Economic Security Symposium Speakers

Good morning and thanks for coming out. It's my pleasure to introduce our first speaker but let me just give you a little bit of background you probably wonder how do we end up getting Gary Hufbauer to come here.

Well despite my advance age, I actually know how to type in words into that Google machine and it's amazing what you come up with. So I typed in NAFTA and unlike many students, I did not take the first thing that was listed there. I started looking through things and I actually read a bunch of things and looked at what different people were saying. And I should tell you if you wanna know why we have the topic that we have.

I'm gonna take full credit for it. What I'm not gonna take credit for is I had no idea how the election was gonna turn out. So I was thinking we were gonna be having a slightly different conversation than the one I think we're gonna have today. We thought that this was a great topic impart because at that the time we were thinking about this.
Bernie Sanders and candidate Trump were making considerable noise about international agreements in particular NAFTA being the worse one that's ever been signed in US history. So I thought maybe it be worthwhile for your sake, for my sake, for all of our sakes to have some people come and talk about international trade agreements. And so in looking over this gentleman's long list of publications. The service that he has provided in academia, the government and non governmental organizations.

I realized we would be hard pressed to find somebody who's actually better. So with that in mind, you can look up his bio as you want but you can see he's at the Peterson Institute for International Economics. He has written extensively on NAFTA and he's now going to explain it to us this morning. Please joining me in welcoming Gary Hufbauer.
Well thank you very much Chris that's very kind and I wanna thank Chris especially. Is it coming across? Can you hear me? Yeah, for inviting me. First time I'd been to Dahlonega, it's a charming place. He game us a very nice room in the Bourbon Street Grille and I am impressed that this room is full of people. Maybe you were commanded to come but thank you anyway. For coming and Keith thank you organizing this very fine symposium.

So Chris was surprised and so was I and so was everybody in our institute and practically everybody I knew. In fact more than a year ago, I was out at the Chicago Council on Global Affairs. And a lot of smart people around the table and people are asked who would be nominated as a Republican and nobody though that Trump would be nominated as a Republican.

So you can see a long string of errors there. Now what I would like to do is say some of the good things about NAFTA. A lot of bad things have been said about it and walk you through. As I speak, if you have a question don't wait. We have 15 minutes I think at the end for comments, questions but if there's something I say that irritates you. Please be irritated and say something or you have a question please don't hesitate. So I manage to turn it off maybe we can get it back on here. Let's see overview, yes.

Maybe this is more for the foreign students here but the United States had an agreement with Canada prior to NAFTA. The US-Canada free trade agreement. Canada is the largest trading partner for the United States. Substantially largest and that took effect in 1989. Then Mexico had changed its orientation.

The Mexican economy in let's say the early 1980s was very much like a Polish economy. Which is to stay a state directed economy, centrally directed, kind of a socialist ethic if not actually socialism in practice. And the president at the time de la Madrid. He changed the whole orientation of Mexico. And NAFTA was part of that change. It was negotiated by Carlos Salinas, the successor president. NAFTA includes Canada as well so NAFTA in a way is an umbrella on top of the US-Canada agreement in so far as Canada is concerned. If NAFTA disappears, we still have a Canada-US agreement which has about 90% of the provisions in NAFTA.
So Canada-US agreement was not terminated. In the United States, the word NAFTA is associated with Mexico even though Canada is part of the trilateral organization. So I'm gonna speak about Mexico, that's where the debate is, not about Canada. Canada barely got mention in the presidential campaign. So the United States and Mexico eliminated their tariffs. US tariffs for Mexican imports were quite low already before NAFTA, averaging about 4% but peaks for products like shirts, food stuff and so forth might go up to 15%, 20% or higher.

Mexico had a higher average tariffs on US exports about 10% average with some very high peaks up to 100%, complete barriers. All these are now eliminated. They were eliminated within 10 years except for very, very few agricultural products onions, garlic something, a few like that. The reason NAFTA was so controversial from the beginning and remains controversial today is it was our first agreement with a country which is substantially poor. Mexican average per capita income is about an eighth the size of the US per capita income. It's a substantially poorer country.

It's not as poor as Haiti by any means. Better off than many countries around the world but it's much poorer in the United States. And this was alarming to many people in the United States to have a free trade agreement with a poorer country. So NAFTA has done a lot to promote trade and investment back and forth.

I'm gonna show some slides on this. Employment went up especially in Mexico. Working conditions somewhat improved. Now when I say somewhat improved, that's not to say they're at the US level. Somewhat improved. And we have a provision in NAFTA which is called chapter 19.

Which has been used to some extent to settle disputes when we have products, steel, sugar, chemicals, cement whatever. Where there's a trade dispute, we sometimes resort to this chapter to solve them. And we have the investor-state, the ISDS stands for investor-state dispute settlement. It's a controversial area. A company which feels it's been mistreated can bring a case against the country which it argues has mistreated it. So that's the kind of basis of NAFTA, it's a pretty long treaty. Lots to read but those are some of the main provisions. There's some requirement in NAFTA that Mexico upgrade its environmental provisions and its labor standards. Again I want to emphasize Mexico was not adopting US standards, was not adopting US standards.

They agree to better enforce their own standards. Often times in countries, you have standards on the books which are higher than what is enforced. The emphasis was on better enforcement. So essentially NAFTA is about trade in goods and services. That's the core of it. It's a trade agreement and this diagram has first in the blue line US two way trade in good.

Only good, services are a very important part of trade. Typically neglected in campaigns and in public thinking about trade but services are quite important. But this picture is just of goods. And you can see the very sharp increase in trade. US two way trade with Canada which in terms of merchandise is now about 580, nearly 600 billion. We have another 150 billion of two way trade and services that would be everything from bank services to tourist services, to health services, education services. When a Canadian comes to the US to study that's a US export. When a American goes to Canada to study that's a US import. We also have a lot of trade with Mexico.

Mexico is our third largest trading partner and that's the dotted red line. And you know this is a linear scale so maybe it's not so obvious but you could see that whereas at the beginning. Well let's say before NAFTA, Mexico is about half the trade of Canada. It's now rather close so what that means is that in percentage terms, Mexican-US trade has grown much faster than Canada-US trade. And it's grown faster because of NAFTA, it's as simple as that. NAFTA, of course it was reduction in tariffs but here was the surprise at least to economists. We calculated how much the tariff we're reducing and you can take kind of an elasticity approach for those who have studied international trade and do some calculations. You'll get some increase.

The increase that we've seen is far larger than that kind of arithmetic would have suggested. Mexico just changed the shape of its economy. It became a much more market oriented economy. Attracted a lot of investment. I'll come to that in a moment and that is a big part of the growth in trade. The dip as you see in 2008-9, that's the great recession. So that's kind of the picture of trade in goods.
If I did trade in services that would shift both these lines up. US trade in services with Canada has grown but not sharply. US trade in services with Mexico has grown quite sharply. Okay, this is the investment. This is what in the campaign often was criticized quite heavily that is US firms locating plants in Mexico. Outsourcing is the phrase, outsourcing jobs and these are the numbers in terms of the outward FDI or Foreign Direct Investment stock.

That's the book value of the investment by US firms respectively in Canada and Mexico. Now you can see it's much higher in Canada. We've got about $350 billion of US investment in Canada. Canada has a lot in the United States too which is not shown on this diagram. We have investment in Mexico too. Absolutely it's much smaller. It's now about 70 billion I would say, $60, $70 billion. But its grown from a very small level prior to NAFTA. It was about, my recollection is about 12 billion, 10, 12 billion prior to NAFTA. So that's the increment. That's US firms locating plants in Mexico. It's only a part of total inward investment into Mexico. Europeans invest heavily in Mexico.

Japanese firms do as well. So the total investment in Mexico would probably be, it would add up to maybe a $120 billion, maybe twice the US level. But the US is the single largest investor. Now at one time in my career let's say back in 1970s. It was thought that when firms invest abroad that's a substitute for exporting to that country and making it there instead of exporting it. That was a common way of thinking about trade and investment. Investment being a substitute for trade.

