Washington Launch of the CFR-Sponsored Independent Task Force Report "North America: Time for a New Focus"

Task Force Co-Chairs David H. Petraeus and Robert B. Zoellick and Task Force Project Director Shannon K. O'Neil join Jonathan Karl, chief White House correspondent at ABC News, to discuss economic growth potential in North America. The task force members describe more deeply integrating Mexico, Canada, and the United States in the areas of economy, energy, manufacturing, security, and human capital, to increase the competitiveness of the North American platform.

KARL: Welcome to today's launch on the Council on Foreign Relations independent task force report "North America: Time for a New Focus." We have the co-chairs here, Robert Zoellick, of course, somebody who—I think last time I interviewed you, we were both in Sudan, so thank you very much—Ms. Shannon O'Neil, the director and co-chair, David Petraeus—I think last time I interviewed you, we were in Iraq. So it's good to be in a slightly tamer environment here.

But I want to get—I want to get right to the question of why now, why this. I mean, reading the newspapers, you know, the—the attention, the focus of this administration clearly on foreign policy is the current crisis in the Middle East. The administration has also talked much and still clings to the idea of a pivot to Asia.

And effectively, what you are talking about in this task force report is a pivot to North America. So...

PETRAEUS: Yes, it's time for a new focus, as we say. And the reason is because when you come back to it, our number one and two trading partners are our two neighbors, not other countries or regions of the world.

We are enjoying the extraordinary opportunities as a result of the U.S. energy revolution, which very likely will be replicated on some scale in Mexico and already is producing a great deal of energy in Canada. I mean, the fact is that—a couple of months ago, I was in London for a conference, and I was asked the question, "after America, what?" And I think the expectation was I would respond the Chinese century, the Asian century, whatever. And I said, "Actually, North American decades."

And in fact, I teach a course on this at the City University of New York. I'm in the third semester of having done that. And actually, with each passing semester, I'm more convinced of the power of North America twenty years after Bob helped negotiate the North American Free Trade Agreement.

You see the level of integration of these economies, and you see the complementary strengths that each of these countries present in a region that really doesn't have the kinds of security issues that you find in most of the other parts of the world. And again, Mexico is not asking China to balance with them against us. And we're allied with Canada in the biggest alliance since World War II.

So the opportunities are enormous in a region that has shared values, democracy, generally free market economics, and these—this enormously integrated market, albeit we also say we're not looking for the EU of North America, either.

KARL: Yes, when you look at the point, the first point you make on energy, there's just a staggering fact that the United States has now surpassed Saudi Arabia as a producer of natural gas and...

PETRAEUS: Russia is natural gas.

(CROSSTALK)

ZOELLICK (?): ... liquid petroleum.

PETRAEUS: In oil liquids, we're the number one producer in the world. We'll probably surpass Saudi Arabia in crude oil production, that subcategory, in a couple of years, as well. The fact is that brent crude would not be trading what it is today—and by the way, fans, it's dropped another $2 today. It's really quite—it's been plummeting.

The reason it has gone—or stayed stable, actually, in recent years, despite a million barrels coming off the market because of sanctions on Iran, which is when I first started getting into this, being asked as the director of the CIA, what will the price of brent crude be after the next round...

KARL: With the assumption there would be a spike...

PETRAEUS: Yes, but what's happened is, in fact, because we have added a million barrels per day additional in each of the last three years, we have more than compensated for what came off in Iran, what came off from Libya because of the violence there, and some other disturbances elsewhere.

So you see an extraordinary development in the oil markets, in the energy markets writ large. And again, that is the foundation for the whole North American decades thesis.

ZOELLICK: Can I just--first--permit me to--we've got a number of the task force members here...

KARL: Yes.

ZOELLICK: ... so I wanted to thank them. And in addition to enjoying the work with David and Shannon, also the Canadians and Mexicans were really kind. We went to Ottawa and to Mexico City and we had some great meetings, which gave us some important perspective on this.

But I want to pick up exactly where you started out, talking about Sudan and wherever you had talked with David...

KARL: Iraq.

ZOELLICK: ... Iraq—because, in a sense, what distinguishes this report and the approach we took is that our experience has really been both global. We both worked with Canada and Mexico, but we've worked with lots of other regions in the world.

And rather than look at this as just a question of sort of regional policy, the heart of this idea is how to think about North America as a continental base to deal exactly with the questions you're dealing with, dealing with sort of future power and strength, whether it be energy, whether it be economy, whether it's security. And we think that what's been missing in U.S. policy is a recognition that rather than dealing with North America after you deal with all the crises—which never end—we have to start with North America in the process.

And the big difference here—and David alluded to this with the European Union—is European Union has a logic of shared sovereignty and trying to integrate and deal with issues of globalization. The history and culture of Canada, Mexico and the United States certainly heightens that each one is very sensitive to independence, sovereignty.

So here the challenge is, how do you deepen integration, build off what we did twenty years ago with NAFTA, to try to take advantage of integration, with developing and developed economies, but at the same time respect independence and sovereignty? And so I think that's the different angle we tried to take through each of these issues.

KARL: And Shannon, the report seems to suggest, if anything, we've taken a step backward on this. You know, NAFTA remains, much of it, unfulfilled, and you know, steps that were moved forward towards immigration in the last administration seem to have been—have been halted.

Where—where—give us the state of play.

O'NEIL: I don't know if we've taken a step backward, but we've definitely stagnated in the movement forward. So you saw that almost ten years after NAFTA, after 2001, you saw a huge explosion of trade, three, four times the amount of trade going. We saw a huge amount of investment we see in the region within the three countries. And after 2001, in part because of China coming into the WTO, in part because of 9/11 and changes, hardening of the border on both sides, we started to see a slowing down of trade, a slowing down of movement of people and goods and the like.

And so as we looked at this report, we thought, well, how can we—we know the benefits of this. We know that it makes the United States and the other countries much more economically competitive in the world. The industries that are integrated are very competitive. These are the other areas around the world, so you think about automotive, you think about aerospace, increasingly electronics, technology, computers and the like that are produced between the countries. Those we are able to compete and expand in terms of production, benefiting companies but workers on both sides of the border.

So how do we move that forward? And so in that, we thought about four big areas. One is the energy that we started to talk about. And all of the countries are changing in terms of energy today. There's more production here. There's more production in Canada. In Mexico, they've just reformed their system so there's potentially a lot more production to happen there.

