IMMIGRATION: RESPONDING TO

A REGIONAL CRISIS

HEARING
BEFORE THE

SUBCOMMITTEE ON
THE WESTERN HEMISPHERE
OF THE

COMMITTEE ON
INTERNATIONAL RELATIONS
HOUSE OF REPRESENTATIVES
ONE HUNDRED NINTH CONGRESS
SECOND SESSION

JULY 26, 2006

Serial No. 109235

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COMMITTEE ON INTERNATIONAL RELATIONS

HENRY J. HYDE, Illinois, Chairman
TOM LANTOS, California
JAMES A. LEACH, Iowa
HOWARD L. BERMAN, California
CHRISTOPHER H. SMITH, New Jersey,
GARY L. ACKERMAN, New York
Vice Chairman
ENI F.H. FALEOMAVAEGA, American
DAN BURTON, Indiana
Samoa
ELTON GALLEGLY, California
DONALD M. PAYNE, New Jersey
ILEANA ROS-LEHTINEN, Florida
SHERROD BROWN, Ohio
DANA ROHRABACHER, California
BRAD SHERMAN, California
EDWARD R. ROYCE, California
ROBERT WEXLER, Florida
PETER T. KING, New York
ELIOT L. ENGEL, New York
STEVE CHABOT, Ohio
WILLIAM D. DELAHUNT, Massachusetts
THOMAS G. TANCREDO, Colorado
GREGORY W. MEEKS, New York
RON PAUL, Texas
BARBARA LEE, California
DARRELL ISSA, California
JOSEPH CROWLEY, New York
JEFF FLAKE, Arizona
EARL BLUMENAUER, Oregon
JO ANN DAVIS, Virginia
SHELLEY BERKLEY, Nevada
MARK GREEN, Wisconsin
GRACE F. NAPOLITANO, California
JERRY WELLER, Illinois
ADAM B. SCHIFF, California
MIKE PENCE, Indiana
DIANE E. WATSON, California
THADDEUS G. MCCOTTER, Michigan
KATHERINE HARRIS, Florida
ADAM SMITH, Washington
JOE WILSON, South Carolina
BETTY MCCOLLUM, Minnesota
BEN CHANDLER, Kentucky
JOHN BOOZMAN, Arkansas
DENNIS A. CARDOZA, California
J. GRESHAM BARRETT, South Carolina
RUSS CARNAHAN, Missouri
CONNIE MACK, Florida
JEFF FORTENBERRY, Nebraska
MICHAEL MCCAUL, Texas
TED POE, Texas
THOMAS E. MOONEY, SR., Staff Director/General Counsel
ROBERT R. KING, Democratic Staff Director

SUBCOMMITTEE

ON THE

WESTERN HEMISPHERE

DAN BURTON, Indiana, Chairman

ELIOT L. ENGEL, New York
RON PAUL, Texas
GRACE NAPOLITANO, California
JERRY WELLER, Illinois, Vice Chairman
ENI F.H. FALEOMAVAEGA, American
KATHERINE HARRIS, Florida
Samoa
JAMES A. LEACH, Iowa
DONALD M. PAYNE, New Jersey
CHRISTOPHER H. SMITH, New Jersey
WILLIAM D. DELAHUNT, Massachusetts
ILEANA ROS-LEHTINEN, Florida
GREGORY W. MEEKS, New York
CONNIE MACK, Florida
BARBARA LEE, California
MICHAEL MCCAUL, Texas
MARK WALKER, Subcommittee Staff Director
JASON STEINBAUM, Democratic Professional Staff Member
DAN S. GETZ, Professional Staff Member
BRIAN WANKO, Staff Associate

(II)

CONTENTS
Page

WITNESSES
Ms. Elizabeth A. Whitaker, Deputy Assistant Secretary, Bureau of Western
Hemisphere Affairs, U.S. Department of State .................................................
The Honorable Crescencio Arcos, Assistant Secretary, Office of International
Affairs, Office of Policy, U.S. Department of Homeland Security ....................
The Honorable Robert Charles, President, The Charles Group, LLC .................
Mr. Eric Farnsworth, Vice President, Council of the Americas ...........................
Manuel Orozco, Ph.D., Senior Associate, Remittances and Rural Development
Program, Inter-American Dialogue ....................................................................

9
13
38
42
47

LETTERS, STATEMENTS, ETC., SUBMITTED FOR THE HEARING

The Honorable Dan Burton, a Representative in Congress from the State
of Indiana, and Chairman, Subcommittee on the Western Hemisphere:
Prepared statement ..............................................................................................
Ms. Elizabeth A. Whitaker: Prepared statement ..................................................
The Honorable Crescencio Arcos: Prepared statement .........................................
The Honorable Robert Charles: Prepared statement ............................................
Mr. Eric Farnsworth: Prepared statement ............................................................
Manuel Orozco, Ph.D.: Prepared statement ..........................................................

2
11
15
41
45
50

APPENDIX
The Honorable Eliot L. Engel, a Representative in Congress from the State
of New York: Prepared statement ......................................................................

(III)

81

IMMIGRATION: RESPONDING TO
A REGIONAL CRISIS
WEDNESDAY, JULY 26, 2006,

HOUSE OF REPRESENTATIVES,
SUBCOMMITTEE ON THE WESTERN HEMISPHERE,
COMMITTEE ON INTERNATIONAL RELATIONS,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:10 p.m. in room
2172, Rayburn House Office Building, Hon. Dan Burton (Chairman
of the Subcommittee) presiding.
Mr. BURTON. Good afternoon. A quorum being present, the Subcommittee on the Western Hemisphere will come to order. I ask
unanimous consent that all Members and witnesses opening statements be included in the record, and without objection, so ordered.
I ask unanimous consent that all articles, exhibits and extraneous or tabular material to be referred to by Members or witnesses be included in the record, and without objection, so ordered.
I ask unanimous consent that any Member who may attend todays hearing be considered a Member of the Subcommittee for the
purposes of receiving testimony and questioning witnesses after
Subcommittee Members have been given the opportunity to do so,
and without objection, so ordered.
Today we will tackle perhaps one of the most difficult issues facing our hemisphere, immigration. From the beginning of its New
World roots until this very day, the United States has served and
continues to serve as a dream destination for countless millions. As
a nation of immigrants, our culture, dreams, economic prosperity,
and our many other strengths come from the people who have
landed on our shores throughout the centuries, whether by choice,
necessity, or coercion.
Today the Subcommittee on the Western Hemisphere will examine immigration from a different perspective than we have seen to
date. We do not intend to discuss building walls or deploying
troops. Instead we intend today to engage our neighbors in the
hemisphere in an effort to better understand the immigration problem and hopefully convince our neighbors that they too have a dog
in this fight.
On February 16, 2006, the Mexican Congress unanimously
adopted a resolution entitled Mexico and the Migration Phenomenon. This historic resolution represented the first public acknowledgement by the Mexican Congress that they too are responsible for curbing illegal immigration into the United States.
Within the February 16 resolution is the commitment of the
Mexican Congress to improve border security on their side and to
(1)

2
ensure that everyone who leaves the country does so through legal
channels. It also commits the Mexican Government to secure its
southern border where migrants from South and Central America
are crossing into America on their way to the United States.
These principles and the other accompanying recommendations
represent a sharp departure from past practices in Mexico. We
commend the Mexican Congress for this new approach. We must
now build on this commitment with the new Government in Mexico
as well as to engage the governments in all of Central and Latin
America.
In my experience, I have found that the majority of work-seeking
illegal immigrants come from Mexico, Guatemala, El Salvador,
Honduras and other nations throughout Latin America. They are
looking for better paying jobs than those available in their home
countries. If these economies were in better shape and the local
population was able to find jobs with more competitive wages, they
would not want to leave, and the number of illegal immigrants
looking to come here would shrink dramatically.
We can help these countries stimulate their economies through
free and fair trade agreements, and we already are off to a great
start. Congress passed the Central American Free Trade Agreement in 2005, integrating the economies of five of the Central
American nations as well as the Dominican Republic with our own
and greatly expanding their access to foreign direct investment. We
have pending agreements with Colombia and Peru, and I think we
have one that we are hoping to work out with Haiti, which should
be taken up in Congress very soon.
As Chairman of the House International Relations Subcommittee
on the Western Hemisphere, I have seen the progress being made
by many of our friends in Latin America. In many countries, jobs
are being created and economies are being strengthened, but such
progress is not enough.
We should work with the leaders of these countries, many of
whom I have come to know well and admire, to build on the economic strength that comes from these agreements and redouble our
efforts to close the development gap. I have every hope and expectation that they will work with us in this endeavor.
Today we will hear from witnesses from the State Department
and the Department of Homeland Security, which are responsible
for current U.S. immigration policy and enforcement. These agencies will implement the final immigration bill that will come out of
Congress very soon. I look forward to hearing your testimony and
asking you some questions in the not too distant future after we
hear from my colleagues.
And now, Ms. Napolitano, we will hear from you since Mr. Engel
is on the Floor handling another bill right now.
[The prepared statement of Mr. Burton follows:]
PREPARED STATEMENT OF THE HONORABLE DAN BURTON, A REPRESENTATIVE IN CONGRESS FROM THE STATE OF INDIANA, AND CHAIRMAN, SUBCOMMITTEE ON THE
WESTERN HEMISPHERE
Today we will tackle perhaps one of the most difficult issues facing our hemisphere today . . . Immigration. From the beginning of its New World roots until
this very day, the United States has served and continues to serve as a dream destination for countless millions. As a nation of immigrants, our culture, dreams, eco-

3
nomic prosperity and our many other strengths come from the people who have
landed on our shores throughout the centuries, whether by choice, necessity or coercion.
Today, the Subcommittee on the Western Hemisphere will examine immigration
from a different perspective than what we have seen to date. We do not intend to
discuss building walls or deploying troops. Instead, we intend today to engage our
neighbors in the hemisphere in an effort to better understand the immigration problem and hopefully convince our neighbors that they too have a dog in this fight.
On February 16, 2006, the Mexican Congress unanimously adopted a resolution
entitled Mexico and the Migration Phenomenon. This historic resolution represented the first public acknowledgement by the Mexican Congress that they too
are responsible for curbing illegal immigration into the United States. Within the
February 16th resolution is the commitment of the Mexican Congress to improve
border security on their side and to ensure that everyone who leaves the country
does so through legal channels. It also commits the Mexican government to secure
its southern border, where migrants from South and Central America are crossing
into Mexico on their way here. These principles and the other accompanying recommendations represent a sharp departure from past practices in Mexico. We commend the Mexican Congress for this new approach. We must now build on this commitment with the new government in Mexico as well as to engage the governments
in all of Latin America.
In my experience, I have found that the majority of work-seeking illegal immigrants come from Mexico, Guatemala, El Salvador and Honduras, and other nations
throughout Latin America. They are looking for better-paying jobs than those available in their home countries. If these economies were in better shape, and the local
population was able to find jobs with more competitive wages, they wouldnt want
to leave, and the number of illegal immigrants looking to come here would shrink
dramatically.
We can help these countries stimulate their economies through free- and fairtrade agreements, and we already are off to a great start. Congress passed the Central American Free Trade Agreement in 2005, integrating the economies of the five
Central American nations as well as the Dominican Republic with our own and
greatly expanding their access to foreign direct investment. And we have pending
agreements with Colombia and Peru, which should be taken up this Congress as
well.
As chairman of the House International Relations Subcommittee on the Western
Hemisphere, I have seen the progress being made by many of our friends in Latin
America. In many countries, jobs are being created and economies are being
strengthened. But such progress is not enough. We should work with the leaders
of these countries, many of whom I have come to know well and admire, to build
on the economic strength that comes from these agreements and redouble our efforts
to close the development gap. I have every hope and expectation that they will.
Today, we will hear from witnesses for the State Department and the Department
of Homeland Security, which are responsible for current U.S. Immigration policy
and enforcement. These agencies will implement the final immigration bill that will
come out of Congress very soon. I look forward to hearing their testimony and to
asking them questions. Thank You.