The current thinking is completely reversed. Trade and investment are two sides to the same coin. The firms that invest abroad, trade and they trade in both directions. And so this investment is closely linked to trade between Mexico in the US or between Canada in the US. Now here are some of the claims that have been made. If anybody's prompted to stand up and add a claim or denounce me for calling these false claims. Now is your time to stand up. These are the claims that get repeated in denunciation of NAFTA.

The first one is a big one and if you Google President-Elect Trump's statements. He's made this, his advisors have made this often times. That free trade agreements and NAFTA being the number one. We have about 20 free trade agreements. The United States has about 20 free trade agreements with various countries but NAFTA is by far the biggest. In terms of political importance in terms of amount of trade covered by it.

The argument is that trade agreements foster trade deficit, that is US importing more that it exports of goods and services. And this is regarded as a weakness so this is a very common statement that trade agreements cause trade deficits and NAFTA caused the trade deficit with Mexico. I'm gonna focus on Mexico still. And it's true that prior to NAFTA let's say 1992, 93. We had a small trade surplus with Mexico five billion and now we have a deficit of about 67 billion last year. So is NAFTA the cause of this?

I want people in this room to raise their hands if you've taken macroeconomics. Has anybody here taken macroeconomics? Well I guess everybody's taken macroeconomics has gone to the C+I+G equation. And is familiar with the way we thing about trade deficits and to put it I guess in very simple terms. If a country spends more than it earns, it's going to have a trade deficit. It's as simple as that. And what happened between the early 90s and currently is that the US global trade deficit reflecting the balance of spending in the United States verses earnings in the United States expanding from about 100 billion to about 500 billion. Now is that a bad thing, is that a good thing?

There's a debate there. I would say politically the debate has decided that it's a bad thing to have this trade deficit of 500 billion. There are some economists who say you're worried about the wrong thing if you're worried about the trade deficit. But in any event if you have this macro imbalance which we do which is a combination of our private savings. Our private investment, our government deficit and the exchange rate. Those all fit in the macro equations which the people who raised their hands have studied.

You're going to have the number and we have the number of 500 billion last year and it'll be about the same this year. Probably 550 billion. If you have that deficit, it's gonna happen some place in the world with some country. As a matter of fact, Mexico has a smaller proportion of the total deficit that we have than is proportion of our trade with the United States. If one were to go into this in more detail if anybody has the time, look at our website on NAFTA 20. We go into this issue in quite a bit of detail.

We've looked at a lot of countries and their free trade agreements. Many countries have free trade agreements and we've asked if you have more free trade agreements as a country, do you tend to have a larger trade deficit. The answer is no, the diagram is right on our website. You look at it. There's no association between having free trade agreements and trade deficits because free trade agreements. They make trade easier in both direction but they don't deal with this spending, earning balance or the exchange rate.

So there it is, it's a miss identification. I'll be happy to take any questions about it. Provocation but this is the number one political accusation of NAFTA that it's created this trade deficit with Mexico and then following that is some discussion about US unemployment. And the arithmetic of the opponents of NAFTA is pretty straight forward. It's easy to follow basically it's wrong but that's okay. What they say is that every billion dollars of trade deficit under current circumstances or productivity is associated with about 5000 jobs.

So you can multiply the numbers, take 5000 times sorry, we just take Mexico 5000 times. Let's say 60 jobs you get 60 times 5 is 300, say 300,000 jobs. This is kind of the argument if you take 500 billion as the total trade deficit and multiply it by this 5000. You get 2 1/2 million jobs and the argument is sometimes made that if we didn't have a trade deficit.

We would have 2 1/2 million more people working in this country. Okay just coming to the trade with Mexico. We calculate that the expansion of trade annually results in about 200,000 jobs displaced by imports and 180,000 jobs associated with our increased exports to Mexico.

That's the kind of very mechanical arithmetic which is spelled out in that policy brief I referred to. During these recent years, 2009-2013. Now every job is important if it's your job, that's clear. In the framework of the US economy which is vast. These are pretty small numbers, pretty small numbers.

I mean to listen to the campaign NAFTA was responsible for a majority. I don't know a large portion of the unemployment that we face in this country. The numbers just do not pencil out in that fashion. Our labor force is 140 million people, 140 million. So relating these numbers to that both on the import side and the export side are both pretty small. And maybe there's a net displacement of 15,000 annually.
In terms of the US labor force, that is well smaller than rounding here. You can not, it's so small compared to 140 million. So it's amazing how it has been blown up. Now there's another concept that's quite important in the labor force so that's dislocated workers. What are dislocated workers? Well let me walk down the arithmetic a little bit. We have 140 million people in the labor force. About 30 million of them change jobs every year. Most of them voluntarily, people move from one job to another. Better opportunity that's a great strength of the American economy, the movement.

A fraction of those are laid off. The fraction of the fraction that are laid off when a whole plant closes or a big segment of a plant closes and the statistical definition is about 50 workers or more. Those are called dislocated. These aren't fired because of personal failings. You know the business isn't there.

We have about four million of these annually. Four million people annually lose their jobs because the firm shuts down. In a capitalist economy, market economy that happens and it's very difficult. You can see we have these 200,000 jobs because of increased imports that's not more than 5% of the total dislocations. I mean it's a pretty small portion of the hardship that occurs and a dislocation is a hardship. Okay, now we come finally to the wages which is a third thing that features quite prominently that wages are lower because of trade with Mexico.

There are episodes and what NAFTA opponent cite are instances where firms told their workers. You know, you better agree on this wage in the new contract or we're gonna move to Mexico and there are such instances. Okay being an economist, we tend to look at large numbers and data sets and these guys Horton Hanson did a lot of research on individuals using social security data and whether they competed with product from Mexico or central America.

That's CAFTA, Central American Free Trade area and how do their wages fair? And they found zero effect. Statistically that doesn't mean there aren't some that are affected but not very many. Now in trade with China, it's a different story. They found an effect, it's statistically significant effect and not large, maybe about 3% drop in wages of people who compete with China but not people who compete with Mexico.
And why is that? There are a lot of reasons why that is but a big reason is that a lot of the trade that the US has with Mexico is trade in the same industry specifically autos and auto parts. And so workers move from one part of the auto industry to another.

Now here's some pictures on the trade. Kind of then, 1995 just when NAFTA came into effect 2005 and 2015 and you can kind of see what's happened. First of all agriculture is important but it's not a very big part of our two way trade.

It's growing but it's not dramatic. What is dramatic of course is the manufacturers and that has grown significantly in this big green bar at the end. The growth in manufacturers in terms of imports from Mexico that is the cause of much of the political angst. That number which is now in the about $270 billion as opposed to our exports about 150.

So that's the kind of picture on the trade. Now immigration, this is another part of the story. Which is quite contentious in the United States. And many people wrongly associate NAFTA with illegal immigration into the United States, undocumented workers. I think if you did a survey poll you'd find a very close identification of those two.

There is nothing in NAFTA that promoted or dealt with illegal immigration. I know that one of the negotiators Jules Katz has passed away. The other Carla Hills still very much alive. I know them both, they and the Mexican negotiators and well you say I know them as well.

That they recognize right away that immigration was too hot to handle in a trade agreement, in this trade agreement anyway. It's been handled in a few others. Doesn't go down well with Congress. No longer is dealt with in trade agreements to any big extent. There is a small exception for that and that is skilled workers. Professionals and other skilled workers and there's a list of the professions that are qualified. But there was a cap put on this at the beginning and you can see how small it was. 5500 for these three year visas.

5500 Mexicans a year could come under this so called NAFTA TN visa in the skilled professions. And they could bring their wife, their kids and they couldn't renew the visa. That was how it was in 1994. This has not been a controversial part of NAFTA. I mean the people who come in under this visa, the companies what them.

They've got jobs. Maybe when we had this great oil boom up in, flocking boom in up in North Dakota and so forth that firms were very eager to get Mexican workers who knew how to deal with the drilling and so forth and so on. And would recruit them as well as others and plus doctors and engineers and so forth.

So this has been actually relaxed and we don't have a numerical limitation now on the NAFTA TN visas and their spouses and children can come. And they can't work, they can't get a job but they can accompany so that's all there was in immigration, it's a very small fraction of the total US immigrants and it has nothing to do with illegal immigration. Nevertheless there is this mental overlay between NAFTA and illegal immigration which has quite colored the political appreciation in this country of NAFTA.

