thinking about the future of that have that and a framework for north american competitiveness. there is no doubt based on -- your own knowledge and the articulate comments made by our ambassadors this morning, no doubt that nafta was and is a very successful agreement, a trail-breaking agreement really establishing a framework for regional trade agreements when there were few, if any, models prior to that. but as both of our speakers have already said, it's an agreement that needs updating. it's an agreement that was negotiated before the internet, it deals very little with energy issues which are now so important to all of us, digital transfers, movement of people. unlike the european union
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agreements, the nafta doesn't contain a mechanism for continued growth. yes, there are the nafta working groups, but it wasn't an overarching enforcement mechanism that would force us to move forward. and unfortunately i would say that the nafta has languished in respects. the fact that we did do a good deal initially combined with the really bad press that nafta has received particularly in the u.s. has made it very difficult to promote a robust and evergreen agreement. we have, therefore, moved on to stopgap measures. of one of the things that we have adopted as three countries is a series of dual bilaterals where on important issues like regulatory cooperation, borders, energy, etc., rather than the three parties sitting down and having a robust, meaningful
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conversation -- yes, we do have trilateral summits from time to time, but a down in the weeds conversation about the problems and how to fix them -- we're now dealing with this in a bilateral context. some would argue that this is the best way to go, and i've had some spirited debates with my canadian colleagues. for example, the regulatory cooperation council process, the beyond the border process have definitely made some very strong progress in the last couple of years. and they argue to me that they can move faster bilaterally than we can move trilaterally. the problem for me, however, is that this bilateral initiative lacks political attention. it is rapidly running out of gas. i don't see that there is, that there's going to be life in these agreements past 2014. maybe i'm wrong. but i think that in order to
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maintain the political momentum and the economic impetus for the agreements that we have, we need to trilaterallize them. this is not the mexico of 1992. i think in canada in particular we tend to have outdated perceptions of who our southern trading partner is. mexico is now one of the fastest growing economies with a growing middle class, with growing skills, human resource capacities. they are our engine of growth for the region. they are an emerging market that is contestable -- yes, china and india are interesting and important, but mexico is a contestable emerging market in particular for the small and medium-sized enterprises. i want to focus just briefly in my remarks on the importance of smes. i argue that nafta and the canada/u.s. free trade agreement were the agreements of big business, that large companies saw large tariff barriers and
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lobbied hard to get these looked after. and once those large barriers moved out of the way, we lacked a business consensus which continued to push for progress and a deepening and a widening of our agreements. why? because these small and medium-sized enterprises are, frankly, too busy to lobby on behalf of new initiatives. also the work that we need to to do, as ambassador hills pointed out, is in the area of nontariff barriers. picky little regulatory standards, technical barriers, inspections, things that are notoriously difficult to root out. what we need to do is to reduce the transaction costs by getting rid of these nontariff barriers so that our small and medium-sized enterprises have an opportunity to flourish, have an opportunity to trade into our
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nearest markets and also through the world. i believe that a basis of north american competitiveness is a platform for our region's competitiveness in, throughout the world, asia, africa, etc. i also believe that it's very important that our three governments exercise the leadership to take up the flag for the small and medium-sized enterprises to reduce transaction costs, to make it easier for us to function as an integrated market. in the paper that chris -- actually with, the other chris is standing in for duncan wilson, a kind of -- duncan wilson at the wilson center, they're kind of interchangeable. in the paper we recommend several specific areas of operation. we recommend trilaterallization of the regulatory cooperation process. not necessarily full consensus and full cooperation on each issue, but for heaven sakes, we ought to have a pension can representative attending --
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mexican representative attending some of the u.s./canada meetings and a canadian representative attending some of the u.s./mexico meetings in order to find consensus where there is consensus and bring some of these initiatives in specific sectors together. similarly, we would like to see that move on our border initiatives, recognizing that there are important security dimensions to be considered, there are also many economic benefits that could be derived from rationalization. and cooperation on our multiple borders. we're recommending a harmonized trade policy where harmonization is possible, and having ambassador barshefsky and ambassador hills already outline some of the ways we can do that, i won't go into detail kept to say that sitting at the same table is not the same as negotiating together. i think there has been a belief that, may i say it, from the
