Mexico

Experts discuss the current security situation in Mexico, and how the United States can help combat shared security threats. This session was part of a CFR symposium, U.S.-Mexico Relations Beyond the 2012 Election, which was made possible by the generous support of the Mexican Business Council.

JAMES HOGE: If I can have your attention, please. We're going to get started. We have an hour to have some fun here and I don't want to waste any of it.I'm Jim Hoge from the council. This has been a terrific set of sessions today on U.S.-Mexican relations. First session this morning -- for those of you who maybe didn't make it -- was on security cooperation. The second session was on economics and the third session is on evolution of the relationship -- where are we going, particularly after the elections of 2012. Mexico has an election coming up July 1st; we have one in the fall. Both presidents take office in about seven or eight weeks of each other at the end of the year. So there is a lot that we could cooperate on and there's a lot we probably could fight about.Now, to take us through our paces today, we've got two really terrific and very familiar people here at the council. On my far left is Jorge Castaneda, who's the former secretary of Foreign Relations of Mexico. He's also the distinguished professor at the Center for Latin American and Caribbean Studies at New York University. He's the author of a number of books. His most recent one is called "Manana Forever?:" -- with a question mark -- "Mexico and the Mexicans."Next to me on my near left is Robert A. Pastor. He is a professor and director of the Center for North American Studies at American University. He's also an author of a number of books and his latest one is called, "The North American Idea: A vision of a Continental Future."Welcome, gentlemen; nice to have you with us.Since we're talking about post-election, why don't we just start out with a quick -- like we're on television or something -- preview on what's going to happen in these elections.Bob, how about the Mexican election?ROBERT PASTOR: Well, the Mexican one is easier to call, because Enrique Pena Nieto is far ahead in double digit figures and the election is on July 1st. I think the U.S. presidential election -- the polls indicate that the two candidates are closer and I think the economy is still a little bit uncertain. And I think the media would like a good race and I think they're going to have a good race. So we're less certain who will be taking office in the United States.HOGE: Jorge, do you agree that Pena seems to be in a very substantial lead? Does it matter to Mexico, in your opinion, whether they get an Obama or a Romney -- a new first-termer or a second-termer?JORGE CASTANEDA: I think that Pena Nieto does have a big lead and it looks increasingly difficult with so little time left for anyone to make that up -- especially that the rules of the election and the campaign are such that they favor the frontrunner, whoever he or she may be.HOGE: Right.CASTANEDA: That's very difficult to change an almost -- a 15- to 20-point lead in so little time. I generally like second-term presidents better for Mexico than the United States -- whoever they are. I particularly happen to like Obama, but even if it weren't Obama, I would still like a second-term president. It makes it generally more feasible, easier for them to do some of the stuff that I think American presidents working with Mexican presidents should do. And some of those things are not always very popular so they're too obsessed with re-election and it's complicated for them to focus on that.HOGE: How much difference -- we were talking about this at lunch a little bit that Mexico has reached that stage of sort of political maturity where there is not that much difference on basics, on fundamentals between the candidates. Would you agree?CASTANEDA: No. I think there's not much difference between Pena Nieto and Vazquez Mota. I think there's a huge difference --HOGE: Who is a candidate -- (Cross talk.)CASTANEDA: -- of Calderon and Fox's party. And there's a huge difference between Pena Nieto and Vazquez Mota on the one hand and Lopez Obrador on the other hand -- a very huge difference on just about everything. Some of that is more toned down than other parts and some of that -- some of what Lopez Obrador says he would like to do, maybe he wouldn't actually, because he couldn't -- that's a different story. What he wants to do is radically different than what Pena Nieto and Vazquez Mota want to do.HOGE: But it looks as if he's less popular now than he was the last time he ran. Is that a fair comment?CASTANEDA: He seems to be about 10 points below where he was last time -- what he got last time. He's around 23 (percent), 24 (percent), 25 percent. I think there is a bit of a race for second place. There are days when Lopez Obrador is leading Vazquez Mota; there are days when she comes back. The problem is that he is a better debater and campaigner than she is, and so it's not impossible that he might pick up the three or four points to send her down to third place -- not impossible.HOGE: Bob, do you think it matters, particularly to Mexicans, who wins our election? Are there significant differences in a Romney or an Obama administration towards Mexico?PASTOR: Well, we don't know yet, in part because I don't think Romney has spelled out an overall approach to Mexico. He has spelled out in most clearest terms his opposition to any comprehensive immigration reform that could involve any path towards legalization. So that is one issue where they're clearly different. He's also talked about the border more in terms of walls than in terms of bridges. And so that's a second area of difference. But I think beyond that we don't have a clear idea whether there are key differences between the two candidates. Except in the case of Obama, of course, he has spent a lot of time on Mexican issues, on Canadian issues. He has high-level committees both on regulatory harmonization, on border initiatives. He's met -- met with leaders --HOGE: Those committees are supposed to report by the end of the year, are they not?PASTOR: That's right. They have -- unfortunately, he set up two parallel committees -- one with Canada and one with Mexico -- both on regulatory and border. He has hinted in his last meeting on April 2nd with the two leaders that he may try to encourage them to converge to a single committee, which I think would be a far wiser approach for the United States -- to approach things as Ambassador Hills did with a North American perspective rather than two bilateral perspectives. But we really haven't heard anything from Romney on any of these issues.HOGE: Now let's move it beyond the elections and see what some of the unfinished agenda is. And I might say at the beginning, the progress that has been made in recent years in Mexico is really very formidable. It is now, I think, a sustaining democracy. It has a large middle class which has been developed. It has economic stability to a great extent, which has not always been the case. So when we start looking at the unfinished agenda, we do so from a much better position than has been the case in the past.Let's start with NAFTA, one of the iconic parts of our relationship. It's now almost two decades old. What sort of shape is it in? What still needs to be done to make it more effective in terms of our relationship/PASTOR: Well, I think NAFTA has been fulfilled. It should not be opened; it should be an icon to Ambassador Hills and her counterparts. In terms of the specific objectives in NAFTA, it's been astonishingly successful. I mean, dismantle the trade and investment barriers; trade more than tripled; foreign direct investment quintupled. But with all trade agreements, the metaphor that's often uses is if you stop pedaling, you're going to fall of your bike. And in many ways, that's what happened with regard to NAFTA. NAFTA succeeded in its first seven years beyond wildest expectations in trade investment. Since 2001 to the present, the growth in trade declined by two-thirds; the growth in foreign direct investment declined by half. That is to say, trade in growth, trade in investment continued to increase, but regional economic integration peaked in 2001 as a percentage of our global trade. And so what we really need to focus on is how to deepen economic integration. Because as Ambassador Hills said this morning, trade among our neighbors is decidedly different than trade with East Asia. Thirty-seven percent of our imports from Mexico are our exports. We're no longer trading products in North America; we're making products together.And since 9/11, a lot of the restrictions on the border that have gone up have increased transaction costs maybe 15 (percent) to 20 percent. We need to find a way to create a seamless North American market right now. And perhaps even move towards a common external tariff, which would eliminate rules of origin as another transaction cost.So we really, from an economic competitive standpoint, we have a major agenda in front of us, which in my judgment would do more to stimulate the U.S., Mexican and Canadian economies than anything else we could do in a trade area that we're contemplating right now or anything else from an economic area. How to create the seamless market -- that's the first agenda item. And that's connected, of course, to the security concerns on the border and on drug trafficking and what more needs to be done there. What more needs to be done with regard to immigration. But the totality of the North American relationship should be a key agenda item for this election campaign and for the subsequent administration as well.HOGE: Just a footnote: I think 2001, when we peaked, was also the period of time in which China was becoming a major player here.PASTOR: Yeah. There were multiple reasons why we peaked. I think the first reason, frankly, was 9/11 and the restrictions that went up. The second reason was China. Will Rogers like to say that even if you're on the right road, if you sit down you're going to get run over and we were run over by China.HOGE: Let's get back to post-2012. And you've written a lot about this, Bob, that what we really need is a North American approach to infrastructure, to energy liberalization, so forth and so on. This administration's been kind of passive on that front. They have followed sort of a dual bilateral approach -- we'll make relationships with Mexico; we made duplicate ones with Canada, but the two shall never meet. And the Canadians seem to have been very willing partners in this approach.Jorge, what -- first of all, how important is it to you, do you think -- or to us, the two countries -- that there be a much more formidable and open and highlighted North American approach to these very big problems? And if so, why is it so difficult to get there?CASTANEDA: Well --HOGE: It's political.CASTANEDA: I've agreed with Bob on this for a long time that the trilateral approach is really in our interest -- in Mexico, in any case -- than a double bilateral approach. And I think that's true for the Canadians and for the U.S. also. The big problem has been convincing the Canadians. The Canadians don't like trilateral, period. They don't like it.When we start -- Bob talks about this in his book -- when we started with Fox in 2001 -- even in 2000, actually -- to try and push for deepening, broadening, strengthening any kind of trilateral, North American economic community, the notion -- the first negative response came from the Canadians. They don't like it. And what they say -- and I guess they have a point -- is they don't want to contaminate their border with ours. They think they have a very nice border relationship with the Americans; they think we have a terrible one and they don't want theirs to look like ours. I don't think they're right, but this is what they think -- and they say so. I mean, in private conversations, high level Canadian officials say so.So what can you do with that? Well, first of all, I think you have to keep pushing. There's not much choice. I think just keep pushing like Bob does -- writing op-ed pieces for Toronto Globe and Mail as much as he can. And I think that many of these groups that have been set up with Pedro Aspe, with George Schultz, with others -- the one we just went to in North American futures at UBC in Vancouver -- just keep pushing and pushing and pushing knowing that it's a real problem -- there's a real problem with the Canadians.Now, the other issue is what can Mexico do to push the Americans? And this is really the discussion, whether we really think -- we in Mexico -- that it's the United States that's going to all of a sudden have a great idea like Bob's and say, oh, guess what, guys? This is what we're going to do. Or if it makes more sense to think that who should be driving the agenda is Mexico. Why? Because this is really what we do in life: We think about the United States -- (laughter). That's what we do, whereas Americans don't just think about Mexico and for many -- all sorts of reasons.So either we push the agenda -- I think -- or it's not going to be pushed. And so then we come back to the question of whether Mexico should have a vigorous, proactive, open-minded foreign policy pushing the United States in one direction or another or whether it shouldn't. And this is one of the debates in Mexico, although it's not a campaign debate, because frankly, with the exception of a few of our friends here -- myself and a few others -- nobody else cares. But it is a fundamental issue.HOGE: What would we want when the election is over -- and I'm being impractical at the moment -- not what could we get, but would we really want out of the relationship that we don't have now -- for example, in energy, in immigration reform problems?Bob?PASTOR: Well, I think -- I think from the U.S. national interests, it's vitally important to create the seamless market, because I think it'll stimulate our economy. From the U.S. national interests it's vitally important that the crime and the drug trafficking in Mexico is significantly reduced. I think from U.S. national interest it's important for our borders to be much more functional than before. And that our partnership with our two neighbors is a model for the world, because I personally think that one of the arguments for North America collaborating with each other is that all three countries have an independent identity internationally. The U.S. the superpower; Canada the middle power, advanced industrialized power; and Mexico, one of the leaders of the Third World and one of the most successful leaders or the Third World.I think all three together, for example, could be infinitely more successful in lobbying China on currency reform than any of the three acting independently of each other. All three together in coming up with a formula that balances both energy security and reduction of carbon emissions could be a formula that could be adopted internationally. And all three together could modify the border so that it doesn't look like the (changing ?) borders in Europe, because we not like Europe. And the differential in gap between Mexico and its northern neighbors is too wide for it to be complete labor mobility. But to redefine the nature of labor mobility among the three countries could be a model for the rest of the world as well.So I think that there is much that the U.S. could gain with regard to a comprehensive approach to its two neighbors -- right across the board.HOGE: Let me pick out one that's continually controversial and we'll stay that way and that is the violence that's related to the drug trade.Now, every sense that I have is that we're not going to change our basic approach. In fact, I think the vice president has pretty much signaled that -- don't bring a liberalization formula to us. But at Cartagena this year, the Americas summit, one after another leader of Latin American countries got up and said the current approach is a failure and liberalization of some kind is -- should be at least explored more seriously.Now, you've written a lot about this, Jorge. Where are you at this point?CASTANEDA: Well, I obviously agree with the statements that have been made more and more specifically and eloquently by former presidents -- Cardoso, Gaviria, Fox, Sevillo (sp) -- and by now, sitting Presidents Santos, Perez Molina and Chinchilla. And I think that, you know, I'm absolutely convinced that this is a complete failure; that the price we've paid in Mexico is just outrageous and that the results are very meager. I mean, 60,000 deaths in exchange for what? Now, they're all gang-land killings among them? Well, that's a difficult balance to figure out, because that means, I guess 30,000 killed 30,000 or how exactly did it work? And you know, in Human Rights Watch we've been there; we've done the reports. We've spoken to everybody from the president down and the answers are just absolutely incomprehensible on all of these issues. So the question is, do you go on with this? Does the United States go on with a policy which President Obama made a very -- Senator Obama made a very eloquent statement in 2004: The war on drugs has been a failure. He said it. He just wasn't president. This is true. You'll say all sorts of things before you're president and after you're president and you don't necessarily do them or say them when you are president. But I think he's an enlightened person who knows this stuff hasn't worked. I think most Latin American presidents know this doesn't work. So then where do you go from here?Well, this is one of the issues that perhaps can begin to be talked about by a second-term president in the United States and by someone like Pena Nieto in Mexico who does not feel constricted or bound by President Calderon's policies.HOGE: This came up in this morning's early session and I'd have to say there was a lot of emphasize put on the solution is much more complicated than you think. That it's easy to say the policy so far has been failure. It's then difficult to come up with what you do in its place. Do you spend a lot more money on trying to coerce your way out of it -- for example, the Merida funds are much less than they were supposed to be; or do you go to liberalization? If you go to liberalization, how do you decide where the line is going to be? Is it going to be just for marijuana or for other things? And will it really bring down the level of violence? There was a lot of discussion this morning about the fact that it really wouldn't. What's your take on it?CASTANEDA: Well, I think placing the issue in terms of a dichotomy between the same policies with more money or legalization is a straw man --HOGE: OK.CASTANEDA: It's in bad faith. Those generally who say that say so, because they don't like the issue of legalization and the best way of shooting it down is by saying, if you think legalization is a panacea, well, it's not. Yeah, but nobody thinks it's a panacea or nobody's serious. I mean, the people who are in favor of this are not fools. They've been presidents of big countries for a long period of time; they've studied these things. They're not just thinking through their teeth. They're writing and studying and reading these things.So legalization can be part of an alternative policy; it's certainly not an alternative policy. If anything, it's a corollary, in the case of Mexico, to an alternative policy, which by the way, is where the two main candidates are moving. What they're both saying -- Pena Nieto specifically clear on this in an interview he gave to El Mercurio this Sunday in Chile. What we're going to do is emphasize fighting violence that affects society -- kidnapping, extortion, assassinations, automobile theft, et cetera -- that's going to be my priority. Vazquez Mota says the same thing.Now, if you say that, you don't have to say the next thing, but I can say the next thing. If that's going to be your priority, then you're non-priority is obviously going to be drug trafficking. What that means is you are not going to devote all the money and the troops and the police and the effort to combating drug trafficking. What are you going to do? You're going to let it go through. Now, you don't want to do that, because you are encouraging a culture of illegality in Mexico by so doing. And that's something that has done the country an enormous amount of damage over the years. So what's the best way to let it go through without encouraging a culture of illegality? Make it legal. And among the few things the Canadians do contribute to this discussion -- not many, but one of them -- is what they did during prohibition. And we talked about this in Vancouver and the Canadians say very intelligent things about this. They helped broaden the tires on the trucks that would ride across the lakes in the winter on the ice so they could take more scotch to Chicago and Detroit. They taxed them. They welcomed the (Bronx ?) man's fortune. They were very happy that they did very well. And they never thought of contributing to American prohibition. What they thought of doing -- the government; mainly the government of Ontario -- was to benefit as much as possible from a great opportunity, which was these crazy Americans have prohibition on alcohol and we can make it here. And they keep drinking -- it's not that they're not drinking anymore; they're just not making it. Well, let's give them all the liquor they want. (Laughter.)HOGE: Bob, any comments on this?PASTOR: (Laughter.) Jorge has a wonderful, cynical approach to a lot of different issues. But I think on this one he has a lot of truth on his side.I mean, when you think about the end of prohibition, what happened? It is true consumption of alcohol did increase in the United States, but violence dropped very sharply in Detroit and elsewhere. And you know, we equalized some of the taxes after that as well. It wasn't just the Canadians that got --HOGE: I believe long term, consumption actually has gone down.PASTOR: Well, right after the prohibition --HOGE: Over a -- PASTOR: People were thirsty, you know? (Laughter.) Anyway, I think there are several important points to keep in mind on the drug trafficking. Number one is President Obama himself has said we need to start thinking about this issue as a health issue as well. And as a health issue, we already know that there is two terrible drugs in America -- it's killed a lot more people than any of these other drugs. And that's tobacco and that's alcohol. And we don't prohibit either one, but we do tax and we do regulate in a manner that has sharply diminished illegal trafficking of both and has diminished consumption significantly as well.I think the idea that we should treat all drugs coming into the United States exactly the same, that we should have criminal punishment exactly the same or even harsher for marijuana in many ways than for cocaine or the synthetic drugs is ridiculous. I think the time has come to look more sharply at each of the drugs and ask ourselves, can we have a more intelligent strategy? Some should be decriminalized, some shouldn't be. And we need to have -- we need also to have an approach that's much more collaborationist with Mexico and Canada if it's going to be more effective.HOGE: You know, right after the elections -- before they both take office -- if they follow their predecessors, they're going to have a meeting together. If so -- say in January, in December -- what is it that the Mexican president, whichever one it will be, what are they going to want more than anything else? What's the one or two top items?CASTANEDA: I think it depends a great deal on the debate and the fight, the struggle, within the PRI and within Pena Nieto's team -- supposing that he does win and I increasingly think, as I said, that he will -- about whether they want to have an activist, vigorous, bold foreign policy --HOGE: So there's going to be a --CASTANEDA: -- debate --HOGE: The party itself is sort of split, right?CASTANEDA: Well, there are many people in the PRI and in his team who have a very different idea; who think that the best foreign policy for Mexico in relation to the United States is for practical purposes, no foreign policy. Complain a little bit here and there about too many guns, too many drugs, not enough trucks, blah, blah, blah, but basically just complain and not do a whole lot. I mean, this has been a very traditional Mexican foreign policy. And there are people within Pena Nieto's circle who believe that absolutely sincerely -- others who also believe that what Mexico should do is have a much more activist and vigorous foreign policy towards South America. That makes much more sense than trying to get anywhere with the Americans, that you can't do that. That is one view.The other view is whether Pena Nieto can become convinced of the kind of vision that Bob suggests in the book and where Mexico becomes the driver for that sort of a vision. Then in that meeting, what they would do is to start saying, OK, we have four years now -- six in Mexico, but four in the states -- we have a two-term, second-term president in the United States. Why don't you just listen to me for a couple of hours, President Obama, and let me tell you how I see the future of our two or three countries? Let's -- just listen. Let's not talk back; let's not argue; let's not get into specifics, but I have this view on where things can go on energy, on immigration, on drugs, on security, on trade, on investment. Starting with one basic fact, which I think goes back to your first question, Jim, which a real issue: Mexico has grown on average the last 12 years about 2.5 percent GDP per year. And with about 1.5 percent population growth, that's a little bit probably less than 1.0 GDP per capita per year. It's just too low.You cannot solve any of the countries problems with that growth rate. You can manage them; you can make the middle class grow a little bit; you can improve some things, but you can't really transform the country with that kind of growth rate. So what can the three countries do to have Mexico grow more and also have the U.S. and Canada grow more, thanks to greater cooperation with Mexico? That's what I think the Mexican president should sit down with Obama, if Obama wins, and talk about with him. And not get into the details in this business -- we've spent so much wasted time on trucks and guns and this and that. I mean, what's the purpose of it?HOGE: Bob, put yourself at that high level summit before they both take office. What particularly would we want from the American side that we don't have at the moment, in terms of a relationship?PASTOR: Well, the problem is that for the United States right now, we face so many crises around the world, I think the one thing that this president -- and perhaps his successor or in his second term -- is just quiet. We don't want anybody making anymore demands on us. Instead of looking