Briefing on Diplomacy and Jobs

Special Briefing
Robert D. Hormats
Under Secretary for Economic, Energy and Agricultural Affairs 
Washington, DC
July 12, 2011

MS. NULAND: Good afternoon, everybody. As you all know, Secretary Clinton this morning spoke to the U.S. Global Leadership Coalition about the role that diplomacy and development play in creating jobs here at home. To expand on the Secretary’s remarks and to talk a little bit more about what the State Department does in this regard, we’re pleased to have Under Secretary of State for Economics, Energy, and Agriculture Robert Hormats to speak to you today.


UNDER SECRETARY HORMATS: Thank you, Toria. Good afternoon. It’s a pleasure to be here. And this is just a way of elaborating a bit on what the Secretary has already said and to identify, in somewhat more specific terms than she had time to do, what I call the State Department’s jobs agenda. We’re very cognizant of the fact that, in this country, a number of people are struggling. We understand the particular importance of the State Department not only conducting a vigorous international economic policy but also connecting with the concerns and the aspirations and the interests of hardworking people in mainstream America, and to try to develop programs which support what they’re trying to do, which is to get good, well-paying jobs. And we have a number of programs that are doing that and are doing that very vigorously. And the Secretary has alluded to some of them, and what I will do is identify a few of those and go into greater detail.

The first and perhaps the most important is the efforts we’re making to support the President’s program, which is called the National Export Initiative, to double American exports over five years, which will support, in our view, something on the order of 2 million American jobs. And this is, obviously, a very high priority for the Secretary, and the Secretary has devoted a lot of time and a lot of effort to doing this. Everywhere she goes and everywhere I go and everywhere other senior officials go, we serve as strong advocates for American companies, not just the large companies, although we do support the large companies that have big potential export orders, but also small and medium-sized enterprises. We have over 1,000 economic officers throughout the world who are doing this, and 400 locally employed people as well. And we use our ambassadors all around the world to do this.

The other thing we do is we have efforts to encourage our ambassadors to come back to the United States, to go to various parts of the country, and to meet especially with small and medium-sized enterprises to help them understand the export potential of the countries in which these ambassadors operate, and also to help them get through all the regulatory complexities which face a number of these people. So this is really one of the very important things that we do because exports, if you look at the world, 95 percent of the world’s consumers are abroad. More than half our exports go to the emerging economies, the fastest growing economies. So our effort to identify opportunities in those markets and to help people to penetrate those markets and obtain opportunities is critically important.

A second theme, which relates very much to that, is the question of addressing the rules of the system to make sure that as these countries become more important players in the global economic system, they assume greater responsibility for the global economic system and create a level playing field. And what does that mean? It means, essentially, ensuring that countries abide by the rules with respect to protection of intellectual property; that when countries have state-owned or state-supported companies, that those state-owned or state-supported companies do not receive the kind of benefits from their government, either financial benefits or regulatory benefits or their ability to avoid any monopoly kinds of rules, that can give them an artificial advantage over private sector American companies.

So what we want to do is to create what we call competitive neutrality, and that is that if private companies compete against state enterprise companies, they compete on a level playing field and these state enterprise companies do not have artificial advantages. So what we’re making – what we’re doing is making a major effort to ensure, through the OECD, through the WTO, through other institutions, the kind of fair, level playing field that we believe is necessary to make sure our companies have the opportunity to compete in global markets, particularly the emerging markets, which in many cases may have a somewhat different economic model from the model we have.

Third is we’re working very closely with USTR to support the free trade agreements, the trade agreements that have been reached, the trade agreements that have been reached with South Korea, with Panama, and with Colombia. These trade agreements are very important. We see, if you look around the world, a lot of countries have made trade agreements with other countries. And all those agreements, I think, risk – if they continue without our also playing in this same area – risk undermining our market share. So the trade agreements that we have been negotiating and now are complete and we’re working with the Congress to get them through the Congress, the White House and USTR are very much in the lead on this, although the State Department is very, very supportive of this effort. The objective, the whole idea, is to make sure that we have greater access to these markets, which in turn creates a lot of jobs in the United States by enabling us to sell more in these third country markets. And the Korean agreement, the Colombian agreement, and the Panama agreement are very important priorities in that area.