Just to give some numbers. The United States, we do have a lot of legal immigration. We emphasize family reunification in our legal immigration. Person comes and then he's legally, comes in and then he brings his wife or vice versa or children other relatives. That's a dominant part of our legal immigration. We also have skilled immigration as well based on skills. It's about, I think their numbers run about a million a year but Amy can correct me on that if I'm wrong.

Now comes to the illegal immigration which is so politically contentious. See the blue line is the border apprehension. How do you know how many illegal immigrants are here? There are two ways you know, one is you do a census. Now of course it's not always easy in the census to count illegal immigrants because they're naturally reluctant to have any contact with any government official including census takers. But there's an effort made to count them and checks made and so forth. So that's every 10 years we do the census. That gives you attempts to give you a stock.

Now in terms of the flow of illegal immigrants. The best we have are the border apprehensions. You know you count the number of people you apprehend at the border. And the argument is that a good fraction of those make it across eventually. On the second try the third try or whatever. It's kind of a very wealth indicator.

Well you can see what's happening to the border apprehensions, they are coming down. They're not as high as they once were. That's the numbers over there on the left hand column. And here on the right hand column is US unemployment. There's a rough correspondence between US unemployment and border apprehensions. Also they reflect how many people we put on the border patrol and so forth.
But when unemployment is high as it was not too long ago, border apprehensions drop. When unemployment is very low, it's easier for people to get jobs, illegal immigrants and there tend to be more of them coming. This is the stock numbers and the interesting thing that's happened, I know that politics has gotten quite heavy but if you look at the census numbers. As far as we can tell the number of illegal immigrants is staying at about 11 million. It's not rising rapidly.

This of course includes other countries besides Mexico but Mexicans would be dominant. Anyway it's not a rapidly rising feature of the US economic picture. So I've walked through at least some of the major criticisms that have been made of NAFTA. I didn't talk much about agriculture but if there's a question about agriculture I will talk a little bit more about that because that was a criticism made quite strongly I would say about 10 years not so much mentioned now.

So here was the economic pay off. Larger exports and larger imports and here's where I would say economists differ from let's say political discourse. Most economists believe that imports are actually a good thing. That you benefit from exports.

The country which imports actually benefits from imports and it's not just that you can buy the mangoes safely or you could get reasonable furniture or whatever consumer products you're talk about. Good beer, good tequila whatever. It's that import do two or three other things which are quite important for an economy. They drive productivity.

This is practically unknown in the United States but by having import competition you improve the productivity of the firms in that same industry that are residing in the US. And you improve it in two ways. One, the least efficient firms go out of business. Now economist like that. I know it's unpleasant, that's part of what Schumpeter taught us many years ago, creative destruction. Least efficient firms go out of business. That's the dislocated workers I mention earlier. And that's a good thing because that means the resource are available for the more efficient firms. Secondly the more efficient firms all get, they work a little bit harder and they do better. And it starts at the top. It's the management, feels the hot breath of competition and they improve their game and improve the game of their employees. And imports help that.
For a large country like the United States where we have a lot of competition anyway. It's not such a decisive feature. For a smaller country, this is critical. Imports are what will improve that country's performance over a period of time. I guess speaking about the benefits of exports that's kind of preaching to the choir. Whenever politicians talk about trade agreements, they talk about how many additional exports will be created.

They always focus on the exports, don't mention the imports side of the equation. But the exports apart from the obvious jobs that are created in whatever the plant is. Whether it's caterpillar or whether it's North Georgia University which is exporting to these students who are here. They're all export products. The average rate of pay in exporting firms is typically in the United States about 16% higher than comparable firms which are not engaged in trade. These are the better firms.

It enables firms to distribute the heavy cost of R&D, of research and development across a larger market. All these benefits as well as the just obvious jobs. So running through the calculations on this. We think that a billion dollars of extra trade, two way trade increases the US gross domestic product through the supply side effects. That is the greater efficiencies, cheaper prices, less monopoly by about $200 million.
For Mexico which is a smaller economy and has a lot more to learn from new production techniques, new retailing. I mean Walmart going to Mexico is a big thing for Mexico that really cut prices a lot and improve living standards. You know maybe it's a $500 million gain but for the US, we think the annual pay off for US household of three person is about $1200.00. That's significant but of course US household income for that size household is about $70,000.00 now. So it's not a big fraction but it's certainly a positive fraction. Manufacturing is where the criticisms are focused.
For each manufacturing job lost, when we calculate up for the country as a whole the gain is about 450,000. I mean it's just enormous. The arithmetic is just overwhelming because of all these maybe hard to discern in terms of eyes but the productivity effects, the cheaper effects, cheaper goods effects and so forth and so on. The gains are very large. What that last bullet tells us as economists is that the US could be a whole lot more generous to people who lose their jobs on account of trade than we are.

We're not a generous country. We're definitely amongst advanced countries, we are the least generous country for our people who have the misfortune to lose their job for no fault of their own. You know they are in the wrong industry at the wrong time, wrong place and it happened. Now we don't do very much for them and part of this political backlash against trade reflects that fact. The other extreme are the Nordic countries Sweden, Denmark and so forth and so on. And they really help out workers who lose their jobs going for retraining programs, flex security programs and so forth and so on.
We're at the opposite spectrum. Here are the pictures of the two way trade gains which we think are the important pay off. The green bar at the top is what we think is a result of NAFTA and when we talk about Canada as well, it's the Canada-US trade agreement and NAFTA combined. Well it's a big portion of the total trade. There would have been some increase in trade anyway, that's the red bar because all of our economies are growing. Some are growing faster than others.

So we get some because of that but we got a huge amount of additional trade because of NAFTA which in our view is a very good pay off from this agreement. So let me come back to the outsourcing story where I started off. The foreign direct investment.

Taking jobs from the United States and so on. My two colleagues Miran and Oldenski. I mean they've looked at the data and that's kind of better than looking at the anecdotes. If you look at the data, you can take firms that actually invested in Mexico and ask. What happen to their employment in the United States?

What happen to their investment in the United State? Compare to firms otherwise similar which didn't invest in Mexico. And these firms that invest in Mexico, they're the ones who grew their employment. Net positive effect as well as their investment and here's the number they get. When a firm has a 10% increase in its employment in Mexico, it's about 1.3% increase in the United States. In other words it's a positive, not a negative association. You know the political sign on this is completely of course reversed.

Let's say employment in Mexico was one for one, lack of employment or reduction of employment in the United States. Here's a bar chart across all these indicators in terms of spending, exports, employments, sales and so forth when a firm increases its presence in Mexico. So basically all on the positive side which is pretty important because that's so at odds with how we commonly think about this. So what are the lessons from NAFTA? Well the US actually can benefit from freer trade with a poor country, Mexico being the case in point.

We also have trade agreements with the central American countries and some Caribbean countries. You can double trade. If you like trade, what a free trade agreement can do is double trade from what it otherwise would have been and that's pretty impressive. The adjustment burdens are there. They're wildly exaggerated in public debate but we don't do anything about them in our public policies.
The big pay off of NAFTA or any other free trade agreement in terms of jobs is better jobs, not more jobs. You can not increase employment by free trade agreements and you can not increase employment by cutting free trade. It will not have any effect, contrary. You cannot increase total number of jobs by cutting off trade with foreigners and you won't increase them by increasing trade.

What you will do is get better jobs if you increase trade 'cause your workers will be shifted and the firms will shift to those which are the stronger ones. And if you decrease trade, you will have less good jobs on average. Of course what you will do is shift jobs between sectors. That a government can do. It can shift job from one sector to another by expanding or contracting trade. And trade can complement the growth strategy but internal factor will dominate the result.

Well I don't think I provoke anybody to ask a question while I was talking. But now we have a few minutes anyway to hopefully get a few questions. Please we have one yes.

[Audience Member] So when you were just close to the end, you said you were attributing the growth in US jobs specifically with foreign investments. How are you correlating those two things? So lots of direct foreign investments equals US jobs.