How do we take advantage of that not just as individual countries but as the North American region, to provide stability, to provide supply, to provide resiliency, and integrate our networks. We also looked at economic competitiveness there. And so NAFTA did a lot of great things. One of the biggest things was lower tariffs.

But after lowering tariffs, you saw that there are other barriers that weren't part of NAFTA. There are regulatory differences, some important and some trivial. There's weaker or outdated infrastructure at the border that slow the flow of goods back and forth.

So how do we now, twenty years out, deal with those things that stop or slow the speed of trade, which is part of the reason that we're economically competitive?

And than we also look at security. We've seen a change in security, obviously, after 9/11, for lots of good reasons. But how do we start working with our partners not just bilaterally but together to improve—making sure everybody is safe, but also allow the economic benefits of trade back and forth.

And then the final area we looked at was what we're calling community. And this has to do with people in the region. So part of it is immigration. How can we facilitate movement? But part of it is more than that. And what it really is is thinking about a regional workforce and labor force. As we've seen a deepening of economic integration, the companies that have plants on every side of the border, where production happens going back and forth across the border, workers depend on each other.

So what happens in a plant in Mexico and the productivity and expertise of those workers affects the very jobs of the people on the U.S. side of the border because of this. So how can we think about upgrading the regional workforce and allowing the movement back and forth to enhance North America?

KARL: So I want to focus on two of the recommendations you make that hit on two pretty hot button political issues right now. One, you come out in favor of approving the Keystone pipeline. And the other, you come out in favor of immigration reform.

So first let's take Keystone. You spent some time at the State Department as deputy secretary of state, undersecretary of state. The explanation I get whenever I ask this question at the White House is, Well, this is just over at the State Department and we're waiting for them to go through the process.

(LAUGHTER)

KARL: Can you—so can you tell me, why is this decision taking so long, really?

ZOELLICK: It's very...

KARL: We're on the record, by the way.

(LAUGHTER)

I should remind everybody this meeting is on the record. That's why we have cameras back there.

(LAUGHTER)

ZOELLICK: Well, the courteous answer is to say I think the administration has some political priorities. And that really goes to the heart of what we're trying to prod with this report because the—when we went up to Canada, the XL pipeline is much more than a question of infrastructure and a pipeline. Frankly, Canadians across the spectrum, even people you might suspect would not support the pipeline, were really affronted by how they were treated by the United States on this.

And having been in diplomacy for some twenty-five or thirty years, frankly, you don't treat your friends and partners that way. If you want to build a long-term partnership, particularly if you're the biggest country, the United States, you got to be sensitive to those things.

But the point is, the State Department, you referred to, has also made the case that environmentally, you're not doing anything for climate change, or frankly, for safety or for potential dangers from the railways or the other ways of sort of getting the oil--the oil will move, anyway.

So you know, maybe people have a different conclusion, but that would be my answer, but the—in terms of what's held it up. I think, however, the bigger point here is—both Shannon and Dave talked about sort of how energy is one of the catalysts for this. There's other factors—the reforms in Mexico, the demographics, frankly, the fact that wage rates are going up more in Asia and elsewhere, and frankly, I think the technology innovation in the United States and Canada. So you could combine the best of developed market innovation and the best developing country structural reforms, create a new growth market.

But I think one of the issues to make this work is you got to create the infrastructure. So it's partly pipelines, but it's also partly electricity grid. So you know, we actually have electricity grid connections with Canada in the west and the north. It's modest in terms of amounts, about 2 percent of the flow, but it's a resiliency.

We've started do this a little bit with Mexico, but when we went to Mexico City, one of the things that one of the Mexicans pointed out to us, he said, Look, these energy reforms that the Peña Nieto administration are doing—these are politically tough. And don't surprise yourself. There's going to be a lot of opponents out there that going to try to say this doesn't benefit things.

And frankly, the oil reforms are going to take some years to show up in jobs and other things. And they said, You know, if we could expand the approval process to extend the electricity grid across the southern border, then we could get lower electricity prices, which are quite high in Mexico, based on lower natural gas prices. We could produce more—as Dave said, about 40 percent of everything they export has sort of U.S. value content.

So that's another example of where you connect the XL pipeline with the overall question of infrastructure for energy. And frankly, there's parts on the U.S. side. So you talk about, you know, slightly controversial recommendations, we talk about lifting the ban on the crude oil exports because, frankly, if you want this energy revolution to continue in the United States, you've got to be able to have price. That's what signals investment. And if we don't export it, we're not going to get the benefits of it.

So in a way, a lot of these parts—another point is natural gas lines. You know, everybody's concerned about the poor children coming from Central America. Well, as you know, part of that region is—is—the countries are fragile states. They have high energy costs. They don't have development.

So we could extend the pipelines that go down to Central America. So part of this idea is, how can we think about North America not only among the three of us, but with the Western hemisphere and our global power and economic competitiveness.

KARL: You know, one thing that I didn't see much on here was alternative energy, and not a lot of discussion of climate change. You do mention it...

PETRAEUS: Actually, it is in there.

KARL: ... as a concern.

PETRAEUS: Yes, it is.

KARL: You do mention it as a concern and you do talk creating a market-based solution...

PETRAEUS: Yes.

KARL: ... for—for carbon.

PETRAEUS: Which is a fairly big deal.

KARL: Which is also very controversial.

(CROSSTALK)

PETRAEUS: But again, we...

KARL: But how big a concern is climate change?

PETRAEUS: It is a big concern and...

(CROSSTALK)

PETRAEUS: ... represented in here. But the fact is that, again, our industries do need energy. The United States has been going about this in a way that is actually pretty responsible. Our emissions have actually been going down. Our consumption...

KARL: Well, they ticked up this year, right, for the first time...

PETRAEUS: I think you saw that China does more than the EU and the U.S. together. So—and by the way, we're actually consuming less because of efficiency in the United States, as well.

So when you look at the overall aggregate demand throughout the world for oil, and so forth, you actually see that our demand has actually gone down a bit. By the way, so has Europe's, again as result in large measure of efficiency initiatives.

But again, this is going to be the foundation for an awful lot of our economic progress. It already is. If you are in an industry that requires natural gas as a raw material, or requires cheap electricity, you are going to build your plant here in the United States. Just ask Dow Chemical and all the other global firms that do the petrochemical industry. They are all—they all have construction ongoing in the United States.