Ms. NAPOLITANO. Thank you, Mr. Chair, and as you have asked,
we will submit his opening remarks for the record.
Mr. BURTON. Without objection.
Ms. NAPOLITANO. Thank you, sir. Mr. Chairman, immigration reform is a totally important, critical subject for many of us, and I
welcome the opportunity for Congress to continue the discussion,
open discussion, frank discussion, and transparent discussion.
For the record, I would rather have some discussion also with the
different entities on how we can have a conference so that we can
move the bill on this side of the House and move on with what we
need to do and provide a fair reform immigration bill before we
leave on break.
Americans, as you well know, are very concerned about what is
happening in the United States, and they are looking for us to develop a solution with everybody at the table, not stalling, not ignor-

4
ing, not placing blame but actually getting together and coming
forth with a solution.
We are here today of course to talk about the international aspects of migration. I was born and raised in a border town and the
fact that the focus it is going to take will allow us to discuss some
of the main reasons for the migration, not just from Mexico but
from the other countries south of the border, our neighbors.
And I must state, Mr. Chairman, that everybody talks about
Mexicans. They are also Americans because it is the Americas that
we talk about. We all live in the United States. Any country in the
Western Hemisphere is part of the Americas.
As you well know, the primary drive of the migration to the
United States is the lure of good paying jobs or at least jobs that
they can send money home to be able to survive. That is where we
failed, Mr. Chairman. We have not worked consistently with our
neighbors south of the border to allow them to work on developing
their economy to where there are working men and some women
crossing the border to be able to maintain their family.
Mexico, I believe is number three in remesas, which is remittances to that country. That is what sustains the economy. Now if
they had the economy built up, if we were able to help them and
the other countries, they may not have the labor that we hypocritically want in the United States, and not willing to get the employers to provide sanctions against those who would hire undocumented.
It is a significant gap. It is an international issue that I am hoping that we would be able to discuss with the new coming President, the President-elect, whoever it may be, so that we can determine what Mexico can do, as you well say, to help us control the
border on both sides.
Considering that the per capita income in Mexico is less than
one-sixth of the United States, it is very reasonable people come
seeking a better future for themselves and their families. And, of
course, as we all know, in 1994, NAFTA, which had a profound effect on Mexicos economy, was not as beneficial to Mexico as everybody would have us think.
Five million Mexican farmworkers lost their livelihood and were
forced off their lands as our United States corn was dumped on
their Mexican market. And despite the political promises from both
sides of the border, the economy in Mexico failed to create the new
jobs promised. The average Mexican wages have fallen, not risen.
So half of the workforce now makes less than $8 a day, which is
not even enough to sufficiently sustain their family.
The vast majority of Mexican workers have not benefitted, and
it is widely believed that the employed farmers and agricultural
workers of 10 years ago have become the undocumented immigrants of today.
In comparison, our economy is in dire need of new workers entering the labor market in order to keep growing. It is a wonder, Mr.
Chairman, that the Mexican workers are compelled, or is it any
wonder that they are compelled to seek their fortune in the United
States to provide for their families? I do welcome the witnesses,
and as a daughter of a Mexican mother and a Mexican father born
in the United States, I have a great interest in this.

5
I believe I still have relatives south of the border. Conditions are
not getting any better, and I think notwithstanding the politics of
the countries in the elections and other areas, I think we can play
an important role, and I think we need to start talking turkey with
Mexico at a level that we need to make those changes. So, with
that, Mr. Chair, I thank you for allowing me to have these comments and look forward to the testimony, although I will have to
leave as soon as Mr. Engel arrives. Thank you, sir.
Mr. BURTON. Thank you. Mr. Paul.
Mr. PAUL. Thank you, Mr. Chairman, and I want to thank the
Chairman for calling these hearings. I think these are very important hearings. As most of you know, I advocate very minimal Federal Government. I think that our Government generally speaking
does a lot of things that it should not be doing, and in the other
sense, I think they do the things that they are responsible for rather poorly, and I would put border patrol into that category.
And I think there are several reasons for this. The fast track to
citizenship I think is a tremendous incentive, and if you give incentives or subsidies to anything, you get more of it. I do not believe
we will ever be able to solve our problem on the immigration and
the borders without dealing with the welfare state issues, because
I think the welfare ethic both contributes to our employment type
of problems here where jobs go begging and there are job needs.
At the same time, if there are social service incentives for people
to come over as well as citizenship, it is a tremendous incentive
which none of us could resist if we were in the same set of circumstances. But the emphasis on border protection here I think is
very proper. We have a problem. We need to deal with it.
I would like to make just one other point, and that is that we
deal with borders continuously, but for the most part, we deal with
borders overseas, and I think more importantly we should be dealing with our own borders. But because we get so involved in borders outside of our responsibility, we spend a lot of money and use
a lot of personnel, and then we come up short where our responsibilities lie.
So not only will it require eventually to solve this problem a reassessment of the welfare ethic, I actually think that the way we
spend our money and we run up our deficits in our foreign policy
will also have to be addressed if we really want to do a good job
in providing border security. And I yield back the balance of my
time.
Mr. BURTON. Thank you. The Chair recognizes the gentleman
from Massachusetts for an opening statement.
Mr. DELAHUNT. I have nothing.
Mr. BURTON. Thank you. Let us see. Ms. Ros-Lehtinen.
Ms. ROS-LEHTINEN. Thank you so much, Mr. Chairman. I would
like to thank the Committee, the Subcommittee, for holding this
important hearing. I would also like to thank our witnesses for
coming here today to share your perspectives.
Immigration has been a highly visible issue this year with much
of the discussion focused on securing our borders. However, not
much has been said about the implications of this issue within the
context of our bilateral relations with our partners. This issue cannot be viewed in a vacuum, but rather a broader more integrated

6
approach needs to be taken that examines the interrelationship between our foreign policy, the response of the governments in the region, and the conditions that drive immigration from the Western
Hemisphere into the United States.
The United States has worked closely for years with our hemispheric neighbors to develop programs to address these conditions
and focus on the ultimate goal of sustainability and prosperity for
each of the countries involved. However, as the continuing increase
in immigration has shown, we are falling short of our overarching
goals.
As such, the United States must make its assistance programs
more effective to bring economic growth, success, and lasting viability to our neighbors and to ensure that recipient governments are
meeting the requirements and conditions that we have set, conditions that will reap benefits for the people in these countries and
for the security here in the United States.
Implementing this method, we are able to transition our assistance efforts into a constructive partnership with the eligible democratic countries in the Western Hemisphere. This will also serve as
antidotes to the frustration and the conditions that can breed
Islamist extremist groups and other terrorist entities such as the
FARC.
In addition, our approach must include a strong law enforcement,
counternarcotics, and counterterrorism component. Currently our
local law enforcement officers have the ability, for example, to arrest illegal aliens or other aliens in violation of immigration status.
This is of particular importance as three of the four hijackers from
9/11 who were stopped by law enforcement officers for traffic violations were in civil violation of their immigration status but sadly
our law enforcement officers did not have the tools to detain for
these civil violations.
In response to the grave lost opportunities, the Department of
Justice issued a directive permitting state and local police officers
to arrest deportable illegal aliens with either criminal or civil offenses. Unfortunately, included in the Senate immigration bill is a
provision which will strip our local law enforcement officers of this
authority. This would be a grave mistake that would effectively diminish the capacity of our law enforcement personnel to help keep
our country secure and safe from Islamic extremists, other terrorist
groups such as FARC, their enablers and their financiers.
We must concern ourselves with gang activity also in the Western Hemisphere. According to a document prepared by the Congressional Research Service, the migration of working age men and
women has created an imbalance in the society where children are
often raised by family members other than their parents. This has
led to a marked increase in gang involvement by these displaced
children. These gang members create an environment of civil unrest, therefore undermining prospects for lasting stability and security in the region.
This again reflects the need for a comprehensive, multi-tiered,
interagency approach. We must continue to work with our counterparts in the Western Hemisphere so that we can gain partners
with a shared vision on vital issues affecting our world. And I
thank the Chairman for his time. Thank you.

7
Mr. BURTON. The Chair thanks the gentlelady from Florida. The
Chair recognizes the gentlelady from California, Ms. Lee, for an
opening statement.
Ms. LEE. Thank you very much, Mr. Chairman. I want to thank
our witnesses for being here and just wanted to very briefly mention a couple things. One is the gentlelady from California, Congresswoman Napolitano, touched on NAFTA. And, of course, I come
from California, but I was raised in a border city, El Paso, Texas,
and have seen the impact of NAFTA. Unfortunately it has only
really increased the race to the bottom and has continued to destabilize border communities.
Loss of livable wages and jobs have forced many into lives of
crime and gangs, really quickly replacing the drug cartel of the
1990s. Unfortunately, the lawlessness is quickly spreading
throughout Central America, where of course crime and poverty see
no end. So I hope the witnesses will address how all of this is related and what you see as NAFTAs responsibility or role in this
increasing lawlessness and increasing rates of poverty and crime
that we see in our border cities especially.
Also, it is quite disturbing that in recent immigration debate
where many tried to equate immigrants with terrorists, and I
would like to hear from you what you think that is about. What
do you see as the whole issue and how that weighs out when we
try to look at some really reasonable immigration policies. Please
explain the comparison of terrorism to immigration or terrorists to
immigrants.
And, finally, many of you know that we believe or some of us believe that the United States Haitian and Cuban immigration policies present a double standard for many of us. Haitians do not
have immediate political asylum when they reach the United
States, although many, including myself, would argue that the political and safety challenges are quite frankly much greater in
Haiti than they are in Cuba.
And so, as we look at immigration today, I would like to understand this whole rationale in terms of temporary protective status
to Haitians who are currently here and why we will not make these
immigration policies equal or why there is not a push to equalize
both immigration policies as it relates to Cuba and to Haitians.
Thank you very much.
Mr. WELLER [presiding]. The Chair thanks the gentlelady from
California for her opening statement and recognizes himself for a
brief opening statement.
First, let me just begin by commending Chairman Burton for his
leadership in holding this hearing today on the international aspects of illegal immigration which I believe will focus on our own
hemisphere today.
Clearly the United States must have secure borders. We must
improve our capabilities of preventing illegal immigration, and we
must ensure that those who wish to do us harm are denied entry
to our country. This issue for the United States is more than about
illegal immigration. It is about our security, which cannot be ensured with a porous border.
But this issue is also about our friends and partners in the hemisphere. At the core of illegal immigration is poverty and lack of eco-

