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Remarks by Franklin L. Lavin
Under Secretary of Commerce for International Trade

Council on Competitiveness-IMCO Meeting
Capitol Hilton, Washington, D.C.
September 19, 2006

As Prepared

Thank you for having me here today. It is good to be here with my friend and colleague David McCormick to give you a few thoughts on the U.S.-Mexico relationship as it relates to competitiveness, the topic of this meeting.

Allow me to frame the question before us: how can we continue to increase the competitiveness of our North American Free Trade Agreement (NAFTA) economies in an increasingly efficient and dynamic global business environment?

We can do so by taking a number of steps and I’d like to take a moment to mention a few important ones. We can work to:

1) Eliminate remaining barriers to trade;

2) Enhance the environment for economic growth and innovation; and

3) Clarify rules and regulations so that businesses can operate

and capital can flow with greater ease between markets.

There is a lot of good news in the U.S.-Mexico commercial relationship. To begin, trade volumes and investment flows have increased significantly since NAFTA was launched a dozen years ago. U.S.-Mexico bilateral trade is more than $290 billion in 2005, and at this pace we will be around $350 billion this year. That is more than four times the volume of twelve years ago.

To give this number some perspective, our trade with Mexico today is larger than the U.S. trading relationship with France, Germany, Italy, Spain and India combined. Just the amount of annual growth in our trading relationship alone is more than the entire trading relationship we have with Brazil. If you look historically, in a global context, America’s trade with the entire world a generation ago, in 1977 was less than U.S. trade with Mexico alone is today.

This economic good news has a political analog. Leadership in both countries are firmly committed to building a positive relationship. The Bush Administration is working to develop a comprehensive immigration reform policy. For our part in the Commerce Department, we can point to the recent cement agreement with Mexico as a positive step. This Administration has gone out of its way to foster a good relationship and has sought to engage in discussions and resolve sensitive issues related to both security and economics.

We have some great working groups that have developed to support the North American dialogue in the public and private sectors to resolve problems. The SPP is a great example of this kind of forum. For example, through the SPP our three countries are implementing the Sea Cargo Initiative, which will allow for the electronic collection of data from shipping lines 24 hours prior to loading at the port of origin. That will create a more efficient movement of goods between our countries.

All of this takes place even within the context of the challenges of a post 9/11 trading environment. Our security cooperation has been enhanced, our economic ties have become closer and we have found other ways to cooperate, such as disease and disaster relief preparedness.

Yet even with all this good news, challenges remain. As our trade volume has increased, the number of opportunities to enhance the competitiveness of our region also has grown. We haven’t fully optimized these advantages. For example, we need to:

1) Take further steps to reduce delays at the border;

2) Enhance the compatibility of our standards;

3) Properly enforce the rule of law; and

4) Breaking down further barriers to trade and investment.

First, in an environment where expedited delivery of goods and seamless supply chains are the norm, our border systems and regulations aren’t designed to handle the demands placed upon them. We should be able to have every single business activity that today takes place in Mexico and every business activity that takes place today in the United States take place on a cross border basis without obstructions tomorrow. We are increasingly doing a better job of making our border secure, but we also need to be oriented towards processing the increased volume of traffic and merchandise flowing across the border. The border should not be a barrier to trade.

Second, because some of our standards lack compatibility, many products that cross the U.S./Mexico border need to be re-tested and re-certified. It is Mexican consumers who are penalized by this these inefficiencies. They have fewer choices, the cost of re-testing is passed on to them and they are no safer. For example, Mexico has not authorized U.S. conformity assessment bodies, such as UL, to operate in Mexico, in spite of a NAFTA commitment to do so. As a result, every consumer in Mexico pays a price and our trade is less competitive.

A third area where the business community has expressed concern is the importance of the proper enforcement of the rule of law. Companies need to be sure that commercial disputes will be addressed through legitimate means in civil proceedings. They want to know that their executives will not be subjected to criminal charges against them personally and threatened with jail time in normal commercial disputes.

Lastly, I would like to mention the issue of Mexican economic reform. In the United States the fact is that the least efficient sections of our economy tend to be those that don’t have international competition. In Mexico, there are still too many parts of the economy that U.S. businesses can’t participate in. Mexicans don’t have the quality phone service they deserve. Or look at the energy sector, for example. Opening more sectors of the economy to foreign investment, and liberalizing rules governing property ownership by foreign nationals would certainly make our relationship more competitive and efficient.

Let me conclude with a final though about security and prosperity: they are not trade-offs. We can do both.

In manufacturing, moving to a higher volume of production does not mean a reduction in quality. In fact, it is quite the opposite: the only way to move to higher production is by putting standards and systems in place that increase efficiency and create a consistent, quality product. We have the same principle with our borders: a higher volume of traffic should mean increased security and safely, as well as increased efficiency in commerce.

Thank you.