But certainly, we should—we say that there should be support for the sustainable energy industries, and indeed, that that should be promoted. But in the meantime, until that is competitive, you've got to continue to do what it is that we've done, and to do it in a responsible and as climate-friendly a way as is possible.

ZOELLICK: Let me add one other dimension to this. In the first Bush administration, Bush 41, I was actually in charge of the strategy for the Rio treaty, OK, which was the last climate change treaty that the U.S. Senate has confirmed—has acted on.

And the key point is, this is only going to be dealt with at a global level. Certain countries have to play a leadership role, no doubt. What we saw after the Copenhagen failure was actually a Mexican president, Calderon, sort of take the lead and have actually a successful climate change summit in Cancun.

And he took apart the problem by looking at different pieces—some alternative technologies, some energy efficiency, which there's huge potential savings globally, if you look at the energy subsidies. You look at avoided deforestation. You looked at so (ph) carbons or different technologies.

Our point here is, if we're going to lead effectively, we'll be much more effective, in this case, if a climate change agenda has a developing country and a developed country working together. And the key to this, of course, is if people don't have low-cost energy sources to start, you're going to have a hard time pushing this as an agenda item.

But it's a good example across the board here of how—as we start to think about North American issues, how we can leverage them for global influence.

KARL: Is there a national security implication here? And by the way, one of the things that's interesting is that you've had the oil—you've had the oil and natural gas boom here in the United States. You've had a similar boom in Canada. Mexico's production is actually down, as you point out, but...

PETRAEUS: But it's going to go up. Again, among these sixteen—that's a historic number—constitutional reforms that were approved in President Peña Nieto's—just in his first year—that's more than all three of his predecessors and all eighteen years. Among those, very prominent is reform of the energy industry in Mexico. And it's not just, by the way, the oil and gas production. It also has to do with the electricity production.

KARL: So what are the broader implications in terms of—you know, the concern for so many years was the U.S. dependence on, you know, oil imports from the Middle East?

PETRAEUS: It's a huge issue. And in fact, it is conceivable that North America as a continent could be self-sufficient in energy in a certain number of years. I mean, there's no question that we are more independent in terms of our energy.

Doesn't mean, by the way, that we're not still going to have a vital national interest in the free flow of oil and gas through the Gulf and to our trading partners. Again, that's—Mideast oil still fuels our trading partners' economies. So we will still have a vital national interest in that. But we will not to—at the risk of a pun, we're not going to be over a barrel the way that we used to be on this issue.

(LAUGHTER)

KARL: Right. Right.

(UNKNOWN): (OFF-MIKE)

(LAUGHTER)

KARL: Oh, hold it. That's live.

PETRAEUS: A horrible pun. Sorry about that.

KARL: So I wanted to move to the other—the other—the other kind of hot button or one of the other hot button recommendations here is on immigration reform. And the way you describe your recommendation is, "The task force strongly recommends the passage of comprehensive federal immigration reform that secures U.S. borders, prevents illegal entry, provides visas on the basis of economic need, invites talented and skilled people to settle in the United States and offers a pathway to legalization for undocumented immigrants in the United States."

Were you talking about the Senate bill? I mean, is that essentially what you were talking about?

PETRAEUS: No, I don't think so. I mean, what we—we specific—these are very carefully chosen words, you know, legalization, not citizenship...you know, and again, there's—the task force members contributed enormously on...

KARL: Legalization, not citizenship.

PETRAEUS: Yes. But look, I think everybody in Washington agrees, however fractious this city may be, that there is a need for immigration reform and that it does include border security in various measures.

But we have to have the low-skilled or unskilled workers for a number of the industries in the United States, and we need a legal pathway for them to come to our country. And we also need the H-1B visa limit lifted. That's another one. I mean, we actually have this peculiar situation where we educate the world's bright—best and brightest, and then we don't keep all of them, even though our industries need them, because there's a limit on the number of visas that can be given for that particular category.

ZOELLICK: Can I—you're right, and we tried to work out what we think is a pretty definite position on immigration reform. There's different ways you can get to it as a bill's put together. That's not kind of—you know, our—we're not making a tactical judgment about how one does that.

But I want to come to point that Shannon touched on, which is where we're actually trying to look beyond immigration reform. One of the strengths of North America is not just the energy and natural resources, it's the 500 million or almost 500 million people here.

PETRAEUS: Yes.

ZOELLICK: And if you look about the future of any economy or society to compete in the globe, it's what they do with their human capital. And part of the Peña Nieto reforms is education. And there's a big challenge about how that will be implemented. But part of what we try to talk about here is drawing on some of the discussions we had—for example, when we were in Canada, with all the energy boom, they were describing how they need petroleum engineers, but they can't get U.S.-trained petroleum engineers because they don't meet certain certifications.

And when we were in Mexico, the head of Pemex said, You know, because, frankly, we haven't been developing a lot of these resources, we need petroleum engineers. So you can start to see that in North American wide, you could start identify skills, but frankly, our own systems prevent the mobility of people based on professional certifications and then overall mobility.

So we introduced this idea of a mobility accord. So this moves away from citizenship. It's the idea that people could work across countries, maintain their citizenship. This has been discussed at some of the areas that are kind of less-skilled jobs but also sort of higher-skilled jobs.

One of the areas that Shannon researched is coming out of NAFTA, there was a special visa program that—that (inaudible) called the TN visa. And frankly, it has not been used very much because it has a whole series of restrictions compared to H-1B visas.

So we talk about if you want to—you know, after twenty years, let's make that work. The educational and skills and certification area—you know, the future of all our countries compared to Europe, Japan, China, Russia is better because our demographics are better. We don't have the same aging workforce overall. But that only works if you have some of the supply and the training.

And frankly, I think that all three countries, you're on the edge of a transformation, public and private, with use of technology, perhaps different types of degree programs, different types of hybrid and sort of use of Coursera and other issues. And you can see this in the private and public sector.

While there is a need to focus always in all three countries on local control of education, we miss a big opportunity if we don't interconnect the three countries because the core resource is the people.