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u.s. that canada and mexico are kind of the bird in the hand. we've already got nafta, now we're going to get europeans, now we're going to get asia. we also recommend more intense focus on infrastructure, cooperation not just on building things together, but needs assessment and feasibility. human capital, which is our way of saying movement of people, labor mobility where possible, investment in innovation, research and development. and energy. we need a trilaterallized energy dialogue which focuses on ways to rationalize movement and distribution of energy and looks at ways to really capitalize on the fact that our region is unique in the world and that we're self-sufficient in energy, and we have things to trade external limit -- externally. the fourth point i have has to do with leadership, and in my original notes i said we need leadership from our three governments in order to get the
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north american competitiveness project on the road. and i suggested, you know, various increment always to do it. and, unfortunately, your secretary of state, john kerry, stole my thunder this morning. if you've read "the miami herald", an oppenheimer interview and also cnn in espanol are saying john kerry has announced he's going to deepen the north american trade relationship with canada and mexico and potentially expand to other latin american trading partner and this initiative may be flushed out in time for the summit in february. and to that i say, hooray. our work is done. thank you. [laughter] >> all right, thanks very much, scott and everyone here, for the opportunity to speak with you today. i mean, i think when we're considering the question of whether or not to deepen north american integration, whether or not to deepen this partnership that was forged 20 years ago with nafta, there are two ways that you can think about that question.
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one is to look back at nafta and see what it's done, say was nafta a good idea, buzz the integration that it -- was the integration that it created a positive for the region, and as i believe and i think we've heard today that the answer to that is, yes. but nonetheless, the agreement is seen this public eye as something that's still very contentious. so we could rehash those old debates over the giant sucking sound of jobs that may or may not have happened, the whole thing. or we can take a more forward-looking approach and say, you know, where we are now is fundamentally different than where we were 20 years ago. so the decision of whether or not to move forward is a fundamentally different decision than the one of whether or not to implement nafta, create nafta 20 years ago. and that's the approach that i think that we've taken with the paper. it's a much more forward-looking approach. and that's important, because the relationship really is fundamentally different. nafta didn't just expand the
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volume of trade between our three countries, which it did. it also deepened it in a really profound way, and it's been discussed today. it's the creation of production sharing, a joint manufacturing platform across north america that means that we trade inputs, we trade materials which are then -- meaning that we're building products together and not just selling them to one another. that has deep implications because it means that the competitiveness of each of our countries depends on the competitiveness of other countries in north america. so if mexico improves productivity in its energy sector or in its manufacturing sector, that means that there are better inputs to be used in production be here in the united states -- production here in the united states, meaning our products are better, more competitive for export to the world, they're more competitive vis-a-vis imports from china, from europe, from the rest of the world. so we're linked together in competitiveness in a way that we were not linked together 20 years ago. i think that changes the way we look forward and ask the
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question. so reframing the question we would ask given how deeply connected our manufacturing sector is, what can we do to boost the competitiveness of regional industry vis-a-vis competitors around the world. and so if that's the key question is how to make north american exports, north american products more competitive on the global market, i think there's some things we should look at that are happening right now, some new changes that are underway that would guide us in a couple of important directions there. and since so much of what north america is is about the trade in north america is about this co-production of manufactured goods, i think it's important to reflect on what's happening right now in the world of manufacturing. we've already, we've thought about today already the changing nature of the global trade architecture and how nafta fit into that and how that demands that we update nafta, that we deepen regional integration. but i also think there are changes in the way that we're manufacturing products in
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technological advance that is demand that we rethink and update nafta. what i mean, i mean, basically, the chance advanced manufacturing, things like robots, sensors, advanced machinery in the production cycle. i mean, what that basically means is that the portion of the pie, if you take the pie of, you know, what are the different costs of production of a product, the portion of that that's low-skilled labor we don't need as much low-skilled labor to create products anymore. what's the implication of that? it means that everything else in the pie becomes more important as, you know, as the company is deciding where to locate their manufacturing, where to locate a plant, it becomes compare tyly -- comparatively much more important what all the other factors of production are. so i want to focus on two of those very briefly. the first is energy. and we're in a very propitious moment in north america as we think about energy. energy is an important input into the production cycle, it's an important input into the