- How did they do it? How do Oldenski and Miran do it? Good question. The way they do it they've access to what is confidential data. So they can not reveal the data on individual firm. They have confidential data collected by the government on, we collect all sorts of data on firms.And so they take firms which have international engagement in Mexico or elsewhere and look at their employment. Their R&D, their investment and so forth and stack them up against firms which have either no or more realistically less international investment. But trying to hold constant the size of the firm. You know the industry it's in and so forth and that's how they come up with those coefficients. So it's a regression model with controlled variables for things that you can control for and then what's the difference between a firm which has investment abroad or doesn't.

[Audience Member] So the last part of that is, is the 1% growth that you got that you're I guess making this claim, is that statistically significant you think?

- Yes, it is, it is. If you go to the Oldenski and Miran study. I mean it sounds small but they're dealing with thousands of firms so they can get pretty good statistical resolution. It's not a growth figure. Well it's a growth figure in the following sense. If a firm had 10% more activity, sales in Mexico than another firm then its employment was 1.3% higher right, please.

[Audience Member] Oh I'd like to get a little bit more pragmatic - Sure. than statistically learned point of view. I come from a family that had an engineer and design and build company in Indiana. It was there for 25 years. It employed tool makers, dye makers, engineers, designers et cetera on that. What we found in that period of time between roughly 19, I'd say 1970 and roughly 1999 that period of time is that there was a tremendous amount of outsourcing. First of manual labor jobs which came to the South. Why did it come to the South? Well, you have a right to work law down here. So they didn't have to content with unions. Like our key customers were General Motors, Ford and Chrysler. We got $0.70 out of every dollar that came from those companies. So the first thing they did was outsource all the tool building and machining and everything went south. And then from there, it went down to Mexico okay. Alright, so we had to close our shop, the manufacturing facility.

The next thing happened in evolution of time and I'm stating this from a realistic point of view was that they recognized the greatest English speaking country and I might add also from an engineering perspective, very good was the country of India. And pretty soon what they did was start to outsource the design work and the engineering design work to India on that. Well as I said the company eventually had to shut down. We couldn't compete as a small business. There was only by the way, this wasn't a big company. This was only 40 people. Engineers, designers, tool makers, dye makers. So I'd like to know what your comment is because one thing that really gets to me is a statement you made that and I'll quote you. "Is the US is the least generous country "when it comes to supporting people "who are basically displaced."

- So you know that's a powerful anecdote that won the election or multiple for that won the election. Economists we hear those anecdotes, we tried to assess them against the overall data in terms of what happens to prices. What happens to productivity and so forth. The anecdotes are powerful but they I think generalizing them to say that well we should have cut down trade with Mexico or right now we shouldn't allow design software to be imported from India.

I so oppose that's how it comes over the internet. That would be a big economic mistake for the United States but I'm not disagreeing that your firm was hurt and hurt badly. Now the last point to make is the United States is least generous, yes that's what I said. It is the least generous country compared to Germany which is very good or Netherlands which is quite good. We don't do very much for firms which go out of business or for workers. They get a very small unemployment for a very limited amount of time.

They get limited training, no. It's negligible in terms of what they get so naturally they're very bitter. And that shows up in the polling places where it should show up and I'm not denying your story and the fact that we can get good designs from India. There have been respected economists, Alan Blinder is one them who came up with a number that some 40 million US jobs will be displaced by that kind of brain outsourcing to the Indias of this world or the Chinas of this world.

We've had a lively debate about that. I don't think he still repeats that number. McKinsey Global Institute did a study of that. Clearly there is as you say some outsourcing but we do some things extremely well in this country. And we are big exporters of them. We are leaders in materials, advanced materials. We are leaders in a wide range of engineering and design of a very complicated computer chips.
Obviously Apple, Google and so forth. They speak to our leadership and now we're down to, I think unemployment is still higher than it should be, it's at 4.9%. The reason I say it's higher than it should be is we have about 2% point of people who just gave up and left the labor force. So I think the real number is closer to 7% than 5% and I think that's too high. But it's down a lot from what it had been in the great recession. Well there are other questions. Well let's take some people, I'll take the younger people. So there's a younger person back there.

- [Audience Member] Okay so you said that we're getting, NAFTA they're not guarantee us but will lead to better jobs not more jobs.

- Correct.

- [Audience Member] Is the implication of that that they require more skilled labor which is to say like a higher education or training value and how does that relate to the perception that most of the jobs lost are more unskilled. Or jobs that people do with just a high school diploma. How does that essential come back? Does that benefit the same groups that is presumed to be lost when these factories go to Mexico? And then if we get better jobs that these individuals aren't qualified for 'cause as you say we're not very generous with worker re-education programs.

- Well yeah absolutely that's a right on point. First of all the people who are dislocated seldom can go directly to the new export jobs. Maybe in the auto industry, they can because we tend to produce the more sophisticated parts of auto plants and Mexico the simpler parts and so there might be some shuffling back and forth in the work force.

But it's a general story, the people who are dislocated. They have a harder time finding work and it's a long process and it's kind of stage by stage in the labor force. So the least skilled people in this country are not doing very well. They're not participating in, as you put it the skills and the high tech and so forth.

And what larger exports do is pull people into those jobs and there's a lot of on the job learning in any industry. You take any, whether it's finance or machine tools or chemicals. You come in and you learn in the job and that's where a great deal of the training takes place.

In terms of our public education as was much debated in the campaign. We're quite weak and you know in this country, I was at a manufacturing group not too long ago. We have 1/10 the number of apprentices as Canada which has 1/10th our population.

It's just amazing what we don't do in this country. In terms of training, we're beginning to get more colleges which are going in for training of unskilled people to make them semi-skilled or more skilled. But it's not an American strength at this point in time. So I agreed with kind of the thrust of what you said that it's helping people who are closer to the top of the technical frontier. Have the computer skills and so forth and it's not particularly benefiting people who have just stopped at high school.

Since we are senior military college, we believe in running on time. So that brings to a conclusion the morning session on NAFTA. Please join me in thanking Gary Hufbauer.

- - Good afternoon, everybody, how are we doing? It really is a privilege for me to be here with all of you. Trade is a topic that's very near and dear to my heart, and while I haven't had the most extensive career so far, I've spent the last 10 years really diving into international trade from an academic perspective, and then working with the state as a Trade Manager, interacting directly with companies, I made a break for the private sector and really doing hands-on export work, and now I'm back sort of heading up the Trade Services at the State of Georgia, so this is a topic that's very close to me.

And I have to say, I'm really inspired about what I heard in the first half of the morning as you all learn about free trade agreements, which are arguably very, they're very complex trade policy documents. They take many years to negotiate, and it's really interesting and fascinating to hear your take on what they can do and how they can be improved. So really I'm here to take less of a macro look.

I'm really here to present a little bit on what trade means to Georgia, and the impact that it has on our statewide economy and on local economies all throughout the state, with a specific focus on export promotion, which is really the core function that my team serves. And the bottom line is really that trade is important to Georgia's economy, whether we're looking specifically at free trade agreement markets, or emerging economies who are some of our most well-established trade partners.

The US, as Gary mentioned earlier, the US does have currently 14 free trade agreements in place with 20 different nations, and the State of Georgia has representation, international representation in six of those free trade agreement markets. And they represent very important trading partners for our state, but I think it's really important to point out that across the board, our businesses exported product to 217 countries and territories in 2015.

That is, I should've pulled up a map, I love a good map, if you think about 217 countries and territories, that's pretty much every country on the globe with the exception of North Korea. And so, it's the truth. So I think it's really important to reinforce that Georgia, from the state level, we take a very diversified approach to trade and export promotion.

So again I mentioned that I really wanna touch on at the state level, what it means, what trade means to the state's economy, and to local economies. And for those of you who aren't aware about the Department of Economic Development, you can sort of boil it down to say that we are the sales and marketing arm for the state of Georgia.

But really our goal, our core mission, is to facilitate the creation of quality job and investment opportunities in Georgia, and we do that in a number of different ways. There are about seven different divisions that are housed within the Department of Economic Development. We have our Workforce Division, Tourism, International Trade, Global Commerce, which is basically focused on what I would call traditional industrial recruitment and foreign direct investment into the state. The Georgia Council for the Arts is housed in our department, the Georgia Film Office is housed in our department.