KARL: So I've got to ask you about the tactics. You guys—this task force very nicely provides the vision. It's a very convincing case. But there is the question of how it gets done. And you know, immigration reform we've seen stalled despite the fact that, you know, so many major interests are involved to push for it. I—I—you know, you mentioned that the—you know—you know, the market-based solution to carbon. I mean, that might have—pushing that might have cost the Democrats the House in 2010, or helped cost them that. And I wonder if today, NAFTA—I mean, could NAFTA pass today? I mean, could it get through, you know, the political system as it stands now?

(CROSSTALK)

O'NEIL: ... find out with TPP. If it can get through our political system.

ZOELLICK: Well, first you need TPA, which another thing. It's the Trade Promotion Authority. So look, to be honest, some of this comes back to political leadership, particularly in trade. There's just no way around it.

But to go to the issue about sort of the politics of these issues, I'm shocked that you think that just the three of us alone won't be able to move the agenda.

(LAUGHTER)

(CROSSTALK)

ZOELLICK: Assuming that you're right...

(LAUGHTER)

-- one of the points of this report and what we're trying to do is kind of to stir the pot on the debate, and that's why we've—we explain the logic. We also take some positions. So we hope the administration will act on some of these things in its last two years, but part of this is to set up the 2016 debate.

So look, you know, I've talked with people, you know, obviously, primarily on the Republican side, but I know some of the ones on the Democratic side, as well. The standard point is for candidates to go off to Europe or maybe do some stops in Asia. You're now starting to get people that go to Mexico, and I hope sort of Canada first, recognizing this is good policy. And frankly, I think there's some good politics to this if people look at the Hispanic American community, as well.

So there's a political base to go forward with some of these issues. But frankly, we have to get people to understand that foreign policy is not just what, you know, you're reporting daily as sort of the hot story, but it's this story.

With the Congress, I have to say, you know, I—again, with both Democrats and Republicans, I try to stay in touch on some of the trade issues. When you present these items and you make the point about how this can help our economic competitiveness compared to other regions in the world, there's an audience for this. I mean, there are a number of people that said, Look, when you get the task force report, we'd like to follow it up in different contexts.

So you know, like anything else, I think we've now provided the grist for the mill. And now the question is, can we get some political attention.

KARL: Shannon?

O'NEIL: Let me just add into this. I mean, we lay out a big vision for North America and where it could be ten, twenty years. But some of things to get us a pretty long way there aren't—don't have to be these huge, comprehensive immigration reform. There are things that take away some of the little irritants, the little bumps in the road. So fix, in particular industries, some of the regulatory differences. That would make a huge difference for particular sectors and those that work in them.

Bring—you know, improve the infrastructure at the border. I mean, one Department of Transportation study said it's going to cost between $6 billion and $10 billion, which, as we all know, is not a—really a lot of money. And it can make a huge difference in the flows back and forth.

Start working with our counterparts on the other side. And one of the main themes we lay out in the task force is that in all of these areas, whether economic, energy, security, we should start thinking trilateral where we can and bilateral where we must. And I think some of that change—we could start doing those things now. And then later on, if there is more, let's say, political will or cooperation, you could try to go for some of the bigger things. But there's—you can make a lot of progress with smaller issues.

ZOELLICK: You've got the Chamber of Commerce here, and they were joining as part of this group. I belong to a sort of CEO task force that U.S. and Mexico has put together, we'd like to connect Canada with it, and these are major companies—going back to something that David has said—to say, Look, we're applying information technology in ways you couldn't conceive of in much of our business. Why can't we apply this to get stuff across the border safer and quicker?

PETRAEUS: Keep in mind that Mexico is in the midst of a manufacturing boom. It's now the number four car exporter in the world. I was just in Tokyo last week talking to a variety of people there. They mentioned that Toyota's new plant is not in Japan, it's actually in Mexico, where, by the way, there are production facilities for just about every other make and model of car in the world.

So what's going on there is quite extraordinary. And then now, as you see these sixteen reforms actually start to be implemented, you see them get the benefit of our cheap natural gas. There's two big pipelines being built that will help them lower their electricity costs, which are some 75 percent more than ours are right now.

So this will actually provide even greater opportunities for integrating our markets, noting, as Bob mentioned earlier, you know, a car that is produced in Mexico actually is 40 percent American, and the same if you do that up in the north. So there are really historic opportunities here, and the question is, can we take full advantage of them?

ZOELLICK: And let me give you two practical examples. Shannon mentioned the TPP, the Trans Pacific Partnership. So this is a United States negotiating with eleven other countries. Well, we already have free trade agreement with six of those, including Canada and Mexico. It took us a while to agree to include Canada and Mexico as part of those negotiations, and yet given that there's sort of twenty-year-old aspects of NAFTA, why not use the TPP to be able to try to clean up some of those things, and also in the process, start to think about a North American market?

We have a trade negotiation going on with the European Union, the Transatlantic Trade and Investment Partnership. I've been a trade negotiator. I know it's not easier with more people at the table, but frankly, it's a big strategic mistake not to include Canada and Mexico at the table. And you go—exactly what David said.

One of the key areas in the TTIP is supposed to be areas of regulatory and standards, for example, for the auto industry, which is trans-Atlantic. When we were in Canada, they point out they don't have an auto industry. They have an auto parts industry. And a lot of the industry in Mexico is critically based on assembly of some of the design and manufacturing in the United States.

So frankly, we're being shortsighted in terms of our future competitiveness not to include them. So those are very practical things, and you don't need to pass a law to do that.

KARL: So I want to get to the questions next, but before we do, I wanted to ask you about another issue raised which we haven't touched on much, which is security. General Petraeus, what is the greatest kind of security concern for this—for this region right now? Is it—is it the whole issue of foreign fighters that we're talking about now? Is it the violence in Central America? Is it the criminal cartels? What—what do you see going forward as the central security concern?

PETRAEUS: Yes, I think it's elements of all of the above, certainly. And so there is an emphasis in the report on improving border security, but there's also a suggestion to try to move beyond the internal borders with our neighbors and actually look at the overall regional borders. If there could be, in a sense, a defense in depth, you obviously would have a better chance of ensuring that some of these security threats don't actually materialize.

Beyond that, though, we also want to, while also—while improving security, as Shannon mentioned, improve the flow of people, goods and vehicles across the border, which has actually slowed as result of measures taken, understandably...

KARL: Post-9/11.