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creation of manufactured goods. so right now as we're with undergoing sort of shale oil and shale gas revolution, here, mexico at the same moment has passed through both chambers of congress, now the constitutional reform goes to the state congresses to be passed, but it's looking very positive. so mexico is in the process of passing the biggest change in its energy policy in 75 years. this fundamentally changes the ability to have a north american discussion of energy. whereas there was a sensitivity previously, sort of like there was before nafta on a much broader basis. there was a sensitivity in the relationship in terms of, in terms of mexico's participation and ability to participate in a discussion about regional production. energy was off the table at that moment. well, energy's back on the table for north american discussion now, and it's at a perfect moment because of this other, these other changes in technology that are allowing energy prices to drop in north america. now, mexico can participate in
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that which means that the manufacturers in mexico can participate in that advantage in a way that brings competitiveness back to the entire north american region. the second is human capital. to as the need -- so as the need for low-skilled labor shrinks, the need for high-skilled labor increases. that's both because you need people to run these complex machines, to be able to fix these complex machines, to be able to program them, but it's also because it becomes comparatively more important the research and design component. and at the same time, research and design is increasingly integrated into the manufacturing process. it's increasingly important for manufacturers to have tear r&d folks in close communication with their production people so they can be more nimble as they put a new product on the market. so all of this is forcing us then to ask the question of what do we need to do in north america to insure that we have the human capital to attract
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manufacturing to the north american region and to keep it here? and i think that, you know, there's a lot that each country needs to do in terms of education to do that, but there are a couple things we can do together as a region. and mexico and the united states recently launched an initiative to begin looking at how to increase educational and research exchange between the two countries. the numbers right now are really low compared to what they should be, given the closeness and size of our countries. it needs energy, and maybe it could be trilaterallized also. maybe this is an opportunity to bring in canada, put this in the context of a reflection back on where we've come in the last 20 years and where we can go together. and one of the things that we'll need to do is we'll need to boost the level of educational exchange in research partnerships that we create between universities in all three of these countries. the list sort of goes on and on, and i encourage you all to take a look at the paper to see the ideas, but i think i'll leave it there so we have more time for discussion. >> thank you very much, and it's
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great to be here. i have to say 20 years ago, scott, i was here. well, not here, but at the other here. [laughter] and i was, i was lucky enough to be at csis as a junior canadianist. you can probably imagine what my parents thought that christmas i came pack, and i said -- came back, i said i got a job, i'm a junior canadianist. it was very exciting at the time. [laughter] here i am now, haven't accomplished that much. [laughter] but, um, but it was an exciting place to be then, 20 years ago, as it is an exciting place to be now. and i'll never forget it as a moment in my career because i had the opportunity to really see what makes csis great. and what made csis great, what still makes it great is the combination of foresight, vision and action that really helped bring things together. twenty years ago csis had a
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project on canada and a project on mexico. and the reason we had a canada project and a mexico project comes down to someone here in the room today, george forio, who was the head of the americas program and knew that we were going to need to understand canada and mexico better as they became deeper trading partners, deeper economic partners. he was interested in not just the economy, but the politics. and he made sure that there was the money -- which is very important in think tanks -- that we could hire and expand and become the strongest program with canada and mexico as full foci here. that was how i got to be the junior guy. i wasn't really good enough to be the big one, but i at least came in. [laughter] and when i got here, shortly after i got here, again, with some heavy influence from george, i had the opportunity to work with someone who held the william simon chair here at csis, sidney weintraub. a lot of you remember sidney, 30 years ago published his famous book at the brookings
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institution, free trade with mexico, question mark, raising the idea that trade with mexico could be a development engine, that it could help not only to change the nature of mexico, but the nature of the mexico/u.s. relationship. that's vision. and he saw that after years of working in the economics component of the state department back when the state department ran trade in those days and really articulated it persuasively so that a generation of american leaders ten years later were really thinking about what nafta could do. and that made a big difference. but there was one other component, and that's another person that many of you will remember, dalal baer, and she was the senior mexicanist. she ran the mexico project then. and when nafta was on the horizon, she did something that csic then and now -- csis then and now does so well, she created the nafta and beyond commission.