8
nomic opportunity. The best solution for illegal immigration is a job
for would be immigrants at home, and that really must be everyones goal, building economic opportunity across Mexico, Central
and South America, and throughout the Caribbean.
The United States is working in partnership with our neighbors
toward this end. The partnership for prosperity is a public/private
alliance of United States and Mexico Government and business
leaders that promotes economic development in Mexico, focusing on
areas with high immigration rates.
The United States is also working to build investment in Latin
America through President Bushs innovative Millennium Challenge Account, which will encourage countries who govern justly
and work to build their economies by providing development assistance that furthers economic growth and prosperity.
In seeing USAIDs work firsthand, I visited sites where we are
empowering people to build goods suitable to the export market,
such as furniture manufacturing in Honduras or projects in Colombia to encourage coca growers to switch to growing coffee as a profitable alternative to growing coca, an illicit crop. These are success
stories. Our policies must continue to encourage providing economic
opportunity at home to reduce immigration to the United States.
Finally, we must continue to pursue our trade partnership with
the Americas. The passage of the Dominican Republic/Central
American Free Trade Agreement last year is bringing new economic investment to that region, which will create new jobs, again
helping to stem the tide of immigration. But our work on the trade
agenda is far from complete.
In our Congress, we have begun the process of deliberations over
the Peru Trade Promotion Agreement. The current trade preferences for Peru expire at the end of this year, so it is imperative
that we pass the Peru Trade Promotion Agreement to sustain and
build the jobs created under the Andean Trade Preference Drug
Enforcement Act. The Association of Peruvian Exporters estimates
that 2.2 million jobs could be lost in Peru without ratification of the
Peru Trade Promotion Agreement. We must ensure this does not
happen.
Again, the United States must have secure borders, but we must
also have solid policies that will encourage good governance, economic development, and job creation in our hemisphere if we are
going to really stem the tide of illegal immigration. I look forward
to our witnesses thoughts today on how best to accomplish this
goal by working with our friends in our own hemisphere.
At this time, I would like to introduce our first panel, the panel
that is before us, beginning with Ambassador Crescenio Arcos, who
is Assistant Secretary, Office of International Affairs with the U.S.
Customs and Border Protection at the Department of Homeland
Security. Our other witness on the first panel is Elizabeth
Whitaker, who has served as Deputy Assistant Secretary for Mexico, Canada, and Public Diplomacy in the Bureau of Western Hemisphere Affairs at the Department of State since September 2005.
She has served in Costa Rica, Honduras, Nicaragua, and has joined
the Foreign Service in 1984 as a public diplomacy officer with the
U.S. Information Agency. I do want to ask the witnesses to stand
and raise your right hand to take the oath.

9
[Witnesses sworn.]
Mr. WELLER. Thank you. I would like to begin and ask the witnesses to summarize their written statement if they would, and
they have 5 minutes. And, Ms. Whitaker, if you will begin.
TESTIMONY OF MS. ELIZABETH A. WHITAKER, DEPUTY ASSISTANT SECRETARY, BUREAU OF WESTERN HEMISPHERE AFFAIRS, U.S. DEPARTMENT OF STATE

Ms. WHITAKER. Mr. Chairman, Members of the Subcommittee,

thank you for the opportunity to meet with you today to discuss the
United States Governments efforts with Mexico to address immigration issues. Todays United States/Mexico relationship is
marked by common values and interests, which allows us to work
in close cooperation on the many issues that affect the well-being
of our citizens.
Recent years have seen an unprecedented level of bilateral cooperation in areas such as democracy, free trade, counterterrorism,
law enforcement, the environment, energy, and transportation,
some more challenging than others. Additionally, and most relevant to this hearing, we work together closely to keep our shared
border secure while facilitating the flow of legitimate goods and
people across it. With more than 1 million people crossing the
United States/Mexico border daily, you have some sense of the dimension of the challenge.
With Mexico, we have created institutions and infrastructure to
enhance border security while making border transit easier and
quicker for legitimate travelers and goods. The United States/Mexico Border Partnership established by agreement of Presidents
Bush and Fox in 2002, and now largely incorporated into the Security and Prosperity Partnership, SPP, continues to pursue those
goals. That program has established trusted traveler programs for
both passengers and cargo, the SENTRI program, FAST lanes, to
allow us to focus on real threats at the border.
It is clear that with the trade relationship the dimensions of
which we have with Mexico, over $270 billion per year, second only
in size to our trade with Canada, we must continue to make those
crossings even more swift and safe, and we are committed to doing
even more to achieve that goal.
The rise of border crime and violence largely due to the activities
of narcotrafficking organizations remains a significant challenge.
The Mexican Government has attacked this problem on its side by
sending in military and Federal police forces to take temporary
control over security and to purge and revamp local police forces
in areas where the violence is acute, such as in Nuevo Laredo.
We continue to strengthen and extend cross-border linkages
among law enforcement agencies present on the border so that both
sides are able to mount coordinated responses to breaking security
events. Our Border Liaison Mechanism meetings, hosted by each of
the Department of States border posts and their Mexican diplomatic counterparts two to four times a year, bring together United
States and Mexican diplomatic, law enforcement, and other personnel from all levels of government on both sides of the border to
discuss issues requiring operational and policy coordination. These
efforts must continue.

10
Mexico has taken its own measures to stem the flow of illegal immigrants on its southern border, people clearly headed to the
United States. In 2005, Mexico deported 235,000 people who had
crossed its border illegally. The Government of Mexico has tightened its visa regime to require that nationals from countries that
were sending large numbers of illegal immigrants apply for Mexican visas before entering that country. Mexico has signed agreements with Guatemala and Belize to reinforce their shared borders
against illegal crossings.
We in the United States Government have supported Mexican efforts to control its southern borders by establishing, training, and
equipping three specialized mobile interdiction teams and providing three highly sophisticated mobile inspection vans that can
inspect cargo vehicles for contraband and hidden passengers. In addition, the United States Government has sponsored border safety
training for Mexican officials in Chiapas. Such cooperation on so
many fronts is critical on Mexicos southern border, which is remote, sparsely populated, and essentially porous.
President Fox took office in Mexico making immigration reform
in the United States his number one foreign policy priority, but we
and he know that immigration has domestic roots. We know that
immigration from Mexico to the United States will not be permanently reduced until Mexicos economy is more competitive and produces more jobs and the government improves education and infrastructure in Mexicos poorest states.
Indeed, this was the central thrust of immigration commentary
by all of Mexicos Presidential candidates during the recent campaign. The United States Government shares that view, that the
best way to reduce illegal immigration is through economic development.
Since NAFTA went into effect in 1994, trade between the United
States and Mexico has almost quadrupled, and direct investment
between the countries has flourished. There is substantial evidence
that trade has played a very positive role in Mexicos development.
For example, Mexican firms that export have created more than
half of Mexicos new jobs since 1995, and those jobs pay on average
40 percent more than jobs in Mexican firms that do not export.
To help those who have not yet benefitted from NAFTA, however,
the Partnership for Prosperity or P4P, a public/private sector initiative, was launched by President Bush and President Fox in September 2001. P4P projects focus existing resources primarily on
Mexicos poor migrant-producing states. For example, under it,
Mexico and OPIC signed an agreement in 2004 for well over $800
million in financing for projects such as affordable housing and potable water.
USAID and the Department of Agriculture work with their Mexican counterparts on rural development projects in Mexico and expanding access for small entrepreneurs throughout the country to
financial services and markets. All of this P4P activity is with an
eye to increasing Mexicos competitiveness, increasing employment
and incomes, and decreasing the flow of immigrants.
Mexicos government invests heavily in its own development programs as well. One such program grants funds to indigenous cooperatives and individually-owned businesses for market develop-

11
ment and export promotion. Mexicos Oportunidades Program, with
assistance from the World Bank, provides money to poor families,
which ensure that their children attend school and get regular
medical checkups.
This year Mexicos national employment service began a program
in border states called Deportees At Work, which rehabilitates repatriated Mexicans by giving them training and employment to
keep them from migrating again. Mexicans of all political stripes
recognize that development, jobs, and opportunities are the best bet
for retaining the nations pool of talent.
Recognizing that a transparent and efficient justice system is
needed for business competitiveness, USAID and the Department
of States International Narcotics Control and Law Enforcement
Bureau support Mexican initiatives in state and Federal jurisdictions to develop criminal justice reforms, train judges, prosecutors,
and public defenders, and enhance the investigative and forensic
capabilities of Mexican civil authorities and investigative police.
We are gratified by the number of states that are requesting assistance for such reform, recognizing that it will provide swifter,
more equitable justice for all as well as a more level playing field
for investors and businesspeople, thereby stimulating economic development.
Mr. Chairman, this concludes my remarks. I would be happy to
answer any questions you or other Members of the Subcommittee
may have. Thank you.
[The prepared statement of Ms. Whitaker follows:]
PREPARED STATEMENT OF MS. ELIZABETH A. WHITAKER, DEPUTY ASSISTANT SECRETARY, BUREAU OF WESTERN HEMISPHERE AFFAIRS, U.S. DEPARTMENT OF STATE
Mr. Chairman, members of the Subcommittee, thank you for the opportunity to
meet with you today to discuss the U.S. governments efforts with Mexico to address
immigration issues.
The modern U.S.-Mexico relationship is marked by common values and interests,
and that allows us to work in close cooperation on the many issues that affect the
well-being of our citizens. Recent years have seen an unprecedented level of bilateral cooperation. We are partners on issues such as democracy, trade, counter-terrorism, law enforcement, the environment, energy, and transportationsome more
challenging than others. We share a commitment to democracy, human rights, and
free markets in the pursuit of security and prosperity for our people.
Certainly the cornerstone of this North American community was set twelve years
ago in NAFTA. Since that agreement went into effect in 1994, trade between the
United States and Mexico has almost quadrupled, and direct investment by the
United States in Mexico and by Mexico in the United States has flourished. Mexico
has passed Japan to become our second largest trading partner and export market,
trailing only Canada. Today, value-added manufactured goods account for 90 percent of Mexicos exports, and there is substantial evidence that trade has played a
very positive role in Mexicos development. For example, Mexican firms that export
have created more than half of Mexicos new jobs since 1995, and those jobs pay
on average 40 percent more than jobs in Mexican firms that do not export.
President Vicente Fox took office in Mexico making immigration reform in the
United States his number one foreign policy priority. While for us, immigration is
largely a domestic, not foreign policy issue, we have discussed the issue with the
Mexican government on many occasions. Ultimately, we know that immigration
from Mexico to the United States will not be permanently reduced until Mexico produces more good jobs, regains competitiveness, and improves education and infrastructure in its poorer states. Thus, our focus on reducing migration is linked in the
long run to economic development and the rule of law.
Despite the enormous success of NAFTA, North Americaand Mexico in particularstill face significant economic challenges. The Partnership for Prosperity
(P4P) is a public/private sector initiative launched by Presidents Bush and Fox in
September 2001 that focuses on developing those parts of Mexico that have bene-