PETRAEUS: ... since 9/11. And yet there are all these technologies out there. There are pre-inspection programs. There's a host of different initiatives that could be pursued, and we have not yet really pursued those to the extent that we should, again, to make the most of these very highly integrated economies. Time is money at the border, and there a lots of wasting of that that goes on.

ZOELLICK: But just connect this, for example, what people have seen in the newspapers. So we had this—the terrible example of these poor children coming up from Central America, OK?

KARL: Right.

ZOELLICK: Well, they didn't fly here. They came across Mexico, OK? So part of this is, if we develop a deeper cooperation on some of those issues from Mexico, well, frankly, you're going to deal with them at an earlier point, and then we really need to go beyond that.

We actually talk about looking at the Plan Colombia example and seeing whether Mexico, Colombia, Panama, United States, Canada can try to go at some of the root issues in Central America, where you have fragile states dealing with organized crime, criminal networks. And it goes to this energy issue and it goes to a larger development issue, types of things that I dealt with both at the bank and the State Department and elsewhere.

But wouldn't we be much more effective at dealing with that if we're doing that in concert with the Mexicans, as well as the Colombians, as we did—Bernie's here—did with Central America twenty years ago?

So part of this is to stretch people's thinking. And David had mentioned this, too. You're going to have new issues like cybersecurity. You've got Ebola issues, and so you're going to—and you have other disease issues, as we've had in the area.

Part of this is to get people to recognize that for our own security, not out of just niceness, we need to try to create a unified security logic from the Arctic, which we have another set of issues, through Central America.

KARL: Let's get to some questions. Remind you when I call on you, wait for the microphone to get to you. And stand up, state your name and your affiliation. And of course, remember to keep the questions short.

So do we have a first question? That's never happened. OK, there we go.

(UNKNOWN): Thank you very much for that. Davis Robinson, a member of the executive committee of the Canada-U.S. Law Institute.

I've been struck by the fact that none of you has either mentioned water or the effect of the inability of the national governments of these three nations to act upon the states and the provinces. Just as one single example, the Great Lakes are losing an enormous amount of water. Neither Washington nor Ottawa has been able to do anything about it. So now the two provinces and the six states—they have gotten together, and they are going to do what Ottawa and Washington should have done. What they may be doing, it may violate the Constitutions of the two countries, but at least they are doing something.

KARL: Well, this is a good opening because there's certainly a discussion of water in this report, so...

PETRAEUS: Yes, there actually is. And interestingly, it came in large measure as a result of the encouragement initially by the Canadian ambassador. We had—both ambassadors were quite involved in this, in addition to the trips that we all made to Ottawa and to Mexico City. And so water is in there. If you go through that, you will see that there is again a strong recommendation that we do need to confront these kinds of issues. These are the issues of the future, by the way, in many respects.

ZOELLICK: Yes. There are two just additional connections on this. One, as you undoubtedly know, there's actually a century-long history in this with the U.S. and Mexico and with Canada. And at least from our examination of that, the Boundary Waters Commission and others have worked relatively well in part because they involve a lot of stakeholders outside the capitals.

And your second point I just really want to draw attention to. One of the challenges for North American policy is that a lot of it's not made in Washington, Ottawa, Mexico City. A lot of it is made in states, provinces, local and private sectors. And so in some ways, part of what we're trying to address here is how do you think about foreign policy, so-called foreign policy, in a different way where you're dealing with a set of transnational actors?

And we talk about the role of the governors and the provincial authorities and how you can interconnect with this. Now, all countries have to be respectful of federalism, or in the case of Canada, confederalism, and the limits of that. But it led us to do something which I was a little skeptical about at first. I'm not one who believes that sort of government reorganizations tend to solve problems. I tend to think you need to go at the problem.

But what we did say is, Look, because of this challenge about getting attention to North America, you need to change—frankly, we talked about a North American director of the NSC, in the State Department, sort of a high-level champion among various officials, and part of this is not only to bring attention to these issues in the U.S. government, but part of it is to try to work on this challenge of, how do you work more closely with the states, local and other authorities, capture the energy, knowledge and activity of those bodies? So I'm glad you raised it.

KARL: All right. Next question? Yes?

(UNKNOWN): Bernie Aronson, ACON Investments. You know, one of the points that the panel has made repeatedly is that we need greater political leadership and focus to move an agenda like this forward. But that's a perennial problem with regard to the United States and Latin America. We oscillate between deep involvement when there are crises in the region that become political issues here, and then we go off and do other things.

So are there structural changes we need—and I'll just make one other parenthetical point. It also makes a difference who the personnel are. You know, in the Bush 41 administration, which Bob and I both served, you had a president and a secretary of state from Texas. So for them...

ZOELLICK: Secretary of commerce.

ARONSON: And secretary of commerce, and the vice president wanted to be involved in Latin America...

UNKNOWN: ...he wanted to be a Texan.

(LAUGHTER)

ARONSON: Yes, even though we didn't let him.

KARL: He was for a short period of time.

(LAUGHTER)

ARONSON: But that's all, you know, episodic and quixotic, and we can't depend on, you know, where the president was raised and the secretary of state was raised or the commerce secretary. Are there structural changes we need to make sure that the North American agenda is at a higher level than it's currently at and is focused...

PETRAEUS: Yes. Bernie, thanks for that. And thanks also for your contribution to the task force. But clearly, that's really what Bob was just getting at with the idea that in the NSC, you'd have someone truly focused on North America, not just the entire hemisphere. Same at the State Department.

Actually, interestingly, the Department of Defense already does that because you have Northern Command, which encompasses those three countries and is focused, indeed, on the security aspects of those various relationships.

So indeed, structural change would help, as would, again—as does personality. In fact, the fact that Penny Pritzker, secretary of commerce, has been as active in actions with Mexico in particular, but also Canada, has been a real plus, in our view, over the course of the year or so, as you know, that we have done this report.

So certainly, there does need to be that. And the reason for that is that you do have to have champions in our government for different regions, initiatives, activities. And if you don't, they never get on the table until you're a week away from that year's summit and somebody says, What are we going to talk about next week?

So you know, the principals committee is dominated by the crises of the day, and arguably, right now, we have really more crises than you can even funnel through the situation room on a daily basis. It would be a tough time to be a deputy cabinet secretary right now, in fact. You'd live down at the White House, I would imagine.

So how do you get North America onto an agenda that is already overcrowded? You get people that are invested in it and that constantly push it back into the table.