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and as we had a tough debate, you'll remember about the ratification of nafta, she convened every former living u.s. president, every former living u.s. secretary of state, every former u.s. secretary of treasury and every former ustr or u.s. trade representative that was around. all of them. plus the very top company corporate leaders from around the country who all came together to sign on to the importance of nafta and getting it done. and getting it ratified. and as close as the nafta fight was, i don't think it's an exaggeration to say that the ratification was in large measure contributed to by this institution, csis, and by dalal and by sidney and by george and a little by the junior canadianist, but not very much. [laughter] so coming back 20 years later, we've tried to take a look at where this relationship could go. and i'm not going to repeat what
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my colleagues said, but i want to underscore just a couple of things that i think deserve just a bit of additional anticipation. attention. one is we have to recognize that in 2001 this relationship changed again. it wasn't just nafta that we're thinking back on, the september 11th attacks brought us a much more robust byrder than we had had and added heavy compliance across supply chains that cross north american borders. now, we want to be secure. it's not about aboll bishing security, but we've got to find ways to make the borders work more efficiently, less burdensomely on our trade. secondly, infrastructure. we built this continent on east/west infrastructure, connecting markets on the atlantic to markets on the pacific. we need more north/south infrastructure, road, rail, even i.t. infrastructure. and that's something that governments must do. we need more pipelines, more power lines to connect the energy markets that we have. of and that's something that
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governments must do. [audio difficulty] our labor market take advantage of -- [inaudible] anywhere in government the right to -- [inaudible] and that's something the governments can do to empower and enable their citizens to take full advantage of -- [inaudible] and intellectual property. we talked about it a little bit -- [inaudible] so that we can truly achief -- [inaudible] [audio difficulty] where -- what i hope will come
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after this conversation -- [inaudible] >> thank you. thanks to all the speakers thus far. i'm going to use my time to try to pull some threads together for our discussion. the first one i'd like to pull on is based on a comment by ambassador hills about the way we in north america we make things together. i think while it's fair to call nafta a trade agreement, i want you to stop thinking about north america as a trading bloc. it's not a trading bloc in terms of trading english cloth for french wine, it is a production bloc. in north america we don't simply sell things to each other, we make things together, and then we sell them to each other and to the rest of the world, and that rest of the world is the important part. but what really happens in north america is we make things together. that was true before nafta, and
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nafta was a heroic attempt to advance that notion of making things together and, essentially, conforming the policy and regulatory footprint to the commercial footprint. the second thread i want to pull from that one is as a failed engineering student i learned about statics and dynamics. and i always found statics a lot easier. but one of the core problems that we have in nafta after 20 years is not that it wasn't a breakthrough, important agreement. it's that rules are static, and the commercial environment is dynamic. what's happened is that commercial footprint which nafta did a really good job of conforming to in 1990, in the late 1990s continued to change. new opportunities were created by nafta. that changed the commercial footprint. inb novations like information and communication technology, the rise of value chains, the search for deeper specialization
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all changed that commercial foot print. you can see how advanced this is now when you look at north america, if you look at satellite images. it's in some categories, in some sectors it's almost impossible to find the national borders. someone showed me a map of electric power generation grids. the electrical power generational grid at the u.s./canada border, the grids all across the united states run north and south and ignore the border completely. in auto production, auto production is actually very deeply specialized partly because nafta was preceded by the auto pact. but today if you look at the u.s. north american auto industry from space, you can find interstate 75 and highway 401, but you can't find that at the u.s./mexico or u.s./canada border. and that's an important statement about the depth of integration. the pointer is not that -- the point is not that borders don't
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matter, the point is that we have a bigger goal. the goal is global competitiveness. that's certainly the goal of firms operating in north america. and the point is economic operation moves on and inevitably outgrows its framework. and i think 20 years on in nafta there's been a lot of outgrowing, and that is really what we in the private sector and in government ought to address ourselves to. this combination of a fixed set of rules and constant adaptation and change in this high pressure global market and with restless consumers and with massive innovation, the rules stay the same, and it's starting to show. about three years ago, i was at a conference, and the subject of nafta came up. and my friend ed guesser of progressive economy made a statement that troubled me. and the statement was this, he actually showed a chart. the chart looked like mount fuji, okay? it was just a graph. it measured the share of u.s.