We have centers of innovation that kind of provide a nexus between small businesses in Georgia and the resources and assets through the university system to help our companies commercialize faster and build better mouse traps, to be more competitive. So we're really very involved in a holistic approach to economic development, and international trade is just one component. I believe it's a very important component, I'm biased, there's no doubt about that, but from the perspective of pursuing programs and offering up services that really lay out the retention and creation of quality jobs across the state, international trade and export promotion is a really phenomenal way to do that.

So I have not always been accused of being the most energetic public speaker, and I know being the first speaker after lunch is always a tough gig, so I'm gonna try to do everything I can to not put everybody in this room to sleep, but I won't take it personally if you do. And I'm just gonna give you a roadmap of the three main talking points that I wanna cover in my remarks, in case you do fall asleep, you don't miss the punchline, I give you the punchline first.

But really the three points that I want to explore are first, that Georgia is very internationally focused and extremely internationally engaged in pretty much everything that we do. And this is due in no small part to our logistical advantages as a state. And so whether we're talking about the Port of Savannah, or Hartsfield-Jackson Atlanta International Airport, or our inland logistics infrastructure that moves product pretty seamlessly all across the country, Georgia is in many ways built for trade. So how do we capitalize on that, and what does that mean in a globalized economy? Second thing that I really wanna touch on is that international trade and specifically exports are an economic driver for our state, full stop.

And when local companies really take strategic and proactive steps towards exporting, towards diversifying their international customer base, it makes the state's economy and the local economies in communities all across Georgia stronger and more competitive. And third, the final point, is that the state and the Department of Economic Development specifically, we are committed to increasing Georgia exports to the world through the provision of customized services to companies all across the state, regardless of the industry that they're specialized in.

The Department's network of international representatives in strategic global markets is a critical element in our efforts to expand Georgia's global reach, and I'll get into that and where those offices are located and what their role is a little bit later on. So that's kind of how I wanna phrase my discussion for this afternoon.

So I always like to preface discussion of what we do and how we work with businesses on the export side. I preface it from a logistical standpoint because in my opinion, Georgia's greatest economic development asset is our global accessibility. We have a solid and very seamlessly connected logistics infrastructure. We are home to the world's most traveled airport, and the top-ranked international air cargo hub. We are home to the fastest growing and largest single-container terminal in America. We have two Class I railroads, six major interstates, and you can reach 80% of the US market from either a two-hour flight or two days by road from Atlanta.

So all of this means that Georgia is very good at moving people and products quickly and efficiently all across the world. But you can't just accept those logistical assets, accept that infrastructure, and not continue to build on it because you can never rest, you can never just sit on your laurels, you gotta keep on pushing everything forward.

So we really listen to people's input on transportation. We've created a budget to address our transportation needs, and we're implementing new infrastructure adjustments to really make sure that Georgia continues to maintain its competitive and global advantages. Dredging of the Port of Savannah is underway, and that will allow for the new Post-Panamax ships that are already coming through the Panama canal to call on the Port of Savannah, and we're very excited about that.

There is a new Appalachian regional port in Murray County, an inland port in Murray County, that's currently underway, and that'll take about 50,000 trucks off the road in metro Atlanta, which those of you who've commuted to or through Atlanta, don't need to tell you how important that is, but it really goes to the picture that is, goods coming in on the import side, coming in through the Port of Savannah, getting loaded onto rail into the inland port at Murray County, and then out into domestic market.

But you don't wanna just be sending product into the US market, you also wanna be sending containers back full, back out to the port. One big advantage of the Port of Savannah is that it does have pretty balanced trade. For the most part, the number of containers that we have coming in every month, for the most part go out full. It's about, I think, last time I checked, it was 53% import, 47% export for the Port of Savannah, which is a really important message, we need to make sure that the containers that are coming in get filled up with Georgia product and go back out all across the world because that means jobs here in Georgia.

So Georgia's logistical advantages are really unparalleled. I would say we're in a very, very fortunate position in terms of our logistical infrastructure, and it really supports key industries in the state, and it enables them to better reach their customers and improve their bottom line. It really does come down to competitiveness. The state continues to be recognized for its logistical strengths. According to Area Development Magazine, we're number two in the US for infrastructure, and number two in the US for access to global markets.

And as we continue to invest in that logistic infrastructure, it will just continue to help our companies remain globally competitive by offering really seamless access to a global customer base. And if you look at Georgia trade statistics as a whole overall, I think that point becomes pretty clear. 2015 was the sixth consecutive year of record-setting total trade for the State of Georgia. Imports grew to an all-time high, $88.5 billion. And our exports held their ground at about $38.5 billion.

So as of 2015, Georgia remained the 11th largest exporting state in the US, and we're the 7th largest importer. And as much as I would like to say that Georgia's exports will always never be anything but on an upending trajectory, an increasing trajectory, and that our exports will always be on the rise, given the relative strength of the dollar currently, that's not as realistic. A slight decline in exports is not unexpected. But it really is true without hyperbole that Georgia's manufacturing exports are holding steady.

They're holding their ground, particularly in sectors like aviation and aerospace, electrical machinery, medical devices, and so that's an upside. And one way to really address a potential decline in Georgia exports given the currency situation, given the strength of the dollar, is to get more Georgia businesses involved in exporting, and that's sort of the day-to-day job for my team at the Department of Economic development.

So again, to kind of back up to the statewide statistics, if you look at the 10 year trend, Georgia exports have grown more than 90% since 2006. And that's pretty impressive export growth, and I think it demonstrates real recognition on the part of our manufacturers and our businesses that the international marketplace is of growing importance and needs to be considered from the standpoint of how am I going to grow my business organically now and into the future.

So I mentioned that Georgia export markets are very highly diversified, 217 countries and territories. Our top export markets in ranked order are Canada, Mexico, China, the United Kingdom, Germany, Japan, Singapore, Brazil, Saudi Arabia, and Australia. Several of these markets are FTA partners, and several of these markets are FTA partners that actually saw significant growth in 2015 even after the dollar was beginning to strengthen. For example, Georgia's exports to Mexico grew 15% last year. Our exports to Australia grew by 10%.

So there's a lot of good stuff going on. These top 10 export destinations, they account for approximately half of all our total exports, but the state's merchandise exports really do literally span the globe. And so the top products from Georgia, and this catches some people up, but our top exported products, number one, by far, about eight and a half billion dollars every year, is aviation and aerospace-related products. We're big in heavy construction equipment.

We're very strong in electrical machinery. We're very strong in motor vehicles and medical device manufacturing as I said. Agriculture is Georgia's number one industry, it is not even close to being its number one export, but we're working on it. So over the past 10 years, the state's agricultural exports alone have tripled.

So while it's kind of, it's easy to get stuck in the annual statistics. We're up, we're down, we're up, we're down. And what can you do to cushion that blow, I think when you look at the overall 10 year trendline of all export on the merchandise side, coupled with the pretty extreme growth we're seeing in the agricultural sector, coupled with getting more companies involved, getting more companies to make a concerted effort to think about export promotion for their products, we're in pretty good shape for the future.

Other trends that we're seeing in Georgia's export picture, about two-thirds of our products go to markets where the state has international representation, and 41% of our products are sold to FTA partners. And again, that's using 2015 as a baseline.

So the numbers are important, but I think the more important takeaway is they have a very real impact on the local economy here in Georgia. The dollar value of Georgia exports last year supported 198,000 jobs. And at the local level, businesses in every county in the state are active in international trade, and that's imports and exports. Gary alluded to it as well, the infrastructure to bring in goods, the import side, from a trade development standpoint, imports do create jobs, exports create more jobs, but just increased international trade overall, the outbound and the inbound, is an important economic driver for our state. We know that exports create twice as many jobs as domestic trade alone.

And so by that, I mean that for every job that's created in the economy, manufacturing a product for sale or use in the domestic market, on the export side, a second job is created somewhere else in the economy to actually get that good to the international marketplace. So there's a very real two for one job creation effect associated with exports that we really wanna focus in on. And we also know that exporting companies, they tend to grow faster. They tend to pay higher than average wages, and they're less likely to go out of business than their counterparts that are only focused on the US market.

And so that means a real economic impact for local communities that choose to encourage their companies to be focused on exporting. And again, I've said this before, and I'll just re-enforce it outright, from an economic development perspective, from a job retention and creation perspective, it is absolutely imperative that we encourage more and more companies to look at international opportunities as a growth opportunity for their businesses. One sort of variation of this speech that I give is sort of addressing some of the myths of exporting. On the face of it, it really shouldn't be too difficult to encourage a company to go international.