12
fited least from NAFTA. P4P is a pragmatic dialogue on Mexican development and
U.S.-Mexico competitiveness. P4P projects focus existing resources primarily on
Mexicos poor, migrant-producing states. Many smaller United States Government
(USG) agencies would have had difficulty reaching out to their Mexican counterpart
agencies without P4P, and since many do not have an international mandate, P4P
gives them a structure within which to collaborate with other USG agencies and
Mexican counterparts.
P4P has yielded significant successes. For example, a historic agreement in 2004
allowed the Overseas Private Investment Corporation for the first time to offer its
full range of services in Mexicowell over $800 million in financing for new projects
so far. Peace Corps and two Mexican government entities signed agreements in 2003
and 2006 to allow volunteers to work in Mexico, where they are active in information technology, small business development, science, and technology.
Through P4P, the U.S. Agency for International Development (USAID) and the
U.S. Department of Agriculture (USDA) work with their Mexican counterparts on
rural development projects in Mexico. USDA has focused on sharing best practices
on rural development with Mexicans and on bringing in buyer missions. USAID has
undertaken a series of activities to increase Mexicos competitiveness, thereby increasing employment and income and decreasing the flow of immigrants. For example, the agency works to expand access for small entrepreneurs throughout the
country to the financial services and market linkages that they need to take advantage of economic opportunities.
Also under P4P, a Quadripartite Competitiveness Group composed of U.S. and
Mexican government and private sector representatives meets regularly to improve
Mexicos business climate. The American Chamber of Commerce (AmCham) in Mexico strongly supports this forum, which gives them access to senior Mexican officials,
establishes closer ties between the AmCham and the Mexican business community
and gives them both an opportunity to weigh in jointly on issues. USAID is working
with the Mexican Association of State Secretaries of Economic Development to help
Mexican states and cities to improve their regulatory policies and practices.
Recognizing that a transparent and efficient justice system is needed for business
competitiveness, USAID and the Department of States International Narcotics Control and Law Enforcement Bureau (INL) support Mexican initiatives in state and
federal jurisdictions to develop criminal justice reforms; train judges, prosecutors,
and public defenders; and enhance the investigative and forensic capabilities of
Mexican civil authorities and investigative police. We are gratified by the number
of states that are requesting assistance for such reform, recognizing that it will provide swifter, more equitable justice for all, as well as a more level playing field for
investors and businesspeople, thereby stimulating economic development.
Our ties with Mexico are increasingly framed by a trilateral relationship that includes Canada, as we all share a commitment to enhance the security, prosperity,
and quality of life for our citizens. Created in March 2005, the Security and Prosperity Partnership of North America, or SPP, provides a framework for us to advance collaboration in areas as diverse as security, transportation, the environment,
and public health. The Partnership has increased our institutional contacts to respond to our vision of a stronger, more secure, and more prosperous region. Indeed,
SPPs goals are in many ways a broader version of much of P4P.
Presidents Bush and Fox and Canadian Prime Minister Stephen Harper celebrated the SPPs first anniversary at a meeting in Cancun this past March. The
leaders reviewed the progress made on the SPP agenda, and instructed their ministers to continue to move forward. The leaders also agreed on initiatives to
strengthen competitiveness in North America (including the creation of a North
American Competitiveness Council led by the private sector), to cooperate on managing the threat of avian and human pandemic influenza, to collaborate on energy
security, to work toward smarter and more secure borders, and to develop a common
approach to natural and manmade disasters.
Let me turn now to our border with Mexico. Facilitating the secure flow of goods
and people across our shared border is one of the greatest challenges before us
today. We have worked closely with Mexico to create institutions and infrastructure
to enhance border security while making border transit easier and quicker for legitimate travelers and goods. The U.S.-Mexico Border Partnership, established by
agreement of Presidents Bush and Fox in 2002, and now largely incorporated into
the SPP, continues to pursue those goals.
That program has established trusted traveler programs for both passengers and
cargo to allow us to focus on real threats at the border. SENTRI lanes (Secure Electronic Network for Rapid Travelers Inspection) at six ports of entry ensure expedited crossings for identified low-risk travelers. Two new SENTRI lanes were

13
opened at border crossings into Calexico, California and El Paso, Texas in December
2005, and three more are scheduled to open this year.
A similar program of FAST lanes (Free and Secure Trade) for cargo shipments
provides expedited crossings for cargo from participating companies who have demonstrated that their facilities are secure and their shipments low-risk. It is clear
that with more than 1 million legal crossings every day on our southern border,
more must be done to make those crossings swifter and safer, and we are committed
to doing even more to achieve that goal.
Our border region has witnessed increased crime and violence, largely due to the
activities of narco-trafficking organizations and increased enforcement on both sides
of the border. The Mexican government has made a sincere effort to attack this
problem on its side, for example, by sending in military and federal police forces to
take temporary control over security and to purge and revamp local police forces in
areas where the violence is acute, such as Nuevo Laredo. We are continually extending cross-border linkages among our law enforcement agencies along the border
deep into the operational level to be able to mount coordinated responses to breaking security events, and there are many examples of ongoing cooperation with the
Mexican government on border security.
Foremost among these are the Border Liaison Mechanism (BLM) meetings. These
meetings are hosted by each of the Department of States border posts and their
Mexican diplomatic counterparts two to four times a year. They bring together U.S.
and Mexican diplomatic, law enforcement, and other government personnel from all
levels of government on both sides of the border to discuss issues requiring operational and policy coordination. These meetings allow our diplomats on the border,
as well as U.S. law enforcement officers, to get to personally know their Mexican
counterparts.
Operation Against Smugglers Initiative on Safety and Security (OASISS) also
compliments the Customs and Border Protection strategic plan. OASISS is an alien
smuggler prosecution program that was included as a priority under the Security
and Prosperity Partnership (SPP) between the United States and Mexico. The
OASISS program will align itself with the broader Border Safety Initiative, as well
as the various enforcement initiatives in the United States focused on combating illegal cross border traffic. The Government of Mexico, specifically the Mexican Attorney Generals Office (PGR), is a critical partner in this prosecutions program, which
is aimed at increasing safety and reducing migrant deaths, while targeting alien
smugglers and human traffickers operating in the immediate border region. OASISS
focuses on high-risk areas where migrant lives are in danger due to smuggling organizations utilizing our shared border for their illicit criminal activity. OASISS is
operational in California, Arizona, New Mexico and the El Paso area of Texas. Over
250 OASISS cases have been processed since the program began in August 2005.
In addition, for the past three years our government has collaborated with the
Mexican government in the Interior Repatriation Program, which returned over
35,000 Mexican illegal immigrants apprehended in Arizona to their hometowns in
the interior of Mexico. I know that my DHS colleague has further details on this
program.
I would also mention the latest such collaboration between out two governments:
On March 3, Homeland Security Secretary Michael Chertoff and his Mexican counterpart signed the Action Plan to Combat Border Violence in Brownsville, Texas to
establish operational protocols to govern coordinated, trans-border law enforcement
action in response to violent security incidents along the border.
Mr. Chairman, this concludes my remarks. I would be happy to answer any questions you, or other members of the Subcommittee, may have. Thank you.

Mr. WELLER. Thank you, Ms. Whitaker. Ambassador Arcos.

TESTIMONY OF THE HONORABLE CRESCENCIO ARCOS, ASSISTANT SECRETARY, OFFICE OF INTERNATIONAL AFFAIRS,
OFFICE OF POLICY, U.S. DEPARTMENT OF HOMELAND SECURITY

Mr. ARCOS. Thank you, Mr. Chairman and Members of the Subcommittee. It is a privilege and an honor to appear before you
today to discuss our Governments efforts to address immigration
issues in the Western Hemisphere.
As the Assistant Secretary for International Affairs in the Department of Homeland Security, I am particularly honored to de-

14
scribe the Departments work to contribute to the comprehensive
immigration reform that the Administration seeks.
First, though, I want to express my gratitude to the Committee
for its support of key initiatives with our Canadian counterparts,
Mexican counterparts, and other neighbors in the Caribbean and
Latin America. Your contributions have played a valuable role in
our efforts to pursue programs of consequence with key partners in
the Western Hemisphere.
In the current immigration discussion, there is much talk about
how to better secure our borders to prevent illegal immigration, but
on its own, a secure border is an incomplete solution. Root causes
of illegal immigration often arise from rampant poverty or lack of
opportunity in the immigrants country of origin, and secure borders would hardly begin to address the illegal immigrants already
living in the United States.
This is why the Administration supports a comprehensive approach to immigration reform that accomplishes three objectives:
Strengthened border security; a comprehensive interior enforcement strategy that includes worksite enforcement; and an established temporary worker program. Mexico has proven to be a critical partner in the last several years through ongoing work at the
local level, regional border liaison mechanisms, and national bilateral fora.
DHS has partnered with representatives of the immigration, law
enforcement, security, and customs agencies of Mexico as well as
many Mexican businesses. To elaborate, I would like to briefly list
some of the initiatives and programs currently underway with our
Mexican colleagues and other friends in the hemisphere.
The first initiative is the Security and Prosperity Partnership,
SPP. This executive partnership was announced by President
Bush, Prime Minister Martin, and President Fox in March 2005 in
Waco, Texas to enhance security, prosperity, and the quality of life
for citizens within North America. Secretary Chertoff is responsible
for the security pillar of the SPP. There are 10 security-related
goals listed in the testimony I have submitted to the Committee.
I might note that one of the key security goals is a screening of
travelers to North America, and we are working with the State Department to coordinate visa policy with Mexico and Canada.
Interior repatriation is another initiative. Interior repatriation of
illegal aliens to their place of origin resulted from a 2004 memorandum of understanding between the Department of Homeland
Security and the Government of Mexico.
The interior repatriation program seeks to diminish the illegals
attempts to reenter the U.S. immediately across perilous terrain
and harsh summer heat while simultaneously limiting their contact
with human smugglers who operate near the United States/Mexican border. For the past two summers, the United States and
Mexican officials have collaborated to return nearly 35,000 Mexican
nationals to hometowns in Mexicos interior. We are also working
with Mexican officials to update and implement local repatriation
arrangements within DHS and Mexican consulates throughout the
United States.
Another initiative is the Border Enforcement and Security Task
Force, which is known as BEST. On January 6, 2006, Secretary