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imports summit to the nafta preference -- subject to the nafta preference. it started in 1994 and ended about 2011, i think, when he gave the talk. what happened was that good subjects of the nafta preference have been declining since probably 1999 or 2000. now, the good summit to preference, there was preferential trade before nafta. it was the auto pact, and mexico was a large participant in the generalized system of preferences or gsp. so there was about, you know, half of imports from both mexico and canada prior to nafta were subject to preference. nafta preferences grew, but then started to decline. and that is a reflection more than anything else of the decision making that goes on in a complex, high-pressure, dynamic economy where the rules stay is the same. actually, apparel trade is a example of this. the apparel industry in all three countries worked very hard to get a set of rules that made
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sense for it and met political muster in the nafta, and that's what happened in the nafta. the u.s. market share of nafta apparel, so apparel that is produced in the nafta region, was 7% in 1994 when nafta came into force. the share of nafta apparel sold in the united states peaked at 18% in 1999. 2012 the share was 4%. so, actually, north american apparel trade has a smaller share, nafta apparel trade has a smaller share of total apparel trade in the united states than it did before nafta. now, this is just a reflection of it wasn't that there was a bad agreement at the time. in fact, i think the nafta rules on apparel reflected the interests of all three economies at the time it was done. what happened is the world changed. it was just overtaken by a new reality that -- and it didn't happen all at once. it didn't happen by a policy decision. in fact, nothing really changed
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this the rules. but one make or buy decision after another at one company or another, one more work around led to this circumstance. and that's really where we stand today. that is the opportunity. i'll take chris wilson's point on this, which is companies in all three countries are trying to do their level best of drawing on the combined resources of north america to be as competitive as possible in global markets. that is the operating goal and operating policy of every company operating in north america, large or small. whatever barriers exist are just additions to transaction costs. and most companies don't really care whether it's a trade rule, whether it's extended crossing times between windsor and detroit which i think will get shorter at some point but may not be soon. the ambassador bridge, by the way, was opened in 1927. so if we think nafta's old, our infrastructure's old as well.
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it can happen, as ambassador barshefsky mentioned, because of regulation. i mean, look, i think it's still the case, i've only been gone for a couple years, but canadian crest is sweetened with saccharin, and u.s. crest is sweetened with saccharin, and never the two shall meet from a regulatory standpoint. do we have free trade on toothpaste? no, we don't. there's zero tariff, but there's not free trade. so this is, this fundamental issue, fundamental problem of a static nature of rules versus the dynamic nature of commerce is what we need to confront. we don't need more venues to confront it, okay? we have plenty. we have the security and prosperity partnership in the wilson administration, we had regulatory cooperation councils going on now, okay? we have the tpp which i amusingly noted to some friends that senator barack obama on the campaign trail in 2008 in the
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state of ohio commented that it would be his political goal to renegotiate nafta. and it caused shock waves in the press. trans-pacific partnership is that opportunity to renegotiate nafta. of we have a forum for doing it. as ambassador hills pointed out, we could take the forum of the trans-atlantic trade and investment partnership to also improve the rules of nafta. so we're not lacking for venue. i think what we're lacking is imagination, okay? in 1994 there was no such thing as a digital economy, and no one imagined what digital commerce would be. in 1994 nobody also imagined that mexico would open its oil sector to private investment. okay? things change. and we ought to reflect that change. i think that the imagination needs to run both ways. i think the private sector needs to turn its work arounds, which they just do, into a policy agenda which you need to engage the government about.