There shouldn't be a lot of convincing that happens there. When you look at the numbers, you've probably heard this figure 95% of the world's customers are not located in the United States. They are located everywhere else. Global consumer patterns are shifting, and they're shifting very rapidly to new and emerging markets.

For example, we're seeing a very rapidly growing middle class in several Asian markets, which has caused a lot of companies to kind of pivot and take a look at, am I ready to take advantage of the growing customer base in some of those Asian markets, or am I solely focused on the US, or am I only focused on North America? The bottom line is that the entire world needs the high quality products and services that our state creates, and so how do we get those products into the hands of the global marketplace?

So again, that shouldn't be a tough argument, but the reality is that very, very, very few companies actually choose to be engaged in exporting. At the national level, if you look at the millions of businesses that exist in the United States, at the national level, less than 1% of all companies choose to export. And of those companies that do, only 60% of them sell, they sell to only a single market.

So I could spend a lot of time being daunted by that number, or I could look at the upside. The first upside of that is that alright, 60% of our exporters are only selling to a single market. There is a tremendous upside by just getting those companies that only sell to one market to sell to a second. By getting companies that are already doing a little bit, to do a little bit more is going to have a very real effect on US exports, and at the state level, on Georgia exports.

So that's an important consideration right there, and so I choose to kind of stay hopeful about that one. But second, and this is really where the rubber hits the road for us at the trade division and what we do in our work with Georgia businesses, is that okay, granted, less than 1% of all US businesses export. But 95% of the ones that do, are small and mid-sized companies with less than 500 employees.
So that really runs counter to the misconception that only large, multi-national firms export or can export. And I believe it does run counter to the idea that small businesses aren't able to take advantages of the opportunities provided by international business. I think there is a very real argument to be made that by focusing in on those small and mid-size firms, helping them be internationally engaged, will have a very significant impact.

So at the Department of Economic Development, my team, we offer free, customized export services to small and mid-sized firm. We can work with companies of any size, but we really choose to focus in on those small and mid-sized businesses because we understand that they have unique needs. They have unique limitations that a larger company may not, and there's a basic education component that goes on that we're very clearly focused on. Our bottom line objective is to always make sure that companies have the tools and the resources that they need to be successful in their international efforts.

So from sort of a day-to-day operational standpoint, when I say that my team spends a lot of time counseling small businesses, I do mean small business. If you look at all the companies that we worked with over the past fiscal year, 86% of those companies had fewer than 100 employees, and nearly 60% had fewer than 20. When I was in the private sector, the company that I worked for, we had 34 employees in the company, and that's, it's very real when you're working in a small business that's internationally focused, you don't have an international trade team, you don't have a bench necessarily. Your CEO of the company is maybe also your international sales guy.

He's also changing out toner cartridges, helping with shipping, and maybe cleaning the bathrooms if it needs to be done. The realities and the resources that are required to successfully complete international business can be very taxing on a small company, and so that's where our resources and our services really come in. Let's see. Next. When people ask kind of how we engage, I usually break it down into two, two separate areas of services.

The first is to help new to export companies really learn the mechanics of international business, so that they can get started on the right foot, and if there is one thing that I hate more than anything else, it's running into a Georgia business that has been around for 30 or 40 years, and they have been trying to export, but they've really run into a lot of challenges. They've run into non-tariff barriers, or they didn't know how to fully vet out their customer.

Or they just kind of encountered pot holes along the way that they didn't have to if they had worked with us from the beginning. So that's really a frustration. And so a lot of our services are really crafted to getting the word out to small businesses to help them get the mechanics right. Are they ready to do business internationally? Are they ready to take on international customers? Can their business model, can their production lines, take full advantage of that, are they ready for it? And is their pricing model right, and then how do they find the customers?

So we do focus a lot on the mechanics. And the other thing that we do is really help our reactive exporters kind of flip that switch and get to thinking like truly globally engaged companies. We try not to focus on the transactional nature of exports. Don't get me wrong, it's fantastic to get a company to sell four, five additional container loads of product internationally that they weren't doing before, but are they really thinking about cultivating an international customer base that helps them grow for the future?

So last fiscal year, my team provided one-on-one export consultations with 761 countries, excuse me, 761 companies. We undertook hundreds of market research requests with those firms, and we supported more than $22 million in export sales. And so when you talk about helping a company with 10 employees do an extra half a million dollars in business globally, and that means that they have to hire one or two new people to address international needs, that can have a powerful impact when it gets multiplied out across these cities, and across Georgia's 159 counties.

We're always looking at ways to get new companies into the fold, and to get them to really understand the power and the impact of exporting. And sometimes that can be a very big challenge.

For many small businesses, the perceived barriers to entry and the barriers to exporting can be very daunting and very real. They ask a lot of questions. Usually the first one, is my business ready for this? What if the phone rings, and I pick it up, and there's somebody speaking Korean to me on the other end? What do I do with this? Their second question usually is, how do I get paid? Then it's, is my pricing model globally competitive? How do I get my product there? What are the logistics? What about international registrations? Are there labeling requirements that I need to take into account? How do customers find me? How do I vet them? And again, how do I get paid? Companies don't know what they don't know.

And so I think it's really important to get that word out that there is a team of trade professionals at the state level whose sole focus is to work with them and basically be part of their international sales team to get them where they want to go. I'm gonna shift a little bit and talk about what in my experience companies usually consider when they're thinking about doing international business, and this will provide a good nexus to talk about free trade agreements.

So you know, a big part of our job is what I kind of describe as the tail-end of export education. It's to a certain extent the mechanics, alright. This is how I'm gonna structure my business. I have my pricing model more or less right. I think I understand the logistics of how to get it to market. What countries do I want to target, and how do I go about doing that? And that's really an area where our state trade services can really focus, working with the companies. What are your needs, where do you wanna go, what are sort of core criteria that are important to you in finding a new market, and then we can run the research for you and deliver it to you. Free trade agreements very often come up in a company's calculus, at least from the ones that we're working with. Just from a price competitiveness standpoint, does it make sense for me to target, if I'm a new to export company, does it make sense for me to target an FTA country first? Yes or no? That's a pretty common question that we get. And it's important to back up and say that FTA's are really designed to do many different things.

They're very complex pieces of trade policy that are meant to accomplish different goals depending on how you're looking at it. From the standpoint of export promotion, free trade agreements are very much meant to address competitiveness barriers specifically for US products and services, right? They're meant to open up new markets that had previously been closed off. And so whether you're talking about the reduction and elimination of tariffs and that top line, or whether you're talking about non-tariff barriers, NTB's, the export quotas, the licensing requirements, the international regulations. Intellectual property protections.

The things written into free trade agreements are really designed to lower the barriers to entry, again, specifically for US products and services. And in a lot of times, specifically small businesses wanting to get involved. I think I mentioned earlier that about 41% of Georgia's exports do go to FTA partners, that's about $15 billion a year, and that continues hold pretty steady. And while some of our larger firms might focus on labor provisions or procurement access, or IPR protections that FTA's do establish, for many small businesses, one of the greatest benefits of an FTA is simply that reduction and elimination of tariffs because it means an immediate boost to competitiveness. And I hate to kind of boil it down to that level, but a lot of times, you know when you're a small company, it's just like, great, I'm no longer facing a 15% tariff on my product to get into market X, you know?

When the agreement goes into effect tomorrow, that 15% is gonna drop to five, and in five more years, it's gonna be zero, so that helps me improve my margins. That helps me improve my bottom line, and that makes this potentially workable for my business and how we're gonna grow. One example in terms of Georgia products and services is the US-Columbia free trade agreement that entered into force in 2011.
So before that agreement was negotiated, there was an 11% import duty on machinery, a 13% duty on building and construction equipment, a 12.5% duty on paper and paper products. These are not the only products that Georgia exports to Latin America, but they represent some of our leading products, and those rates dropped immediately once that agreement took effect. And that was fantastic news for companies that manufacture those products because it literally opened up a new market for them that they didn't feel that they had access to before. And the result is that Georgia exports to Columbia have grown 15% since that agreement took effect. And honestly from the state perspective, the state of Georgia is one of the only, if not the only, state in the country that has international representation in the Columbian market. We have representation there specifically to help Georgia businesses sell more product into the Columbian market.