ahead with a vision and saying, how can the three countries of North America -- how can I invite not just the Mexican president and have the Mexican and Canadian prime minister trip over each other to see who can get into the White House first, invite them together and have a broader discussion.This -- in some ways, the most dangerous thing -- it's not dangerous in a crisis setting and therefore, we don't even see it -- is that our neighbors may conclude we are an unreliable partner. That the United States goes to Hawaii and proposes as a major achievement a negotiation with eight tiny countries in Asia, who's combined GDP is one-sixth or one-seventh that of Canada and Mexico. And when Canada and Mexico say they want to be a part of this, we say, let's think about it a little bit. We did it completely backwards. Canada and Mexico are our two major trading partners. These eight countries -- four of whom we already have a free trade agreement and the other four are trivial economically. China is not going to be a part of it, because the TPP is aimed at China and so therefore, it's cornering China --HOGE: Is that why it has been so popular with this administration?PASTOR: It might be. I think it's an excuse for an Asian policy. It's a rebuttal to the Romney critique that we're soft on China. You know, we're stationing in Darwin, Australia is one more example of this absence of a strategic vision in East Asia.But more importantly, I think the one lesson that should be drawn from NAFTA was when we were first confronted with this idea of NAFTA, we also had the Uruguayan Round of trade negotiation -- the world trade negotiations. The question is, which should come first? It turns out that by going to NAFTA first, we created an incentive for the Europeans and the Japanese to come to us and negotiate the conclusion of that round, which wouldn't have happened the other way around. So the proper way to have done a good trade policy internationally is go to our two neighbors first, deepen economic integration significantly among our neighbors, and then Asia would be creeping over to us and the world trade negotiations would be rushing to us. So we've got it completely backwards.HOGE: What would a North -- just in sense of proportionality -- a North American trade agreement -- free trade, common -- where would that rank compared to say an Asian grouping or the European Union?PASTOR: Very interesting. You know, when President Obama went to APEC -- 22 nations in the Asian Pacific, including China and Japan -- they talked about how this was our most important export market; that 61 percent of our exports go to APEC. Well, that's true, but 37 percent of that goes to just Canada and Mexico. So it exceeds the rest of APEC all put together.So I think in terms of economic grouping, the truth is that we talk about a globalized world, but most of the trade is occurring within three regional blocks: European Union, North America and East Asia. The United States share -- the North American share of the world product went from 30 to 36 percent between 1994 and 2001, the halcyon years of NAFTA -- the first seven years of NAFTA -- greatest growth in jobs, 22 million jobs during that same period of time. Then from 2001 to the present, it has declined to back where it went again, which is why we need to think about first North America and how do we create a truly seamless market. When Europe went from being a free trade area in 1958 to becoming a customs union in 1970, all of the sudden -- just on the eve of the customs union and afterwards -- trade within Europe just soared again. The same thing could happen in North America, particularly if it's coupled with a different approach to the borders and a different approach to rules of origin, a different approach to regulatory harmonization as well. We could have a genuine spurt. North America would once again be the central economic region in the world.HOGE: Before I go to the audience, Jorge: Anything you want to say on this?CASTANEDA: Well, I think that one of the other issues that has to be addressed continues to be immigration. And they're going to -- the two presidents are going to have to talk about it. Some things have changed, but in different ways. A lot of attention was paid last week -- I'm sure many of you saw it -- to this new Pew study whereby roughly the same number of people entered the United States illegally during the 2005-2010 period as the number of people who left the United States. And so that net illegal immigration was nil.First of all, that's -- in itself, that's a somewhat complicated number that they arrived at, because regarding the returns to Mexico, this is done by the Mexican census figures and by Mexican surveys. And the census has been very much questioned in Mexico -- the 2010 census was very questioned for all sorts of reasons I won't get into; and secondly, the surveys that are taken of asking people, were you in the United States last year, are not terribly reliable; and thirdly, in that number of 1.4 million returnees, there's a large number of deportees, which is not exactly a voluntary departure.HOGE: In the Obama administration, deportation has gone up very dramatically.CASTANEDA: Skyrocketed. But the interesting thing about all of this, other -- the other number which has not been addressed in all of this is that in 2010, there were approximately 700,000 legal entries from Mexico into the United States -- the highest number ever and slightly above the peak numbers of the Bracero program in the 1950s. They include a greater of H visas, including the NAFTA visas. They include the T visas. They include 150,000 Mexicans acquiring permanent resident status. Why? What happened?Well, what happened is simple. We're just as bright anybody else is. If the United States starts telling us in 2005, 2006, 2007, look, we're not really happy about all these Mexicans in the United States. The illegals -- maybe they self deport; the permanent residents this; the other thing. What are Mexicans going to do? Well, Mexicans who are permanent residents are going to naturalize. And there's been -- there was a huge increase in naturalizations from 2005, 2006 onward. And every American citizen can bring in wife, children, parents without staying in line. The line is for the permanent residents, not for the citizens. So there was 150,000 last year in 2010, about 250,000 H and T visas, investor visas another and temporary workers in general. Seven hundred thousand Mexicans came to the United States to work in 2010 -- more than ever before. For practical purposes, the legalization of the flow part of migratory -- of immigration reform has happened. Nobody's noticed and I'm sure the Obama administration wants it to be. The last thing they want is Congress all over them for this sort of stuff, so you're not allowed to say this. But this has already occurred. And this is policy. They're doing it more quickly; they're giving more visas; they're doing it more expeditiously. They're doing it very well. But this means that there is less pressure on that side and a greater possibility of addressing something, for example, like the 6 million Mexican illegals in the U.S., 12 million all illegals in the U.S., and try and settle that, because the flow part has partly been -- practically been solved.HOGE: Well, there's a question on that flow part. And I -- is it -- is this really a permanent change or is this just a dip, because we've had a very bad recession and there weren't jobs for people coming? Now, some things point to it being more permanent than that, which is Mexico's birth rate has gone way, way down -- number of children per family; the middle class has grown; economic opportunity is better than it was before. But to the larger question of once our economy ticks back up, do you think there'll be a surge again, particularly of illegal immigrants?Bob?PASTOR: Yes. I think that the decline in undocumented migration to the United States is a result first of our economic recession -- most significantly, because people are coming for jobs, and for income even more than for jobs, because 93 percent of undocumenteds that come here say they have left a job in Mexico or Central America, wherever. They come here because they can earn five, six, seven, eight times as much. I think secondly it's gone down, because enforcement has increased -- particularly with regard to deportations. Thirdly, it's gone down because actually, the Mexican economy the last couple of years has grown twice the rate of the U.S. economy, which is really the point. That is to say, what's missing from comprehensive immigration reform -- all of the elements have been on the table and I think they're all needed, but what's missing are two things: First, a long-term and secondly, an immediate-term strategy. In the immediate term, the only way you're really going to stop or significantly reduce undocumented migration is if everybody has to use a biometric identification to become employed, because people are coming here to be employed. They're not coming here for social services or education -- although that's part of a larger motivation. The major reason is to work and to earn. And if everybody has a biometric ID, you can handle that issue. You can't do it with this e-qualify -- E-Verify system, which is quite bad.Secondly -- and this is the fundamental element -- you need a long-term strategy. The long-term strategy is a variation on what the Europeans did. They had regional cohesion funds where they invested a huge amount of money into the Southern European countries and they narrowed the income gap in 15 years significantly. We need a North American investment fund in the long term that goes into transportation infrastructure, connects the markets of North America, takes advantage of the fact that when trade tripled, 80 percent of that trade goes by road and yet, we didn't build one road in North America. We need a broader vision of that.So those are -- those are the elements that are needed for immigration. But I think your first -- your question is absolutely right. Undocumented immigration is going to go back up again when the U.S. economy goes up, in the absence of a concerted, comprehensive immigration plan.HOGE: Let's go to the audience. Give us a name and association if you will. Wait for the mic to come. Try and keep it to one question and a concise one. Yes, ma'am.QUESTIONER: I'm Alexandra Starr from the New America Foundation. I reviewed your book for The New York Times.CASTANEDA: Thank you.QUESTIONER: I thought it was superb. So I wanted --PASTOR: You should feel free to do mine as well. (Laughter.)QUESTIONER: Let me know.So you spoke a little bit about Pena Nieto and you referred to this new -- a break within the PRI or that it's not a monolithic party. Some people have talked about the idea that he might be putting a new attractive face on an old guard. And I was wondering if you could both talk about whether you think that might come to pass, what you've seen -- behind the scenes.CASTANEDA: Well, I don't see a lot behind the scenes, so I don't know. What's clear to me, I think, is that it's a different -- it's a different context to begin with. They can't do what they used to do, even if they wanted to do it. Secondly, I think at least some of them don't want to do it anymore -- I don't know how many of them, but a lot of them don't want to do it anymore and if they wanted to they couldn't do it, because of the opposition, because of the media, because of the United States, because of civil society, because of all sorts of stuff. Not as much as I would like stuff to stop things from going -- from this being a restoration, but I think there's enough limits for there -- for it not to be possible for there to be a restoration.The other question is: What is more conducive to the quote-unquote "good guys" within this group winning as opposed to the bad guys winning? Having Pena Nieto win by a landslide, with a majority in both houses --HOGE: Both houses.CASTANEDA: -- which is not impossible, or having the election as tight as possible and without a majority. And I think this is really the fundamental question -- not that anybody can do a whole lot about it. But you know, wishful thinking is always good. It's fun. Besides, that's what -- speculation is what we do for a living, right, Bob?My sense increasingly is that the greater leeway he has, the greater the possibilities of not going back to the past, of his being able to appoint whoever he wants to carry out the policies he wants, to be able to really have the liberty, the freedom to do more or less what he's been saying he wants to do. Given that, I'd rather probably he have a majority than not have one.And the final question is what's more conducive to this also: PAN in second place or PAN in third place.Maybe Bob wants to answer that one. (Laughter.)PASTOR: Well, let me start by saying I agree with Jorge that context is everything. Mexico from 1988 to 2000 went from the most fraudulent, manipulative electoral system in the Americas to the most professional, impartial, the most modern electoral system. One in which I wish the United States could learn and should learn a lot from. And that changes everything. It is a democratic system right now that pre-existed as leader of an authoritarian system. It's still a party and a powerful party, but it has to work within the democratic system.Huh?HOGE: I said, shucks. Shucks.PASTOR: Well, I actually think that's great. (Chuckles.) And I think it means -- it means, among other things, that there is a middle class, as Jorge has written about, very eloquent, in his book that's grown up in Mexico that is transforming the country in ways that we haven't seen, because we're so focused on the drug trafficking and violence that we haven't realized this dramatic transformation has occurred on our doorsteps and we haven't begun to take advantage of it.So I think the question about the old PRI and the new PRI misses the whole point of Mexico.HOGE: Yes? Yes, sir. Right there.QUESTIONER: Thank you. My name is Ike Savit (ph). I represent a small export trading company and we deal a lot with Mexico. We specialize in the graphic arts and printing-related industries.Mr. Castaneda, in your article in The New York Times in January, you mentioned something very, very important -- the middle class of Mexico. And to me, this comment that you made here is the answer to everything -- immigration, you name it, you name it. Mexico has a growing middle class and enjoying it, OK? And our relationship with Mexico is getting better step by step. For example, in our industry we have now a new tracking regulation. One of the big problems of the --HOGE: Let me ask you: Do you have a question, sir? Because we don't have a lot of time.QUESTIONER: Yeah. All the maquiladoras used to be a question of tracking. So now we're allowed to bring the tracks into the United States from Mexico. This is a big, big help to the industry.The last very important thing: The maquiladoras program is already sort of finished, but Mexico came up with a new program, which is extension of the maquiladoras program in a new free-trade zone, which is going to be big benefits to Mexico, benefits to us. So the extension of maquiladoras is something bigger and better for all of us.HOGE: Thank you very much.OK. Next question? Do we have a question? Yes, sir. Right there. Yes, ma'am.QUESTIONER: Hi. My name's Andrea Dinamarco and I'm with Allen & Overy.One of the things I've been thinking throughout this conference today is how there is no lack of answers for the many problems and issues in Mexico with drug trade and foreign policy and what will happen in the future. But what I've noticed -- especially in my own background being a Brazilian -- I see here that there's been a tremendous influx of Brazilians now in the United States with the surge of the Brazilian real and so much more Brazilian spending here in the United States. There are three new consulates in Sao Paulo opening up and visa requirements have become a little bit easier.So attitudes about Americans -- attitudes Americans have towards Brazilians have definitely improved and that has led to a change in foreign policy. What I wonder with Mexico is: Is the issue not that we don't know what to do? Is it more that we have these preconceived notions about Mexico as a country of workers and not as a country of potential clients and customers that can come and spend their money and that can contribute to our economy as well? Is the major issue here -- and something that has not been brought up during these lectures -- a deep-seated racism? Or maybe that's too strong of a word, but maybe some sort of stereotype that as a neighbor, we can't address political, openly and overcome?HOGE: Very sensitive question. Let's see what we get as a response.Jorge?CASTANEDA: Well, I mean, I think the point that you're making is a valid one. There is that sense in the United States, but there is that sense because the overwhelming majority of Mexicans who have come to the United States over the last century have been people who have come to work in unskilled, low-wage labor in the United States. And that is, up to a point, the image most Americans have of Mexico and Mexicans, because that's the image they confront every day when they go to a restaurant, when they go to a hotel, when they eat strawberries, what have you. This is what Mexican immigration to the United States has been for a hundred years.We face problems with the consul general here. We've talked about it. The educational level of Mexicans -- Mexican kids in New York -- undocumented Mexican kids in New York schools is lower than Salvadoran, than Ecuadorian, than Colombian, than Peruvian -- lower. Mexicans. We're not comparing them to Americans or South Koreans, no, no, no. It's a -- this is the reality of our immigration to the United States over the past century. That's what it is. And this is something that we have to face and then change, but it's true.There are some things that are changing. I'm not sure that they're a great -- they're for the better. There's a long piece today in some paper in Mexico, but a lot of people have been writing about it: The new immigration from Mexico, from Northern Mexico to Austin, San Antonio, a little bit to Dallas and Houston, which are basically people who are much wealthier, professional, et cetera who are fleeing the violence in the north. But they're fleeing now not just for awhile; they're settling in San Antonio and in Austin. They're starting new businesses; they're very dynamic, very entrepreneurial, they have high levels of savings. They want to make a -- they want to start a new life in these areas. And that's going to change, but of course, that changes only in those towns.What's most important is to try and change not the immigration from Mexico, but to try little by little to diminish that immigration by broadening the middle class. I mean, the key question in Mexico is when we can begin finally to sell this idea, which is not true -- even though it wasn't before -- that Mexico has become a middle-class society. It's a different kind of middle class than the one you have here, than the one that Western Europeans have, et cetera, but it is a majority now -- 55-56 percent a middle-class society. And if things continue improving the way they are, 10 or 15 years from now we would have 60-65 percent of the population being middle class.HOGE: Jorge, you mentioned --CASTANEDA: If we can sell that, we're in business.HOGE: -- that some are now moving to the southern part of the United States. And that one of the sort of generators of that movement is violence.I remember a piece you wrote awhile back now to Americans, essentially saying, look, Mexico -- if you take it as a whole -- is a reasonably peaceful place. The violence is targeted in certain areas. Is that still the case or has it expanded much?CASTANEDA: I don't know what the security folks said in the morning, but what seems to be the case is that it still remains limited to a certain number of places, but they're not the same places. It shifts around. If you fix Tijuana and Juarez, you have a disaster in Tamaulipas. If you fix Michaocan, you have a disaster in Guerrero. The government, state, does not have the wherewithal to control the drugs routes and the drug trade in the entire country. It would need to have far more police or far more troops. And this is a political decision that the next president's going to have to make. Colombia spends about five points of GDP on overall security stuff. We spend about two points of GDP. So we can double it and that's what we're going to do. We're going to find a way to get two or three points of GDP and we're going to stick it into that, not in education, not in infrastructure, not in health, but in that, because we can't do all of this stuff. You can't do that and education and health and housing and infrastructure. Well, it's a tough decision. I think it's absurd to do that, but I could understand that others might think differently. What I know you can't do is that and everything else.HOGE: Bob, did you have a?PASTOR: Yeah. Let me just respond to the question about racism. I think in the debate on the immigration bill between 2005, 2007, it was a poisonous debate. And it bordered at moments on racism. But there are several other elements that need to be understood. Number one is this occurred at the end of about two decades of a dramatically large increase in immigration, dramatically larger undocumented migration. And part of that was a response. Indeed, the most interesting part of that whole debate was that no one -- not even the most rightwing, racist member of Congress suggested reducing legal migration. It was really focused on undocumented migration. And in fact, as Jorge pointed out, more than one-third of all of the legal immigrants to the United States come from Mexico. And nobody was suggesting doing anything about that at all.So I think that while it was a very bad debate for America in my judgment -- and certainly, if you look at it from a Mexican standpoint -- I think it needs to be understood in a broader context.HOGE: Yes, sir. Right here.QUESTIONER: Thank you. Richard Downie from the Center for Hemispheric Defense Studies.You know, it's always difficult to interpret what political candidates say or what they mean, but I wonder -- and my question is for Jorge Castaneda: This morning we have a little discrepancy between your view of what the candidates have said -- and I think it was Claudio Gonzalez, but I won't swear to it -- this morning one of the speakers said that all three of the candidates said that they basically would not change the approach that Calderon has had with respect to confronting organized crime. And what you said a little earlier was that all three of the candidates have essentially said they're going to focus on crime -- kidnapping, other things -- which in effect says they're willing to let drugs pass onto the United States. And you've made the issue before, you know, with this. The United States has not done anything about demand or arms or cash so let this go.I wonder if you could help clarify that discrepancy. And if you're right, what would that approach mean for relations with the United States? Thank you.CASTANEDA: Well, you know, I can only go by what I read and what they say. And obviously, all candidates in all elections tend to say different things to different audiences. Specifically in the case of Pena Nieto, he made this very -- I think the most specific statement he's made is in this interview with Mercurio on this Sunday where he says Calderon's policy is a failed policy -- (speaking in Spanish). That's pretty clear. And then he says that he's going to maintain the army, but use it to combat violence. That's my reading of what he's saying, though. I have no way of knowing whether he believes this or doesn't, whether he understands the implications of what he's saying or not. I don't know. If it was cloudy -- I'm sure it was accurate in the sense that they also have said that they thought that you had to keep the army doing -- involved in this until you have a police force. Well, yes, obviously. The question is, how do you decide? You can decide that the next day. You know, on December 2nd, the new president -- whoever he or she is -- can say, we won. Thanks to Calderon, all of this is over and now bring the army back, period. Since there's no way of knowing whether you won or you lost, because there's no definition of victory or of defeat, you can say pretty much whatever you want. It's not terribly meaningful. What's important is what you do if you bring the army back or you leave the army on the highways and the streets. What do you want to use the armed forces for? Do you want to use them -- I always give the example, I'll ramble for two minutes here, of -- maybe a couple of you were there at the talk I gave yesterday and repeated.I went with Aguilar Camina (ph) about a year and a half ago to Tampico to her big book presentation there. And so we flew into Tampico -- we were probably the only people to ever go to Tampico now where Aguilar and myself -- nobody else wants to go. But anyway, we went to Tampico and we got off the plane. And then instead of giving us our carryon luggage to just take it off the small plane, they sent it to the band --PASTOR: Carousel.CASTANEDA: The carousel and we had to wait for about half an hour there, because there were five soldiers and two dogs -- both the five soldiers and the two dogs very thin, very emaciated; I don't know who was worse -- looking, sniffing, picking up the two little bags and making as if this was a big deal. And at the same time that this was happening at the airport in Tampico, there were shootouts on the main avenues of Tampico on the main causeway -- an enormous amount of violence those days in Tampico. And Aguilar (ph) and I asked ourselves: What in the world are these two dogs and five soldiers doing here? This is not where they should be. They should be there -- or at least the soldiers, maybe not the dogs. The dogs should go home, I don't know. Why? Well, because suppose our two carry-ons were stuffed with cocaine that we were bringing up and going to deliver to somebody to take it to the United States. So what? Is that what we want to use our armed forces for or have them patrol the streets of Tampico so there are no shootouts, there are no kidnappings, there's no extortion. Everybody tells you Tampico is the extortion capital of Mexico. (Speaking in Spanish.) I don't know if that's true or not, but it makes more sense to me to have the army -- if you're going to have the army in the streets of Tampico, do that instead of inspecting carry-ons at the airport, but this is the discussion.HOGE: And we need a sequel to get the answers to some of these questions, but we're out of time today. So thank -- help me thank our very stimulating panelists. JAMES HOGE: If I can have your attention, please. We're going to get started. We have an hour to have some fun here and I don't want to waste any of it.I'm Jim Hoge from the council. This has been a terrific set of sessions today on U.S.