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secondly, on the government side i think instead of beginning with the rule, begin with the transaction. when you begin with a rule that is what's the nafta rule today, governing this amount of trade, you, first of all, assume the status quo, you adopt the status quo, and you adopt the rents associate with the the is discuss quo. let's look at what two parties want to do voluntarily for mutual benefit and ask ourself what's the government's interest in getting involved in that transaction. and there are some, all right? then the question becomes what is the least restrictive way for that government interest to be maintained and allow the transactions to happen as they do millions of times every day in north america? with that, i want to thank you for coming and thank you to the panelists and tell you how delighted i am to be part of this discussion and turn it back over to board barshefsky. -- ambassador barshefsky. >> thanks very much, scott. we're running a bit long, and so
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i think what i'd like to do rather than have the panelists talk to each other is to open this up for questions from the audience given how patient you've all been. so we have people with microphones at the back of the room, and if you raise your hand, they will come and give you a mic. and the you'll identify -- if you'll identify yourself and your affiliation before you ask your question, that would be great. yes. >> thanks so much. thanks to the panel and csis. i'm scotty greenwood with the canadian-american business council. if tpp and ttip ask the other trade deals are a possibility for fixing nafta or enhancing it and also enhancing our trade generally with the world, what are the prospects of actually getting those deals concluded and in place? thanks. >> i'll take one stab. i think the administration is very committed to finishing
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ttip. they missed this year-end deadline, but they will not miss next year. they will conclude it next year, that's my view. and i think the president is extremely interested in fast track trade promotion authority. our understanding, we've talked about this this morning, is there is agreement certainly at staff level between the senate and house in terms of committees on a potential template for fast track. committee chairmen so far, most of the committee chairmen, not all, seem to be interested in moving this forward, so we'll have to see. of but i think there will be very significant activity next year. what happens? it is a election, i don't know, and it's a hard vote. but i think there will be a strong push, certainly, and most assuredly i think ttip will conclude. sorry, tpp, ttip is a
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longer-term proposition. regulatory convergence is extremely difficult. having done a number of mutual recognition agreements with europe, i can tell you from personal experience it is very hard and acrimonious. because regulatory reswreejs in the u.s. and europe -- regimes in the u.s. and europe are very dedicated to their regulations and the bureaucracies that build up around those regulations are very substantial, and each side believes it is right in the way it regulates. so i'm not saying it's not possible. of course it's possible, but i think it's a longer-term proposition. so the agreement i look far is tpp for next year, certainly. >> um, i can't make a restriction about what -- a prediction about what the pace of negotiations. i just want to put in two cents on the utility, the relative
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utility of the agreements. and one of the things that was a challenge for the nafta was bringing countries of differing levels of development together. and pension coe really -- mexico really had to conduct a lot of reforms, it really had to work very hard in order to meet the requirements that were set of it in the nafta. looking at the trans-pacific partnership be, we have a lot of countries of differing levels of development and some very entrenched positions on what they believe is important. so in terms of the north america nafta issues that are manageable within the tpp, i think -- i'm more optimistic about the ttip be, the european union agreements. because there although you have i will say two elephants who have different ideas about how trade policy ought to be conducted particularly in the regulatory area, you do have very similar levels of development, very similar commercial practices and
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commercial interests to be effective anyway. we will get more from participating with the u.s. and the european union. >> i don't have much to add, but i want to bring this to the discussion on north america. some of you will remember that one of the reasons we launched on free trade and nafta was that the gatt talks were stalling, and the reason they were stalling was the europeans wanted to deepen their integration before widening their trade liberalization with other countries, particularly the united states. so we turned to our own project to be able to deepen. i think one of the challenges for us in pursuing trade agreements in all directions is that if we remain uncompetitive having failed to achieve that single market here in north america, we'll liberalize ourselves to european, asian companies that have the benefit of large economies of scale at home to export here, keep their jobs there and potentially really put some strain on the north american economy. we don't have to face that at