ZOELLICK: And let me just complement this a little bit. This problem about kind of living down at the White House is part of the problem, OK? So we talk about champions, and I want to draw it out a little bit because you got a lot of people in this audience who've served in government. They probably have a sense of this.

The danger, of course, is that each of bureaucratic agency just kind of sticks in its rut. It's hard to move things through. With North America, it's compounded because, as we note, everything from Social Security to transportation becomes part of, quote, "foreign policy" dealing with North America.

What we tried to capture was this notion that I personally think it takes a very senior post—State, Treasury, maybe NSC adviser, maybe vice president. And it can't be one of these deals where that office gets 100 of these assignments because then they're all diluted. And it's probably less important, the exact seat, than that the person sort of believes in it.

And then frankly, as you know, Bernie, you have to push the system. You have to have a sense that—you know, how to break through some of the restrictions on that when bureaucratic issues come up. That's the champion idea.

But the offices (ph) is also, as you've experienced, is that it helps to have—right now, what the U.S. government has is it has Western hemisphere bodies. That's very important, but they tend to think Latin America. And indeed, Canada has been moved back and forth from the European bureau to the Western hemisphere bureau, reflecting, in a sense, different attitudes of security and other topics.

What we're saying is if you create a North America bureau, you create an internal advocate, so that when people are talking about negotiating with the European Union, someone says, Well, what about our North American logic? Are we missing this sort of issue?

So we tried to drive with that point, and frankly, we had a bit of a discussion, as you know, that also said, Well, where should Central America fit in this? My own sense is that Central America is a key part of our security, as you see with, you know, children or narcotics or other issues. You know, but there's—that's a debatable point. But frankly, I think if we're ever going to avoid this pendulum of kind of ignoring some of these regions until fires break out, then burning our fingers, we need to add Central America and think of North America in a more strategic way.

I have say—and this is a compliment to Mexico. When I was working with Augustin Carstens, who's now the central bank head—and by the way, a good example, the three central bankers in North America are world class—you got—he was finance minister. And he was the first Mexican finance minister that I met who would meet regularly with the Central American finance ministers because, as you know, Mexico often treated Central America with some of the distance which we treated Mexico.

That won't work if you really want to try to deal with these underlying problems. And frankly, as I mentioned before, you know, it helps to have Latin Americans deal with Central America, as well as gringos from the north.

KARL: You know, one of the very—kind of on the granular level here, one of the examples you cite on NAFTA and things that haven't been followed through on NAFTA is the issue of the Mexican truckers. The Mexican trucks were, correct me if I'm wrong, but by 2000, were supposed to be able to go to all—you know, everywhere in the United States.

(UNKNOWN): Much earlier, actually.

KARL: And right now, you point out—is it forty-five—forty-five Mexican trucks are permitted...

(UNKNOWN): Individual trucks.

KARL: Individual trucks...

(UNKNOWN): Not trucking companies.

KARL: Yes, we're talking about trucks, actual trucks.

O'NEIL: Of the 14,000 that cross every day.

KARL: Of the 14,000 that cross, and the rest are limited to the states around the border.

Question?

(UNKNOWN): Thank you. My name is (inaudible) Brown. I'm an IT and information security professional, and I noticed you have a few paragraphs in there about cybersecurity. My interest is, what did you learn in terms of your work, in terms of best practices that Canada and Mexico may be employing that we could benefit from?

And then the other question is, in terms of this, I'll call it, joint unified cybersecurity cell (ph), in the North American continent, how do you envision that working? Can you talk about that a little bit?

PETRAEUS: I think the cell (ph), clearly is now going to have to link to DHS as a result. One of the fallout items from the Snowden unfair is, obviously, that NSA is going to—we're going to be able to draw on them less, I think, for homeland activities than we otherwise might have. So eventually, it's going to have to link to the growing expertise that is being developed in DHS, without question.

Having said that, yet another of the areas in which there is a need for legislation, of course, is cyber-legislation. We were very close a couple of years ago when the chairman and vice chairman of the House Intelligence Committee were moving forward. The Rogers-Ruppersberger bill would have been a good, solid—modest, solid step forward. And even that couldn't get through, unfortunately.

So again, this is an issue that we do need to deal with right here in Washington very much, even as our own domestic cybersecurity authorities are working more closely with those of Canada and Mexico.

O'NEIL: Let me just add on the infrastructure side, especially on the Canadian side but also beginning on the Mexican side, since we share infrastructure, electricity grids, pipelines and the like, a cyberattack on one side would affect presumably, you know, the whole northeastern electricity grid, even if it happened in Canada.

And so working a bit more closely to establish common protocols, and then also if there is an attack, sort of the—the, you know, post-attack evaluation, sharing the experiences and the effects is something we could do much more closely with our neighbors that in the long run would be quite useful for us.

ZOELLICK: Let me just add one thing. David is much were expert on this in terms of the—sort of the policy and security. But your question is particularly interesting because, like David, I work with a lot of different financial audiences. I often get sort of asked, OK, what's going to be the next crisis? You know, what's going to create the next illiquidity event?

And the first answer is it's always the one you don't foresee. But frankly, if I would give one, I'd pick something in a cyber area because I can see—you know, what—what created, for example, events in 2008 is that markets won't clear, you can't get a price, OK? So that can happen through financial terms. It can also happen through breakdown of a system.

And it's interesting. I was with Mike Rogers, actually, earlier this week, and I was trying—with a group of chief financial officers. And I was trying to say, Look, if you're not looking at this, be aware it's not only a question of sort of business management, but in a world where, you know, we've got issues with Russia or Iran. You better be darn well prepared for them going after your systems.

And so it's a good example of kind of stretching people's thinking in this. And frankly, as Shannon mentioned, this will go to the heart of electricity grid and other utility resilience.

PETRAEUS: This is an area, though, where we have might tighter relations and one bilateral relationship because, of course, of the "Five Eyes" intelligence-sharing agreement, than we do with our southern neighbor, with whom we don't have that same level of relationship.

And so it gives you an idea of what it is that we need to do there, even though, again, without getting into details, there's quite a bit of cooperation there, as well.

ZOELLICK: Just to pick up on a strategic point here again, particularly for CFR audience—and Bernie and others here in the room have seen this. David talked about sort of the depth of relationship with Canada, as opposed to Mexico. When I first started to work with Mexico on foreign policy issues in the 1980s, basically, if I needed to know Mexico's foreign policy, I could find it from the U.S. and put a minus sign in front of it.