A third – another area is investment. And one of the very important things about the way the world works today is that you have a number of emerging economies that have a very substantial amount of capital, and they’re looking to deploy that capital around the world. And foreign investment from industrialized countries and from emerging countries both can play a very important role in creating jobs in the United States. Roughly a third of the foreign investment that comes here goes into the manufacturing sector of the economy, and it goes into union and non-union states alike. And there are a lot of jobs created. Something in the order of 5 million or so jobs are created by foreign investment in this country.

So we have a very welcoming attitude toward this. The State Department uses its embassies to work with state governors that are also very active in this area, the Commerce Department as well. And the President just recently made an announcement welcoming foreign investment into this country, and the Commerce Department and Secretary Locke made an announcement recently called SelectUSA, which was a way of streamlining the effort to encourage foreign investment here. And we have worked with state and local governors in cooperation – and I’ll use China as an example, with Chinese provincial leaders to get them together to identify ways in which we can improve opportunities for them to invest in this country, so this is another area by attracting foreign investment and using our embassies effectively to do that, we think we can find opportunities for more foreign investment that creates more jobs in this country. And again, because there’s a lot of capital abroad, we can use that capital for productive enterprises in our own country. So these are the major elements of the strategy.

I’d also just like to make one broader point before concluding and opening up to your questions, and that is if you look at the way the world works today, it’s a very new world compared to that of the ‘50s, ’60s, ‘70s, ‘80s, and even ‘90s, 1990s, and that is that this is a world where the emerging economies are playing a much greater role. And the objective of the United States is to look at these countries, both as very competitive countries, and we have to do what we must do internally to improve our competitive capability, that means strengthening our educational system, strengthening our infrastructure, address our very heavy dependence on imported energy, putting our economy on a long-term sustainable financial footing. All these things are needed because a strong American economy is essential to a strong foreign policy and a strong national security policy.

So in effect, the centerpiece of a strong international economic policy and national security policy and foreign policy is a strong national economy. This has been recognized by American leaders since Alexander Hamilton, who established the strength of the American financial system and the creditworthiness of the American financial system in the late 1700s. And so this strength of the American system is very important today as part of our national – our economic international security policy. So that’s one critical element.

The second is demonstrating to the rest of the world that the American model is still the best opportunity-creating model in the world, that we have been, since the beginning – since Benjamin Franklin and Lincoln and others – an opportunity-creating society. And what we need to do today is to create more opportunities at home, but also to demonstrate that the sort of – the free market, open, fair rules-based model is the best way in which other countries can also create opportunities for their citizens, and we want to work within the Group of 20, with the OECD, within the IMF and within other institutions to make sure that people understand that this – the kind of model that we have demonstrated and other countries have demonstrated can work and our own countries can work and other countries and that – and finally, that a global system based on fair rules, fair opportunity, and openness is the best way to go in terms of making sure that we can create the kind of global growth that is important.

If you look at every country today, now a lot of them have undertaken very important domestic reforms, but they would not be nearly as successful as they have been without an open global economy, without a rules-based global economy, without open flows of information and investment that have been very important to the growth of our country and many others. So working with these newer countries, not just as competitors, but as participants in improving the global system will strengthen the global economy, will strengthen the rules of the global economy and, in turn, will make it easier for American companies to export and, therefore, to create domestic jobs at home.

This is a quick overview.


QUESTION: I have one – thank you, Under Secretary Hormats. I have one immediate question and one broader question. The immediate one is: The Wall Street Journal has a story about the U.S. set to sell fighter jets to Iraq. Is that anything you could comment on?

UNDER SECRETARY HORMATS: I can’t comment on it now, I think. Let me do a little work on this. But at this point, I’d prefer not to comment. I’ll let Toria come back with --

QUESTION: Okay. The other question would be --

MS. NULAND: (Off-mike.) (Laughter.)


QUESTION: What do you say to some critics who might be uncomfortable about American foreign policy being used to promote American business? Some might argue that you will be doing the bidding of American companies and not really objectively looking at U.S. strategic or diplomatic interests.

UNDER SECRETARY HORMATS: Well, we still make a major effort to focus on U.S. strategic interests and foreign policy interests. And everywhere the Secretary goes she focuses on those, but we can – and believe we are doing both. In other words, one of the things she does is she discusses the strategic and economic dialogue with China – is a very good example – where we have a lot of strategic conversations with the Chinese. But we also have certain areas of export promotion that we want to raise with the Chinese. We think that’s important in terms of the overall relationship because many relationships are based on foreign policy ties, but also on stronger economic ties.