15
Chertoff announced the formation of BEST, which represents an integrated effort to combat border violence. This effort involves DHS
components, state and local enforcement agencies, and Mexicos
Center for Investigation and National Security, known as CISEN.
The first two test sites for it are Laredo, Texas and Tucson, Arizona. The goals are to reduce border violence and disrupt the violent organizations that are its cause.
Another initiative is the United States/Mexico action plan to
combat border violence, which was signed March 3, 2006, in
Brownsville, Texas between Secretary Chertoff and his Mexican
counterpart, Secretary of Governance and Public Safety Carlos
Abascal. The action plan commits both governments to combat border violence and improve public safety while sharpening procedures
for response to the incidence of violence and illegal crossings across
the United States/Mexico border.
Yet another initiative is the Operation Against Smugglers and
Traffickers Initiative on Safety and Security, known as OASISS.
OASISS ensures that criminal records for smugglers who were previously caught and released are used to detain those who previously escaped prosecution. Through OASISS, we have successfully processed 215 cases in cooperation with the Mexican attorney
generals office. OASISS is now operational all along the United
States/Mexico border area.
Mr. Chairman, Members of the Subcommittee, I have outlined
key initiatives today that the Department of Homeland Security
has taken with the Government of Mexico and other nations in the
hemisphere to address the challenges to security and prosperity
that the so-called immigration crisis presents.
As noted today, our work has hardly begun. Only through comprehensive immigration reform which includes secure border, expanded domestic enforcement of our immigration laws, and the ultimate realization of a temporary worker program will we begin to
ensure that legal immigration is regarded as the national boon that
it is. Thank you, and I would be happy to answer any questions,
Mr. Chairman.
[The prepared statement of Mr. Arcos follows:]
PREPARED STATEMENT OF THE HONORABLE CRESCENCIO ARCOS, ASSISTANT SECRETARY, OFFICE OF INTERNATIONAL AFFAIRS, OFFICE OF POLICY, U.S. DEPARTMENT
OF HOMELAND SECURITY
Chairman Burton, Ranking Member Engel, Members of the Subcommittee, it is
a privilege and an honor to appear before you today to discuss the efforts of the Department of Homeland Security to deal with immigration issues on a regional basis
within the Western Hemisphere.
I want to begin by expressing my gratitude to the Committee for the interest and
support you have provided for important initiatives with our Mexican counterparts,
and other efforts to increase the security of our homeland by cooperating with our
neighbors in the Western Hemisphere.
In the current debate in the United States over immigration, much of the public
discussion has been over how we can better secure our borders against illegal immigration. But as you on this committee are well aware, the root causes of illegal immigration often begin in the originating countries, as poverty and lack of opportunity spur many to attempt the dangerous trek to the United States. This is why
the Administration supports a comprehensive approach to immigration reform that
accomplishes three objectives: strengthening border security, ensuring a comprehensive interior enforcement strategy that includes worksite enforcement, and establishing a temporary worker program.

16
As the causes of illegal immigration are not solely our own, the solutions are not
likely to be either. DHS is now, and must continue to reach out to immigrant-sending nations, beyond just our immediate neighbor of Mexico, to those in Central and
South America as well. Human trafficking and smuggling networks are embedded
throughout these sending nations, and uprooting them will require international cooperation. Transnational criminal organizations operate where they can establish a
foothold and fraudulent documents and alien smuggling provide necessary means of
funding: combating these operations requires regional and global partners.
As our closest neighbor to the South, and the source of the majority of illegal immigrants to the United States, Mexico is a critical partner for DHS in controlling
illegal immigration. And Mexico has proven to be a good partner in the last several
yearsthrough ongoing work at the local level, regional border liaison mechanisms
and national bilateral forums. DHS works extensively with representatives of the
immigration, law enforcement, security, and customs agencies of Mexico, as well as
with many of the leading Mexican businesses. I would like to take this opportunity
to describe some of the initiatives and programs that are currently underway with
our Mexican colleagues.
Security and Prosperity Partnership (SPP)
On March 23, 2005 in Waco, TX, President Bush, along with Canadian Prime
Minister Martin and Mexican President Fox, unveiled the Security and Prosperity
Partnership for North America (SPP), a blueprint for a safer and more prosperous
continent. The Leaders agreed on an ambitious security and prosperity agenda
which will keep our borders closed to terrorists and open to trade. The three leaders
instructed each nation to establish ministerial-level Security and Prosperity working
groups. Secretary Chertoff chairs the security agenda while Secretary of Commerce,
Carlos Gutierrez, chairs the prosperity agenda.
The Leaders met again this year on March 31 in Cancun to review progress and
renew commitment to enhance the security, prosperity, and quality of life of the citizens within North America. The leaders announced five priority areas: North American Smart, Secure Borders, North American Emergency Management, Avian and
Human Pandemic Influenza, North American Energy Security, and the creation of
a North American Competitiveness Council (NACC). The Council will comprise
members of the private sector from each country who will meet annually with security and prosperity Ministers and will engage with senior government officials on
an ongoing basis to enhance competitiveness in the region and ensure a secure home
for our citizens.
The Security agenda consists of ten security-related goals including Traveler Security, Cargo Security, Border Facilitation, Law Enforcement, Critical Infrastructure Protection, and Technology. Last June, Secretary Chertoff together with his
counterparts in Canada and Mexico, delivered a detailed work plan for the security
agenda. A second annual report will be delivered within the coming month.
We continue to strengthen our ties to our Mexican and Canadian colleagues
through a number of working groups that were expanded or established to implement the SPP. These working groups are critical to implementing important bi-lateral programs such as NEXUS and the Secure Electronic Network for Travelers
Rapid Inspection (SENTRI), the Customs-Trade Partnership Against Terrorism (C
TPAT), Fast and Secure Trade (FAST), the Operation Against Smugglers (and Traffickers) initiative on Safety and Security (OASISS), the Interior Repatriation program (IR) and other repatriation efforts, and Interagency Border Enforcement
Teams (IBETS) on our northern border and Border Enforcement and Security
Taskforces (BEST) our southern border which I will describe shortly.
In addition to these initiatives, through the SPP DHS and the State Department
are working on visa policy coordination with Canada and Mexico as an effort to implement policies and procedures that will lead to comparable decisions about travelers destined to North America. The end result of this coordinated work is designed
to be that a traveler destined to a Canadian or Mexican port of entry experiences
substantially the same screening as a traveler bound for a U.S. port of entry.
Further, DHS and State Department are working with Canada and Mexico to further coordinate the list of countries whose nationals are permitted to travel visa
free to or within North America. Since September 11th, some notable visa policy
changes include Canadas decision to impose a visa requirement on nationals of
Saudi Arabia, Malaysia and Costa Rica while Mexico decided to require citizens of
South Africa, Brazil and Ecuador to present a visa to lawfully enter Mexico. The
reimposition last year by Mexico of a visa requirement for Brazilians has dramatically decreased the inflow of illegal Brazilians across the southwest border.

17
Secure Electronic Network for Travelers Rapid Inspection (SENTRI)
SENTRI is a trusted traveler program exclusive to the Southwest Border. The
trusted traveler concept assists law enforcement officials at our nations borders
in distinguishing low-risk passengers from those who present a higher risk to U.S.
homeland security. Working with the Department of State, this concept supports
DHSs strategy of using risk management principles and advanced technology to facilitate the entry of low-risk travelers across the border at selected crossings.
SENTRI provides expedited CBP border processing for pre-approved, low-risk
travelers who undergo a thorough biographical background check against criminal,
law enforcement, customs, immigration, and terrorist indices; a 10-fingerprint law
enforcement check; and a personal interview with a CBP Officer. Approved applicants are issued a Radio Frequency Identification (RFID) card that identifies their
record and status in a CBP database upon arrival at Port of Entry. An RFID transponder is also issued for the applicants vehicle.
SENTRI participants wait for much shorter periods of time than non-participants
to enter the United States, even at the busiest times of the day. Critical information
required in the inspection process is provided by the RFID technology to the CBP
Officer in advance of the passengers arrival, thus reducing the inspection time from
an average of 3040 seconds to an average of 10 seconds. Currently, approximately
75,000 individuals are enrolled in SENTRI, accounting for over 300,000 border
crossings into the U.S. per month.
Operation Against Smugglers (and Traffickers) Initiative on Safety and Security
(OASISS)
OASISS is a bilateral program between the U.S. and Mexico, which enhances our
ability to prosecute alien smugglers and human traffickers on both sides of the border. Too often, smugglers responsible for life threatening behavior, and even deaths,
on one side of the border were able to evade justice by escaping to the other side.
OASISS is currently operational in all four states along the southwest border.
Working with the Mexican Attorney Generals Office (PGR), we have been able
to successfully process a total of 251 cases under the OASISS program. In 2005, the
Border Patrol, in California and Arizona alone, assisted in the prosecution of 786
smuggling cases, and the Office of Field Operations assisted in the prosecution of
766 cases, a total of more 1,500 alien smuggling prosecutions.
Interior Repatriation Program (IR)
A 2004 Memorandum of Understanding between the Department of Homeland Security (DHS) and the government of Mexico established the framework for our two
nations to work cooperatively for the safe and orderly repatriation of Mexican nationals. For the past two summers, the U.S. and Mexican officials developed and
jointly administered the Interior Repatriation program to return nearly 35,000
Mexican nationals who voluntarily agreed to be repatriated from the Arizona-Sonora
desert to their hometowns in the interior of Mexico. The goals of the program are
to reduce the loss of migrant life in the dangerous desert corridor and to break the
human smuggling cycle along the border. The program has served as a model of binational cooperation at all levels.
During summers 2004 and 2005, Customs and Border Protection funded and managed the operations of the Interior Repatriation program. Immigration and Customs
Enforcement (ICE) is managing and funding the operations of this summers program that began on July 7 and is scheduled to continue until no later than September 30. This three month period typically presents the most severe climate conditions for individuals crossing the Arizona-Sonora desert. Those who volunteer for
the program are flown to Mexico City and provided bus transportation to their
places of origin in the interior of Mexico.
By quickly and safely returning Mexican nationals to their hometowns rather
than releasing them on the Mexican side of our shared border, both nations seek
to save lives and discourage additional illegal border crossings through hostile,
desert terrain.
Further, we are working with Mexican officials to update and implement local repatriation arrangements between DHS and the Mexican consulates throughout the
United States. For DHS, CBP officersincluding those at ports of entry and in the
border patrolas well as ICE officials are responsible for the safe, orderly, and effective repatriation of Mexican nationals. At the end of June, the first two local arrangements went into effect in El Paso and Chicago. These local arrangements ensure that DHS officials and their Mexican counterparts have clear agreement on the
locations, daily schedule, and advance notification for the secure repatriation of
Mexicans, including those who have committed crimes in the U.S. and unaccompanied minors. These local arrangements ensure adequate personnel on both sides