And that's because in the old system, under the old PRI in those days, the foreign ministry in Mexico was partly an intellectual haven that basically reflected the anti-Americanism while the PRI did its business with the United States.

When I came back into the government in 2001, or back also at the World Bank, that totally transformed, particularly in the economic area. My closest partners on international trade issues were my Mexican and Canadian counterparts, and we worked really hand in glove not only on North American issues, trying to solve the trucking and other problems, which people then reversed, but then basically, going back and trying to play a role globally.

And I guess my hope is that, you know, a group like this twenty-five years from now might be able to sit and talk about deeper cooperation with all three countries on these other security issues. So that's a little bit of the vision we're pushing for.

KARL: Kristina.

(UNKNOWN): Thank you. I'm Kristina Wong from The Hill. My question is for General Petraeus. Sir, you've had great experience and expertise in Iraq, and I'd be remiss if I didn't ask whether there's some doubt in Washington whether or not this strategy against ISIS will be successful. What are your views of whether the strategy will work, how it will end? What are your views on that?

PETRAEUS: Yes, I don't want to turn this into an ISIL Q&A, but I think that I can see how it can end in Iraq. I think that the strategy on which we're embarked has a reasonable chance of success. It really comes down—as the president has been very clear, it comes down to Prime Minister Abadi performing tasks and the Iraqi security forces performing tasks that we had to do in 2007 because the place was literally on fire and about to burst into the civil war flames had we not done that.

We should not underestimate all—given all the challenges that they have had, we should not underestimate the ability of this new government to reach out to the Sunni Arab community and to make them part of the fabric of society of Iraq again, and also to accommodate some very legitimate demands, requests from the Kurdish regional government, as well. I think that's all doable.

Those are critical political components to what will go forward. And if that becomes the foundation for Iraq, then I think you can reconstitute in some cases the Iraqi security forces. And with help from us in terms of the intelligence picture, assistance with planning, and then the provision of close air support and fires, I think that those forces can and must—again, if this is to be sustainable, this must be a result of actions by Iraqi security forces, noting that that term is inclusive of what will undoubtedly stand back up the former Sons of Iraq that will now be part of the Iraqi national guard under Prime Minister Abadi's initiative, and certainly encompassing the actions of the Kurdish Peshmerga and other militias, as well.

KARL: If I can just—a quick follow—up—can you do this by promising from the start no boots on the ground? Do you need some special forces?

(LAUGHTER)

KARL: These would be North American boots on the ground.

(LAUGHTER)

PETRAEUS: As we look to the North American decade of the future here, I think General Dempsey has been appropriate and forthright in noting that if it comes to it, he would ask for certain capabilities as required to assist the Iraqi security forces on the ground, but that by and large, again, my point is that this can and must be done by Iraqi security forces. And that includes not just their army, but also the police elements, and indeed, even the air components that they're gradually developing, as well.

KARL: Yes?

(UNKNOWN): Zach Pagovski with the German Marshall Fund of the United States. I would like to ask our speakers regarding the current trade negotiations between the United States and Europe and how those negotiations would affect the North American partnership.

ZOELLICK: Why don't I start. Those trade negotiations are in trouble. They've been drifting. It goes a little bit to Jonathan's political question. Until you get trade promotion authority, which is the ability for the executive to bring an agreement for Congress for an up or down vote without amendment, it's going to be hard to make people face up to the toughest decisions.

The Trans Pacific Partnership is a little bit ahead of the negotiations, and you're seeing that with Japan. The Japanese are not going to take sensitive decisions on agriculture unless they know the executive is willing to really carry out his side and this—of the Pacific, and frankly, push it with Congress.

I'm actually hopeful, but I'm an optimistic person, that from talking with members of Congress, there's strong interest on the Republican side on moving this, as there was with Senator Baucus, the Democratic chairman of the Finance Committee, and Dave Camp, the Republican chairman of the House Ways and Means Committee earlier in the year, until Senator Reid said he didn't want this issue, and the administration backed off.

If they're going to have prospects for either Transatlantic or TPP, they're going to have to move that forward. Speaker Boehner said he would do it if he got fifty Democratic votes. Even the tough deals that I did with only thirty Democratic votes, I think that's a doable number. Frankly, if you get a Republican Senate, you'll be in a stronger position to move this forward.

But I had urged Senator Wyden—I went up to talk to him. I've known him—I've urged him to start the markup earlier because I think it's good to have Democratic interest in this.

So frankly, this is a key question going back to Bernie's point. There's a lot of talk in Washington. You've got to decide whether you're going to push this stuff or whether you're going to close the deal.

Now, it comes back on the Transatlantic side—the reason I feel so strongly about this is that in trade, if the bicycle isn't moving forward, it falls down. And what you can see in Europe is there's been an increasing crescendo of criticism of this element, that element, so on and so forth, and there's not a forward momentum going forward. And so I see that agreement in difficulty. That's terrible, given the fact that probably the most important partner in Europe going forward is Germany, and Chancellor Merkel has a very strong interest in this.

So coming back to the North American point, I would just say we support the TPA, and also we say we ought to look at this in a North American context. Europe has actually done a free trade agreement with Canada. And they took—there was sort of back and forth about the closing aspects of that. So I congratulate the Canadians and the Europeans. I think the United States needs to get its act together.

PETRAEUS: You know, if I could, by the way, just on the note of Canada—we actually have the Canadian ambassador here, and we're grateful to him, again, for what he did, and I failed to see him earlier. Yesterday, we had the Mexican ambassador for the segment that we had at the Council to release this there. So there's been very, very good involvement in this.

To cast the answer that Bob was just giving, the task force strongly looks forward to confirming the excellence of our legislative and executive branches in the wake of the upcoming elections in passing TPA and then getting TTP done and then moving on to TTIP.

There's huge interest in TPP again. I was out in Hong Kong and Tokyo last week, and I can assure you our Asian partners—obviously, Hong Kong not being part of that—but our Asian partners out there are very keen to get this done, as well. And it will help not just the United States. TTP will help all of North America because they're all three involved, as Bob mentioned earlier.