And so we really do feel that there's value in these international agreements and the opportunities that they can open up for our Georgia exporters. So FTA status is very clearly an issue that companies consider when they're wanting to do business internationally, but there are lots of other factors that come into play. What is the demand for the product? What is the existing competition in the market for my product? Do I need to only look at markets that actively communicate in English? Is that a barrier for me that I want to address?

Again, what are the regulations, what are the labeling requirements, these are all very real factors that companies struggle with, and they kind of don't know where to turn, and so they turn to us to kind of help them make sense of the data, and their competition, and the competitiveness of their product, and what the global landscape looks like specifically for them as a Georgia business.

So not talking in generalities that FTA's are great or Canada's great, you should go here. Or you know, I've really heard that Singapore is picking up, you should go there. This is the dynamic that's working in your company. These are the resources and the time that you have to dedicate to international business. These are some of the international players that you're gonna be competing with in these markets. Our recommendation is that you kind of focus your efforts in country A, B, and C. So that market determination is kind of only half the picture. It's a big part, and it really is rewarding to see companies who are like, eh, I never really thought about exporting, I'm not really sure where to go, I don't know, I'm still kind of scared. And when you deliver that market research that's like, look, based on the numbers, it looks like you could actually do really well in Mexico, Vietnam, and the UK.

So that's on piece of the puzzle. The other piece of the puzzle is actually getting those Georgia businesses connected to their partners in market, which is another thing that we focus on very, very much within my team. It's really providing that global connection piece, which are the services that really help companies identify, vet, and connect to the global customers that are actually going to be buying their products and services. And Georgia's networks of international representatives, it's really, they're really critical to our effort to connect Georgia businesses to the world. And for those of you who don't know, Georgia has representation in 11 international markets.

We're in Canada, Mexico, Columbia, Chile, Brazil, the United Kingdom. We have a European office that's based in Munich, Germany. We have an office in Israel, China, South Korea, and Japan. And many, not all, but many of these representatives are dedicated full-time to expanding exports from Georgia to their markets. I'm very fond of saying that our international representatives are our boots on the ground for Georgia businesses.

Big picture, they are ambassadors for Georgia and everything we do from an economic development standpoint in their markets. But their day job is really to be boots on the ground, to be an extension of a small Georgia business's international sales force to help them do what they need to do in the international marketplace. So it's our rep's job to know the markets and to know how to find quality partners, distributors, importers, agents, customers, regardless of their industry. So our reps, they're industry generalists, but they're very knowledgeable about their markets, and they can really help companies that have a lot of questions really accurately navigate the global marketplace.

So really, when you think about this resource that's available to companies in Georgia, it's kind of unsurprising that about 60% of our exports go to those markets where we have international representation because we really do have somebody, you know, hey, I know Mike in the UK, I know Paul in Shanghai, I know Gail in Toronto, I know Walter in Mexico City. It makes it real, and it makes it tangible, and it makes companies feel like they're not alone in doing this. And they shouldn't feel like they're alone in doing this. States really should continue to put resources forward to helping small businesses be successful in the international marketplace. I have no idea how I'm doing on time, I'm gonna wrap it up. I'm seeing lots of drooping eyelids in the audience.

So I will keep this short. I think that the main takeaway at this point is that, from an export promotion standpoint, we simply can't do it alone. If you think of the export process in big capital letters as a long continuum, and you've got your new to export companies who've never even considered it in the first place, but all of a sudden, they're getting all of these inquiries from companies in Turkey on their website, and they don't know what to do with that, and on the other end of the spectrum, you've got the Coca-Cola's and the Caterpillar's and the Shaw's and the really large multinational companies who have been doing business internationally for decades and decades, there's a lot of bandwidth. There's a lot of space between those two poles. And I mentioned that we worked with about 760 companies last year, my team did. I guarantee you, neither, none of those companies had the exact same request, and they all fell somewhere just a little bit different along that continuum.

And so from the standpoint of state services, we have to really narrow down what is the best value that we can provide to our businesses to help them remain globally competitive by finding these international partners. And to do that, we work with partners here on the stateside. So again, starting with new to export companies, we work with SCORE, the Service Core of Retired Executives, we work with the University of Georgia, their Small Business Development Center, they have an international trade team within their group.

Again, they're really focused on the international export education and everything that is related to the mechanics of gearing up to be an export-ready company. In terms of market access, we work very closely with the US Commercial Service, and their network of international businesses worldwide, again, to expand that global reach and get our businesses connected with quality partners in the global marketplace. When it comes to financing, we work with a lot of private banks. We work with private export credit insurance entities. We work with the Small Business Administration and their financing arm. We work with Export-Import Bank. And we work through some of the resources that are unique to Georgia and our very strong international business and consular community, which does exist.

I mean there are, I think at last count, 72 different countries or entities represented in the state of Georgia, either through a consulate, an honorary consulate, or an international trade commission, or bi-national chamber of commerce. And so that's also a very powerful network to tap into, and we do to try and help answer the questions that the Georgia companies have, and there are lots. And so we don't wanna be all things to all people, but we really do want to rally the community that exports are important. Exports are very important.

They're a big, they're a lane of job growth. Just the dollar value of exports alone last year supported those 198,000 jobs, but again, you know, if you've got a company in Hall County that was feeling in really the depths of the economic depression, they felt that their domestic market was drying up, and they didn't know what to do to really have a platform, to save their business, and help their business continue to grow, they had to look outbound.

They had to look at international opportunities to not founder when the domestic market was drying up. And so when you've got a company in Hall County that suddenly starts looking at exporting, they've got 22 employees four years ago. Now they're doing business in 25 countries. They've taken their export percentages from 10% to 20%, and they've hired six or seven new people that speak new languages, they're paying higher than average wages, that's a real win. That is an economic development win, and it's not the only story.

This is the story that's happening to companies across the state, and so it really is imperative that the state remain committed to pursuing international business opportunities for our companies. Regardless of what market you're looking at, we really need to kind of blow the doors wide open for Georgia businesses and let the world know that we've got products that they need, and they need to buy them now. So with that, I am going to turn it over and see if anybody has questions, but thanks again. Oh, sorry.

- [Questioner] You have a very, very positive message, but I've done a lot of work in Latin America, specifically also in Mexico, and there was and still is a tremendous amount of corruption there for American businesses going in there.

One particular example was I worked for one of the largest hamburger companies, franchise companies, and it cost, at the time back in '93, '94, about three times as much to build a franchised restaurant in Mexico as it did in the United States. And I'd like to know what you do to educate and help Georgia businesses in understanding the environments they're going into.

- I mean, that's an excellent question. So in that case, we've got a company that's interested in pursuing a franchise model in Mexico, for example. The first thing that we do is put them on the phone with our representative in Mexico City to really give a clear picture of what the lay of the land is. What the competition is, you know, are you potentially looking at a situation where you're gonna run into competition because you as a US business are subject to the Foreign Corrupt Practices Act. You're not allowed to bribe, you're not allowed to give yourself an advantage over other businesses. That is part of the discussion. These are very frank discussions. It's not just trade is great, Mexico is great, you should go there. It is the responsibility of our reps to say this is really the operational environment. Here are options for you, people that you can talk to, legal experts, potential partners that we have vetted, that are on the up and up, that can kind of help guide you if knowing all of this you still want to pursue opportunities in the Mexican market.

But make no mistake, my job is not to say that exporting is fantastic, and there are zero problems connected to it, and it's the right move for every business right now. I feel like my job is to help companies understand the very real challenges but also the real benefits if it's right for them at that time, but really, we get from one of my trade managers calling on the company here in Georgia, we get them connected to that international representative just as soon as we can, so that they hear direct from the source, from the person that's there, that's bringing in other resources for the Georgia business to talk to really what the operational environment does look like in a particular market. - Taking to account the current political and economical situation in my country, Brazil, what do you think are the risks for the Georgia business to export there right now? What may happen in the future, thinking about impeachments, the current economical situation, political crisis we have? - That is a great question, and I think a lot of people are kind of surprised to learn that Brazil is a top 10 export market for Georgia because it's usually pretty high on the lists of most complex markets for international business. Very protectionist, a lot of real, sort of structural challenges to doing business there. We have always, the state of Georgia has had representation in Brazil since 1994.