18
to effect the repatriation. After completion of the pilot program period, and a successful evaluation, the templates will be used to draft similar agreements between
each Mexican Consulate within the United States and the local DHS Agencies within their jurisdiction.
Border Violence
On March 3, 2006, in Brownsville, Texas, Secretary of Homeland Security, Michael Chertoff, and his Mexican counterpart, Secretary of Governance and Public
Safety, Carlos Abascal, signed a Plan of Action committing both governments to
combat border violence and improve public safety. The commitment between our two
nations will strengthen procedures between federal law enforcement agencies on
both sides of the border to respond to a variety of incidents, including accidental
crossings, incidents of violence, or other situations that present risks to those who
live, work, or travel at our common border.
Border Enforcement and Security Taskforce (BEST)
On January 6, 2006, Secretary Chertoff announced the formation of the Border
Enforcement Security Task Force (BEST) in Laredo, Texas. BEST represents an integrated effort to combat border violence and cross-border crime and involves the
DHS components, State and Local law enforcement agencies, and the Center for Investigation and National Security (CISEN) in Mexico. We are working to empower
our local officials to assess issues and craft solutions appropriate to local circumstances. Our first two test sites for this concept are Laredo, Texas, and Tucson,
Arizona. The principal focus of these groups is to work together to reduce border
violence and disrupt those violent organizations. Since their inception, the BESTs
have achieved 54 arrests, 22 indictments, and 10 convictions and have removed over
60 aliens.
Border Safety Initiative
This is a joint partnership between the U.S. Border Patrol and the Government
of Mexico to reduce border risks and deaths. Immigration officials and the Border
Patrol work together with Mexican consuls and Grupo Beta units along the border.
This initiative includes training on safety and rescue techniques and information
sharing.
In Fiscal Year 2005, southwest border deaths increased by 41% (464 in FY05 vs.
330 in FY04) and southwest border rescues increased by 91% (2570 in FY05 vs.
1347 in FY04). These statistics indicate that a secure border will not only have an
important law enforcement component, but also yield the humanitarian benefit of
saving lives. Border Patrol Search, Trauma and Rescue units (BORSTAR) are elite
special response teams with law enforcement search and rescue, and medical aid
rapid response capabilities. In addition to its core focus of supporting Border Patrol
operations, BORSTAR has become a highlight of a bilateral training initiative in our
relationship with Mexico. In December 2005, BORSTAR conducted its first ever
search, trauma, and rescue academy for 25 Mexican officials. The training was conducted in the southern Mexican state of Chiapas.
Other Nations in the Western Hemisphere
In addition to our extensive work with Mexico, we are also working with other
countries in the Western Hemisphere to better manage illegal migration in the region. Through our work in several multilateral forums, and on a bilateral basis with
specific countries, we continue to press for efficiency in the issuance of travel documents for the repatriation of apprehended migrants, and to better manage the
transnational impacts of migration. I will mention only a few of these here.
RCM (Regional Commission on Migration). DHS, together with our colleagues
from the Department of State have participated in the Regional Commission
on Migration. The RCM, launched in 1996, brings together migration and foreign policy officials from Belize, Canada, Costa Rica, El Salvador, Guatemala,
Honduras, Mexico, Nicaragua, Panama, and the United States in a multilateral regional forum to discuss, share experiences about, and engage in collective undertakings in response to the dynamic impacts of transnational migration. Non-governmental organizations from throughout the region work with
migrants and advocate for immigrant and refugee rights are also included.
The RCM conducts annual Vice-Ministerial meetings, semi-annual working
level meetings of the Regional Consultation Group on Migration, seminars,
projects and other joint activities. The RCM also provides an important forum
for the exchange of information on migration issues and allows members to
voice concerns relating to their countries migration agendas.

19
ICAO (International Civil Aviation Organization). The United States, Canada,
Mexico and the Central American countries are members of ICAO, an international body that promotes standards and best practices for travel documents and aviation security. Through the ICAO, the United States has successfully pushed for incorporation of machine-readable documents, electronic
passports and biometric standards for international travel documents that are
now being adopted by many countries in the Hemisphere.
U.S.-Mexico Binational Commission (BNC). The U.S.-Mexico Binational Commission brings together principal officials of the U.S. and Mexican governments annually to confer on a broad spectrum of issues affecting both nations.
Secretary Chertoff co-chairs the Working Group on Consular and Migration
Affairs and Border Security.
GTIP Program. The Presidents $50 Million Trafficking in Persons (TIP) Initiative was established to assist foreign countries in combating trafficking in
persons. The Trafficking in Persons Conference held in Tapachula, Chiapas
on June 1415, 2006 resulted in an overwhelming response from government
agencies (local/state/federal), NGOs, civil society, and academia. The participants identified next steps and made specific commitments. DHS has established an excellent working relationship with the Policia Federal Preventiva
(PFP), the Procuraduria General de la Republica (PGR), the Instituto
Nacional de Inmigracion (INM), other governmental agencies, and several
Non-Governmental Agencies (NGOs) and now has two ICE Special Agents to
provide technical assistance to the dedicated investigative unit. Additional
training will be provided to Mexican Immigration authorities in Tapachula
during the first 2 weeks in August 2006.
Mr. Chairman, Members of the Subcommittee, I have outlined a number of initiatives today that we have taken with the government of Mexico and other nations
in the Hemisphere to allow us to protect America from the terrorist threat while
performing our traditional enforcement and facilitation missions. While all of these
initiatives are important and will continue, they are only one facet of the solution
to the issue of illegal immigration. I urge Congress to pass comprehensive immigration reform that meets the Presidents stated objectives. Only through a combination
of border enforcement (working with our international partners), expanded enforcement within the United States, including an expanded employment compliance and
enforcement program to address illegal employment, and a temporary worker program which will provide a legal avenue for employers to fill their labor needs when
U.S. workers are not available, will we begin to change the current paradigm of migration in the region.
Thank you again for this opportunity to testify. I will be happy to answer any
questions you may have.

Mr. WELLER. Thank you, Ambassador Arcos. Ms. Whitaker, one

of the common themes that I certainly heard from my colleagues
on both sides of the aisle and frankly knowing their positions in
the so-called immigration debate, one area of commonality I certainly heard was clearly good jobs at home discourages illegal immigration. And I think we would all say that all of us here on this
dais would like to see the day that remittances are no longer the
primary source of income in many national economies in Central
and Latin America.
How would you assess our partners and their efforts in creating
the economic climates, particularly in the nations that currently
are our source of illegal migrants, their efforts to create the economic climate at home that actually encourages, attracts investment, and creates jobs at home?
Ms. WHITAKER. I am happy to comment on what Mexico is doing
and make some general reference to the Central American countries. The Mexican Government has been quite clear both in statements which were mentioned in some of your statements earlier
today and during the Presidential election. The campaign rhetoric
of all three parties was focused on the need to create opportunities

20
for Mexicans at home, which we found very much in tune with our
thinking.
Mexico is not a middle income country, but it is true that a large
number of Mexicans continue to enter the United States illegally,
and I think that is certainly because they are looking for better opportunities. The economic opportunities that exist in Mexico, even
in a climate of current growth, which is about 3 percent or a little
bit more so far this year, are not distributed evenly.
What we are working and discussing with the Mexicans is that
to try to broaden the base of opportunities, we are taking a twopart approach. One is the Partnership for Prosperity programs,
which we talked about, a private/public sector partnership, to address some of the needs and create opportunities for those who
have not been yet lifted up by NAFTA. Also we are working with
the Mexican Government and urging them to focus on some additional reforms, whether in fiscal policy, energy policy or labor to try
to foster broader-based growth that will give opportunities to all.
Mr. WELLER. How about Central America? What is your assessment there?
Ms. WHITAKER. In Central America, I believe we heard mention
of the Central American Free Trade Agreement, the DR Free Trade
Agreement, which we like to think will be like NAFTA in beginning
to turn the tide in the countries of Central America. That, plus the
Millennium Challenge Corporation, which is providing assistance
to Honduras and Nicaragua, and I believe El Salvador and Guatemala are working on trying to qualify for some of those grants.
Again, these are programs where we are trying to create economic opportunities. MCC is providing assistance according to
plans that have been developed by the countries themselves, according to specific criteria of good governance that the Millennium
Challenge Corporation has laid out. These are long-term solutions.
Mr. WELLER. Now, Ms. Whitaker, you mentioned the Millennium
Challenge Account and we have seen of course the MCA has generated a number of contracts, and I for one have been a very strong
supporter of the goals that President Bush has outlined with the
Millennium Challenge Account, and these contracts have been
signed, but when are we going to see some concrete poured?
In Honduras there is supposed to be a coastal road from one
coast to the other to provide access to markets for farmers and
small manufacturers. The same is true for northern Nicaragua.
When are we actually going to see some fruit coming from these
contracts?
Ms. WHITAKER. I cannot give you a date. I do not have a date
off the top of my head as to when we are going to see concrete
poured, but I do know that in both Honduras and Nicaragua, we
have identified specific projects, and they are indeed focused on infrastructure to bring products to market, I would be glad to try to
get a better fix on that date and bring it back to you.
Mr. WELLER. I would ask for a timetable.
Ms. WHITAKER. Certainly.
Mr. WELLER. I am concerned that we are taking a long time to
actually see some real results other than contracts being signed.
Ms. WHITAKER. Of course.