We’re going to be going to India for the strategic dialogue that’s coming up in a week or so. We have a lot of strategic issues, but there are a number of very important economic issues and trade issues that we also are planning to raise with the Indians. They have become a very important export market for the United States. We would like to see this continue, in part, because we think it strengthens ties between our two countries, as does trade in general, but also because it can be helpful to our own economy.

And it goes back to the point I was making earlier, if you go around the world, every country today at the top of their government, their presidents or their prime ministers are very proactive in supporting the export interests of their companies. When the German chancellor or the French president or the British prime minister or the Chinese president go around the world one of the things you can be sure they do is to support their companies. And one of the things we want to do is be just as proactive in supporting the interests of our companies. We don’t think it really conflicts with our foreign policy. We think actually it can be consistent with a foreign policy that strengthens commercial ties between our two countries.

And moreover, to the extent we can strengthen our domestic economy through what we do at home, the many things I mentioned that we do at home, and through exports, we also have a stronger domestic economic base for an effective foreign policy and for an effective national security policy. So we think that the two go hand in hand. And I think if – one of the things that’s very important is for the American people to see that their State Department is doing a number of things that are important in the national security area and the foreign policy area, but are also – but is also doing things that are supportive of the interests of their efforts to create good jobs for themselves and improve the lives of their families.

One of the things that I’ve been trying to do in this job, in addition to traveling to various parts of the world, is to go to various parts of this country and talk to people who are experiencing the difficulties of the current economic environment. I’ve been to Hammond, Indiana; Gary, Indiana; Detroit; Hamtramck; New Orleans; Chicago and a number of other cities, and gone to various groups, particularly groups – local chambers of commerce, local business groups – to try to hear from them what’s on their mind, the kind of concerns they have.

And one of the things – it’s interesting, there’s a sort of notion that you read once in a while that the United States is turning inward. Well, when you go to these cities and little towns that have been devastated by the financial crisis that started in 2008, one of the things – they have hoped that what we’re doing domestically will help, and we do think that the things that President Obama has been working on are, over the medium term, going to strengthen our domestic economy. But one of the other things that they’re looking for are opportunities to export more. Even in little small towns, people are just – are – understand that there’s a lot more growth in the global economy, and they also understand that if they can tap into that growth, it will help them to create jobs at home.

So the average American in the farm areas of this country and in the industrial areas of this country and on both coasts are very cognizant of the fact that there’s a lot of growth out there, and if we could find some ways of enabling them to tap into this, this would be very helpful. For small and medium-sized enterprises, many of them do sell to the rest of the world. For instance, Boeing incorporates 11,000 products in its planes from small and medium-sized businesses.

But what we’re trying to do – and a lot of big companies also incorporate a lot of components and parts from smaller companies. But what we’re trying to do, for many small and medium-sized enterprises, they really only export to one or two countries, mostly, because of proximity, Canada and Mexico. So what we’re trying to do is give them opportunities to export to more markets around the world, just as German companies – these little German companies export all around the world, so we’re trying to find some ways of encouraging and helping American companies, smaller and medium-sized enterprises, to do just the same thing. So we think that by strengthening our domestic economy, we strengthen the base for our national security and our foreign policy, and also strengthen economic ties between our two countries. So we regard them as basically quite consistent with one another.

MS. NULAND: Last, please.

QUESTION: Sir, you talked about foreign investment being responsible for approximately 5 million American manufacturing jobs.


QUESTION: And that sounds good on the face of it, but how do you deal with the question, one, of a company from another country wanting to go to a right-to-work state as opposed to a state where unions have much more influence in the workplace? How do you deal with companies that don’t want to obey all of U.S. labor laws and environmental laws and the such? And then when you step back and look at the larger environment, it can’t be denied that there is a significant isolationist strain in this country. And when I think of, for example, the Dubai World deal a few years ago, what’s to say that a region of the country that may want these jobs may yet have some uncomfortable feeling about having those jobs provided by a company from overseas as opposed to a U.S.-based company?