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all. we have the time now to think about how to carry nafta forward, how to make ourselves very competitive so that when we liberalize further, we're really going to, you know, be able to take full advantage of that. and that's where i think these two discussions should be linked. but we are, as people have said, sort of separating them, and i think that's artificial. >> questions, please. gentleman right here, third row. of -- >> thank you. hello, my name is jose, and i work for mitt suey and company. there has been some talk about reshoring, manufacturer reshoring from asia to north america. does nafta have the tools necessary to facilitate that? what needs to change? how might nafta respond to that restoring? -- reshoring? thank you. [inaudible conversations] >> i mean, the process is underway because of changes in the global economy, you know? things like rising wages in
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china, high transportation costs across the pacific because of high oil prices, changes in currency values. so that the trends that have been pushing this reshoring which is a benefit to all of the countries of north america have been coming from external factors. we have the opportunity to continue that trend with internal by implementing things within north america. but that's something that we still need to do. i mean, it's -- of course, the nafta is there, and it provides a framework that allows a certain degree of production sharing, of manufacturing throughout the three countries. but to deepen it, i mean, one of the single biggest things we need to do is lower the transaction cost cans at our borders. and that's something because, as chris talked about, this is something that's actually increased since nafta in large respects. i mean, the tariff barriers have decreased, but the wait times at the border, the infrastructure, you know, we're trading on infrastructure from 50 years ago when our trade levels between
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the united states and mexico are five times what they were before nafta. so we need to change the way that our borders function so that they don't become an artificial barrier that's growing over time to this joint production system. and things like that would be the way to further encourage the trends that we've been lucky enough to experience from a just sort of the winds of the global economy. >> i agree with chris' comment, but i would do, be cautious of using the word "trend." trend presumes something will continue. [laughter] there is certainly the case where tasks within a supply chain have been conducted in asia and are relocating to north america. that's because of a lot of underlying conditions, mostly lay -- labor costs in places like china which have increased since 990 and the increased fuel costs. so there are some dynamics which are not permanent and can be
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reversed. there are also some policy implications for this, and i would agree totally with chris that need to be taken advantage of. for instance, mexico made a very important policy change that it didn't have to negotiate with anybody. they unilaterally accepted standards of conformance from any established body. that by be accepting certification from any known standard setter, okay, they opened themselves up to being able to participate in assembly chains, in this supply chains that before mexico rules actually prevented the importation of components that didn't have local certification. so there's a lot that can be done with global value chains that is, essentially, a self-help program. and mexico has figured this self-help program out and is implementing it. the more of that we do and the more we do our own self-help program and things that chris mentioned like infrastructure and border thickness, border
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efficiency, the more we have the opportunity to capitalize on this. [inaudible conversations] [laughter] >> yes, i'm ed gerwin, international trade consultant. i think it's -- i think the panel would agree and most observers would agree that nafta has been a success economically. but the critics seem to have won the public relations war on nafta. as we talk about a reset on nafta moving forward, doing new and different things, what would your advice be on a new public relations approach to selling nafta, rehabilitating its image and emphasizing the benefits to citizens in all three countries from an expanded agreement? >> um, it is really easy to
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criticize nafta in a 30-second sound bite and really difficult, as you know, to describe the nuances of international trade benefits in that same 30 seconds. i think not just in the united states, but across our region all politics is local politics. and be so in order to rehabilitate the nafta reputation, i think you take it down to the local level, and you find the companies that have been able to trade across borders, the companies that have been able to overcome local downturns in order to benefit from greater regional opportunities. you take it to the untold stories of regional prosperity. i mean, the trouble with the canada/u.s. relationship and also the great benefit of canada/u.s. relationship is nobody thinks we're foreign. [laughter] so nobody thinks that trade between detroit and windsor is international trade and a by-product of the that have that. so i think it's -- of the nafta.