21
Mr. WELLER. USAID has had programs in place, particularly in
the rural areas, and if you look at the areas in many of our friends,
the countries which are sources of illegal immigration, a lot of
these illegal immigrants are coming from the rural areas.
I have seen the USAID programs. I remember being in a rural
area in Honduras where USAID had a program and partnership
with the Government of Honduras to encourage farmers to replace
the traditional crops of corn, maize, and sugar where they really
were not able to generate an income and replace them with plantains and tomatoes and other vegetable crops that can be used for
exports. What is the direction of these programs? Can you just outline what your plans are? Do you feel this is a good investment?
Do you plan to expand it? What direction do you plan to take?
Ms. WHITAKER. My understanding is that indeed these programs
will continue, but to give you a thorough and accurate answer as
you deserve, I would like to consult with my colleagues at USAID
and give you again a more concrete answer, if I may.
[The information referred to follows:]
WRITTEN RESPONSE RECEIVED FROM MS. ELIZABETH A. WHITAKER TO QUESTION
ASKED DURING THE HEARING BY THE HONORABLE JERRY WELLER
With regard to the road projects you mention, both Nicaragua and Honduras have
suffered from poorly planned and executed road projects. MCC is determined to
build roads that last, which will take more time but pay off in the long-run because
future generations will benefit from a sustainable transportation network throughout the country.
It can take anywhere from nine to twelve months for study, design, and procurement activities prior to construction in order to build a road that is technically
sound. Conducting feasibility studies on these roads is a high priority for MCA-Nicaragua and MCA-Honduras. They are both currently procuring these services and
looking for ways to shorten their already aggressive timelines without cutting corners and compromising the quality of the roads. In Nicaragua, the procurement
process for the studies and the construction management firm are currently underway, but it is unlikely construction will begin for another 9 to 12 months. Similarly
in Honduras, actual road construction is expected to begin in late 2007, but work
is already underway in reviewing environmental and social impacts and ensuring
a committed budget for future road maintenance. In Nicaragua, MCC was instrumental in working with the Government of Nicaragua and other donors to ensure
legislation was passed to fund road maintenance for the first time in many years.
In both countries, important advances will be made on other Compact components
in the coming months. In Nicaragua, the Rural Business Development project is already working with small and medium-sized beneficiaries, and early efforts have already yielded export commitments. The Property Regularization component will
begin its initiatives to improve management of the titling process and MCA-Nicaragua, jointly with the World Bank project, will be delivering some of the first titles
in the next month.
In Honduras, the Millennium Challenge Account office has signed a $22 million
contract with FINTRAC for crop diversification training. The Farmer Training Development (FTD) project is the first such MCC contract in Honduras and one of the
first in the world. This contract directly builds on the best practices and farmer
training methodology carried out successfully in Honduras through USAIDs current
Rural Economic Diversification Program (USAIDRED) that you mentioned, which
is also implemented by FINTRAC. Both projects aim to train and assist thousands
of farmers to improve the production of nontraditional crops for domestic, regional,
and export markets. The USAID project is presently reaching more than 16,495
beneficiaries with technical assistance, most of them on a regular basis. USAID assistance is also helping these farmers access formal market outlets and increase
their incomes through improved production technologies. Processors benefit from a
more secure, consistent supply of high quality produce for their markets and for
value added processing, as well as improved marketing techniques.
MCC is quickly streamlining the Compact process to deliver in timely fashion
measurable results that contribute to poverty reduction through sustained economic
growth, as evidenced by the fact that it will have taken El Salvador only a year

22
to move from selection to signing its Compact, which it is scheduled to do this November.

Mr. WELLER. Okay. Well, I would welcome some details. While

we are on the subject of USAID programs in Mexico, I particularly
want to ask about why USAID programs in the areas of anti-corruption, transparency and accountability are being cut, and programs that are promoting competitiveness are being underfunded.
I for one think that programs of this nature are pretty important
as we try and encourage economic growth. Transparency of law and
eliminating corruption certainly has a significant impact in attracting investment, creating jobs and promoting a stable economy.
And if that our goal is to create jobs at home to discourage illegal
immigration, I wonder why this is occurring. Can you explain why
these programs have been cut and underfunded? And is this a result of the decision in Fiscal Year 2005 levels of Economic Support
Funds, developmental assistance for Mexico being cut in the Fiscal
Year 2006 and Fiscal Year 2007 budget? I for one think these programs are pretty valuable tools if we want to discourage illegal immigration. And why does USAID and the Department of State,
your agency, not consider these programs essential?
Ms. WHITAKER. I think that we would agree with you that they
are very important programs in terms of the anti-corruption and
transparency programs that USAID has sponsored along with
criminal justice reform, competitiveness, and also supporting a
number of State initiatives. I think indeed the USAID programs
have been very effective.
My understanding is indeed that the ESF levels for 2006 may
well be lower than 2005. I do not have a precise figure on that because we are in the midst of the fiscal year of course. My understanding, in general, of the budget processand again, I am happy
to try to get you more specificsis that as the State Department
looks at its overall foreign assistance planning, indeed this is a
much bigger issue, and I think the Secretary is leading an effort
to
Mr. WELLER. No, again, Ms. Whitaker, I am looking for an answer. If these programs are a priority and our goal is to help our
friends and allies eliminate corruption, why would we cut these
programs?
Ms. WHITAKER. That is a very good point, and what I would like
to do is to get you a more concrete answer.
Mr. WELLER. Because, again, it is your administration that is
submitting this budget request that recommended the cuts in areas
you say are a priority.
Ms. WHITAKER. Yes, sir. I will be glad to get you a more precise
answer, sir.
[The information referred to follows:]
WRITTEN RESPONSE RECEIVED FROM MS. ELIZABETH A. WHITAKER TO QUESTION
ASKED DURING THE HEARING BY THE HONORABLE JERRY WELLER
Let me provide the context. Foreign assistance for Latin America has nearly doubled since the start of this Administration, from $862,452,000 in FY 2001 to
$1,696,841,000 in FY 2007. Though the FY 2007 request for Latin America shows
a one percent decrease from the FY 2006 request, it does not reflect a reduced commitment to Latin America. In fact, when new funds being made available via the
Millennium Challenge Corporation are factored in, total resources to the region have
increased. We have prioritized our foreign policy goals against available resources

23
and competing demands for assistance. For example, a reduction for middle income
countries where the need is not as great allows us to increase assistance in areas
such as Africa, where the need is greater.
With regard to Mexico specifically, the Presidents FY 2007 budget request asks
for $62.882 million in bilateral foreign assistance, the fifth largest bilateral program
in the Hemisphere (behind Colombia, Haiti, Peru, and Bolivia). Due to Mexicos ratification of the Rome Statute on the International Criminal Court at the end of FY
2005, it became ineligible for FY 2006 International Military Education and Training funding under the American Service Members Protection Act (ASPA). Mexicos
ESF was similarly impacted by the Nethercutt Amendment. However, we will have
sufficient funds with the Presidents 2007 request to achieve our priority goals in
partnership with Mexico-targeting the very areas you mention, including good governance, judicial reform at the state level, and competitiveness.

Mr. WELLER. Okay. The gentlelady from California, Ms. Lee.

Ms. LEE. Thank you very much. Okay. Going back to one of the
points I made in my opening statement. Ms. Whitaker, United
States/Haitian versus Cuban policy, at least immigration policy,
continues to remain a double standard. Haitians do not have immediate political asylum when they reach the United States, although
I said I would argue that the political and safety challenges are
much greater in Haiti than they are in Cuba.
It is clear to me that this policy must change and we must provide temporary protective status to Haitians who are currently
here in the United States seeking political asylum. I know there
has been a lot of talk about it, but that is all that has happened.
It is just a lot of talk.
And I do not know why this Administration continues to uphold
an unfair and oftentimes it is perceived as a racist policy against
Haitians seeking refuge in the United States. Of course Haitians
who come are Black, and for the most part, the majority of Cubans
who come are White. I would like to find out why this talk is just
talk and you do not move toward granting temporary protective
asylum status to Haitians?
Ms. WHITAKER. Again, I am not an expert in either Cuban or
Haitian temporary protective status policy. I do know of course
that the Cuban policy is the product of many years of deliberations
under many different Administrations of both parties, but I would
be glad to try to get back to you with a better sense of the status
of the conversation over the difference in policy. I do not know if
my colleague from DHS would like to add anything to that.
Mr. ARCOS. I would just simply add, Congresswoman, the following, that the Mexicans tend to also complain about the fact that
they do not have temporary protective status and some Central
Americans do. And these were taken under extreme circumstances
in the late 1990s for temporary protective status for some countries. But the fact remains that in terms of Haiti and Cuba, the
Cuba Adjustment Act is legal. It is legislation that was made here
in Washington years ago and creates for the different treatment.
So it is not just a policy issue. It is a legal issue. And Haitians
are treated like all other immigrants, illegal immigrants that do
not have a Cuban Adjustment Act to afford them the treatment
that is given to them as opposed to the rest of the world.
Ms. LEE. That is the point. Haitians are treated as illegal immigrants, and they are fleeing for the most part political repression,
and they land here on our shores, and well, you know what happens. I would think that regardless of the Cuban Adjustment Act

24
and the history of all this that you would try to equalize some of
this at this point, or that this Administration would, given the fact
that we have so many Haitians living here, grant temporary protective, political asylum status.
With regard to the issue of the percentage of immigrants who
you have found under Homeland Security that you would consider
potential terrorists, do you track those that you turn back based on
whatever formula you use that would identify immigrants coming
across the border as possible threats?
Mr. ARCOS. We have several different mechanisms for that, Congresswoman, and let me just say that when we talk about terrorist
versus normal, honest, economic seekers that come to the United
States either as tourists or for business or students that seek to
emigrate to the United States, the vast, vast majority, 99 percent,
are honest people. They are not having anything to do with being
criminal or terrorists.
What we do have is different systems in place. We have different
watch systems that whenever people apply to a visa in the Embassies around the world, we can figure out who they are as long as
we have a record of them. And we have caught many. We have
stopped them from coming into the United States, and some of
them slipped by, and some are in countries that already maybe
they have had a visa and they have been recruited. But they are
on our watch list, and we intercept them before they board a plane
or we can catch them at the border as they enter the United
States. We have different mechanisms for that.
Ms. LEE. Well, Mr. Ambassador, I am very glad that you were
very candid with us on your response to that question because
maybe you should have weighed in a little bit more on this immigration debate, because you know central to this debate unfortunately was the notion that we needed tough immigration reform
because immigrants for the most part could be considered or are
considered terrorists, and I think that really took the debate in a
direction that it should not have gone when most of us know that
is just not the case. And you just said 99 percent are people who
want to come and get a job and see their families.
Mr. ARCOS. That is probably true, Congresswoman, but let me
just point out one thing. Terrorists have to be right only once. We
have to be right 100 percent of the time.
Ms. LEE. I understand that 1 percent. I understand that.
Mr. ARCOS. And basically what we see in illegal immigration in
this country right now is a concern because it is a vulnerability to
us in terms of a threat.
Ms. LEE. I understand that, but that 1 percent, my question was
what percentage of the immigrants that you see coming across that
you have to turn back who are undocumented could be potential
terrorist threats, and if it is 1 percent, that is a serious 1 percent.
But, I mean, if it is 1 percent, it is 1 percent.
Mr. ARCOS. To be exact, I am not sure if it is 1 percent or maybe
more or maybe less. I will get back to you.
Ms. LEE. Yes. And our immigration policy should not be just
based on that 1 percent is the point I am trying to make.
Mr. ARCOS. But it is a vulnerability because we had 19 to 22 people do what they did on 9/11.