And so we really very much take the long view, and Georgia exports just broke the billion dollar mark for exports to Brazil just about two years go. And we've got a lot of companies who are very clear-eyed about the situation in Brazil. They feel that on the political side and the economic side, it's working itself out. We have a lot of companies that were, I would say, more excited about doing business in Brazil maybe two or three years ago. They've already sold some product, but they don't really truly have their market footing yet in Brazil, that are using this time of transition nationally to kind of reassess and to continue to promote partnerships with the folks that they've met on the ground in Brazil, continue to work the business partnerships and kind of wait it out so they're in a more beneficial position.

Our aerospace exports are very strong in Brazil. It's most of our top products that are exported to the Brazilian market are on the manufacturing side, and on the medical equipment side where there are both higher tariffs and regulatory hurdles for any medical device company doing business in Brazil. A visa can be a very real challenge. And companies, I would say our companies, from our client profile that are looking at the Brazilian market, they're not doing it to make a quick buck.

They're not doing it because it's the easy market. They're doing it because they feel that Brazil is a strategic longterm play and that selling to Brazil is part of their growth strategy going forward. So we do continue to have a lot of companies. Our Brazilian office, they always have a full client pipeline, they're always working on work orders because companies continue to be interested, and they're like, okay, well I might not be able to sell anything for the next couple of years, but I can spend that two years really getting my bearings in the market, and this is truly the lay of the land. This is the reality of the market. Is it feasible for my business to work within those confines and to really be successful there? If that answers your question.

- [Questioner] Regarding the companies you work with, I'm curious about how long you work with those companies until you take the training wheels off, then you say this company is able to function in an international market. So what are some of the milestones you see companies achieve to where you can take your hands off?

- Right. In large respect, it kind of depends on the company. In a state like Georgia, you do get some companies that are great prospects for export, but maybe they don't wanna share a lot of information with the government, and so that kind of comes into play.

But the answer to that question is it's not un-typical. I would say the average is about three years. We tend to work with a company for about three years. And usually if there is a typical situation I could lay out, it would be that a company calls us, or a company calls the University of Georgia Small Business Development Center, and a lot of times it is, hey, my website is just blowing up with all these inquiries from the UK and Guam, and I don't know what to do with these things. What do I do with them? And so we go out and we counsel them. The SBDC will work with them on the mechanics side. We start doing market research. We start doing due diligence on some of those folks that have maybe been emailing them on the website, just to kind of give them the lay of the land. Is this legitimate, is this actual international interest in their specific product. And then it comes down to getting them connected with our international representatives to see who are the partners in the target markets that we help companies identify, who are those partners that they need to work with?

And so what ends up happening is that we go in to work with a company, and they think that they only have a single need, they think that they only have one request, and there's actually like ten things that they need to work on simultaneously to achieve that one goal. And we can help them with the ten, but it's not we work with them and two weeks later, we cut them loose. It's very longterm assistance, and actually, we don't ever kick people out of the nest, essentially. If companies wanna continue to keep working with us, we encourage that. We know them, our reps know them. They've already paid for us with their tax money, so we encourage them to utilize our services, but there is an example of an aerospace parts distributor located in Peachtree City.

And they started out in the SBDC Export Georgia program, I think probably about 12 years ago now, it was 2004 and 2005. And they went through that process, which is like an education and training system for small business exporters. And we worked with them for a couple of years. We got them up to speed in Morocco. We got them doing some business in Canada. We got them doing some business in the Middle East. Their international sales really started to take off, they hired a lot of people, they felt, after the course of about two years, they felt that they had strong fundamentals and they could go it alone.

And they continued to grow their international business, but they came back to us about a year and a half ago and said, China, how do I break into China? We've been doing this for a long time, but we just can't figure this out, can you help us? And we could, and so we welcomed them back in. We do have some companies that just have a single request. Hey, can you run due diligence on this company in the Czech Republic that we wanna do business with, and that's all we hear back from them ever. And then we've got companies that really choose to work with us over the long term, and we really welcome them.

- [Questioner] I wonder if you could just talk a little bit more about the overlap you see between the federal level and the state level. So I know you mentioned there are specific things that Georgia's doing in Columbia, for example, that might be different than other states, but I'm just curious as far as how much you see the federal, the potential federal stance, limiting a certain amount of free trade, how much does that limit what Georgia's able to do?

- I'm happy to talk about that. Georgia just from the standpoint of collaboration among export promotion partners at the state and federal level I feel like, well, I know for a fact, that in Georgia that communication is very good. That doesn't necessarily hold true for other states in terms of that level of collaboration. Some states do consider their state trade policies and their state trade services to be kind of almost in direct competition to the export promotion services that the government offers through the US Commercial Service and some of those opportunities. I think from a federal trade policy level, which I think is where you're going with that question, we just don't know what's gonna happen. We just don't know what trade policy is gonna look like. Is anything gonna change, if it does, what does that look like? That's separate from the economic development initiatives that we're gonna undertake as a state.

My job today is the same as it was on November 8th, to promote the export of Georgia products and services all across the world. The world is a big place. There's markets for all of our companies that wanna get there. And we'll continue to do that. Our responsibility at the state level is not to dictate what happens at a federal policy level.

It's not to really lobby on any particular behalf. Our job is to, okay, here is the lay of the land, here are the opportunities specifically for Georgia businesses to take advantage. Could it be that certain markets that we used to promote pretty heavily because they were good partners, could we see policies come up that maybe change that landscape a little bit?

It's possible. And we'll counsel our companies accordingly to markets that make sense for them, kind of regardless of the overarching trade umbrella. But I'm in constant communication with the network director of the Atlanta Commercial Service office, and we communicate very frequently, and it's about making the pie larger in terms of the number of companies. We don't compete with our services. We have to be collaborative because that's the only way Georgia companies are gonna get what they need to make them be successful.

- [Man] I think we have time for one more question.

- [Questioner] In particular regard to the Chinese systems of guanxi, how exactly do you recommend that businesses which wanna enter the Chinese market do so?

- That is a phenomenal question. It depends on the resources of the company. It depends on what kind of industry they are in. Across the board, and this is not exclusive to China, but it's certainly pertinent when talking about China, we always, always encourage our businesses, no matter how big or small to look at trademarks, to look at patents, to get their intellectual property square, whether that's working through Madrid Protocols, and those nations, we really strongly encourage them to get their IPR in order before they even consider going to an international trade show or starting to do work in an international market.
What we can do is advise them on that. Our team can recommend a list of qualified law firms, qualified CPA's that are the professionals. We don't tell companies what to do, but we do give them access to that information so that they can build that out to feel that they are relatively well-represented and safe from an intellectual property standpoint in China. We have companies that approach it a lot of different ways.
We've got some ICT and some health IT companies who are just like, China is the big Kahuna, we need to be there. How can we be as safe, as well protected as we possibly can be knowing that to completely ignore the Chinese market, we're gonna be shooting ourselves in the foot. That's the determination that we've made as business X.

We have other companies more on the manufacturing side that don't necessarily have protected production processes that kind of approach the Chinese market like, well, I'm gonna start out here, and then when I start seeing a competitive product that's got a blue label instead of my green label, then I'm gonna move on to the next place and kind of try and outpace some competition that comes up in the China market. So we very, very rarely, I can't really think of an example in the last three years, where we have counseled a new to export or relatively reactive exporter to really set their sights high on the China market. We recommend China for companies that very much have their footing in international business, they feel very comfortable with where they are and how they're doing the things that they're doing. And we put resources in front of them to help them be as protected as they possibly can be in their international efforts.

[Man] Please join me in thanking Mary one more time. Hold on for just a second. We have a small ceremony we'd like you to partake in.

- Mary, we know you didn't travel too far to get here, so we also know you have to leave early 'cause you have a long journey ahead of you. We had planned to wait till the end, but since you do have to leave, we have a small token of appreciation for your time, and we hope you will proudly display it in your office.

- That's what I will do.

- Thank you so much.