UNDER SECRETARY HORMATS: Well, let me address these, because these are all very good and thoughtful questions. One, when companies invest here, they have to abide by American law. There is no way around that – child labor laws, environmental laws. They are required to adhere to American laws just like any other company. And they do; we really have not had a lot of difficulties with that.

The second issue is the right-to-work question. What’s interesting is that the – sort of the folklore out there is that these foreign companies only invest in states where there are no unions. But in fact, a lot of this investment takes place in union states, and we can – there is some very well-documented material on this that we’re happy to provide you on where this is done. The Commerce Department has some of it. But if you give us your card, we’ll send you this. This is – it’s --


UNDER SECRETARY HORMATS: -- a very relevant question. It’s asked frequently, so I’m very glad you raised it. We will provide that information to you.

What was the third part of your --

QUESTION: The third part is: There is a sense across the country --


QUESTION: The isolationist part. I mean --

UNDER SECRETARY HORMATS: Yeah, the isolationist part.

QUESTION: -- you remember the uproar over Dubai World buying the port.

UNDER SECRETARY HORMATS: Yeah, the Dubai – the – what I find interesting; that – there was certainly some of that for a while, but what I found in talking to governors and people throughout this country is that a lot of them now understand that foreign investment in this country can actually be a very strong creator of jobs. And we found – if you talk to governors – I’ll give you an example. Governor Granholm – former Governor Granholm of Michigan, she and I would talk on the phone periodically. She spent about a third of her time around the world looking to attract investment in Michigan. You can understand why --


UNDER SECRETARY HORMATS: -- given – at the time when she was governor, although the auto industry has improved a lot. At that time, it was hard to get – create jobs in Michigan. So she went around. If you look at governors from – and this – she’s a northern governor in a union state – more and more, you’re getting governors from all over going to different parts of the world. And one of the things we’re doing with this thing I mentioned with the Chinese is we’re having Chinese provincial leaders come here, work with American governors – there’s going to be a meeting in Utah soon – but we’re going to try to do this more and more, to have American governors and Chinese provincial leaders, either governors or party secretaries, talk to one another about investing.

And we’ve found by and large that governors are eager to have this, and then – and there may be certain examples where there is a political pushback for the reasons that you’ve described. But I think it’s less and less as Chinese companies – and not just Chinese companies; companies from other parts of the world – work with governors and sort of understand the political environment in which they’re operating. We’ve had very few since that – that there were actually two incidents, one with a Chinese company, one with Dubai Ports – where that occurred, but very, very little of that has occurred since, largely because we’ve – they and we have sort of come to understand that you have to prepare the political environment for some of this, but also because they do create jobs. And for – I’ll give you an example. For a while – they’ve sold their interest now, but for a while, the fifth biggest – fourth or fifth, depending on how you look at it – biggest steel producer in this country was a Russian company, Severstal. They invest in companies. And those companies were, by and large, in northern states. One was in a southern state; most were in northern states, union states. So we’re seeing more and more opportunities for foreign companies to come and invest. And when they invest, they come in – they don’t come to take the factory home. They come to make sure the factory works well here, and they tend to create jobs. So we’re trying to do more and more of that.

And we think that since – there are still – I think your point’s right. There are still a number of people who have sort of an inward-looking view, but I can tell you it’s generally not in the business community. People who want to create jobs understand they have to export more and understand the value of foreign investment in our country.

Do you want to do one --

MS. NULAND: We have time for maybe one more, please.

QUESTION: I just have a quick one: Secretary Clinton is going to Hong Kong and have another speech in –


QUESTION: -- later this month. Could you please talk about when and where this is going to be, and whom she will meet in Hong Kong?

UNDER SECRETARY HORMATS: Well, let me – that’s a very good question, to which I don’t know the answer. We’re still working this out. The – your question’s the right question, but at this point I don’t have an answer for exactly when and the precise --

QUESTION: Or anything about this trip in Hong Kong?

UNDER SECRETARY HORMATS: Well, she’s going to make a speech on economic issues, but the speech has not yet been fully written yet. But it’ll be about economic issues. That’s all I know. We’ve been working on several of her speeches, but that’s sort of at the end of the trip, and I can’t give you any more because it’s not fully formed yet. So I don’t want to try to anticipate what she’s going to say before she says it.