-Mexican relations. First session this morning -- for those of you who maybe didn't make it -- was on security cooperation. The second session was on economics and the third session is on evolution of the relationship -- where are we going, particularly after the elections of 2012. Mexico has an election coming up July 1st; we have one in the fall. Both presidents take office in about seven or eight weeks of each other at the end of the year. So there is a lot that we could cooperate on and there's a lot we probably could fight about.Now, to take us through our paces today, we've got two really terrific and very familiar people here at the council. On my far left is Jorge Castaneda, who's the former secretary of Foreign Relations of Mexico. He's also the distinguished professor at the Center for Latin American and Caribbean Studies at New York University. He's the author of a number of books. His most recent one is called "Manana Forever?:" -- with a question mark -- "Mexico and the Mexicans."Next to me on my near left is Robert A. Pastor. He is a professor and director of the Center for North American Studies at American University. He's also an author of a number of books and his latest one is called, "The North American Idea: A vision of a Continental Future."Welcome, gentlemen; nice to have you with us.Since we're talking about post-election, why don't we just start out with a quick -- like we're on television or something -- preview on what's going to happen in these elections.Bob, how about the Mexican election?ROBERT PASTOR: Well, the Mexican one is easier to call, because Enrique Pena Nieto is far ahead in double digit figures and the election is on July 1st. I think the U.S. presidential election -- the polls indicate that the two candidates are closer and I think the economy is still a little bit uncertain. And I think the media would like a good race and I think they're going to have a good race. So we're less certain who will be taking office in the United States.HOGE: Jorge, do you agree that Pena seems to be in a very substantial lead? Does it matter to Mexico, in your opinion, whether they get an Obama or a Romney -- a new first-termer or a second-termer?JORGE CASTANEDA: I think that Pena Nieto does have a big lead and it looks increasingly difficult with so little time left for anyone to make that up -- especially that the rules of the election and the campaign are such that they favor the frontrunner, whoever he or she may be.HOGE: Right.CASTANEDA: That's very difficult to change an almost -- a 15- to 20-point lead in so little time. I generally like second-term presidents better for Mexico than the United States -- whoever they are. I particularly happen to like Obama, but even if it weren't Obama, I would still like a second-term president. It makes it generally more feasible, easier for them to do some of the stuff that I think American presidents working with Mexican presidents should do. And some of those things are not always very popular so they're too obsessed with re-election and it's complicated for them to focus on that.HOGE: How much difference -- we were talking about this at lunch a little bit that Mexico has reached that stage of sort of political maturity where there is not that much difference on basics, on fundamentals between the candidates. Would you agree?CASTANEDA: No. I think there's not much difference between Pena Nieto and Vazquez Mota. I think there's a huge difference --HOGE: Who is a candidate -- (Cross talk.)CASTANEDA: -- of Calderon and Fox's party. And there's a huge difference between Pena Nieto and Vazquez Mota on the one hand and Lopez Obrador on the other hand -- a very huge difference on just about everything. Some of that is more toned down than other parts and some of that -- some of what Lopez Obrador says he would like to do, maybe he wouldn't actually, because he couldn't -- that's a different story. What he wants to do is radically different than what Pena Nieto and Vazquez Mota want to do.HOGE: But it looks as if he's less popular now than he was the last time he ran. Is that a fair comment?CASTANEDA: He seems to be about 10 points below where he was last time -- what he got last time. He's around 23 (percent), 24 (percent), 25 percent. I think there is a bit of a race for second place. There are days when Lopez Obrador is leading Vazquez Mota; there are days when she comes back. The problem is that he is a better debater and campaigner than she is, and so it's not impossible that he might pick up the three or four points to send her down to third place -- not impossible.HOGE: Bob, do you think it matters, particularly to Mexicans, who wins our election? Are there significant differences in a Romney or an Obama administration towards Mexico?PASTOR: Well, we don't know yet, in part because I don't think Romney has spelled out an overall approach to Mexico. He has spelled out in most clearest terms his opposition to any comprehensive immigration reform that could involve any path towards legalization. So that is one issue where they're clearly different. He's also talked about the border more in terms of walls than in terms of bridges. And so that's a second area of difference. But I think beyond that we don't have a clear idea whether there are key differences between the two candidates. Except in the case of Obama, of course, he has spent a lot of time on Mexican issues, on Canadian issues. He has high-level committees both on regulatory harmonization, on border initiatives. He's met -- met with leaders --HOGE: Those committees are supposed to report by the end of the year, are they not?PASTOR: That's right. They have -- unfortunately, he set up two parallel committees -- one with Canada and one with Mexico -- both on regulatory and border. He has hinted in his last meeting on April 2nd with the two leaders that he may try to encourage them to converge to a single committee, which I think would be a far wiser approach for the United States -- to approach things as Ambassador Hills did with a North American perspective rather than two bilateral perspectives. But we really haven't heard anything from Romney on any of these issues.HOGE: Now let's move it beyond the elections and see what some of the unfinished agenda is. And I might say at the beginning, the progress that has been made in recent years in Mexico is really very formidable. It is now, I think, a sustaining democracy. It has a large middle class which has been developed. It has economic stability to a great extent, which has not always been the case. So when we start looking at the unfinished agenda, we do so from a much better position than has been the case in the past.Let's start with NAFTA, one of the iconic parts of our relationship. It's now almost two decades old. What sort of shape is it in? What still needs to be done to make it more effective in terms of our relationship/PASTOR: Well, I think NAFTA has been fulfilled. It should not be opened; it should be an icon to Ambassador Hills and her counterparts. In terms of the specific objectives in NAFTA, it's been astonishingly successful. I mean, dismantle the trade and investment barriers; trade more than tripled; foreign direct investment quintupled. But with all trade agreements, the metaphor that's often uses is if you stop pedaling, you're going to fall of your bike. And in many ways, that's what happened with regard to NAFTA. NAFTA succeeded in its first seven years beyond wildest expectations in trade investment. Since 2001 to the present, the growth in trade declined by two-thirds; the growth in foreign direct investment declined by half. That is to say, trade in growth, trade in investment continued to increase, but regional economic integration peaked in 2001 as a percentage of our global trade. And so what we really need to focus on is how to deepen economic integration. Because as Ambassador Hills said this morning, trade among our neighbors is decidedly different than trade with East Asia. Thirty-seven percent of our imports from Mexico are our exports. We're no longer trading products in North America; we're making products together.And since 9/11, a lot of the restrictions on the border that have gone up have increased transaction costs maybe 15 (percent) to 20 percent. We need to find a way to create a seamless North American market right now. And perhaps even move towards a common external tariff, which would eliminate rules of origin as another transaction cost.So we really, from an economic competitive standpoint, we have a major agenda in front of us, which in my judgment would do more to stimulate the U.S., Mexican and Canadian economies than anything else we could do in a trade area that we're contemplating right now or anything else from an economic area. How to create the seamless market -- that's the first agenda item. And that's connected, of course, to the security concerns on the border and on drug trafficking and what more needs to be done there. What more needs to be done with regard to immigration. But the totality of the North American relationship should be a key agenda item for this election campaign and for the subsequent administration as well.HOGE: Just a footnote: I think 2001, when we peaked, was also the period of time in which China was becoming a major player here.PASTOR: Yeah. There were multiple reasons why we peaked. I think the first reason, frankly, was 9/11 and the restrictions that went up. The second reason was China. Will Rogers like to say that even if you're on the right road, if you sit down you're going to get run over and we were run over by China.HOGE: Let's get back to post-2012. And you've written a lot about this, Bob, that what we really need is a North American approach to infrastructure, to energy liberalization, so forth and so on. This administration's been kind of passive on that front. They have followed sort of a dual bilateral approach -- we'll make relationships with Mexico; we made duplicate ones with Canada, but the two shall never meet. And the Canadians seem to have been very willing partners in this approach.Jorge, what -- first of all, how important is it to you, do you think -- or to us, the two countries -- that there be a much more formidable and open and highlighted North American approach to these very big problems? And if so, why is it so difficult to get there?CASTANEDA: Well --HOGE: It's political.CASTANEDA: I've agreed with Bob on this for a long time that the trilateral approach is really in our interest -- in Mexico, in any case -- than a double bilateral approach. And I think that's true for the Canadians and for the U.S. also. The big problem has been convincing the Canadians. The Canadians don't like trilateral, period. They don't like it.When we start -- Bob talks about this in his book -- when we started with Fox in 2001 -- even in 2000, actually -- to try and push for deepening, broadening, strengthening any kind of trilateral, North American economic community, the notion -- the first negative response came from the Canadians. They don't like it. And what they say -- and I guess they have a point -- is they don't want to contaminate their border with ours. They think they have a very nice border relationship with the Americans; they think we have a terrible one and they don't want theirs to look like ours. I don't think they're right, but this is what they think -- and they say so. I mean, in private conversations, high level Canadian officials say so.So what can you do with that? Well, first of all, I think you have to keep pushing. There's not much choice. I think just keep pushing like Bob does -- writing op-ed pieces for Toronto Globe and Mail as much as he can. And I think that many of these groups that have been set up with Pedro Aspe, with George Schultz, with others -- the one we just went to in North American futures at UBC in Vancouver -- just keep pushing and pushing and pushing knowing that it's a real problem -- there's a real problem with the Canadians.Now, the other issue is what can Mexico do to push the Americans? And this is really the discussion, whether we really think -- we in Mexico -- that it's the United States that's going to all of a sudden have a great idea like Bob's and say, oh, guess what, guys? This is what we're going to do. Or if it makes more sense to think that who should be driving the agenda is Mexico. Why? Because this is really what we do in life: We think about the United States -- (laughter). That's what we do, whereas Americans don't just think about Mexico and for many -- all sorts of reasons.So either we push the agenda -- I think -- or it's not going to be pushed. And so then we come back to the question of whether Mexico should have a vigorous, proactive, open-minded foreign policy pushing the United States in one direction or another or whether it shouldn't. And this is one of the debates in Mexico, although it's not a campaign debate, because frankly, with the exception of a few of our friends here -- myself and a few others -- nobody else cares. But it is a fundamental issue.HOGE: What would we want when the election is over -- and I'm being impractical at the moment -- not what could we get, but would we really want out of the relationship that we don't have now -- for example, in energy, in immigration reform problems?Bob?PASTOR: Well, I think -- I think from the U.S. national interests, it's vitally important to create the seamless market, because I think it'll stimulate our economy. From the U.S. national interests it's vitally important that the crime and the drug trafficking in Mexico is significantly reduced. I think from U.S. national interest it's important for our borders to be much more functional than before. And that our partnership with our two neighbors is a model for the world, because I personally think that one of the arguments for North America collaborating with each other is that all three countries have an independent identity internationally. The U.S. the superpower; Canada the middle power, advanced industrialized power; and Mexico, one of the leaders of the Third World and one of the most successful leaders or the Third World.I think all three together, for example, could be infinitely more successful in lobbying China on currency reform than any of the three acting independently of each other. All three together in coming up with a formula that balances both energy security and reduction of carbon emissions could be a formula that could be adopted internationally. And all three together could modify the border so that it doesn't look like the (changing ?) borders in Europe, because we not like Europe. And the differential in gap between Mexico and its northern neighbors is too wide for it to be complete labor mobility. But to redefine the nature of labor mobility among the three countries could be a model for the rest of the world as well.So I think that there is much that the U.S. could gain with regard to a comprehensive approach to its two neighbors -- right across the board.HOGE: Let me pick out one that's continually controversial and we'll stay that way and that is the violence that's related to the drug trade.Now, every sense that I have is that we're not going to change our basic approach. In fact, I think the vice president has pretty much signaled that -- don't bring a liberalization formula to us. But at Cartagena this year, the Americas summit, one after another leader of Latin American countries got up and said the current approach is a failure and liberalization of some kind is -- should be at least explored more seriously.Now, you've written a lot about this, Jorge. Where are you at this point?CASTANEDA: Well, I obviously agree with the statements that have been made more and more specifically and eloquently by former presidents -- Cardoso, Gaviria, Fox, Sevillo (sp) -- and by now, sitting Presidents Santos, Perez Molina and Chinchilla. And I think that, you know, I'm absolutely convinced that this is a complete failure; that the price we've paid in Mexico is just outrageous and that the results are very meager. I mean, 60,000 deaths in exchange for what? Now, they're all gang-land killings among them? Well, that's a difficult balance to figure out, because that means, I guess 30,000 killed 30,000 or how exactly did it work? And you know, in Human Rights Watch we've been there; we've done the reports. We've spoken to everybody from the president down and the answers are just absolutely incomprehensible on all of these issues. So the question is, do you go on with this? Does the United States go on with a policy which President Obama made a very -- Senator Obama made a very eloquent statement in 2004: The war on drugs has been a failure. He said it. He just wasn't president. This is true. You'll say all sorts of things before you're president and after you're president and you don't necessarily do them or say them when you are president. But I think he's an enlightened person who knows this stuff hasn't worked. I think most Latin American presidents know this doesn't work. So then where do you go from here?Well, this is one of the issues that perhaps can begin to be talked about by a second-term president in the United States and by someone like Pena Nieto in Mexico who does not feel constricted or bound by President Calderon's policies.HOGE: This came up in this morning's early session and I'd have to say there was a lot of emphasize put on the solution is much more complicated than you think. That it's easy to say the policy so far has been failure. It's then difficult to come up with what you do in its place. Do you spend a lot more money on trying to coerce your way out of it -- for example, the Merida funds are much less than they were supposed to be; or do you go to liberalization? If you go to liberalization, how do you decide where the line is going to be? Is it going to be just for marijuana or for other things? And will it really bring down the level of violence? There was a lot of discussion this morning about the fact that it really wouldn't. What's your take on it?CASTANEDA: Well, I think placing the issue in terms of a dichotomy between the same policies with more money or legalization is a straw man --HOGE: OK.CASTANEDA: It's in bad faith. Those generally who say that say so, because they don't like the issue of legalization and the best way of shooting it down is by saying, if you think legalization is a panacea, well, it's not. Yeah, but nobody thinks it's a panacea or nobody's serious. I mean, the people who are in favor of this are not fools. They've been presidents of big countries for a long period of time; they've studied these things. They're not just thinking through their teeth. They're writing and studying and reading these things.So legalization can be part of an alternative policy; it's certainly not an alternative policy. If anything, it's a corollary, in the case of Mexico, to an alternative policy, which by the way, is where the two main candidates are moving. What they're both saying -- Pena Nieto specifically clear on this in an interview he gave to El Mercurio this Sunday in Chile. What we're going to do is emphasize fighting violence that affects society -- kidnapping, extortion, assassinations, automobile theft, et cetera -- that's going to be my priority. Vazquez Mota says the same thing.Now, if you say that, you don't have to say the next thing, but I can say the next thing. If that's going to be your priority, then you're non-priority is obviously going to be drug trafficking. What that means is you are not going to devote all the money and the troops and the police and the effort to combating drug trafficking. What are you going to do? You're going to let it go through. Now, you don't want to do that, because you are encouraging a culture of illegality in Mexico by so doing. And that's something that has done the country an enormous amount of damage over the years. So what's the best way to let it go through without encouraging a culture of illegality? Make it legal. And among the few things the Canadians do contribute to this discussion -- not many, but one of them -- is what they did during prohibition. And we talked about this in Vancouver and the Canadians say very intelligent things about this. They helped broaden the tires on the trucks that would ride across the lakes in the winter on the ice so they could take more scotch to Chicago and Detroit. They taxed them. They welcomed the (Bronx ?) man's fortune. They were very happy that they did very well. And they never thought of contributing to American prohibition. What they thought of doing -- the government; mainly the government of Ontario -- was to benefit as much as possible from a great opportunity, which was these crazy Americans have prohibition on alcohol and we can make it here. And they keep drinking -- it's not that they're not drinking anymore; they're just not making it. Well, let's give them all the liquor they want. (Laughter.)HOGE: Bob, any comments on this?PASTOR: (Laughter.) Jorge has a wonderful, cynical approach to a lot of different issues. But I think on this one he has a lot of truth on his side.I mean, when you think about the end of prohibition, what happened? It is true consumption of alcohol did increase in the United States, but violence dropped very sharply in Detroit and elsewhere. And you know, we equalized some of the taxes after that as well. It wasn't just the Canadians that got --HOGE: I believe long term, consumption actually has gone down.PASTOR: Well, right after the prohibition --HOGE: Over a -- PASTOR: People were thirsty, you know? (Laughter.) Anyway, I think there are several important points to keep in mind on the drug trafficking. Number one is President Obama himself has said we need to start thinking about this issue as a health issue as well. And as a health issue, we already know that there is two terrible drugs in America -- it's killed a lot more people than any of these other drugs. And that's tobacco and that's alcohol. And we don't prohibit either one, but we do tax and we do regulate in a manner that has sharply diminished illegal trafficking of both and has diminished consumption significantly as well.I think the idea that we should treat all drugs coming into the United States exactly the same, that we should have criminal punishment exactly the same or even harsher for marijuana in many ways than for cocaine or the synthetic drugs is ridiculous. I think the time has come to look more sharply at each of the drugs and ask ourselves, can we have a more intelligent strategy? Some should be decriminalized, some shouldn't be. And we need to have -- we need also to have an approach that's much more collaborationist with Mexico and Canada if it's going to be more effective.HOGE: You know, right after the elections -- before they both take office -- if they follow their predecessors, they're going to have a meeting together. If so -- say in January, in December -- what is it that the Mexican president, whichever one it will be, what are they going to want more than anything else? What's the one or two top items?CASTANEDA: I think it depends a great deal on the debate and the fight, the struggle, within the PRI and within Pena Nieto's team -- supposing that he does win and I increasingly think, as I said, that he will -- about whether they want to have an activist, vigorous, bold foreign policy --HOGE: So there's going to be a --CASTANEDA: -- debate --HOGE: The party itself is sort of split, right?CASTANEDA: Well, there are many people in the PRI and in his team who have a very different idea; who think that the best foreign policy for Mexico in relation to the United States is for practical purposes, no foreign policy. Complain a little bit here and there about too many guns, too many drugs, not enough trucks, blah, blah, blah, but basically just complain and not do a whole lot. I mean, this has been a very traditional Mexican foreign policy. And there are people within Pena Nieto's circle who believe that absolutely sincerely -- others who also believe that what Mexico should do is have a much more activist and vigorous foreign policy towards South America. That makes much more sense than trying to get anywhere with the Americans, that you can't do that. That is one view.The other view is whether Pena Nieto can become convinced of the kind of vision that Bob suggests in the book and where Mexico becomes the driver for that sort of a vision. Then in that meeting, what they would do is to start saying, OK, we have four years now -- six in Mexico, but four in the states -- we have a two-term, second-term president in the United States. Why don't you just listen to me for a couple of hours, President Obama, and let me tell you how I see the future of our two or three countries? Let's -- just listen. Let's not talk back; let's not argue; let's not get into specifics, but I have this view on where things can go on energy, on immigration, on drugs, on security, on trade, on investment. Starting with one basic fact, which I think goes back to your first question, Jim, which a real issue: Mexico has grown on average the last 12 years about 2.5 percent GDP per year. And with about 1.5 percent population growth, that's a little bit probably less than 1.0 GDP per capita per year. It's just too low.You cannot solve any of the countries problems with that growth rate. You can manage them; you can make the middle class grow a little bit; you can improve some things, but you can't really transform the country with that kind of growth rate. So what can the three countries do to have Mexico grow more and also have the U.S. and Canada grow more, thanks to greater cooperation with Mexico? That's what I think the Mexican president should sit down with Obama, if Obama wins, and talk about with him. And not get into the details in this business -- we've spent so much wasted time on trucks and guns and this and that. I mean, what's the purpose of it?HOGE: Bob, put yourself at that high level summit before they both take office. What particularly would we want from the American side that we don't have at the moment, in terms of a relationship?PASTOR: Well, the problem is that for the United States right now, we face so many crises around the world, I think the one thing that this president -- and perhaps his successor or in his second term -- is just quiet. We don't want anybody making anymore demands on us. Instead of looking ahead with a vision and saying, how can the three countries of North America -- how can I invite not just the Mexican president and have the Mexican and Canadian prime minister trip over each other to see who can get into the White House first, invite them together and have a broader discussion.This -- in