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so i think it's locally-focused stories and also engagement with our local governments, municipalities, states, provinces. >> i can answer very quickly. i would be unabashedly critical in the way i would use china as the new scapegoat. i think china is the new mexico in terms of where we fear that our jobs will get lost to, so i wouldn't -- but there's a level of truth to it also which is to say that what we're doing now is we're competing on a global stage. and in order to compete on a global stage, we need to work with our partners. our partners in production are canada and mexico, so we need to work with them to win that fight. >> well, this is not maybe good pr, but maybe a story we haven't told enough of. one of the things that made canada's free trade and nafta really, i think, path-breaking agreements is that they weren't like the auto pact, a trade agreement that benefited a handful of companies and kind of
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excluded other people including people who wanted to sell their used car across the border couldn't take advantage. it was a limited agreement. but canada's free trade and nafta were for everybody, including enterprises that didn't have big lobbying shops in d.c. and nonetheless got to benefit. i think we need to think in nafta 2 .0 on how to keep the focus on having as many winners as possible. yeah, it seems worrisome at first, maybe there'll be a mexican take my job, but what you have to focus on is, look, your kids could go to toronto, mexico city and take advantage of holding opportunities. i think what chris has talked about, the educational exchanges to create more opportunities for our schools, we've got the best universities in the world here in the u.s., and i don't teach at all of them, ambassador barshefsky -- [laughter] but we do have some great ones, and we should be be really proud of that. there are some positive things, and that's why i think we should
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do full mutual recognition on regulatory standards and say by date x and negotiate the exceptions. and i, i'll go one step further not to be too libertarian, i think we should do what europe does. at a time of tough budgets at the federal level, really in all three countries, what we should do is focus government on setting standards and let the private sector, private sector engineering companies set up to do compliance verification, lab testing of products. we always talk about the car that gets crash tested three times through three governments. well, we could do it once by one company that responds to published standards and presents those findings back to the government, and in the process the private sector cannot only capitalize testing much more quickly than the government can, but we'd create a lot of s.t.e.m. jobs, and that would be a tremendous thing be for our economy. europe does that, we could do that. so things like that so that people see being part of north america is a win for you as an individual, i think, would help sell the agreement. >> jump in? >> well, look -- [laughter] it's a tough question, you know?
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there was no giant sucking sound. al gore won the argument. vice president al gore won the argument against ross perot on larry king, and time has moved forward, and larry king is no longer on the air, but nafta still is the serving bowl of discontent for all the trade opponents in north america. i think all i can say is we just need to do a better job of helping people understand how we really interact. laura's point rang true about people don't think canadians are foreigners. i remember being at a chamber of commerce meeting as a guest somewhere this, out inover -- in flyover country and took a show of hands and said how many people here have international operations. some hands p went up. how many of you sell things to canada, and more hands went up. [laughter] so there is an issue of threshold awareness here that i think we need to do a better job of. i also think we have a moment when small businesses have the lowest trade costs ever.
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if you are reaching consumers, customers on ebay, you are, you are handling transactions, financial transactions through pais pal and -- paypal and your customs broker, there's a company called fedex or ups, you have the easiest, lowest cost way to reach a foreign customer base than ever in recorded history. that's an important opportunity because it means there are one-person businesses who are international businesses. never happened before. it's happening now. we just need -- those of us who believe this stuff need to do a better job of it. >> questions. yes? ..


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