QUESTION: Can I ask a brief – a very brief (inaudible)? What is the percentage of the State Department budget that is devoted to – this might have been asked before; I’m sorry if it has – that is devoted to this kind of thing, commercial – the Foreign Commercial Service, and the kinds of things that the Secretary was talking about in her speech?

UNDER SECRETARY HORMATS: Well, I don’t know. I can get you the answer. I don’t know. I don’t know what it is offhand. But it is – we use – I’ll tell you, it’s – we’ll give you a number --

QUESTION: Well, it seems to me, if you’re making an appeal to Congress not to cut the State Department budget in general, and saying this is – it’s a job killer, that you would know what the --

UNDER SECRETARY HORMATS: Well, we’ll give you a number, for sure, of what – of the economic --

QUESTION: Do you know what the budget for your – what the EB bureau is?

UNDER SECRETARY HORMATS: Well, I don’t know what the EB bureau is now because the – but we’ll give you the numbers. I didn’t come – we’re happy to do that. The – but you – but the number won’t be very meaningful, so that’s why I want to caveat what I just said, because largely, if you take an embassy, it’s not just – there are a thousand economic officers around, and there are 400, as I say, local employees. And then we have the Foreign Commercial Service, which is a separate budget. That’s in the Commerce Department budget, but they are in the embassies as well. We should be able to get numbers for that also.

But the reason it won’t be as useful as it might be is that the ambassadors, by and large, whose number wouldn’t come under that, spend about a third of their time doing export promotion, a third to a quarter of their time in many cases. So in effect, while they’re not specifically in the economic cone --

QUESTION: Okay. Well, any kind of an extrapolation. I mean (inaudible) –

UNDER SECRETARY HORMATS: No, no. I understand what you’re looking for.

QUESTION: -- ambassador is worth X amount of dollars, so a third –

UNDER SECRETARY HORMATS: I don’t know if we – I --

QUESTION: -- a third of their time is worth something, so --

UNDER SECRETARY HORMATS: I don’t know if we’re going to be very good at that, but we can certainly give you the number that – of the portion of the State Department budget that’s used on economic issues. We can certainly do that.

But the point I’m making is that a lot of people – say a thousand people – are working on this and then 400 others, but also, ambassadors spend, in most cases, a quarter to a third of their time. DCMs spend a very large portion of their time. I mean, where there is a big advocacy issue on a big project – for instance, the ambassador might be spending several days. Our Ambassador in Moscow, for instance, has been spending a lot of time doing this. We have an ambassador in the United Arab Emirates, Ambassador Olson, who has been spending a great deal of time. So I don’t know how you quantify this, but we’ll give you as good a quantification as we possibly can.

QUESTION: Great. Thank you.

UNDER SECRETARY HORMATS: It’s a fair question, and I think it goes to exactly the point that we’re trying to make, that there’s – given the efforts we’re making, there – and promoting exports is a labor-intensive process, and you have to really work hard. I sort of equate America to the Red Queen in Alice in Wonderland. You have to – remember the – I’m sure you read --


UNDER SECRETARY HORMATS: -- Alice in Wonderland.

QUESTION: A lot of people compare U.S. diplomacy to –

UNDER SECRETARY HORMATS: Well, I’m not comparing U.S. --

QUESTION: (Laughter.) It’s all Alice in Wonderland.

UNDER SECRETARY HORMATS: What I’m declaring – I’m talking about --

QUESTION: Thank you for the answer, though. I appreciate you getting the number.

UNDER SECRETARY HORMATS: I know. I’m making a different analogy here, and that you have to run faster and faster to stay in place because you’ve got other countries who are competing at a very, very rapid rate. And we’ve got to compete at a very rapid rate too. We’ve got to run faster and faster.

So what we’re doing, through support for – intensified support, using our embassies to promote exports, using our top officials to promote exports, is an attempt to sort of recognize that the competitiveness of the world is intensifying and we’ve got to intensify our efforts too, both at home and in terms of – both in terms of our diplomacy and in terms of what we do at home to strengthen our competitiveness. So we’ll try to provide you with those numbers. It’s a fair question and we’ll get you the numbers as best we can.

QUESTION: Thank you.



UNDER SECRETARY HORMATS: Thank you. Thank you very much.

MS. NULAND: Thank you, Under Secretary Hormats.

PRN: 2011/1164