ZOELLICK: And one last point. This is partly—people often look at these as narrow trade agreements. This is big-time strategy because I—Dave spends a lot of time in Asia. I was just there last week. Economics is the coin of the realm in Asia. And frankly, if you're not moving forward with your economic relationships, then they kind of wonder what's the pivot and rebalance, 2,500 Marines in Darwin? That doesn't look very serious to them. Very serious questions here.

And frankly, on the Transatlantic side, too, it fits in with the types of challenges you see Mario Draghi talking about, questions about whether his new monetary policy will move forward, questions—the French just came out with their budget—about the fiscal side. None of this is going to work unless Europe takes the structural reforms. And TTIP is a vehicle for European structural reforms.

So if you want to create a global economic strength and you want the United States to play a leadership role, get TPA done and close the two deals.

KARL: Yes?

(UNKNOWN): Louis Caldera. I just wanted to ask how out of the box, perhaps, did the task force consider creating new, multi-national organizations? So for example, things that would provide investment funds for infrastructure, rule of law investments, courts, education, all those kinds of things in the—in the—and I know you started by saying, you know, We're thinking about this in a sovereignty context, as opposed to perhaps the way the Europeans did it, where there were such cross-investment funds. Is that part of the thinking now, or is that a bridge too far?

PETRAEUS: Go ahead, Bob.

ZOELLICK: Well, we started with what exists. So one of the items we went back and looked at was the North American Development Bank, which was part of the NAFTA process. It was part of the political vote trading. But it also had an interesting mission, somewhat constrained. And we talk about, given some of the infrastructure and other issues, whether that could have its mandate expanded and be used more effectively.

But frankly here—and this is some of the things Dave and I worked on frequently—the question is how can you connect the private and public sector in this, for example, in sort of infrastructure funds. So we also talk about the role of the InterAmerican Development Bank, possibly the World Bank, IFC, the private sector arm.

So I think we're biased more towards how you can upgrade and use existing structures, as opposed to create new ones. That's a little bit on your water question, as well. And just to give you a sense of the possibility here again—when I was I guess in Singapore about a week ago, I was struck by—I was talking to some of my former colleagues from IFC, the private sector under the World Bank, and one of the things they told me was fascinating. We created an asset management company which allowed sovereign funds and pension funds to, in a sense, join with our equity investments, which would add over a 20 percent rate of return. It's a way of bringing more capital in without raising capital for the IFC.

And we'd started this with Africa and Latin America, some other funds. And one of the things they told me was that China had gone to the asset management company of IFC and said, Look, we'd like to do some more investment in Mexico. But rather than do it bilaterally, maybe we could do it with the Mexicans and with IFC so that it's got a different shape to it.

So that's a rather creative use of multilateral institutions, doesn't require a new one although this asset management company's quite interesting. It's the first subsidiary of a multi-national, I think, that's ever been created. No one paid attention to it, but it's working quite well. So I think, at least my sense is, we were looking towards evolutionary models in a pragmatic way.

KARL: Yes, in the back.

(UNKNOWN): Thank you. I want to get to something that wasn't directly addressed in the report, but that we've touched on a little bit here and there as far as common security...

KARL: (inaudible) your name and...

(UNKNOWN): Oh, sorry. Laura Koran, CNN. As far as common security threats, we talked a little bit about the threat posed by foreign fighters, particularly going to and possibly returning from Syria. There are, it's estimated, about a hundred foreign fighters from the United States in the region, about the same amount from Canada.

What can be done between North American allies to, first of all, keep people from going there, monitor them as they return, and then also, even before that, I guess, prevent the kind of radicalization that can happen so easily on a computer that could lead to an attack within any of those three countries. Thank you.

PETRAEUS: This really comes down to—basically, to intelligence sharing. And as I mentioned earlier, we've long had a very, very close relationship with Canada. Indeed, they're one of the Five Eyes, and so there's an extraordinary amount that already goes on there.

But there is, actually, a good deal more, perhaps, than people realize that goes on with our Mexican colleagues, as well. But it's all about, again, creating access to common databases, sharing threat streams, sharing information, and then also sharing tactics, techniques and procedures, if you will, of a variety of different methods of collecting information that then becomes intelligence on the flow to and from these areas of conflict.

ZOELLICK: One other point that David mentioned yesterday in New York, and I want the Americans here and certainly the Canadians (inaudible) to know this. When David was in command with Central Command, he had Canadian soldiers that were fighting for the United States in Afghanistan when we were attacked at 9/11 and lost about 150 lives there or more. So it's a good example of the Canadian partnership people often don't fully recognize.

PETRAEUS: We actually—in fact, during my time as the commander of Central Command, we actually had Canadians to the actual staff in the headquarters, as we did the other members of the Five Eyes. We'd had this—in Iraq, we had a multi-national force Iraq headquarters that included all of the members of that coalition, several dozen countries. In Afghanistan, we had some fifty countries, actually, in that headquarters.

But in between that, when I was at Central Command, I said, Geez, this worked really quite well in Iraq, why can't we replicate that right here in Tampa with our headquarters? And we did, and then even had some—a number of other countries that had very robust liaison elements there—again several dozen of those, as well.

ZOELLICK: The Canadians were making the ultimate commitment to go down from Canada...

PETRAEUS: Very much so.

ZOELLICK: ... to be in Tampa in the winter.

(LAUGHTER)

KARL: That's exactly right. All right.

PETRAEUS: What they did was add to the number of Canadian license plates that are already populating the streets of Tampa.

(LAUGHTER)

But actually, to come back on a very serious note, Canadians I think were the highest—had the highest loss rate per capita of any of the coalition contingents in Afghanistan. They did some very, very heavy fighting. And indeed, during the surge in Afghanistan, the Canadian contingent in Kandahar was part of some very important offensive gains that helped not only hold the Taliban where they were, but indeed, to push them back in some very key districts to enable the time and space for the accelerated development of the Afghan security forces, certain institutions of its governance, and then even to start the transition process to our Afghan partners.

ZOELLICK: So you need to tell the CNN audience on the 200th anniversary of the end of the War of 1812, we're glad the Canadians are now on the right side.

(LAUGHTER)

KARL: And I still remember as a little kid seeing the signs "Thank you, Canada," after the Iranian hostage...

PETRAEUS: Yes.

KARL: ... mission became known.

PETRAEUS: You bet.

KARL: Argo. So thank you very much. We are out of time. General David Petraeus, Shannon O'Neil and Bob Zoellick, thank you very much for joining us.