some ways, the most dangerous thing -- it's not dangerous in a crisis setting and therefore, we don't even see it -- is that our neighbors may conclude we are an unreliable partner. That the United States goes to Hawaii and proposes as a major achievement a negotiation with eight tiny countries in Asia, who's combined GDP is one-sixth or one-seventh that of Canada and Mexico. And when Canada and Mexico say they want to be a part of this, we say, let's think about it a little bit. We did it completely backwards. Canada and Mexico are our two major trading partners. These eight countries -- four of whom we already have a free trade agreement and the other four are trivial economically. China is not going to be a part of it, because the TPP is aimed at China and so therefore, it's cornering China --HOGE: Is that why it has been so popular with this administration?PASTOR: It might be. I think it's an excuse for an Asian policy. It's a rebuttal to the Romney critique that we're soft on China. You know, we're stationing in Darwin, Australia is one more example of this absence of a strategic vision in East Asia.But more importantly, I think the one lesson that should be drawn from NAFTA was when we were first confronted with this idea of NAFTA, we also had the Uruguayan Round of trade negotiation -- the world trade negotiations. The question is, which should come first? It turns out that by going to NAFTA first, we created an incentive for the Europeans and the Japanese to come to us and negotiate the conclusion of that round, which wouldn't have happened the other way around. So the proper way to have done a good trade policy internationally is go to our two neighbors first, deepen economic integration significantly among our neighbors, and then Asia would be creeping over to us and the world trade negotiations would be rushing to us. So we've got it completely backwards.HOGE: What would a North -- just in sense of proportionality -- a North American trade agreement -- free trade, common -- where would that rank compared to say an Asian grouping or the European Union?PASTOR: Very interesting. You know, when President Obama went to APEC -- 22 nations in the Asian Pacific, including China and Japan -- they talked about how this was our most important export market; that 61 percent of our exports go to APEC. Well, that's true, but 37 percent of that goes to just Canada and Mexico. So it exceeds the rest of APEC all put together.So I think in terms of economic grouping, the truth is that we talk about a globalized world, but most of the trade is occurring within three regional blocks: European Union, North America and East Asia. The United States share -- the North American share of the world product went from 30 to 36 percent between 1994 and 2001, the halcyon years of NAFTA -- the first seven years of NAFTA -- greatest growth in jobs, 22 million jobs during that same period of time. Then from 2001 to the present, it has declined to back where it went again, which is why we need to think about first North America and how do we create a truly seamless market. When Europe went from being a free trade area in 1958 to becoming a customs union in 1970, all of the sudden -- just on the eve of the customs union and afterwards -- trade within Europe just soared again. The same thing could happen in North America, particularly if it's coupled with a different approach to the borders and a different approach to rules of origin, a different approach to regulatory harmonization as well. We could have a genuine spurt. North America would once again be the central economic region in the world.HOGE: Before I go to the audience, Jorge: Anything you want to say on this?CASTANEDA: Well, I think that one of the other issues that has to be addressed continues to be immigration. And they're going to -- the two presidents are going to have to talk about it. Some things have changed, but in different ways. A lot of attention was paid last week -- I'm sure many of you saw it -- to this new Pew study whereby roughly the same number of people entered the United States illegally during the 2005-2010 period as the number of people who left the United States. And so that net illegal immigration was nil.First of all, that's -- in itself, that's a somewhat complicated number that they arrived at, because regarding the returns to Mexico, this is done by the Mexican census figures and by Mexican surveys. And the census has been very much questioned in Mexico -- the 2010 census was very questioned for all sorts of reasons I won't get into; and secondly, the surveys that are taken of asking people, were you in the United States last year, are not terribly reliable; and thirdly, in that number of 1.4 million returnees, there's a large number of deportees, which is not exactly a voluntary departure.HOGE: In the Obama administration, deportation has gone up very dramatically.CASTANEDA: Skyrocketed. But the interesting thing about all of this, other -- the other number which has not been addressed in all of this is that in 2010, there were approximately 700,000 legal entries from Mexico into the United States -- the highest number ever and slightly above the peak numbers of the Bracero program in the 1950s. They include a greater of H visas, including the NAFTA visas. They include the T visas. They include 150,000 Mexicans acquiring permanent resident status. Why? What happened?Well, what happened is simple. We're just as bright anybody else is. If the United States starts telling us in 2005, 2006, 2007, look, we're not really happy about all these Mexicans in the United States. The illegals -- maybe they self deport; the permanent residents this; the other thing. What are Mexicans going to do? Well, Mexicans who are permanent residents are going to naturalize. And there's been -- there was a huge increase in naturalizations from 2005, 2006 onward. And every American citizen can bring in wife, children, parents without staying in line. The line is for the permanent residents, not for the citizens. So there was 150,000 last year in 2010, about 250,000 H and T visas, investor visas another and temporary workers in general. Seven hundred thousand Mexicans came to the United States to work in 2010 -- more than ever before. For practical purposes, the legalization of the flow part of migratory -- of immigration reform has happened. Nobody's noticed and I'm sure the Obama administration wants it to be. The last thing they want is Congress all over them for this sort of stuff, so you're not allowed to say this. But this has already occurred. And this is policy. They're doing it more quickly; they're giving more visas; they're doing it more expeditiously. They're doing it very well. But this means that there is less pressure on that side and a greater possibility of addressing something, for example, like the 6 million Mexican illegals in the U.S., 12 million all illegals in the U.S., and try and settle that, because the flow part has partly been -- practically been solved.HOGE: Well, there's a question on that flow part. And I -- is it -- is this really a permanent change or is this just a dip, because we've had a very bad recession and there weren't jobs for people coming? Now, some things point to it being more permanent than that, which is Mexico's birth rate has gone way, way down -- number of children per family; the middle class has grown; economic opportunity is better than it was before. But to the larger question of once our economy ticks back up, do you think there'll be a surge again, particularly of illegal immigrants?Bob?PASTOR: Yes. I think that the decline in undocumented migration to the United States is a result first of our economic recession -- most significantly, because people are coming for jobs, and for income even more than for jobs, because 93 percent of undocumenteds that come here say they have left a job in Mexico or Central America, wherever. They come here because they can earn five, six, seven, eight times as much. I think secondly it's gone down, because enforcement has increased -- particularly with regard to deportations. Thirdly, it's gone down because actually, the Mexican economy the last couple of years has grown twice the rate of the U.S. economy, which is really the point. That is to say, what's missing from comprehensive immigration reform -- all of the elements have been on the table and I think they're all needed, but what's missing are two things: First, a long-term and secondly, an immediate-term strategy. In the immediate term, the only way you're really going to stop or significantly reduce undocumented migration is if everybody has to use a biometric identification to become employed, because people are coming here to be employed. They're not coming here for social services or education -- although that's part of a larger motivation. The major reason is to work and to earn. And if everybody has a biometric ID, you can handle that issue. You can't do it with this e-qualify -- E-Verify system, which is quite bad.Secondly -- and this is the fundamental element -- you need a long-term strategy. The long-term strategy is a variation on what the Europeans did. They had regional cohesion funds where they invested a huge amount of money into the Southern European countries and they narrowed the income gap in 15 years significantly. We need a North American investment fund in the long term that goes into transportation infrastructure, connects the markets of North America, takes advantage of the fact that when trade tripled, 80 percent of that trade goes by road and yet, we didn't build one road in North America. We need a broader vision of that.So those are -- those are the elements that are needed for immigration. But I think your first -- your question is absolutely right. Undocumented immigration is going to go back up again when the U.S. economy goes up, in the absence of a concerted, comprehensive immigration plan.HOGE: Let's go to the audience. Give us a name and association if you will. Wait for the mic to come. Try and keep it to one question and a concise one. Yes, ma'am.QUESTIONER: I'm Alexandra Starr from the New America Foundation. I reviewed your book for The New York Times.CASTANEDA: Thank you.QUESTIONER: I thought it was superb. So I wanted --PASTOR: You should feel free to do mine as well. (Laughter.)QUESTIONER: Let me know.So you spoke a little bit about Pena Nieto and you referred to this new -- a break within the PRI or that it's not a monolithic party. Some people have talked about the idea that he might be putting a new attractive face on an old guard. And I was wondering if you could both talk about whether you think that might come to pass, what you've seen -- behind the scenes.CASTANEDA: Well, I don't see a lot behind the scenes, so I don't know. What's clear to me, I think, is that it's a different -- it's a different context to begin with. They can't do what they used to do, even if they wanted to do it. Secondly, I think at least some of them don't want to do it anymore -- I don't know how many of them, but a lot of them don't want to do it anymore and if they wanted to they couldn't do it, because of the opposition, because of the media, because of the United States, because of civil society, because of all sorts of stuff. Not as much as I would like stuff to stop things from going -- from this being a restoration, but I think there's enough limits for there -- for it not to be possible for there to be a restoration.The other question is: What is more conducive to the quote-unquote "good guys" within this group winning as opposed to the bad guys winning? Having Pena Nieto win by a landslide, with a majority in both houses --HOGE: Both houses.CASTANEDA: -- which is not impossible, or having the election as tight as possible and without a majority. And I think this is really the fundamental question -- not that anybody can do a whole lot about it. But you know, wishful thinking is always good. It's fun. Besides, that's what -- speculation is what we do for a living, right, Bob?My sense increasingly is that the greater leeway he has, the greater the possibilities of not going back to the past, of his being able to appoint whoever he wants to carry out the policies he wants, to be able to really have the liberty, the freedom to do more or less what he's been saying he wants to do. Given that, I'd rather probably he have a majority than not have one.And the final question is what's more conducive to this also: PAN in second place or PAN in third place.Maybe Bob wants to answer that one. (Laughter.)PASTOR: Well, let me start by saying I agree with Jorge that context is everything. Mexico from 1988 to 2000 went from the most fraudulent, manipulative electoral system in the Americas to the most professional, impartial, the most modern electoral system. One in which I wish the United States could learn and should learn a lot from. And that changes everything. It is a democratic system right now that pre-existed as leader of an authoritarian system. It's still a party and a powerful party, but it has to work within the democratic system.Huh?HOGE: I said, shucks. Shucks.PASTOR: Well, I actually think that's great. (Chuckles.) And I think it means -- it means, among other things, that there is a middle class, as Jorge has written about, very eloquent, in his book that's grown up in Mexico that is transforming the country in ways that we haven't seen, because we're so focused on the drug trafficking and violence that we haven't realized this dramatic transformation has occurred on our doorsteps and we haven't begun to take advantage of it.So I think the question about the old PRI and the new PRI misses the whole point of Mexico.HOGE: Yes? Yes, sir. Right there.QUESTIONER: Thank you. My name is Ike Savit (ph). I represent a small export trading company and we deal a lot with Mexico. We specialize in the graphic arts and printing-related industries.Mr. Castaneda, in your article in The New York Times in January, you mentioned something very, very important -- the middle class of Mexico. And to me, this comment that you made here is the answer to everything -- immigration, you name it, you name it. Mexico has a growing middle class and enjoying it, OK? And our relationship with Mexico is getting better step by step. For example, in our industry we have now a new tracking regulation. One of the big problems of the --HOGE: Let me ask you: Do you have a question, sir? Because we don't have a lot of time.QUESTIONER: Yeah. All the maquiladoras used to be a question of tracking. So now we're allowed to bring the tracks into the United States from Mexico. This is a big, big help to the industry.The last very important thing: The maquiladoras program is already sort of finished, but Mexico came up with a new program, which is extension of the maquiladoras program in a new free-trade zone, which is going to be big benefits to Mexico, benefits to us. So the extension of maquiladoras is something bigger and better for all of us.HOGE: Thank you very much.OK. Next question? Do we have a question? Yes, sir. Right there. Yes, ma'am.QUESTIONER: Hi. My name's Andrea Dinamarco and I'm with Allen & Overy.One of the things I've been thinking throughout this conference today is how there is no lack of answers for the many problems and issues in Mexico with drug trade and foreign policy and what will happen in the future. But what I've noticed -- especially in my own background being a Brazilian -- I see here that there's been a tremendous influx of Brazilians now in the United States with the surge of the Brazilian real and so much more Brazilian spending here in the United States. There are three new consulates in Sao Paulo opening up and visa requirements have become a little bit easier.So attitudes about Americans -- attitudes Americans have towards Brazilians have definitely improved and that has led to a change in foreign policy. What I wonder with Mexico is: Is the issue not that we don't know what to do? Is it more that we have these preconceived notions about Mexico as a country of workers and not as a country of potential clients and customers that can come and spend their money and that can contribute to our economy as well? Is the major issue here -- and something that has not been brought up during these lectures -- a deep-seated racism? Or maybe that's too strong of a word, but maybe some sort of stereotype that as a neighbor, we can't address political, openly and overcome?HOGE: Very sensitive question. Let's see what we get as a response.Jorge?CASTANEDA: Well, I mean, I think the point that you're making is a valid one. There is that sense in the United States, but there is that sense because the overwhelming majority of Mexicans who have come to the United States over the last century have been people who have come to work in unskilled, low-wage labor in the United States. And that is, up to a point, the image most Americans have of Mexico and Mexicans, because that's the image they confront every day when they go to a restaurant, when they go to a hotel, when they eat strawberries, what have you. This is what Mexican immigration to the United States has been for a hundred years.We face problems with the consul general here. We've talked about it. The educational level of Mexicans -- Mexican kids in New York -- undocumented Mexican kids in New York schools is lower than Salvadoran, than Ecuadorian, than Colombian, than Peruvian -- lower. Mexicans. We're not comparing them to Americans or South Koreans, no, no, no. It's a -- this is the reality of our immigration to the United States over the past century. That's what it is. And this is something that we have to face and then change, but it's true.There are some things that are changing. I'm not sure that they're a great -- they're for the better. There's a long piece today in some paper in Mexico, but a lot of people have been writing about it: The new immigration from Mexico, from Northern Mexico to Austin, San Antonio, a little bit to Dallas and Houston, which are basically people who are much wealthier, professional, et cetera who are fleeing the violence in the north. But they're fleeing now not just for awhile; they're settling in San Antonio and in Austin. They're starting new businesses; they're very dynamic, very entrepreneurial, they have high levels of savings. They want to make a -- they want to start a new life in these areas. And that's going to change, but of course, that changes only in those towns.What's most important is to try and change not the immigration from Mexico, but to try little by little to diminish that immigration by broadening the middle class. I mean, the key question in Mexico is when we can begin finally to sell this idea, which is not true -- even though it wasn't before -- that Mexico has become a middle-class society. It's a different kind of middle class than the one you have here, than the one that Western Europeans have, et cetera, but it is a majority now -- 55-56 percent a middle-class society. And if things continue improving the way they are, 10 or 15 years from now we would have 60-65 percent of the population being middle class.HOGE: Jorge, you mentioned --CASTANEDA: If we can sell that, we're in business.HOGE: -- that some are now moving to the southern part of the United States. And that one of the sort of generators of that movement is violence.I remember a piece you wrote awhile back now to Americans, essentially saying, look, Mexico -- if you take it as a whole -- is a reasonably peaceful place. The violence is targeted in certain areas. Is that still the case or has it expanded much?CASTANEDA: I don't know what the security folks said in the morning, but what seems to be the case is that it still remains limited to a certain number of places, but they're not the same places. It shifts around. If you fix Tijuana and Juarez, you have a disaster in Tamaulipas. If you fix Michaocan, you have a disaster in Guerrero. The government, state, does not have the wherewithal to control the drugs routes and the drug trade in the entire country. It would need to have far more police or far more troops. And this is a political decision that the next president's going to have to make. Colombia spends about five points of GDP on overall security stuff. We spend about two points of GDP. So we can double it and that's what we're going to do. We're going to find a way to get two or three points of GDP and we're going to stick it into that, not in education, not in infrastructure, not in health, but in that, because we can't do all of this stuff. You can't do that and education and health and housing and infrastructure. Well, it's a tough decision. I think it's absurd to do that, but I could understand that others might think differently. What I know you can't do is that and everything else.HOGE: Bob, did you have a?PASTOR: Yeah. Let me just respond to the question about racism. I think in the debate on the immigration bill between 2005, 2007, it was a poisonous debate. And it bordered at moments on racism. But there are several other elements that need to be understood. Number one is this occurred at the end of about two decades of a dramatically large increase in immigration, dramatically larger undocumented migration. And part of that was a response. Indeed, the most interesting part of that whole debate was that no one -- not even the most rightwing, racist member of Congress suggested reducing legal migration. It was really focused on undocumented migration. And in fact, as Jorge pointed out, more than one-third of all of the legal immigrants to the United States come from Mexico. And nobody was suggesting doing anything about that at all.So I think that while it was a very bad debate for America in my judgment -- and certainly, if you look at it from a Mexican standpoint -- I think it needs to be understood in a broader context.HOGE: Yes, sir. Right here.QUESTIONER: Thank you. Richard Downie from the Center for Hemispheric Defense Studies.You know, it's always difficult to interpret what political candidates say or what they mean, but I wonder -- and my question is for Jorge Castaneda: This morning we have a little discrepancy between your view of what the candidates have said -- and I think it was Claudio Gonzalez, but I won't swear to it -- this morning one of the speakers said that all three of the candidates said that they basically would not change the approach that Calderon has had with respect to confronting organized crime. And what you said a little earlier was that all three of the candidates have essentially said they're going to focus on crime -- kidnapping, other things -- which in effect says they're willing to let drugs pass onto the United States. And you've made the issue before, you know, with this. The United States has not done anything about demand or arms or cash so let this go.I wonder if you could help clarify that discrepancy. And if you're right, what would that approach mean for relations with the United States? Thank you.CASTANEDA: Well, you know, I can only go by what I read and what they say. And obviously, all candidates in all elections tend to say different things to different audiences. Specifically in the case of Pena Nieto, he made this very -- I think the most specific statement he's made is in this interview with Mercurio on this Sunday where he says Calderon's policy is a failed policy -- (speaking in Spanish). That's pretty clear. And then he says that he's going to maintain the army, but use it to combat violence. That's my reading of what he's saying, though. I have no way of knowing whether he believes this or doesn't, whether he understands the implications of what he's saying or not. I don't know. If it was cloudy -- I'm sure it was accurate in the sense that they also have said that they thought that you had to keep the army doing -- involved in this until you have a police force. Well, yes, obviously. The question is, how do you decide? You can decide that the next day. You know, on December 2nd, the new president -- whoever he or she is -- can say, we won. Thanks to Calderon, all of this is over and now bring the army back, period. Since there's no way of knowing whether you won or you lost, because there's no definition of victory or of defeat, you can say pretty much whatever you want. It's not terribly meaningful. What's important is what you do if you bring the army back or you leave the army on the highways and the streets. What do you want to use the armed forces for? Do you want to use them -- I always give the example, I'll ramble for two minutes here, of -- maybe a couple of you were there at the talk I gave yesterday and repeated.I went with Aguilar Camina (ph) about a year and a half ago to Tampico to her big book presentation there. And so we flew into Tampico -- we were probably the only people to ever go to Tampico now where Aguilar and myself -- nobody else wants to go. But anyway, we went to Tampico and we got off the plane. And then instead of giving us our carryon luggage to just take it off the small plane, they sent it to the band --PASTOR: Carousel.CASTANEDA: The carousel and we had to wait for about half an hour there, because there were five soldiers and two dogs -- both the five soldiers and the two dogs very thin, very emaciated; I don't know who was worse -- looking, sniffing, picking up the two little bags and making as if this was a big deal. And at the same time that this was happening at the airport in Tampico, there were shootouts on the main avenues of Tampico on the main causeway -- an enormous amount of violence those days in Tampico. And Aguilar (ph) and I asked ourselves: What in the world are these two dogs and five soldiers doing here? This is not where they should be. They should be there -- or at least the soldiers, maybe not the dogs. The dogs should go home, I don't know. Why? Well, because suppose our two carry-ons were stuffed with cocaine that we were bringing up and going to deliver to somebody to take it to the United States. So what? Is that what we want to use our armed forces for or have them patrol the streets of Tampico so there are no shootouts, there are no kidnappings, there's no extortion. Everybody tells you Tampico is the extortion capital of Mexico. (Speaking in Spanish.) I don't know if that's true or not, but it makes more sense to me to have the army -- if you're going to have the army in the streets of Tampico, do that instead of inspecting carry-ons at the airport, but this is the discussion.HOGE: And we need a sequel to get the answers to some of these questions, but we're out of time today. So thank -- help me thank our very stimulating panelists.

Experts discuss outcomes of the 2012 elections in the United States and Mexico and look at both countries' post election agendas. This session was part of a CFR symposium, U.S.-Mexico Relations Beyond the 2012 Election, which was made possible by the generous support of the Mexican Business Council.

MATTHEW BISHOP: I'm Matthew Bishop. I am the American business editor for The Economist magazine. And great to be here this morning for this second session of the summit on U.S.- Mexico relations, where we're going to focus on economic questions, U.S.-Mexican economic ties.We've a terrific panel. On the far end we have Claudio Gonzalez, who's chairman of the board of Kimberly-Clark de Mexico; then Gerardo Esquivel, professor of economics at El Colegio de Mexico. And then, needing no introduction at all, immediately to my left is Carla Hills. And this is -- as we've said earlier, this is an on-the-record meeting. It's being live-streamed to Washington. Please do completely turn off -- apparently you're not allowed to just put it on vibrate -- your cell phones, BlackBerrys and all wireless devices. And I'm going to talk for about 40 minutes, half an hour, with the panel and then we'll throw it open to questions and finish at 11:45.The starting point, I'm going to start with an academic perspective with Gerardo. You know, we have these two presidential elections coming up this year. What is at stake in terms of the Mexican economy, in terms of what choices the Mexican public make at this election in July? GERARDO ESQUIVEL: Well, first of all, we have to understand that Mexico right now is going -- it has stronger ties with the U.S. economy than ever. We have -- NAFTA. We have strengthened our ties with the U.S. economy. And wherever the U.S. economy goes, Mexico has been going the past few years. So whether that's good or bad depends on your perspective, and it also depends on where the U.S. economy goes. So in terms of economics in the political situation, I think what we have at stake is it's not necessarily a -- the economic model or not necessarily the economic perspective on the Mexican economy. I think what is at stake is a -- basically whether we should be able to maintain, to improve the relations with the U.S. economy, and whether the U.S. -- the Mexican economy is able to sort of identify the challenges that have -- keep the Mexican economy from growing in the past few years. Mexican economy has been growing in the past 20, 30 years at relatively moderate low rates. And the question is whether we can do something about that, whether we can actually change some domestic policies that I think, in my opinion, are holding the Mexican economy from growing at rates that the Mexican economy should be growing to satisfy the needs of the half of the population who lives in poverty.So I think that's probably what is at stake in this Mexican election, whether we will be able to face these challenges, whether we will be able to identify what are the policy options that the Mexican economy -- or the Mexican authorities may have to modify and improve the economic perspective for the next -- for the future, for the near future; for the near future.BISHOP: And, I mean, to be a bit more specific, I mean, is there -- are there any particular indications you're getting from the candidates so far as to, you know, what their different priorities would be -- I mean, particularly Peña Nieto? ESQUIVEL: Well, I don't think we have quite the perspective from where the candidates are actually -- will actually -- planning to do if they win. The only thing I could say is that they're -- that the candidate from the PRI, from the PAN -- Enrique Pena Nieto and Josefina Vazquez Mota -- have clearly stated that they actually sort of will follow probably the same policies of the previous governments have implemented. The leftist candidate, who even though he is more critical than has been done in the past, in my reading he is not actually trying to change the main structure of the economic system, or the policies. I don't think he's as radical as some people think he is, although I think he has a different diagnostic of the situation.And I must say, by the way, which I mostly coincide, even though I don't necessarily agree with the policy that he's proposing, I think the diagnostic that the leftist candidate has is probably more precise in terms of what is holding the Mexican economy back from growing, while I feel the two candidates have probably, like, a more mainstream interpretation of what's going on in Mexico, and they sort of share the policies. And -- well, they have actually announced -- basically, it's like a continuation of the status quo in terms of economic policy, I think.BISHOP: I mean, on that last point, and I'll move on to Claudio next, but I just want to -- you mentioned AMLO. I mean, last time he came very close to winning. This time, again, all my Mexican friends say he has no chance of winning. Is that -- is that right from your perspective? ESQUIVEL: Well, yeah. He's way back in the polls so far; he's, like 20 (percent), 23 (percent), 25 percent of the intention of vote. So he has probably no chance to win there, or not really a real chance of winning if things continue as they have been in the past few months in terms of his political performance. So in that sense, I think if you see what the polls have been showing, is that Pena Nieto is probably the likeliest to win so far. So if nothing really important and heartbreaking occurs in the next days, then I would say I think that the situation in Mexico so far. BISHOP: I was just curious that given, you know, as you say, AMLO has moderated his policy positions in a number of ways and -- you know, on the economy, and he came so close last time, and there is this general sense of disappointment with Calderon. It's just interesting that people are so confident that the polls are accurate.But let's move to Claudio. I mean, what do you think is at stake economically in this presidential election? CLAUDIO GONZALEZ: Well, I think something very important is taking place. Mexico is a breakwater right now. We either continue to grow at a mediocre rate or we break out and grow at 5 (percent) to 6 percent a year on a sustained basis. And what we've got to do to achieve this is we've got to make a decision that we want to grow to the full potential that the country has, and we've got to get rid of myths and we've got to get rid of ideological constraints and obstacles that we've had for this many years.And I very strongly believe that Andres Manuel Lopez Obrador is not going to be the change agent. He is too deeply rooted in the past and particularly in the last century, and we're in the 21st century, not in the 20th century. And I think Enrique Peña Nieto understands this from the very first day that he announced for the candidacy after he left the governorship of the state of Mexico. He came out with a book that he did not write totally, but he endorsed totally, and one of the key areas that he's been talking about from day one is that there has to be change in the energy sector.He also talks about quite a few other changes, but the striking one was the change in the energy sector, because this has been a taboo to be discussed in Mexico for many, many decades. And he's stuck to this line and up to now there's been very little backlash, except from Lopez Obrador, who doesn't believe in this. Vazquez Mota also believes in this direction. And I think that if we articulate change in the energy sector, this is going to be a huge push forward to get to this 5 (percent) to 6 percent growth rate on a sustained basis, because it's going to be a big message. This is the -- this is the big untouchable. Carla will remember when we negotiated NAFTA back in the early '90s and she was the big driver in the U.S. to get NAFTA done; we couldn't have done it without her. And there were two things that were totally off the table. On the Mexican side it was energy; on the U.S. side it was immigration, and those were untouchables. And that was decided from day one, and that's what got everything else moving in the right direction. Well, now, energy is finally going to be opened up in Mexico. I really believe that this is going to happen, and if it happens then I think we're on our way to really breaking out from this mediocre growth area that we've been stuck in -- 3 percent, 3.5 percent. This year we'll probably do 4 percent again; not bad, compared to what's going on in many parts of the world. But the country has a lot more potential, and I think that both Peña Nieto and Vazquez Mota, who as of today represent close to 80 percent of the vote in the coming election, among the two of them, and when you add them up are very much in sync that the energy sector has got to be opened up, modernized, made more efficient and have private investment in the energy sector, like Petrobras in Brazil or Ecopetrol in Colombia. And I think this is a very, very big message and a very big change agent, and we're all for it. And Lopez Obrador is not on that page. Fortunately, he is not getting beyond 20 percent.BISHOP: So we'll come back and talk about the energy sector a bit more. But Carla, I mean, from your perspective, both the U.S. and the Mexican elections, you know, what -- to what extent is something significant going to come out of it for the Mexico-U.S. relations on the economy?CARLA HILLS: I have no perfect crystal ball on who's going to win on either side of the border, but I do think that when the candidates become president then their responsibility becomes at their desk. And I agree with Claudio; I think Mexico and, indeed, the United States, would be benefited by Mexico's opening its energy sector.I also agree that the United States has a broken system for immigration. Its visa system is absolutely broken. This hurts the United States. We do nobody a favor by keeping them out. We have a lot of bright youngsters who graduate from our top schools, at the top of their class. Can they stay? Could they work in the United States? No, they have to go home because they can't get the H1B visa.We have 12.5 percent of our start-up businesses are from people who are not born in this country. They provide enormous jobs; they're usually -- start out at small- and medium-sized businesses that are responsible for jobs. And they contribute tax revenues. Now, this doesn't make any sense for either side of the border. So I think that although politically it's kind of tenuous before an election, you would hope that those given the responsibility to address the issues would step up to the plate after the election. But something came up in the last program. We talked about needing to change institutions and how do we do that. No one wants to do it. Well, it takes the population to be educated to do it, whether it's to fix the United States' visa system, to open up the Mexican energy system, or to get us to address how we collaborate on border violence. And if every single employer were to educate his employee population as to what is at stake, what could be gained, you know, it would make a difference.BISHOP: Regarding President Obama and Mitt Romney, are either of those -- is there any reason, from what you've -- conversations you've had with either of them or what you know of them to think that there might be any significant change in American policy on immigration, for example, with Mexico?HILLS: Democracy comes from the people. And you have people in our Congress who have supported fixing our immigration system. I can't predict what President Obama will do, nor could I predict what Candidate Romney would do or whether someone else will enter the race. But if the American people recognize that actually our immigration from Mexico has gone to zero, that we are in sore need of getting some of the young people who came across the border and that -- how we could legalize the system -- I grew up in California, and we had a bursero program where workers would come in and go out. And it worked very, very well. It was taken away and that system that has replaced it has worked very, very badly. So surely if workers, employers, ranchers all worked together, you know, it does tend to change politicians' minds.BISHOP: Let's talk a bit about energy reform in Mexico. Back to you, Claudio. I mean, because this has been around, obviously, forever, the re-election. There are promises made and so forth. I'm interested first in why you feel so optimistic this time around that something will actually happen, and how's -- but secondly, and how far do you feel that needs to go to be judged a success? And are we talking about privatization of PEMEX? Are we talking about, you know, introducing a lot more competition in the utility sector in general? How far do you -- how far do you see it needing to go?GONZALEZ: That's a very good question. And I'm optimistic on this issue because the candidate that is most likely to win, according to polls up to now -- we still have two months to go and there's only one poll that counts, and that's on the first of July, which is the election day. But the indications are quite strong that there's a very high probability that he will win. And he's been very consistent on this issue from day one when he announced for his candidacy. And I think the world is changing Mexico and North Korea are the only two states that do not have an open energy sector to private investment, and that's a heck of a neighborhood to be in, North Korea. (Laughter.) Even Cuba is permitting participation by the private sector in their energy sector.So the world has changed. The world is changing. You've got the examples of Petrobras in Brazil, Ecopetrol in Colombia, doing very, very well with participation of the private sector in their energy sector. This does not mean that Mexico loses control of the oil resource. Just as Brazil has not lost it or Colombia has not lost it. And now this is accepted around the world too by the worldwide energy sector.So we're only coming into doing what we have to do, and it's the 21st century and we're now ready to move. And as I say, Enrique Peña Nieto is probably the only candidate that can really get it done, because if he wins, he probably will have enough muscle in Congress to be able to do the things that have to be done. I think it'll be a partial opening to the private sector, but it should include the ability to float an issue of PEMEX on the stock exchange in order to get the type of discipline, rigor, transparency required to make PEMEX a very efficient and effective oil company.Now, this is not going to happen overnight. There are a lot of things that have to be done, including tax reform, in the country in order to make up for possibly some of the revenues that will have to now come as taxes to the federal government, rather than the appropriation that takes place at this particular moment. But I think that there is a path to get there, and Peña Nieto has it quite clear in his mind as to what has to be done. And I think that it's going to -- it's going to happen and I think it's going to be a huge message to really get Mexico to get on the path to grow at its full potential and start getting rid of all of these myths and taboos and ideologies that have held us back for so many, many years.Growth is the imperative in Mexico, and growth will bring with it the creation of jobs and the creation of wealth that will permit us to invest in many of the needs that the country has. And it's an absolute tragedy that we have this great potential and are not using it, and I think we're on the verge now of achieving it.BISHOP: OK. Gerardo, do you share that optimism? ESQUIVEL: No, not at all. (Laughter.) Sorry about that. And no, for two reasons.GONZALEZ: That's why we were chosen to be on -- (laughter).ESQUIVEL: Yeah. No, for two reasons. One is because one thing is what the candidates say when he's a candidate and the other thing is what the candidate really can do when he is president. Just remember that President Calderon -- (inaudible) -- employment, and employment is probably the one of the worst areas in which he has perform3ed in the past few years and he has done very badly in other areas. So the reason is where -- the reason why I'm not that optimistic is because of the some -- political ties between the union, the union of PEMEX, the oil workers and the PRI. I think it will be very difficult, I think, for any president coming from the PRI to do anything against the union. And that's the sad thing why I think the -- he never did anything in that regard, precisely because -- (inaudible -- this calling. I mean, it's that the union leaders are -- have very, very strong ties with the party, are very powerful, and I think it will be very hard to negotiate with a candidate once he's elected, if that's the case. So for that reason I'm not that optimistic. I think if one reads carefully what President -- what Candidate Pena Nieto has proposed in this book that he wrote is that he will open up the PEMEX to the participation of the private sector, but note that doesn't necessarily mean participation of the private sector in terms of all these extraction activities or some of the traditional -- what you should understand of opening up this -- the energy sector to the private participation. It's just like he has mentioned about something that if people can buy shirts, for example, which is fine. I think that's good. I think that could help a little bit. But I think that's not necessarily what people think when people think about private sector participation in the energy sector, that's not what they necessarily think about. This is one reason why I'm not that optimistic.And the second reason why I'm not that optimistic is that even if he does that, I don't think the energy sector is that important in Mexico as to be able to change the pattern of -- (inaudible) -- in the Mexican economy. I don't think that's the reason why Mexico is holding back in the past few years.I think the energy sector is just a tiny sector which, yes, it really opens up in the case that might happen which, as I said I'm not that optimistic about that, will -- might have an impact, might attract some investment, private investment, foreign bank investment which will be very helpful for the economy, but I don't think that's the main problem of the Mexican economy.Because what we see in the Mexican economy is a general, across different sectors, stagnation. And I think that has to do with something different, other than the -- what's going on in the energy sector. So I'm not that optimistic in the possibility of really opening up the sector to the private sector. and second, even if that happens, I don't think that's going to really change what's going on in the Mexican economy. That might help the sector that might help the -- (inaudible) -- could get to participate in the sector, but I don't think that's enough as to change the pattern of -- (inaudible) -- in the Mexican economy because I think it's something deeper than that, and that's what I said that the diagnostic -- that I think -- (inaudible) -- is better in that regard. As I said, that doesn't necessarily mean that he's poised -- the most appropriate ones, but he has a different approach the other two candidates. The other two candidates think that some things like this, like opening up the energy sector -- completely change the pattern of -- (inaudible) -- in the economy. And I don' think that's the case.BISHOP: That's very interesting. I've just been reading the -- this new blockbuster, "Why Nations Fail," by Daron Acemoglu and his co-author. And the amount, the extent to which Mexico gets bashed for being a model of all the things that cause nations to fail in terms of economic centralization and lack of competitive dynamism and so forth is very, very striking and Carlos Slim (sp) the person now identified as maybe the face of that. And I guess with you avert a decision today from the regulators in Mexico as to whether they're going to pursue this billion-dollar fine against this mobile phone business. But I'm interested, you know -- there was this sign that maybe Calderon was going to get tougher on the oligarchs, if we can use that phrase -- probably won't be allowed back in to Mexico now for saying that. But, you know, to actually sort of open up that elite and put more dynamism into the economy. And it's really not happened, has it? And how could it happen? GONZALEZ: No, it hasn't happened, but it's going to happen. And it's going to happen because things, as I say, are moving quite quickly, and the press of getting things done in the country, just the --BISHOP: But do you think -- I mean, for example, I mean, this decision on fining Slim?? And his business. Do you see that as something that is a test case of whether this is --GONZALEZ: It's a symbolic thing. What really is very important, I think, is the fact that there was a -- the supreme court in Mexico is every day becoming a stronger force, and the judicial part of the equation is starting to assert itself from the top down. And several decisions have been taken recently which have not been as big in the press, like this -- fining, this $1 billion fine. But now the supreme court took a decision about six months ago where regulators now can regulate in Mexico. Previously, if a decision wanted to be taken by a regulator, the offended party, if you will, could have an amparo and get this totally stuck in the courts for years. Now the decision taken by the Supreme Court is that the regulator takes a decision and it becomes effective immediately and if the offended party doesn't agree with it, they have to go to court to try to change the decision. But the decision stands as of the moment that the regulator takes that decision.You start to see happening prices of all telecommunication services are coming down and are coming down quite substantially in the country, and you're going to see America Movil and their results that already reflected in the first quarter that they're having to charge a lot lower tariffs. And so this was a major legal decision taken, and regulators can now regulate, whereas they were totally under the control of these other situations that you referred to.So I think that quite a few things are going on that are pointing in the right direction and are going to get us to start moving in addition to this energy decision. Gerardo might be right that it isn't large enough with the size of the country today, even though it still represents around 10 percent of total GNP. But just the message that we are opening up and that we are welcoming private investment into the energy sector is going to be a huge driver.(Cross talk.)BISHOP: Gerardo, do you -- do you, -- just quickly, do you share that optimism on that area, or this even -- ESQUIVEL: Well --GONZALEZ: He obviously does not. (Laughter.)ESQUIVEL: No, well I woul say partially -- I would say partially. I would say partially. I mean, I think that the regulator has now more power than he used to have, but it's clear we need a long way to in that regard. I think -- and that today the judicial system reform, because so many of these big friends of Pieta (ph) have been caught by the -- or have been fined by this antitrust commission in Mexico. They can eventually get rid of that, the -- postponing or legal practices to postpone the implementation of the decision. They actually can challenge the situation -- the decision. And the antitrust commission doesn't have the strong teeth to make -- to actually implement those measures.So I think there has been some improvement, but I think the antitrust commission still needs another round of reforms to make it even stronger. And also that needs to -- we need to have also sort of specialized -- (inaudible) -- in competition issues and things like that so just to make -- to complement all the reforms that we have been implementing in the past -- in this area of competition, which is one of the most important ones.That's really important, because that goes -- that goes -- for the economy and I think doing something there, it's much more important, it is to me, than reforming the energy sector. GONZALEZ: I agree. I agree with --BISHOP: However, I think one of the -- one of the things -- one of the things that we would -- develop more as NAFTA took effect would be the -- you know, there would be this sort of spread of competitive dynamics, you know, throughout the NAFTA area and that that would shake up an economy like Mexico's a lot more than it has done in some ways. I mean, how do you -- how far do you -- has it turned out like you thought it would in terms of driving reform?HILLS: Oh, I believe that the NAFTA, which eliminated tariffs on industrial goods, eliminated all restrictions on agriculture between Mexico and the United States, has not been done in any major agreement before or since; has had a investment chapter to protect investment, protection of intellectual property, has provided certainty and there's no question Mexico's economy is 50 percent higher today than it was on the day the agreement went into force, notwithstanding a year later it had the peso prices. And so too the United States has benefited. We have become much more integrated economically --BISHOP: So what needs to happen to take it to the next level of integration, do you think?HILLS: Well, there are some issues that need to be addressed. Number one, we could have greater tariff harmonization where we have small differences between Mexico and the United States, which create what the Canadians call the tyranny of small differences, so that we have to constantly fill out immigration papers. We have the High commission on Regulatory reform between Mexico and the United States. It wish it had met more frequently. It has come up with coordinated requirements; for example in telecommunications, so if you're tested in one country you don't have to repeat the process and the cost in another country. We've done so in a handful of electronic issues; we ought to speed up that process. That's another area where the business could push their respective governments to move more rapidly. I think we have been a bit slow on that.And then, you know, the polls with respect to NAFTA, North American integration, Mexico in general, have not been positive in the United States. And that is really shocking when you think that Mexico is the United States' second largest export market. We export more goods to Mexico than to all the rest of Latin America. Indeed, we export more goods to Mexico than we export to Brazil, India, China and Russia combined. And this is a very valuable market for an administration that has said they want to double exports in five years, create 2 million jobs. And where do you look to do it? I say look to your southern border. And how would you go about that? We could talk about how to integrate our two economies much more closely and make them much more efficient.Our small- and medium-sized businesses, roughly 11 percent of their exports go to Mexico. They can't afford the red tape that has developed in connection with exporting that just decreases their efficiency and, hence, their job creation.So there are a whole list of things that we could do, and we should surely include on that list educating Americans about the value of the economic integration between our two economies. I certainly would have Mexico join the trans-Pacific partnerships. Absolutely. That is not even a close call.BISHOP: I was actually in Puerto Vallarta the other week for the World Economic Forum regional event, and it was very interesting how many Americans didn't turn up because they took the State Department's advice that it was a dangerous place to go. Well, I've never felt safer in my life, frankly, given the amount of security there was there. (Chuckles.) But besides that, though, I mean, while I was there the Walmart story broke and it was an interesting discussion that we had in terms of how many major American companies have their biggest non-American business actually in Mexico, how they don't tend to talk about that very publicly, they talk about other BRIC economies as their great success stories. And it led us into a discussion about, you now, to what extent was Walmart, Walmex's experience of corruption, if there's corruption, you know, typical? Is that a reason that people don't get very excited about their businesses in Mexico? And what ultimately will be the consequences of, I guess, of America quite vigorously pursuing maybe a foreign corrupt Practices Act move against Walmart whilst maybe the Mexican government doesn't seem to be taking any interest in the case whatsoever, and will that affect America's -- American businesses'' willingness to go further in Mexico? And let's start with you, Claudio, on that --GONZALEZ: Well, obviously, that is not a good story. And you don't want that to happen to your company and you don't want that to happen to your countries. And so that's not a good story.But I can assure you that there are many companies in Mexico, large companies, very large companies like my company, that do not have to go through the Walmart experience. And we've been operating in Mexico for decades and have never faced anything of that nature. And so it can be done in Mexico. I don't want to judge Walmart or The New York Times story. That time will give us more to judge going forward, but -- in Walmart there's a very, very valued customer of ours. And they've grown immensely and they've done many, many good things in the country, including help bring down inflation and bring modern merchandizing methods to a great part of the country and make it much more efficient logistically, et cetera.So but still not a good story, but I can assure you that there are many companies that don't -- haven't faced the Walmart experience and have done business very successfully in Mexico. And I know of many companies that have done so. So it's something that we've got to work on. I was very interested to see this weekend in the Wall Street Journal here at home in Jenkins one of their strongest commentators, well, start throwing stones at Walmart in Mexico, but look at the masons union here in New York City and the fact that they get paid off every day that someone builds something in this city. And Jenkins was very direct in his substantiation of his claim.So, I mean, corruption is a human-nature situation. Yes, it occurs more in some areas than in others. We've got to drop it in Mexico, there's no question that institutional capability is a big thing that we've got to achieve in Mexico. Violence, drugs, gangs exist in the U.S., exist in New York City, exist in Boston, exist in Los Angeles, Chicago, in Europe, in Japan, everywhere. But there is a method of controlling, of managing, and that's institutional capability, and we've got to achieve it in Mexico. We can't waste the crisis that we're going through right now in achieving it, but it's going to take time.BISHOP: So just briefly, I mean, what -- I mean, have you as a foreign -- as an American business in Mexico, what's been your response to the Walmart case? Have you had to do -- have you changed any of your procedures or processes or anything else?GONZALEZ: No. No. not at all. And we've been very integrity- and culturally oriented from day one and we continue to be so. And we think we contribute to that culture of integrity in the country by being one of those companies that sticks to it.BISHOP: Right. Gerardo, I mean, what do you think we should read into or learn from what's happened in Walmart in Mexico?ESQUIVEL: Well, I think that the worst message that we can draw from this very bad experience -- and I agree with that -- with Claudio -- is that the only way to expand -- prepare, but to expand their business in Mexico is by corruption. I think that's the wrong method and I think that in that aspect I think that the Mexican government didn't react properly to the -- to the news in this aspect. We need for to minimize the situation --BISHOP: You think it didn't react properly?ESQUIVEL: It didn't react to -- actually -- they actually responded like four or five days after that day it became public by the New York Time. And I think sort of minimize the situation, saying that it was just a municipal and a state problem, not a federal problem. And I think that if you see carefully what the federal government does with regard to Walmart has a lot of things to do, so it has to make clear that what the level of the corruption was and what the role of some of these -- (inaudible) -- was and to -- I think should have announced immediately that it has launched an investigation, something that it didn't do, as I said, like five or -- four or five days after that. But yeah, I agree with Claudio in saying that that's not the way in which probably most private (firms ?) in Mexico expand. I think that the -- that's a very bad news for the Mexican situation, but it sort of confirms the prejudices that many people have about Mexico as being a place for corruption. Yes, there was corruption; of course, I think, as Claudio said, it's very human-nature problem. But I don't -- I think that in this case the way that at least what we so far know about the situation has more to do with practices by a firm in Mexico for -- probably for some reason they believe that that was the way to expand. I don't think that's necessarily the case, and that's of course not the case for many firms in Mexico, neither local nor foreign firms. So I think that we shouldn't get the wrong message from this -- from this situation. But on the other hand, I'd really -- as I said, I regret the reaction from the Mexican government. I think that the reaction of the Mexican government should be try to clarify the situation, to launch an investigation and to see who is responsible for this. I mean, on the government side. And I think that there are many dimensions in which the Mexican government could have reacted that have to do with the articles commission as well, because Walmart actually displaced very big firms in Mexico in many Mexican markets so -- that have to do with that dimension, have to do with the financial, the national commission and the financial commission in Mexico, because Walmart also has a bank in Mexico since a few years ago. So a -- and so it should have launched a full investigation, I think, just to clarify what role a federal official in this situation was. And that I think would be a very important message for those who want to go and make difference in Mexico that there is a way to do it properly business in Mexico, and that this is an isolated case, an outlier and not the typical way in which this business proceeds in Mexico.BISHOP: Carla, do you share that view, or do you think this might have chilling effect on corporate America's willingness to invest in Mexico?HILLS: I think there are three lessons to be taken from the case, and we really don't know what the case is, so I'm reluctant to make any conclusions. But wherever there is an allegation of fraud, whether it's in Mexico or in the United States -- we had the Enron case; we've had our own share of challenges -- we should learn from them.And if there is corruption in Mexico connected with this case, I hope that gives a push toward institution building and strengthen rule of law and the judiciary in Mexico. And if that requires the United States to use its powers under the Foreign Corrupt Practices Act, then that's what the act stands for, and we keep the system honest. But, you know, let's not take one case and make that the whole tapestry. The fact is the World Bank found Mexico to be the best place for investment in Latin America. So there will be these ups and downs. There'll be downs in Mexico and there'll be down in the United States. And we should take the lesson to correct them so they become less frequent, but not to just gossip about them. And we don't know what the outcome of this particular case will be.BISHOP: Great. Well, let's turn to questions from members and guests. The gentleman in the middle there.QUESTIONER: Hi. I'm Walter Milano from BCP. For Carla Hills, just to push you a little bit on the topic, you said that -- and rightfully so -- that Mexico is the destination, the biggest destination for U.S. exports, or -- it's the second-largest you said, or the largest?HILLS: it's the second-largest destination.QUESTIONER: But a lot of those exports aren't really final exports. In fact, they're destined for the maquila Sector, which are then re-exported back into the United States. And really what U.S. firms do is they take advantage of the differentials that we have in environmental and labor regulations with Mexico and then use it to do -- really provide a low value-added type of processing and then re-export it back to the United States.So do you think that Mexico would be better off by then, you know, focusing much more investment to health and to education and to environmental issues and then be able to move much more faster up the development curve, therefore they don't have so many social problems at home?Thank you.HILLS: Actually, I think Mexico has moved on what I call social issues and has taken a page from Latin America's book to provide funds for families that are very poor, to pay them money so that they keep their children in school. And there are a range of social programs. But there is a premise in your question that I would either correct or take issue with, and that is the suggestion that we are injured by reason of the fact that we buy a lot of goods from Mexico and that they are part of the final assembly of a final product. The fact is that we don't have a trade partner that benefits the United States as much as Mexico. It's our second-largest destination, $197 billion worth of exports last year. But importantly, on imports that come from Mexico to the United States, they have 37 cents per dollar of U.S. value added. Now, ask yourself; what do other countries have? China is about 4 cents; Japan, which is a large trade partner of ours, is 2 cents. And what does Mexico do with the dollars it earns from U.S. trade? Well, the statistics show that 50 cents of every dollar that they earn from trade with the United States is spent here in the United States on buying more goods. So it's what I call a virtuous circle. And to me, I would like to enhance that.Yes, there are some barnacles on it. I want Mexico to enhance its rule of law. In fact, I'm a great advocate for having -- actually, I haven't talked to Claudio about this -- but having re-elections at the mayor, governor and presidential level, because that lets each of the elected officials talk over the heads of special interests and explain what is at issue. But I'm not a Mexican citizen.But I can correct your premise on the trade and what the benefits are, because those are the statistics.BISHOP: OK. And we have a gentleman in the middle with glasses.QUESTIONER: Hi. Andy Husar, MorganStanley. I'm just wondering what the panel thinks are the main drivers for growth for Mexico in the future and whether that future ideally requires diversification, further diversification beyond the U.S. as an economic partner.BISHOP: Claudio, do you want to start? GONZALEZ: Oh, absolutely. You're absolutely right; it does require diversification. The biggest driver is investment, investment, investment. And start the -- I mean, speed up the virtuous circle of creating more jobs. And this is -- this is the absolute key. Carla's right. We're spending a lot on social issues, and we must, but the key thing is to create more jobs. And that's why growth at a 5 (percent) to 6 percent level, which the country is perfectly capable of doing if it gets rid of some of these myths and taboos and some of these obstacles that we've -- that we've got. If you can sustain that for 10, 15 years, you change the book totally on so many -- so many issues and -- that are hitting us right now. So diversification is key. However, we run into some of the realities on diversification because we became a very efficient exporter of automobiles to Brazil. So what does Brazil do earlier this year? Closes its border and goes back to its protectionist book, which it practices in a very strong manner. And so they cut our exports back. Argentina is in the process of doing something similarly. Fortunately, we're starting to export a lot of automobiles to Europe and we also are inching into the Orient in this category. But I see a lot more of this happening, and every day we've got more efficient exporters and even though the previous question inferred the fact that we're a maquiladora, yes, we do maquiladora, but that's been a phase and it's phasing out very, very quickly and a lot more value added is coming in. We're generating close to 100,000 engineers a year. That's one of the highest rates of engineering graduates in the world, and we're finding jobs for them in many of our industries. And so this is a -- this is an evolving situation that's going in the right direction, and if we get the right kind of messages sent out by the new government, starting on the first of December, whether it's a he or a she, the key thing is that those messages are the right ones to get growth going at a much higher rate and off of the mediocre path. Someone might laugh at mediocrity being called 3.5 percent growth in Mexico; it is mediocre for Mexico.BISHOP: Well, I mean, it's quite interesting to me. I mean, you look at the economy and two things leap out to me. I mean, one is there's the big companies in Mexico growing their profits at a significantly faster rate than, say, in Brazil, and yet in Brazil GDP is growing faster than the profits of the big companies, whereas in Mexico the profits of the big companies are growing faster than GDP.The other is there seems to be really very little availability of finance, credit to small and medium enterprises in Mexico. And I wonder to what extent any diversification has to address those two -- strategy has to address those two problems. And I think Gerardo, what do you -- what do you think? ESQUIVEL: Well, I agree with that. I agree with what you've said and I also agree with the fact that what we need, the main driver of growth in Mexican economy will be investment. Private investment, public investment, and investing in human capital.But investing from the private sector requires what you were must mentioning; I mean, to have access to the private -- to credit from the banking sector. The banking, the credit to the private sector in Mexico is one of the lowest in the world. I mean, the only country that has a lower share of credit going to the private sector, the lower fraction of credit as related to the GDP going to the private sector is Mexico, Argentina, Venezuela and African countries. But Mexico is in that level of the development of the financial sector. So in order to promote private investment, we also need to make reform in the financial sector. So just to grant access from these smaller private and medium-sized firms to get access to credit, because that's what explains actually this difference with Brazil. Mexico has a 20 percent banking rate to the private sector as a fraction of GDP, but in Brazil has like 50 percent and other countries have -- like Chile has 80 percent of banking trade to the private sector as a percent of GDP. So that's from the private sector, private investment.We also need to invest -- (inaudible) -- human capital. Only one in four of kids of college age go actually to college. So that's a -- that's a really small share, compared to almost any country with the income level that Mexico has. So that's why I say we need also to invest in -- granting access to the young people in Mexico that -- who are actually not -- don't have neither jobs in many cases nor the opportunities to get an education.So we need to invest in -- and in the end the driver of growth in Mexico will be this investment -- private public and -- (inaudible) -- capital, I think.BISHOP: We have another question in the middle there.QUESTIONER: Hi. Blake Heider (sp) from Citi Banamex. This question is to Carla but also Claudio and Gerardo. How do you sell the benefits of trade in a presidential election? (Laughter.)BISHOP: Don't mention it, I guess. HILLS: How do you sell the concept of trade?QUESTIONER: (Off mic.)HILLS: Well, the concept. QUESTIONER: (Off mic) -- in a presidential -- in the rhetoric of an election. How do you sell --BISHOP: You can throw immigration in as well. How do you sell the benefits of immigration in a -- (laughter.)HILLS: Some administrations have been quite clear that they'd like to see free trade from the tip of Alaska down to the tip of Argentina. You may have heard that phrase before. Others have been more reluctant because their hardcore constituency is less enthusiastic. That means, who's going to fill the gap if there's no conversation about trade? And for the first two years of the current administration, trade was really a bad five-letter word. In the 2010, January, the president announced he wanted to double exports, create 2 million jobs and that was the export initiative. And since then, they have approved the Korean, Colombian and Panama agreement and launched or carried out, tried to negotiate, the trans-Pacific partnerships. But this may be the first administration in your lifetime where this trade representative has not concluded a single trade agreement. First time.So if the administration is not talking about the benefits of trade -- and we could have a lecture here today about how enormous they are -- we talk about investment, you have to open up the market and have free flow of goods and services before you invest. Well, then, employers ought to be doing it. And I'm talking about large employers like Claudio's company, but small employers. You probably have a newsletter that goes out to employees. You probably even have an inside kind of TV in the elevator that has headline news. Small- and medium-sized businesses have lunch together, they have -- all of them have W2s and paychecks that go out per month. There could be a notice in there saying, you know, 37 percent of our -- of our revenues this month came from international activities. Thank goodness we have trade.And I'll tell you, it makes a difference, because when I was trying to help get approval of the North American Free Trade Agreement, a company that I talked to like this put out 12,000 postcards to their employees and said, "If you want to write to Congress about the NAFTA, you have a free postcard. Let me tell you what the percentage of our business would be to Canada and Mexico." All those postcards were used. NAFTA was passed.BISHOP: And I think it's very interesting. I mean, if Mitt Romney was to come to you and say, well, Carla, you know, I've got -- we think back to 1992. You had the presidential candidate -- the vice president was actually making the case for trade. We have an administration that on the face of it spent the last four years ducking the issue. You know, should I make this one of my campaign themes,? Or how should I bring it up in the campaign, given that we know the benefits of trade are so fantastic? What would you say -- what would you say to him? Do you think that would be wise political strategy or do you think it would be a dangerous one for --HILLS: I think it would be wise to sell it. And I think that there will be the fringe on the left who will probably oppose, but I think that, you know --BISHOP: I mean, do you think it would actually be a -- I mean, is that a vulnerability for President Obama?HILLS: You have to explain it. You'd have to explain that. With exports come jobs, with jobs come the establishment of small- and medium-sized businesses. Even this administration has picked up on its national export initiative, and so it's done a U-turn in terms of trade. It now wants to have trade opening.Indeed, yesterday they talked about -- Ron Kirk, our current U.S. trade representative, talked about having a free trade agreement with the 10 ASEAN nations. Surprise. Well, they've learned that to get economic growth you need to open markets, and I would say not only markets for goods, services, investment, but also people. You also need to fix your immigration system. You do those things and our economy would take a great leap forward.GONZALEZ (?): I agree.BISHOP: OK, there's a lady in a red top -- (audio break.)QUESTIONER: Thanks. I'm Alex -- (inaudible) -- with the New America Foundation. In 2006 I saw Denise Dresser give a talk before the election, and she said that when people asked her what does Mexico need, she said very bluntly, we have to take on Carlos Slim, and if Calderon hasn't done that in six years, he'll be a failure. She was very blunt. She's a blunt person; this is what she said. HILLS: Who is she?QUESTIONER: Oh, Denise Dresser is an academic in --HILLS: I didn't hear the name that you mentioned.QUESTIONER: OK. So Denise Dresser at -- yeah.So what possibility do you think that this might happen after this present election?GONZALEZ: Well, Denise Dresser loves to have one-liners, and that's one of her favorite one-liners. Carlos Slim, no? And I wish we had a hundred Carlos Slims investing in Mexico. But getting to your point, I think that the regulatory framework in Mexico has changed hugely, and even though Calderon has not taken a symbolic action as such, you're going to see America Movil's overall results reflecting very clearly this regulatory environment that has changed.Maybe you can argue that it hasn't changed fast enough or strong enough, but the price of telecommunications in Mexico is coming down, and definitely coming down. Now, we've got a lot more work to do, but, you know, symbolic actions are symbolic actions. The key thing is that we're headed in the right direction, and I strongly believe the regulatory -- we are -- we've got the new competition law; we've got the new class action law; we've got the new APP legislation that has been passed. These are -- these are messages that are going to pay off, going forward and, you know, Denise will still write an article saying we've got to take care of this person or that person, and it's not just one person. It's heading in the right direction to get the investment, investment, investment, jobs and jobs. And to you, Matthew, before we break off, because I see that clock inexorably moving, you stated Brazil is growing more than Mexico. It is not. In the year 2011 Mexico grew more than Brazil, and in the year 2012 Mexico is going to grow more than Brazil. BISHOP: Well, I think what I actually said was that the big company profits are growing faster in Mexico than the Mexican GDP, whereas in Brazil the GDP is growing faster than big company profits, which I think brings us back to the Slim question, which we had a very long piece on in The Economist quite recently, which maybe took a slightly different line to --GONZALEZ: Maybe Mexico's GDP is being underestimated. And for one believe it is. But at any rate, take a look at some of those firms' profit growth going forward. And -- enough said.BISHOP: OK. We've got a gentleman in the back there with the red tie.QUESTIONER: Thank you. David Short with FedEx. And I'd like to ask, beyond opening up the energy sector to private investment, what specific reforms should the next administration in Mexico undertake so that the country can maximize its economic potential?BISHOP: Good. Gerardo, do you want to --ESQUIVEL: Yeah. I can talk about that. Well, I think that the emphasis on reforms has been, you know, the wrong emphasis. I think what really needs to be done is to make a better diagnostic of the situation and to -- I think the main point -- (inaudible) -- like nothing's reformed, not in the labor reform, not in the fiscal reform, not even in energy reform, as I said.I think the main problem right now is, as I said, has to do with the implementation of some specific policies such as changing the incentives that financial sectors now have in terms of whether it should do what it does all over the world, which is basically taking resources from savers and lend it to investors, which is what the Mexican financial system doesn't do. They actually -- what they do is they consult with some savers and lend it to the government, which is the easiest way to go. And they do that at a very profitable rate, so that's why the Mexican banks are among the most profitable ones in the world. And so this is -- this is holding back growth, economic growth in Mexico, I think. So -- and this has nothing to do with reforms. So I think the emphasis is reforms, and I think Mexico right now has a reform fatigue, as many countries in Latin America. So emphasizing some reforms, that is -- as I say, is the wrong message. So instead of changing policies and changing the iagnostic in particular for some -- I think the -- I mentioned before public investment. Public investment right now is like 2 (percent) or 3 percent of GDP, excluding PEMEX, of course. GONZALEZ: Oh, it's higher than that now.ESQUIVEL: But just excluding PEMEX, it's at 3 (percent) or 4 percent probably now, which I think is a little bit --(Cross talk.)ESQUIVEL: -- but it's still way below from what we need. And in that sense, we have to invest a lot in building of infrastructure. Building infrastructure, which is key, as someone mentioned before, to promote the diversification of Mexican exports. So Mexican exports have right now concentrated on the U.S. market 80 percent of all -- (inaudible) -- go to U.S. market, and that's mostly because we sell basically by (land ?) We are very uncompetitive in terms of selling goods to other countries when -- if by maritime ways, for example. That's why the only two countries with which Mexico has a surplus are the United States and Guatemala. And this is --GONZALEZ: Oh, no, no. We had a surplus with Brazil last year.ESQUIVEL: Well, only last year. (Laughter.)GONZALEZ: And one with Argentina and with Peru and with Chile.ESQUIVEL: But in general -- in general, that's the only country we have as a trade surplus. (Cross talk.)BISHOP: (Inaudible) -- your brief after -- all this. (Laughter.) The clock, as you say, is inexorably moving on. I just wanted to finish, because I thought this question might have come up, but it hasn't done. And I know we had a long discussion of the war on drugs in the first session. But in Puerto Vallarta at the World Economic Forum we had the most interesting panel for me with a discussion of the war on drugs where the business, the representative on the panel said it was a, you know, a huge problem for the Mexican economy that there was a failure to admit how badly the war on drugs was going and how misguided it is as a policy.And I had a very similar conversation and interview with Raul Salinas, where he was adamant that whilst there was no change in policy here that it would be very hard for Mexico to break out of its economic difficulties, you know, or to achieve its economic potential. And I wondered to what extent -- I'll start with you, Claudio. I mean, do you agree with that? Is that a consensus view privately amongst business leaders in Mexico with --GONZALEZ: Well, there's a great paradox going on in Mexico. Yes, the war on drugs is a very nasty situation and one that we've got to work our way through by building up containment and then institutional capability and social inclusion -- jobs and educational opportunities. And each one of these areas is being worked on, but it takes time.Yet again, you have a number of examples sitting here in this room, including myself, where our companies are not being impacted by the war on drugs. We're growing, we're investing, we're not being threatened. We have very few obstacles. You see $1.5 billion of legal merchandise going north or coming south every single day out of the year through that war-torn border, according to the media. And so how do you figure this happening? And it's growing at a double-digit rate. In the first quarter it grew at 10 percent. So yes, if we didn't have the war on drugs maybe we could be growing much more at this particular moment, and we've got to get rid of that. There's no question. I was very heartened by Alejandro Hope's comments that maybe we'd peaked out and are coming down. Eric Olson was also hopeful in that direction.But the key point is that the economy is continuing to move forward and you have many companies -- you've got Bimbo here, who does baking products throughout the country, and I'm not going to speak for Daniel -- but I'm going to quote him in the sense that he's got 50,000 little truck drivers out there visiting small shops throughout the country. And I'm sure he's got some incidents, but nothing that is stopping him from continuing to grow and to invest.BISHOP: Gerardo?ESQUIVEL: Yeah. I basically agree with what Claudio said. I don't think it's has really affected the general climate of investment in Mexico. I think that's a very localized impact probably along the border, probably in some small and medium firms. But it has not a real impact in terms of investment for -- (inaudible) -- for instance. So it's probably had some effect on tuition, for example, maybe. But other than that, I don't see any real huge impact of the situation in Mexico in terms of investment on employment generation and things like that.BISHOP: So when Raul says, you know, speaks out in that way, he's not particularly --GONZALEZ: Was it Raul or was it Carlos?BISHOP: Raul, I think. (Cross talk.)BISHOP: Oh, maybe sorryy, Ricardo.GONZALEZ: I have a hard time -- I have a hard time believing it was Raul -- (inaudible).ESQUIVEL: Ricardo. I'm sorry. (Off mic.)BISHOP: I was right about the Brazilian GDP, but I've blown -- (laughter). When Ricardo Salinas speaks out, I mean, what's -- is not representing the business community as a whole, or --GONZALEZ: What's that?BISHOP: That view is not widely shared among the business leadership?GONZALEZ: No. No, it isn't, and -- but again, we have to make progress on the crime front. We have to increase our institutional capability. And one of the things that I worry about is the fact that we're going to waste this crisis if Alejandro is right and things are starting to trend down. I mean, we've got to use this crisis to lift our institutional capability in the country to get more rule of law into our whole judicial process. And if we can do that, Mexico is going to be a much better country for it and one of the real growth stars of this century.BISHOP: Carla, can you beat that for an optimistic ending to this --HILLS: Oh, I agree with Claudio. I think that the institution building is extremely important, and particularly in rule of law. You can't have immunity to the extent that only 2 percent of cases brought to trial come to conviction, particularly when you know the problem that exists. And clearly, these gentlemen from Mexico know the scene better than we north of the border, but no one would say that the drug problem is anything other than a cancer that needs to be cured. It -- investment goes on, life goes on, tourism goes on. I've been to Mexico several times in the past year.GONZALEZ: That's great.HILLS: But it would be far better for all of us were we to eradicate this problem. And I happen to believe that working together we can do a much better job, that our economies are tightly integrated, that if we would work collaboratively using the strengths on one side and the strengths on the other, I think we have a greater chance of eradicating this cancer.BISHOP: Great. Well, I think it's been a very stimulating discussion. I think we covered a lot of ground. I hope Claudio's optimism about change is -- and regulator reform and so forth is well grounded. And we'll look forward to the new president implementing that agenda.I will retire to brush up on my Salinases -- (laughter) -- but I'd like to thank the panel. And we're having a 15-minute break before resuming -- (applause.) ---------------------------------- (C) COPYRIGHT 2012, FEDERAL NEWS SERVICE, INC., 1120 G STREET NW; SUITE 990; WASHINGTON, DC - 20005, USA. ALL RIGHTS RESERVED. ANY REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION IS EXPRESSLY PROHIBITED. UNAUTHORIZED REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION CONSTITUTES A MISAPPROPRIATION UNDER APPLICABLE UNFAIR COMPETITION LAW, AND FEDERAL NEWS SERVICE, INC. RESERVES THE RIGHT TO PURSUE ALL REMEDIES AVAILABLE TO IT IN RESPECT TO SUCH MISAPPROPRIATION. FEDERAL NEWS SERVICE, INC. IS A PRIVATE FIRM AND IS NOT AFFILIATED WITH THE FEDERAL GOVERNMENT. NO COPYRIGHT IS CLAIMED AS TO ANY PART OF THE ORIGINAL WORK PREPARED BY A UNITED STATES GOVERNMENT OFFICER OR EMPLOYEE AS PART OF THAT PERSON'S OFFICIAL DUTIES. FOR INFORMATION ON SUBSCRIBING TO FNS, PLEASE CALL 202-347-1400 OR EMAIL [email protected]. THIS IS A RUSH TRANSCRIPT.------------------------- MATTHEW BISHOP: I'm Matthew Bishop. I am the American business editor for The Economist magazine. And great to be here this morning for this second session of the summit on U.S.- Mexico relations, where we're going to focus on economic questions, U.S.-Mexican economic ties.We've a terrific panel. On the far end we have Claudio Gonzalez, who's chairman of the board of Kimberly-Clark de Mexico; then Gerardo Esquivel, professor of economics at El Colegio de Mexico. And then, needing no introduction at all, immediately to my left is Carla Hills. And this is -- as we've said earlier, this is an on-the-record meeting. It's being live-streamed to Washington. Please do completely turn off -- apparently you're not allowed to just put it on vibrate -- your cell phones, BlackBerrys and all wireless devices. And I'm going to talk for about 40 minutes, half an hour, with the panel and then we'll throw it open to questions and finish at 11:45.The starting point, I'm going to start with an academic perspective with Gerardo. You know, we have these two presidential elections coming up this year. What is at stake in terms of the Mexican economy, in terms of what choices the Mexican public make at this election in July? GERARDO ESQUIVEL: Well, first of all, we have to understand that Mexico right now is going -- it has stronger ties with the U.S. economy than ever. We have -- NAFTA. We have strengthened our ties with the U.S. economy. And wherever the U.S. economy goes, Mexico has been going the past few years. So whether that's good or bad depends on your perspective, and it also depends on where the U.S. economy goes. So in terms of economics in the political situation, I think what we have at stake is it's not necessarily a -- the economic model or not necessarily the economic perspective on the Mexican economy. I think what is at stake is a -- basically whether we should be able to maintain, to improve the relations with the U.S. economy, and whether the U.S. -- the Mexican economy is able to sort of identify the challenges that have -- keep the Mexican economy from growing in the past few years. Mexican economy has been growing in the past 20, 30 years at relatively moderate low rates. And the question is whether we can do something about that, whether we can actually change some domestic policies that I think, in my opinion, are holding the Mexican economy from growing at rates that the Mexican economy should be growing to satisfy the needs of the half of the population who lives in poverty.So I think that's probably what is at stake in this Mexican election, whether we will be able to face these challenges, whether we will be able to identify what are the policy options that the Mexican economy -- or the Mexican authorities may have to modify and improve the economic perspective for the next -- for the future, for the near future; for the near future.BISHOP: And, I mean, to be a bit more specific, I mean, is there -- are there any particular indications you're getting from the candidates so far as to, you know, what their different priorities would be -- I mean, particularly Peña Nieto? ESQUIVEL: Well, I don't think we have quite the perspective from where the candidates are actually -- will actually -- planning to do if they win. The only thing I could say is that they're -- that the candidate from the PRI, from the PAN -- Enrique Pena Nieto and Josefina Vazquez Mota -- have clearly stated that they actually sort of will follow probably the same policies of the previous governments have implemented. The leftist candidate, who even though he is more critical than has been done in the past, in my reading he is not actually trying to change the main structure of the economic system, or the policies. I don't think he's as radical as some people think he is, although I think he has a different diagnostic of the situation.And I must say, by the way, which I mostly coincide, even though I don't necessarily agree with the policy that he's proposing, I think the diagnostic that the leftist candidate has is probably more precise in terms of what is holding the Mexican economy back from growing, while I feel the two candidates have probably, like, a more mainstream interpretation of what's going on in Mexico, and they sort of share the policies. And -- well, they have actually announced -- basically, it's like a continuation of the status quo in terms of economic policy, I think.BISHOP: I mean, on that last point, and I'll move on to Claudio next, but I just want to -- you mentioned AMLO. I mean, last time he came very close to winning. This time, again, all my Mexican friends say he has no chance of winning. Is that -- is that right from your perspective? ESQUIVEL: Well, yeah. He's way back in the polls so far; he's, like 20 (percent), 23 (percent), 25 percent of the intention of vote. So he has probably no chance to win there, or not really a real chance of winning if things continue as they have been in the past few months in terms of his political performance. So in that sense, I think if you see what the polls have been showing, is that Pena Nieto is probably the likeliest to win so far. So if nothing really important and heartbreaking occurs in the next days, then I would say I think that the situation in Mexico so far. BISHOP: I was just curious that given, you know, as you say, AMLO has moderated his policy positions in a number of ways and -- you know, on the economy, and he came so close last time, and there is this general sense of disappointment with Calderon. It's just interesting that people are so confident that the polls are accurate.But let's move to Claudio. I mean, what do you think is at stake economically in this presidential election? CLAUDIO GONZALEZ: Well, I think something very important is taking place. Mexico is a breakwater right now. We either continue to grow at a mediocre rate or we break out and grow at 5 (percent) to 6 percent a year on a sustained basis. And what we've got to do to achieve this is we've got to make a decision that we want to grow to the full potential that the country has, and we've got to get rid of myths and we've got to get rid of ideological constraints and obstacles that we've had for this many years.And I very strongly believe that Andres Manuel Lopez Obrador is not going to be the change agent. He is too deeply rooted in the past and particularly in the last century, and we're in the 21st century, not in the 20th century. And I think Enrique Peña Nieto understands this from the very first day that he announced for the candidacy after he left the governorship of the state of Mexico. He came out with a book that he did not write totally, but he endorsed totally, and one of the key areas that he's been talking about from day one is that there has to be change in the energy sector.He also talks about quite a few other changes, but the striking one was the change in the energy sector, because this has been a taboo to be discussed in Mexico for many, many decades. And he's stuck to this line and up to now there's been very little backlash, except from Lopez Obrador, who doesn't believe in this. Vazquez Mota also believes in this direction. And I think that if we articulate change in the energy sector, this is going to be a huge push forward to get to this 5 (percent) to 6 percent growth rate on a sustained basis, because it's going to be a big message. This is the -- this is the big untouchable. Carla will remember when we negotiated NAFTA back in the early '90s and she was the big driver in the U.S. to get NAFTA done; we couldn't have done it without her. And there were two things that were totally off the table. On the Mexican side it was energy; on the U.S. side it was immigration, and those were untouchables. And that was decided from day one, and that's what got everything else moving in the right direction. Well, now, energy is finally going to be opened up in Mexico. I really believe that this is going to happen, and if it happens then I think we're on our way to really breaking out from this mediocre growth area that we've been stuck in -- 3 percent, 3.5 percent. This year we'll probably do 4 percent again; not bad, compared to what's going on in many parts of the world. But the country has a lot more potential, and I think that both Peña Nieto and Vazquez Mota, who as of today represent close to 80 percent of the vote in the coming election, among the two of them, and when you add them up are very much in sync that the energy sector has got to be opened up, modernized, made more efficient and have private investment in the energy sector, like Petrobras in Brazil or Ecopetrol in Colombia. And I think this is a very, very big message and a very big change agent, and we're all for it. And Lopez Obrador is not on that page. Fortunately, he is not getting beyond 20 percent.BISHOP: So we'll come back and talk about the energy sector a bit more. But Carla, I mean, from your perspective, both the U.S. and the Mexican elections, you know, what -- to what extent is something significant going to come out of it for the Mexico-U.S. relations on the economy?CARLA HILLS: I have no perfect crystal ball on who's going to win on either side of the border, but I do think that when the candidates become president then their responsibility becomes at their desk. And I agree with Claudio; I think Mexico and, indeed, the United States, would be benefited by Mexico's opening its energy sector.I also agree that the United States has a broken system for immigration. Its visa system is absolutely broken. This hurts the United States. We do nobody a favor by keeping them out. We have a lot of bright youngsters who graduate from our top schools, at the top of their class. Can they stay? Could they work in the United States? No, they have to go home because they can't get the H1B visa.We have 12.5 percent of our start-up businesses are from people who are not born in this country. They provide enormous jobs; they're usually -- start out at small- and medium-sized businesses that are responsible for jobs. And they contribute tax revenues. Now, this doesn't make any sense for either side of the border. So I think that although politically it's kind of tenuous before an election, you would hope that those given the responsibility to address the issues would step up to the plate after the election. But something came up in the last program. We talked about needing to change institutions and how do we do that. No one wants to do it. Well, it takes the population to be educated to do it, whether it's to fix the United States' visa system, to open up the Mexican energy system, or to get us to address how we collaborate on border violence. And if every single employer were to educate his employee population as to what is at stake, what could be gained, you know, it would make a difference.BISHOP: Regarding President Obama and Mitt Romney, are either of those -- is there any reason, from what you've -- conversations you've had with either of them or what you know of them to think that there might be any significant change in American policy on immigration, for example, with Mexico?HILLS: Democracy comes from the people. And you have people in our Congress who have supported fixing our immigration system. I can't predict what President Obama will do, nor could I predict what Candidate Romney would do or whether someone else will enter the race. But if the American people recognize that actually our immigration from Mexico has gone to zero, that we are in sore need of getting some of the young people who came across the border and that -- how we could legalize the system -- I grew up in California, and we had a bursero program where workers would come in and go out. And it worked very, very well. It was taken away and that system that has replaced it has worked very, very badly. So surely if workers, employers, ranchers all worked together, you know, it does tend to change politicians' minds.BISHOP: Let's talk a bit about energy reform in Mexico. Back to you, Claudio. I mean, because this has been around, obviously, forever, the re-election. There are promises made and so forth. I'm interested first in why you feel so optimistic this time around that something will actually happen, and how's -- but secondly, and how far do you feel that needs to go to be judged a success? And are we talking about privatization of PEMEX? Are we talking about, you know, introducing a lot more competition in the utility sector in general? How far do you -- how far do you see it needing to go?GONZALEZ: That's a very good question. And I'm optimistic on this issue because the candidate that is most likely to win, according to polls up to now -- we still have two months to go and there's only one poll that counts, and that's on the first of July, which is the election day. But the indications are quite strong that there's a very high probability that he will win. And he's been very consistent on this issue from day one when he announced for his candidacy. And I think the world is changing Mexico and North Korea are the only two states that do not have an open energy sector to private investment, and that's a heck of a neighborhood to be in, North Korea. (Laughter.) Even Cuba is permitting participation by the private sector in their energy sector.So the world has changed. The world is changing. You've got the examples of Petrobras in Brazil, Ecopetrol in Colombia, doing very, very well with participation of the private sector in their energy sector. This does not mean that Mexico loses control of the oil resource. Just as Brazil has not lost it or Colombia has not lost it. And now this is accepted around the world too by the worldwide energy sector.So we're only coming into doing what we have to do, and it's the 21st century and we're now ready to move. And as I say, Enrique Peña Nieto is probably the only candidate that can really get it done, because if he wins, he probably will have enough muscle in Congress to be able to do the things that have to be done. I think it'll be a partial opening to the private sector, but it should include the ability to float an issue of PEMEX on the stock exchange in order to get the type of discipline, rigor, transparency required to make PEMEX a very efficient and effective oil company.Now, this is not going to happen overnight. There are a lot of things that have to be done, including tax reform, in the country in order to make up for possibly some of the revenues that will have to now come as taxes to the federal government, rather than the appropriation that takes place at this particular moment. But I think that there is a path to get there, and Peña Nieto has it quite clear in his mind as to what has to be done. And I think that it's going to -- it's going to happen and I think it's going to be a huge message to really get Mexico to get on the path to grow at its full potential and start getting rid of all of these myths and taboos and ideologies that have held us back for so many, many years.Growth is the imperative in Mexico, and growth will bring with it the creation of jobs and the creation of wealth that will permit us to invest in many of the needs that the country has. And it's an absolute tragedy that we have this great potential and are not using it, and I think we're on the verge now of achieving it.BISHOP: OK. Gerardo, do you share that optimism? ESQUIVEL: No, not at all. (Laughter.) Sorry about that. And no, for two reasons.GONZALEZ: That's why we were chosen to be on -- (laughter).ESQUIVEL: Yeah. No, for two reasons. One is because one thing is what the candidates say when he's a candidate and the other thing is what the candidate really can do when he is president. Just remember that President Calderon -- (inaudible) -- employment, and employment is probably the one of the worst areas in which he has perform3ed in the past few years and he has done very badly in other areas. So the reason is where -- the reason why I'm not that optimistic is because of the some -- political ties between the union, the union of PEMEX, the oil workers and the PRI. I think it will be very difficult, I think, for any president coming from the PRI to do anything against the union. And that's the sad thing why I think the -- he never did anything in that regard, precisely because -- (inaudible -- this calling. I mean, it's that the union leaders are -- have very, very strong ties with the party, are very powerful, and I think it will be very hard to negotiate with a candidate once he's elected, if that's the case. So for that reason I'm not that optimistic. I think if one reads carefully what President -- what Candidate Pena Nieto has proposed in this book that he wrote is that he will open up the PEMEX to the participation of the private sector, but note that doesn't necessarily mean participation of the private sector in terms of all these extraction activities or some of the traditional -- what you should understand of opening up this -- the energy sector to the private participation. It's just like he has mentioned about something that if people can buy shirts, for example, which is fine. I think that's good. I think that could help a little bit. But I think that's not necessarily what people think when people think about private sector participation in the energy sector, that's not what they necessarily think about. This is one reason why I'm not that optimistic.And the second reason why I'm not that optimistic is that even if he does that, I don't think the energy sector is that important in Mexico as to be able to change the pattern of -- (inaudible) -- in the Mexican economy. I don't think that's the reason why Mexico is holding back in the past few years.I think the energy sector is just a tiny sector which, yes, it really opens up in the case that might happen which, as I said I'm not that optimistic about that, will -- might have an impact, might attract some investment, private investment, foreign bank investment which will be very helpful for the economy, but I don't think that's the main problem of the Mexican economy.Because what we see in the Mexican economy is a general, across different sectors, stagnation. And I think that has to do with something different, other than the -- what's going on in the energy sector. So I'm not that optimistic in the possibility of really opening up the sector to the private sector. and second, even if that happens, I don't think that's going to really change what's going on in the Mexican economy. That might help the sector that might help the -- (inaudible) -- could get to participate in the sector, but I don't think that's enough as to change the pattern of -- (inaudible) -- in the Mexican economy because I think it's something deeper than that, and that's what I said that the diagnostic -- that I think -- (inaudible) -- is better in that regard. As I said, that doesn't necessarily mean that he's poised -- the most appropriate ones, but he has a different approach the other two candidates. The other two candidates think that some things like this, like opening up the energy sector -- completely change the pattern of -- (inaudible) -- in the economy. And I don' think that's the case.BISHOP: That's very interesting. I've just been reading the -- this new blockbuster, "Why Nations Fail," by Daron Acemoglu and his co-author. And the amount, the extent to which Mexico gets bashed for being a model of all the things that cause nations to fail in terms of economic centralization and lack of competitive dynamism and so forth is very, very striking and Carlos Slim (sp) the person now identified as maybe the face of that. And I guess with you avert a decision today from the regulators in Mexico as to whether they're going to pursue this billion-dollar fine against this mobile phone business. But I'm interested, you know -- there was this sign that maybe Calderon was going to get tougher on the oligarchs, if we can use that phrase -- probably won't be allowed back in to Mexico now for saying that. But, you know, to actually sort of open up that elite and put more dynamism into the economy. And it's really not happened, has it? And how could it happen? GONZALEZ: No, it hasn't happened, but it's going to happen. And it's going to happen because things, as I say, are moving quite quickly, and the press of getting things done in the country, just the --BISHOP: But do you think -- I mean, for example, I mean, this decision on fining Slim?? And his business. Do you see that as something that is a test case of whether this is --GONZALEZ: It's a symbolic thing. What really is very important, I think, is the fact that there was a -- the supreme court in Mexico is every day becoming a stronger force, and the judicial part of the equation is starting to assert itself from the top down. And several decisions have been taken recently which have not been as big in the press, like this -- fining, this $1 billion fine. But now the supreme court took a decision about six months ago where regulators now can regulate in Mexico. Previously, if a decision wanted to be taken by a regulator, the offended party, if you will, could have an amparo and get this totally stuck in the courts for years. Now the decision taken by the Supreme Court is that the regulator takes a decision and it becomes effective immediately and if the offended party doesn't agree with it, they have to go to court to try to change the decision. But the decision stands as of the moment that the regulator takes that decision.You start to see happening prices of all telecommunication services are coming down and are coming down quite substantially in the country, and you're going to see America Movil and their results that already reflected in the first quarter that they're having to charge a lot lower tariffs. And so this was a major legal decision taken, and regulators can now regulate, whereas they were totally under the control of these other situations that you referred to.So I think that quite a few things are going on that are pointing in the right direction and are going to get us to start moving in addition to this energy decision. Gerardo might be right that it isn't large enough with the size of the country today, even though it still represents around 10 percent of total GNP. But just the message that we are opening up and that we are welcoming private investment into the energy sector is going to be a huge driver.(Cross talk.)BISHOP: Gerardo, do you -- do you, -- just quickly, do you share that optimism on that area, or this even -- ESQUIVEL: Well --GONZALEZ: He obviously does not. (Laughter.)ESQUIVEL: No, well I woul say partially -- I would say partially. I would say partially. I mean, I think that the regulator has now more power than he used to have, but it's clear we need a long way to in that regard. I think -- and that today the judicial system reform, because so many of these big friends of Pieta (ph) have been caught by the -- or have been fined by this antitrust commission in Mexico. They can eventually get rid of that, the -- postponing or legal practices to postpone the implementation of the decision. They actually can challenge the situation -- the decision. And the antitrust commission doesn't have the strong teeth to make -- to actually implement those measures.So I think there has been some improvement, but I think the antitrust commission still needs another round of reforms to make it even stronger. And also that needs to -- we need to have also sort of specialized -- (inaudible) -- in competition issues and things like that so just to make -- to complement all the reforms that we have been implementing in the past -- in this area of competition, which is one of the most important ones.That's really important, because that goes -- that goes -- for the economy and I think doing something there, it's much more important, it is to me, than reforming the energy sector. GONZALEZ: I agree. I agree with --BISHOP: However, I think one of the -- one of the things -- one of the things that we would -- develop more as NAFTA took effect would be the -- you know, there would be this sort of spread of competitive dynamics, you know, throughout the NAFTA area and that that would shake up an economy like Mexico's a lot more than it has done in some ways. I mean, how do you -- how far do you -- has it turned out like you thought it would in terms of driving reform?HILLS: Oh, I believe that the NAFTA, which eliminated tariffs on industrial goods, eliminated all restrictions on agriculture between Mexico and the United States, has not been done in any major agreement before or since; has had a investment chapter to protect investment, protection of intellectual property, has provided certainty and there's no question Mexico's economy is 50 percent higher today than it was on the day the agreement went into force, notwithstanding a year later it had the peso prices. And so too the United States has benefited. We have become much more integrated economically --BISHOP: So what needs to happen to take it to the next level of integration, do you think?HILLS: Well, there are some issues that need to be addressed. Number one, we could have greater tariff harmonization where we have small differences between Mexico and the United States, which create what the Canadians call the tyranny of small differences, so that we have to constantly fill out immigration papers. We have the High commission on Regulatory reform between Mexico and the United States. It wish it had met more frequently. It has come up with coordinated requirements; for example in telecommunications, so if you're tested in one country you don't have to repeat the process and the cost in another country. We've done so in a handful of electronic issues; we ought to speed up that process. That's another area where the business could push their respective governments to move more rapidly. I think we have been a bit slow on that.And then, you know, the polls with respect to NAFTA, North American integration, Mexico in general, have not been positive in the United States. And that is really shocking when you think that Mexico is the United States' second largest export market. We export more goods to Mexico than to all the rest of Latin America. Indeed, we export more goods to Mexico than we export to Brazil, India, China and Russia combined. And this is a very valuable market for an administration that has said they want to double exports in five years, create 2 million jobs. And where do you look to do it? I say look to your southern border. And how would you go about that? We could talk about how to integrate our two economies much more closely and make them much more efficient.Our small- and medium-sized businesses, roughly 11 percent of their exports go to Mexico. They can't afford the red tape that has developed in connection with exporting that just decreases their efficiency and, hence, their job creation.So there are a whole list of things that we could do, and we should surely include on that list educating Americans about the value of the economic integration between our two economies. I certainly would have Mexico join the trans-Pacific partnerships. Absolutely. That is not even a close call.BISHOP: I was actually in Puerto Vallarta the other week for the World Economic Forum regional event, and it was very interesting how many Americans didn't turn up because they took the State Department's advice that it was a dangerous place to go. Well, I've never felt safer in my life, frankly, given the amount of security there was there. (Chuckles.) But besides that, though, I mean, while I was there the Walmart story broke and it was an interesting discussion that we had in terms of how many major American companies have their biggest non-American business actually in Mexico, how they don't tend to talk about that very publicly, they talk about other BRIC economies as their great success stories. And it led us into a discussion about, you now, to what extent was Walmart, Walmex's experience of corruption, if there's corruption, you know, typical? Is that a reason that people don't get very excited about their businesses in Mexico? And what ultimately will be the consequences of, I guess, of America quite vigorously pursuing maybe a foreign corrupt Practices Act move against Walmart whilst maybe the Mexican government doesn't seem to be taking any interest in the case whatsoever, and will that affect America's -- American businesses'' willingness to go further in Mexico? And let's start with you, Claudio, on that --GONZALEZ: Well, obviously, that is not a good story. And you don't want that to happen to your company and you don't want that to happen to your countries. And so that's not a good story.But I can assure you that there are many companies in Mexico, large companies, very large companies like my company, that do not have to go through the Walmart experience. And we've been operating in Mexico for decades and have never faced anything of that nature. And so it can be done in Mexico. I don't want to judge Walmart or The New York Times story. That time will give us more to judge going forward, but -- in Walmart there's a very, very valued customer of ours. And they've grown immensely and they've done many, many good things in the country, including help bring down inflation and bring modern merchandizing methods to a great part of the country and make it much more efficient logistically, et cetera.So but still not a good story, but I can assure you that there are many companies that don't -- haven't faced the Walmart experience and have done business very successfully in Mexico. And I know of many companies that have done so. So it's something that we've got to work on. I was very interested to see this weekend in the Wall Street Journal here at home in Jenkins one of their strongest commentators, well, start throwing stones at Walmart in Mexico, but look at the masons union here in New York City and the fact that they get paid off every day that someone builds something in this city. And Jenkins was very direct in his substantiation of his claim.So, I mean, corruption is a human-nature situation. Yes, it occurs more in some areas than in others. We've got to drop it in Mexico, there's no question that institutional capability is a big thing that we've got to achieve in Mexico. Violence, drugs, gangs exist in the U.S., exist in New York City, exist in Boston, exist in Los Angeles, Chicago, in Europe, in Japan, everywhere. But there is a method of controlling, of managing, and that's institutional capability, and we've got to achieve it in Mexico. We can't waste the crisis that we're going through right now in achieving it, but it's going to take time.BISHOP: So just briefly, I mean, what -- I mean, have you as a foreign -- as an American business in Mexico, what's been your response to the Walmart case? Have you had to do -- have you changed any of your procedures or processes or anything else?GONZALEZ: No. No. not at all. And we've been very integrity- and culturally oriented from day one and we continue to be so. And we think we contribute to that culture of integrity in the country by being one of those companies that sticks to it.BISHOP: Right. Gerardo, I mean, what do you think we should read into or learn from what's happened in Walmart in Mexico?ESQUIVEL: Well, I think that the worst message that we can draw from this very bad experience -- and I agree with that -- with Claudio -- is that the only way to expand -- prepare, but to expand their business in Mexico is by corruption. I think that's the wrong method and I think that in that aspect I think that the Mexican government didn't react properly to the -- to the news in this aspect. We need for to minimize the situation --BISHOP: You think it didn't react properly?ESQUIVEL: It didn't react to -- actually -- they actually responded like four or five days after that day it became public by the New York Time. And I think sort of minimize the situation, saying that it was just a municipal and a state problem, not a federal problem. And I think that if you see carefully what the federal government does with regard to Walmart has a lot of things to do, so it has to make clear that what the level of the corruption was and what the role of some of these -- (inaudible) -- was and to -- I think should have announced immediately that it has launched an investigation, something that it didn't do, as I said, like five or -- four or five days after that. But yeah, I agree with Claudio in saying that that's not the way in which probably most private (firms ?) in Mexico expand. I think that the -- that's a very bad news for the Mexican situation, but it sort of confirms the prejudices that many people have about Mexico as being a place for corruption. Yes, there was corruption; of course, I think, as Claudio said, it's very human-nature problem. But I don't -- I think that in this case the way that at least what we so far know about the situation has more to do with practices by a firm in Mexico for -- probably for some reason they believe that that was the way to expand. I don't think that's necessarily the case, and that's of course not the case for many firms in Mexico, neither local nor foreign firms. So I think that we shouldn't get the wrong message from this -- from this situation. But on the other hand, I'd really -- as I said, I regret the reaction from the Mexican government. I think that the reaction of the Mexican government should be try to clarify the situation, to launch an investigation and to see who is responsible for this. I mean, on the government side. And I think that there are many dimensions in which the Mexican government could have reacted that have to do with the articles commission as well, because Walmart actually displaced very big firms in Mexico in many Mexican markets so -- that have to do with that dimension, have to do with the financial, the national commission and the financial commission in Mexico, because Walmart also has a bank in Mexico since a few years ago. So a -- and so it should have launched a full investigation, I think, just to clarify what role a federal official in this situation was. And that I think would be a very important message for those who want to go and make difference in Mexico that there is a way to do it properly business in Mexico, and that this is an isolated case, an outlier and not the typical way in which this business proceeds in Mexico.BISHOP: Carla, do you share that view, or do you think this might have chilling effect on corporate America's willingness to invest in Mexico?HILLS: I think there are three lessons to be taken from the case, and we really don't know what the case is, so I'm reluctant to make any conclusions. But wherever there is an allegation of fraud, whether it's in Mexico or in the United States -- we had the Enron case; we've had our own share of challenges -- we should learn from them.And if there is corruption in Mexico connected with this case, I hope that gives a push toward institution building and strengthen rule of law and the judiciary in Mexico. And if that requires the United States to use its powers under the Foreign Corrupt Practices Act, then that's what the act stands for, and we keep the system honest. But, you know, let's not take one case and make that the whole tapestry. The fact is the World Bank found Mexico to be the best place for investment in Latin America. So there will be these ups and downs. There'll be downs in Mexico and there'll be down in the United States. And we should take the lesson to correct them so they become less frequent, but not to just gossip about them. And we don't know what the outcome of this particular case will be.BISHOP: Great. Well, let's turn to questions from members and guests. The gentleman in the middle there.QUESTIONER: Hi. I'm Walter Milano from BCP. For Carla Hills, just to push you a little bit on the topic, you said that -- and rightfully so -- that Mexico is the destination, the biggest destination for U.S. exports, or -- it's the second-largest you said, or the largest?HILLS: it's the second-largest destination.QUESTIONER: But a lot of those exports aren't really final exports. In fact, they're destined for the maquila Sector, which are then re-exported back into the United States. And really what U.S. firms do is they take advantage of the differentials that we have in environmental and labor regulations with Mexico and then use it to do -- really provide a low value-added type of processing and then re-export it back to the United States.So do you think that Mexico would be better off by then, you know, focusing much more investment to health and to education and to environmental issues and then be able to move much more faster up the development curve, therefore they don't have so many social problems at home?Thank you.HILLS: Actually, I think Mexico has moved on what I call social issues and has taken a page from Latin America's book to provide funds for families that are very poor, to pay them money so that they keep their children in school. And there are a range of social programs. But there is a premise in your question that I would either correct or take issue with, and that is the suggestion that we are injured by reason of the fact that we buy a lot of goods from Mexico and that they are part of the final assembly of a final product. The fact is that we don't have a trade partner that benefits the United States as much as Mexico. It's our second-largest destination, $197 billion worth of exports last year. But importantly, on imports that come from Mexico to the United States, they have 37 cents per dollar of U.S. value added. Now, ask yourself; what do other countries have? China is about 4 cents; Japan, which is a large trade partner of ours, is 2 cents. And what does Mexico do with the dollars it earns from U.S. trade? Well, the statistics show that 50 cents of every dollar that they earn from trade with the United States is spent here in the United States on buying more goods. So it's what I call a virtuous circle. And to me, I would like to enhance that.Yes, there are some barnacles on it. I want Mexico to enhance its rule of law. In fact, I'm a great advocate for having -- actually, I haven't talked to Claudio about this -- but having re-elections at the mayor, governor and presidential level, because that lets each of the elected officials talk over the heads of special interests and explain what is at issue. But I'm not a Mexican citizen.But I can correct your premise on the trade and what the benefits are, because those are the statistics.BISHOP: OK. And we have a gentleman in the middle with glasses.QUESTIONER: Hi. Andy Husar, MorganStanley. I'm just wondering what the panel thinks are the main drivers for growth for Mexico in the future and whether that future ideally requires diversification, further diversification beyond the U.S. as an economic partner.BISHOP: Claudio, do you want to start? GONZALEZ: Oh, absolutely. You're absolutely right; it does require diversification. The biggest driver is investment, investment, investment. And start the -- I mean, speed up the virtuous circle of creating more jobs. And this is -- this is the absolute key. Carla's right. We're spending a lot on social issues, and we must, but the key thing is to create more jobs. And that's why growth at a 5 (percent) to 6 percent level, which the country is perfectly capable of doing if it gets rid of some of these myths and taboos and some of these obstacles that we've -- that we've got. If you can sustain that for 10, 15 years, you change the book totally on so many -- so many issues and -- that are hitting us right now. So diversification is key. However, we run into some of the realities on diversification because we became a very efficient exporter of automobiles to Brazil. So what does Brazil do earlier this year? Closes its border and goes back to its protectionist book, which it practices in a very strong manner. And so they cut our exports back. Argentina is in the process of doing something similarly. Fortunately, we're starting to export a lot of automobiles to Europe and we also are inching into the Orient in this category. But I see a lot more of this happening, and every day we've got more efficient exporters and even though the previous question inferred the fact that we're a maquiladora, yes, we do maquiladora, but that's been a phase and it's phasing out very, very quickly and a lot more value added is coming in. We're generating close to 100,000 engineers a year. That's one of the highest rates of engineering graduates in the world, and we're finding jobs for them in many of our industries. And so this is a -- this is an evolving situation that's going in the right direction, and if we get the right kind of messages sent out by the new government, starting on the first of December, whether it's a he or a she, the key thing is that those messages are the right ones to get growth going at a much higher rate and off of the mediocre path. Someone might laugh at mediocrity being called 3.5 percent growth in Mexico; it is mediocre for Mexico.BISHOP: Well, I mean, it's quite interesting to me. I mean, you look at the economy and two things leap out to me. I mean, one is there's the big companies in Mexico growing their profits at a significantly faster rate than, say, in Brazil, and yet in Brazil GDP is growing faster than the profits of the big companies, whereas in Mexico the profits of the big companies are growing faster than GDP.The other is there seems to be really very little availability of finance, credit to small and medium enterprises in Mexico. And I wonder to what extent any diversification has to address those two -- strategy has to address those two problems. And I think Gerardo, what do you -- what do you think? ESQUIVEL: Well, I agree with that. I agree with what you've said and I also agree with the fact that what we need, the main driver of growth in Mexican economy will be investment. Private investment, public investment, and investing in human capital.But investing from the private sector requires what you were must mentioning; I mean, to have access to the private -- to credit from the banking sector. The banking, the credit to the private sector in Mexico is one of the lowest in the world. I mean, the only country that has a lower share of credit going to the private sector, the lower fraction of credit as related to the GDP going to the private sector is Mexico, Argentina, Venezuela and African countries. But Mexico is in that level of the development of the financial sector. So in order to promote private investment, we also need to make reform in the financial sector. So just to grant access from these smaller private and medium-sized firms to get access to credit, because that's what explains actually this difference with Brazil. Mexico has a 20 percent banking rate to the private sector as a fraction of GDP, but in Brazil has like 50 percent and other countries have -- like Chile has 80 percent of banking trade to the private sector as a percent of GDP. So that's from the private sector, private investment.We also need to invest -- (inaudible) -- human capital. Only one in four of kids of college age go actually to college. So that's a -- that's a really small share, compared to almost any country with the income level that Mexico has. So that's why I say we need also to invest in -- granting access to the young people in Mexico that -- who are actually not -- don't have neither jobs in many cases nor the opportunities to get an education.So we need to invest in -- and in the end the driver of growth in Mexico will be this investment -- private public and -- (inaudible) -- capital, I think.BISHOP: We have another question in the middle there.QUESTIONER: Hi. Blake Heider (sp) from Citi Banamex. This question is to Carla but also Claudio and Gerardo. How do you sell the benefits of trade in a presidential election? (Laughter.)BISHOP: Don't mention it, I guess. HILLS: How do you sell the concept of trade?QUESTIONER: (Off mic.)HILLS: Well, the concept. QUESTIONER: (Off mic) -- in a presidential -- in the rhetoric of an election. How do you sell --BISHOP: You can throw immigration in as well. How do you sell the benefits of immigration in a -- (laughter.)HILLS: Some administrations have been quite clear that they'd like to see free trade from the tip of Alaska down to the tip of Argentina. You may have heard that phrase before. Others have been more reluctant because their hardcore constituency is less enthusiastic. That means, who's going to fill the gap if there's no conversation about trade? And for the first two years of the current administration, trade was really a bad five-letter word. In the 2010, January, the president announced he wanted to double exports, create 2 million jobs and that was the export initiative. And since then, they have approved the Korean, Colombian and Panama agreement and launched or carried out, tried to negotiate, the trans-Pacific partnerships. But this may be the first administration in your lifetime where this trade representative has not concluded a single trade agreement. First time.So if the administration is not talking about the benefits of trade -- and we could have a lecture here today about how enormous they are -- we talk about investment, you have to open up the market and have free flow of goods and services before you invest. Well, then, employers ought to be doing it. And I'm talking about large employers like Claudio's company, but small employers. You probably have a newsletter that goes out to employees. You probably even have an inside kind of TV in the elevator that has headline news. Small- and medium-sized businesses have lunch together, they have -- all of them have W2s and paychecks that go out per month. There could be a notice in there saying, you know, 37 percent of our -- of our revenues this month came from international activities. Thank goodness we have trade.And I'll tell you, it makes a difference, because when I was trying to help get approval of the North American Free Trade Agreement, a company that I talked to like this put out 12,000 postcards to their employees and said, "If you want to write to Congress about the NAFTA, you have a free postcard. Let me tell you what the percentage of our business would be to Canada and Mexico." All those postcards were used. NAFTA was passed.BISHOP: And I think it's very interesting. I mean, if Mitt Romney was to come to you and say, well, Carla, you know, I've got -- we think back to 1992. You had the presidential candidate -- the vice president was actually making the case for trade. We have an administration that on the face of it spent the last four years ducking the issue. You know, should I make this one of my campaign themes,? Or how should I bring it up in the campaign, given that we know the benefits of trade are so fantastic? What would you say -- what would you say to him? Do you think that would be wise political strategy or do you think it would be a dangerous one for --HILLS: I think it would be wise to sell it. And I think that there will be the fringe on the left who will probably oppose, but I think that, you know --BISHOP: I mean, do you think it would actually be a -- I mean, is that a vulnerability for President Obama?HILLS: You have to explain it. You'd have to explain that. With exports come jobs, with jobs come the establishment of small- and medium-sized businesses. Even this administration has picked up on its national export initiative, and so it's done a U-turn in terms of trade. It now wants to have trade opening.Indeed, yesterday they talked about -- Ron Kirk, our current U.S. trade representative, talked about having a free trade agreement with the 10 ASEAN nations. Surprise. Well, they've learned that to get economic growth you need to open markets, and I would say not only markets for goods, services, investment, but also people. You also need to fix your immigration system. You do those things and our economy would take a great leap forward.GONZALEZ (?): I agree.BISHOP: OK, there's a lady in a red top -- (audio break.)QUESTIONER: Thanks. I'm Alex -- (inaudible) -- with the New America Foundation. In 2006 I saw Denise Dresser give a talk before the election, and she said that when people asked her what does Mexico need, she said very bluntly, we have to take on Carlos Slim, and if Calderon hasn't done that in six years, he'll be a failure. She was very blunt. She's a blunt person; this is what she said. HILLS: Who is she?QUESTIONER: Oh, Denise Dresser is an academic in --HILLS: I didn't hear the name that you mentioned.QUESTIONER: OK. So Denise Dresser at -- yeah.So what possibility do you think that this might happen after this present election?GONZALEZ: Well, Denise Dresser loves to have one-liners, and that's one of her favorite one-liners. Carlos Slim, no? And I wish we had a hundred Carlos Slims investing in Mexico. But getting to your point, I think that the regulatory framework in Mexico has changed hugely, and even though Calderon has not taken a symbolic action as such, you're going to see America Movil's overall results reflecting very clearly this regulatory environment that has changed.Maybe you can argue that it hasn't changed fast enough or strong enough, but the price of telecommunications in Mexico is coming down, and definitely coming down. Now, we've got a lot more work to do, but, you know, symbolic actions are symbolic actions. The key thing is that we're headed in the right direction, and I strongly believe the regulatory -- we are -- we've got the new competition law; we've got the new class action law; we've got the new APP legislation that has been passed. These are -- these are messages that are going to pay off, going forward and, you know, Denise will still write an article saying we've got to take care of this person or that person, and it's not just one person. It's heading in the right direction to get the investment, investment, investment, jobs and jobs. And to you, Matthew, before we break off, because I see that clock inexorably moving, you stated Brazil is growing more than Mexico. It is not. In the year 2011 Mexico grew more than Brazil, and in the year 2012 Mexico is going to grow more than Brazil. BISHOP: Well, I think what I actually said was that the big company profits are growing faster in Mexico than the Mexican GDP, whereas in Brazil the GDP is growing faster than big company profits, which I think brings us back to the Slim question, which we had a very long piece on in The Economist quite recently, which maybe took a slightly different line to --GONZALEZ: Maybe Mexico's GDP is being underestimated. And for one believe it is. But at any rate, take a look at some of those firms' profit growth going forward. And -- enough said.BISHOP: OK. We've got a gentleman in the back there with the red tie.QUESTIONER: Thank you. David Short with FedEx. And I'd like to ask, beyond opening up the energy sector to private investment, what specific reforms should the next administration in Mexico undertake so that the country can maximize its economic potential?BISHOP: Good. Gerardo, do you want to --ESQUIVEL: Yeah. I can talk about that. Well, I think that the emphasis on reforms has been, you know, the wrong emphasis. I think what really needs to be done is to make a better diagnostic of the situation and to -- I think the main point -- (inaudible) -- like nothing's reformed, not in the labor reform, not in the fiscal reform, not even in energy reform, as I said.I think the main problem right now is, as I said, has to do with the implementation of some specific policies such as changing the incentives that financial sectors now have in terms of whether it should do what it does all over the world, which is basically taking resources from savers and lend it to investors, which is what the Mexican financial system doesn't do. They actually -- what they do is they consult with some savers and lend it to the government, which is the easiest way to go. And they do that at a very profitable rate, so that's why the Mexican banks are among the most profitable ones in the world. And so this is -- this is holding back growth, economic growth in Mexico, I think. So -- and this has nothing to do with reforms. So I think the emphasis is reforms, and I think Mexico right now has a reform fatigue, as many countries in Latin America. So emphasizing some reforms, that is -- as I say, is the wrong message. So instead of changing policies and changing the iagnostic in particular for some -- I think the -- I mentioned before public investment. Public investment right now is like 2 (percent) or 3 percent of GDP, excluding PEMEX, of course. GONZALEZ: Oh, it's higher than that now.ESQUIVEL: But just excluding PEMEX, it's at 3 (percent) or 4 percent probably now, which I think is a little bit --(Cross talk.)ESQUIVEL: -- but it's still way below from what we need. And in that sense, we have to invest a lot in building of infrastructure. Building infrastructure, which is key, as someone mentioned before, to promote the diversification of Mexican exports. So Mexican exports have right now concentrated on the U.S. market 80 percent of all -- (inaudible) -- go to U.S. market, and that's mostly because we sell basically by (land ?) We are very uncompetitive in terms of selling goods to other countries when -- if by maritime ways, for example. That's why the only two countries with which Mexico has a surplus are the United States and Guatemala. And this is --GONZALEZ: Oh, no, no. We had a surplus with Brazil last year.ESQUIVEL: Well, only last year. (Laughter.)GONZALEZ: And one with Argentina and with Peru and with Chile.ESQUIVEL: But in general -- in general, that's the only country we have as a trade surplus. (Cross talk.)BISHOP: (Inaudible) -- your brief after -- all this. (Laughter.) The clock, as you say, is inexorably moving on. I just wanted to finish, because I thought this question might have come up, but it hasn't done. And I know we had a long discussion of the war on drugs in the first session. But in Puerto Vallarta at the World Economic Forum we had the most interesting panel for me with a discussion of the war on drugs where the business, the representative on the panel said it was a, you know, a huge problem for the Mexican economy that there was a failure to admit how badly the war on drugs was going and how misguided it is as a policy.And I had a very similar conversation and interview with Raul Salinas, where he was adamant that whilst there was no change in policy here that it would be very hard for Mexico to break out of its economic difficulties, you know, or to achieve its economic potential. And I wondered to what extent -- I'll start with you, Claudio. I mean, do you agree with that? Is that a consensus view privately amongst business leaders in Mexico with --GONZALEZ: Well, there's a great paradox going on in Mexico. Yes, the war on drugs is a very nasty situation and one that we've got to work our way through by building up containment and then institutional capability and social inclusion -- jobs and educational opportunities. And each one of these areas is being worked on, but it takes time.Yet again, you have a number of examples sitting here in this room, including myself, where our companies are not being impacted by the war on drugs. We're growing, we're investing, we're not being threatened. We have very few obstacles. You see $1.5 billion of legal merchandise going north or coming south every single day out of the year through that war-torn border, according to the media. And so how do you figure this happening? And it's growing at a double-digit rate. In the first quarter it grew at 10 percent. So yes, if we didn't have the war on drugs maybe we could be growing much more at this particular moment, and we've got to get rid of that. There's no question. I was very heartened by Alejandro Hope's comments that maybe we'd peaked out and are coming down. Eric Olson was also hopeful in that direction.But the key point is that the economy is continuing to move forward and you have many companies -- you've got Bimbo here, who does baking products throughout the country, and I'm not going to speak for Daniel -- but I'm going to quote him in the sense that he's got 50,000 little truck drivers out there visiting small shops throughout the country. And I'm sure he's got some incidents, but nothing that is stopping him from continuing to grow and to invest.BISHOP: Gerardo?ESQUIVEL: Yeah. I basically agree with what Claudio said. I don't think it's has really affected the general climate of investment in Mexico. I think that's a very localized impact probably along the border, probably in some small and medium firms. But it has not a real impact in terms of investment for -- (inaudible) -- for instance. So it's probably had some effect on tuition, for example, maybe. But other than that, I don't see any real huge impact of the situation in Mexico in terms of investment on employment generation and things like that.BISHOP: So when Raul says, you know, speaks out in that way, he's not particularly --GONZALEZ: Was it Raul or was it Carlos?BISHOP: Raul, I think. (Cross talk.)BISHOP: Oh, maybe sorryy, Ricardo.GONZALEZ: I have a hard time -- I have a hard time believing it was Raul -- (inaudible).ESQUIVEL: Ricardo. I'm sorry. (Off mic.)BISHOP: I was right about the Brazilian GDP, but I've blown -- (laughter). When Ricardo Salinas speaks out, I mean, what's -- is not representing the business community as a whole, or --GONZALEZ: What's that?BISHOP: That view is not widely shared among the business leadership?GONZALEZ: No. No, it isn't, and -- but again, we have to make progress on the crime front. We have to increase our institutional capability. And one of the things that I worry about is the fact that we're going to waste this crisis if Alejandro is right and things are starting to trend down. I mean, we've got to use this crisis to lift our institutional capability in the country to get more rule of law into our whole judicial process. And if we can do that, Mexico is going to be a much better country for it and one of the real growth stars of this century.BISHOP: Carla, can you beat that for an optimistic ending to this --HILLS: Oh, I agree with Claudio. I think that the institution building is extremely important, and particularly in rule of law. You can't have immunity to the extent that only 2 percent of cases brought to trial come to conviction, particularly when you know the problem that exists. And clearly, these gentlemen from Mexico know the scene better than we north of the border, but no one would say that the drug problem is anything other than a cancer that needs to be cured. It -- investment goes on, life goes on, tourism goes on. I've been to Mexico several times in the past year.GONZALEZ: That's great.HILLS: But it would be far better for all of us were we to eradicate this problem. And I happen to believe that working together we can do a much better job, that our economies are tightly integrated, that if we would work collaboratively using the strengths on one side and the strengths on the other, I think we have a greater chance of eradicating this cancer.BISHOP: Great. Well, I think it's been a very stimulating discussion. I think we covered a lot of ground. I hope Claudio's optimism about change is -- and regulator reform and so forth is well grounded. And we'll look forward to the new president implementing that agenda.I will retire to brush up on my Salinases -- (laughter) -- but I'd like to thank the panel. And we're having a 15-minute break before resuming -- (applause.) ---------------------------------- (C) COPYRIGHT 2012, FEDERAL NEWS SERVICE, INC., 1120 G STREET NW; SUITE 990; WASHINGTON, DC - 20005, USA. ALL RIGHTS RESERVED. ANY REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION IS EXPRESSLY PROHIBITED. UNAUTHORIZED REPRODUCTION, REDISTRIBUTION OR RETRANSMISSION CONSTITUTES A MISAPPROPRIATION UNDER APPLICABLE UNFAIR COMPETITION LAW, AND FEDERAL NEWS SERVICE, INC. RESERVES THE RIGHT TO PURSUE ALL REMEDIES AVAILABLE TO IT IN RESPECT TO SUCH MISAPPROPRIATION. FEDERAL NEWS SERVICE, INC. IS A PRIVATE FIRM AND IS NOT AFFILIATED WITH THE FEDERAL GOVERNMENT. NO COPYRIGHT IS CLAIMED AS TO ANY PART OF THE ORIGINAL WORK PREPARED BY A UNITED STATES GOVERNMENT OFFICER OR EMPLOYEE AS PART OF THAT PERSON'S OFFICIAL DUTIES. FOR INFORMATION ON SUBSCRIBING TO FNS, PLEASE CALL 202-347-1400 OR EMAIL [email protected]. THIS IS A RUSH TRANSCRIPT.-------------------------

Experts discuss the current state of U.S.-Mexico trade relations and how to strengthen the bilateral economic relationship. This session was part of a CFR symposium, U.S.-Mexico Relations Beyond the 2012 Election, which was made possible by the generous support of the Mexican Business Council.

Session One: U.S.-Mexico Security CooperationThis panel will focus on the current security situation in Mexico, and will examine how the United States can best assist Mexico in combating shared security threats.Alejandro Hope, Project Director, 'Less Crime, Less Punishment' project, Instituto Mexicano para la Competividad (IMCO) and México EvalúaEric L. Olson, Senior Associate, Mexico Institute, Woodrow Wilson International Center for ScholarsShannon K. O'Neil, Douglas Dillon Fellow for Latin America Studies, Council on Foreign RelationsPresider: Ginger Thompson, Domestic Correspondent, New York Times8:30 to 9:00 AM Breakfast Reception9:00 to 10:15 AM Meeting Session Two: U.S.-Mexico Economic TiesThis panel will look at the current state of U.S.-Mexico trade, the health of both economies, and how to strengthen the bilateral economic relationship. Gerardo Esquivel, Professor of Economics, El Colegio de MexicoClaudio X. Gonzalez, Chairman of the Board, Kimberly-Clark de México, S.A.B. de C.V.Carla A. Hills, Chairman and Chief Executive Officer, Hills and Company International Consultants; Co-chair, Council on Foreign Relations; Former U.S. Trade Representative Presider: Matthew Bishop, American Business Editor, The Economist10:30 to 11:45 AM Meeting Session Three: The Evolution and Future of U.S.-Mexico Relations Jorge Castañeda, Former Secretary of Foreign Relations, United Mexican States; Global Distinguished Professor, Center for Latin American and Caribbean Studies, New York University; Author, Manana Forever?: Mexico and the MexicansRobert A. Pastor, Professor and Director of the Center for North American Studies, American University; Author, The North American Idea: A Vision of a Continental Future Presider: James F. Hoge Jr., Counselor, Council on Foreign Relations; Former Editor, Foreign Affairs12:00 to 1:30 PM Lunch and Meeting To RSVP, please indicate which sessions you would like to attend on the agenda and email [email protected] or call the Meetings Response Line at 212.434.9600.