25
Ms. LEE. Right. It is a huge vulnerability. But when we are talking about immigration reform, that is a huge piece of it, but that
should not be the overriding factor to drive immigration reform.
Thank you.
Mr. ARCOS. Thank you.
Mr. WELLER. Mr. McCaul.
Mr. MCCAUL. Thank you, Mr. Chairman. I want to thank you for
holding hearings on this particular issue and that is economics. I
think that when we look at the root cause of illegal immigration
into this countryI happen to come from a border stateI think
it boils down to jobs and the economy. We do not have this same
phenomena with Canada.
When I was down at the United States/Mexico interparliamentary, we talked about this very issue. Their congress actually
passed a resolution recognizing that they have a problem and they
are exporting their people. They do not necessarily want to do that,
and they called for greater cooperation between our two countries,
which I think is essential, particularly when it comes to law enforcement, Ambassador.
But one thing I asked them at the conference was the economic
policies, because I view a lack of incentive for businesses to invest
not only in Mexico but in South America and Central America
largely due to the tax policies, the regulatory policies, the level of
corruption, and the educational system that I do not think helps
either.
My short question, which probably will merit a longer answer, is:
How do you view the elections in Mexico bearing in on this, number one? And what can we do in the Congress to help foster or lift
up the economies south of the border so we can get to the root
cause of the problem?
Ms. WHITAKER. I guess that is my question.
Mr. MCCAUL. I guess it would be. And if I have time, Mr. Chairman, I have a question for the Ambassador if that is okay.
Ms. WHITAKER. At this stage, we, like all of you, await the decision of the Mexican electoral tribunal in making a final determination of who has won the Mexican elections. What we found heartening was listening to the campaign discussion of immigration,
which really without exception from all of the three major candidates focused on the things that Mexico had to do to keep its talent at home and to create opportunities for the Mexican people.
The other part of this, of course, was an acknowledgement that
any country, the United States, Mexico, or any country has the
right to protect its borders and keep its people secure. Mexico, with
a 700-mile border to the south, which, as you know, sir, is pretty
remote and porous, I think is well aware of the fact that they have
many of the same concerns that we do with regard to border security.
Given that, I think we are quite optimistic that whoever is finally declared through the decision of the electoral tribunaland
we indeed believe that we will see free and fair results coming out
of the tribunalthat whoever is the new President of Mexico will
indeed embrace the rhetoric which all three espoused during the
campaign.

26
I think that points us to a future of Mexican leadership working
with the Mexican Congress to continue making some of the difficult
decisions on economic reform, energy reform, labor reform, which
complement some of the international programs that exist, such as
our P4P program and some of the AID programs which are trying
to address the pockets of Mexican society where perhaps the benefits of free trade have not yet arrived and create opportunities for
the Mexicans who do not yet have them.
Mr. MCCAUL. Why the disparity in wealth in Mexico?
Ms. WHITAKER. I think it is the unequal distribution of opportunities. They talk often about the rising tide of NAFTA lifting all
boats. I think it is not lifting all of those boats equally, and that
is why we have been working with international financial institutions and with our Mexican counterparts and also with the private
sector on both sides of the border in P4P to try to create some complements to free trade to address some of the areas that again are
not yet lifted up by the benefits of free trade.
Mr. MCCAUL. Do you think there is any openness to changing
their tax structure, particularly when it comes to foreign investment?
Ms. WHITAKER. I think it is something that certainly any new
government will look at. It would be irresponsible of me to try to
predict it at this time, but certainly economic growth and reform
is an ongoing discussion we are having with our Mexican counterparts.
Mr. MCCAUL. We will continue to press that in the Congress.
Ambassador, we met with the Ambassador from Mexico who put
together a group of deputy attorneys general for organized crime,
the secretary of foreign affairs, and they gave us a briefing on the
cooperation with respect to law enforcement. I do believe it is improving, but I wanted to get your thoughts on that. Also if I could
ask the question, I agree with you the majority are coming here to
work, but it only takes one mistake to be fatal, and that is the 1
percent we are most concerned with.
Can you comment on the level of cooperation both in terms of
military, police, and intelligence, and then secondly, comment on
the numbers of OTMs and special interest aliens crossing into this
country? We talk a lot about OTMs, but really the special interest
aliens are really the core of what should be the focus in terms of
who is getting in. Is that number rising or going down as we ramp
up our enforcement measures?
Mr. ARCOS. Thank you, sir. Thank you, Mr. Congressman. Let
me begin by talking a little bit about when I came on board Homeland Security well over 3 years ago with Tom Ridge, and one of the
things that we discussed in terms of our southern border and our
northern border in terms of comparison is, how do you measure the
success at the end of a period of time? And I think that after 3
years, there has been enormous success in terms of dealing with
Mexico.
We still have a long way to go I think in terms of the institutionalization of the relationship with the law enforcement community. We have a very established relationship with the Canadian
counterpart institutions in Canada with their counterparts in the
United States. We would hope at the end of the day when we have

27
metrics to measure the success with Mexico that we have institutionalized those relationships that are not based just on personality
and the given crisis of the moment but that they be truly institutional.
And during the Fox administration for the last 6 years, we have
seen tremendous strides in terms of institutionalizing these relationships, particularly with our border patrol, our customs people,
and our immigration people, and I think there is plenty of data I
can get to you in terms to quantify the specifics of that and how
it has improved.
In terms of the OTM, other than Mexicans, clearly that was a
concern 3 years ago. The number is not as alarming as it was 3
years ago for one simple reason. We worked very closely with the
State Department to unify a North American visa policy, and we
worked with both Canada and Mexico in terms of dealing with a
visa policy that is more uniform and suits our interests in terms
of addressing the concerns that we see in terms of threats, particularly in the case of Brazilians.
We saw that up until about a year ago we were catching thousands of Brazilians a year, and now that number has been drastically reduced, and I can get those numbers to you, but drastically
reduced in terms of getting the Mexican Government to do away
with visa waiver for the Brazilians, because we were also finding
a lot of South Africans and a lot of other ones that had used fraudulent documents to get to South Africa and then get to Brazil and
then come on up in through Mexico. So that has been stemmed
considerably, and I can get those numbers for you, sir.
Mr. MCCAUL. Special interest aliens?
Mr. ARCOS. I am sorry?
Mr. MCCAUL. In terms of special interest aliens? What about the
numbers on those?
Mr. ARCOS. I could get you those numbers as well.
Mr. MCCAUL. Okay. Has there been an increase or decrease?
Mr. ARCOS. A decrease.
Mr. MCCAUL. Okay. Thank you, Mr. Chairman.
Mr. BURTON [presiding]. Thank you. Let me just ask a few questions that I hope have not been asked yet. I have been out of the
room for a little bit, and I apologize for that. There are a lot of false
or counterfeit passports that are being manufactured in Mexico. Is
the Mexican Government doing anything about these illegal or
fraudulent passports being manufactured to give to people to cross
the border? We are not only concerned about it because of the illegal immigration, we are concerned about it from the standpoint of
terrorists. We have been told that there is an industry, if you will,
that produces these passports, and we do not want a bunch of terrorists getting in on passports that are fraudulent.
Mr. ARCOS. Mr. Chairman, if I may start that comment, and then
perhaps Betsey may have another contribution to make on this
issue. We have worked very closely with the Mexican Government
as we are working worldwide in Homeland Security with different
governments to make sure that we deal with fraudulent, lost, and
stolen passports, because this presents an enormous threat to all
of us in the community, not just the United States but our partners, our foreign partners.

28
Clearly with the technology that is available today, it is easy to
make fraudulent passports. With Mexico, we have not seen so
much in terms of the violation of fraudulent passports. It is basically the illegal crossings but we do know that there have been
counterfeit passports in South America and Latin America in general, and we are trying to address that with the negotiations we
have in the ICAO, the International Civil Aviation Organization by
trying to get biometrics. With good biometrics, we will be able to
stem that. Machine readable passports and biometrics, that is a
digital facial
Mr. BURTON. Well, I am concerned about it primarily because of
the terrorist threat, and I have been told that there is an industry
down there where they are producing these passports. Have you
had cooperation with the Mexican Government?
Mr. ARCOS. I do not have personal knowledge of the quantity. I
just know anecdotally that there have been counterfeited passports
and documentation.
Mr. BURTON. How do you catch them?
Mr. ARCOS. Well, basically through our ports of entry.
Mr. BURTON. I know, but how do you catch a person with a foreign passport or a fraudulent passport? Do you have any kind of
a system or any technology?
Mr. ARCOS. They have to be machine-readable or they have to
have a visa, an American visa, U.S. visa in it which contains biometrics. I have not heard recently of American visas being counterfeited. So if it has an American visa, we are pretty sure that it is
the person that is going to
Mr. BURTON. They cannot counterfeit those?
Mr. ARCOS. No.
Mr. BURTON. The American visas?
Mr. ARCOS. Not that I know of, sir.
Mr. BURTON. Is there any way you could check to see if you have
caught any like that?
Mr. ARCOS. I can check to see that with the State Department
perhaps.
Mr. BURTON. I would like to find out. Also, is there any progress
being made enhancing law enforcement cooperation among Mexico
and Canada and the United States through maintenance of some
kind of a database that would track suspected terrorists?
Mr. ARCOS. We do share intelligence. We share information at
the law enforcement and at the strategic level with both countries,
and we work very closely on the Homeland Security with our counterparts in Canada and Mexico and the State Department through
their diplomatic channels and the intelligence community through
their channels. We are able to disseminate information and share
information, as we do with advance passenger information systems
on aircraft.
The Canadians let us know who is coming in from other parts
of the world into North America, and the Mexicans give us advance
notice of who is flying into the United States from Mexico. We get
lists and we run them through our databanks. CBP does.
Mr. BURTON. So you do have the cooperation and you are reporting?

29
Mr. ARCOS. We do. What we need to do is enlarge the databank,
and that is why it is important to get as much biometrics as possible and documentation worldwide.
Mr. BURTON. Let me go back to Ms. Whitaker real quickly. You
were talking about a disparity in the growth of economic prosperity
in Mexico. And you said that there is more money and more trade,
but the money is not necessarily reaching the lower or middle
classes, if there is a middle class down there.
We have gone from a $1 billion trade surplus with Mexico prior
to NAFTA to a $50-some billion trade deficit, a very large trade
deficit. That money has got to be going someplace because they are
benefitting to the tune of $51 billion a year from the United States
since NAFTA was passed. Why is it that industry is not being able
to provide more lucrative jobs and helping bring more prosperity if
you will to the people in the lower income classes down there?
Ms. WHITAKER. I think to some degree, again, all of the benefits
of that trade have not reached every Mexican yet.
Mr. BURTON. I know, but since we were so proud of NAFTA and
there were a lot of us who did not like the NAFTA approach, why
is it that the money is going down there, the jobs are supposedly
going down there, we have opened the border for trade, free trade,
and we have got a $51 billion change, and yet you still have this
tremendous amount of poverty? Everybody is coming up here hell
bent for leather.
Ms. WHITAKER. I think it is really a question of it has been just
12 years since NAFTA was signedso we are talking
Mr. BURTON. 12 years is a pretty long time.
Ms. WHITAKER. Yes, sir, it is. I think the issue is indeed that on
the Mexican side they still need a number of structural reforms,
economic reforms to try to lubricate the economy so that additional
investments can be made and businesses can be started up in a
shorter period of time.
Mr. BURTON. Okay. But how do you lubricate the system so to
speak so that the jobs are getting to the people that need the income so that we can stop the massive flight and immigration in the
Unites States? I mean, we are getting as many as a million or more
people a year coming across that border illegally.
Ms. WHITAKER. Right.
Mr. BURTON. And we have a $51 billion change in trade. It seems
to me something is amiss because we have not slowed down the
amount of illegal aliens coming across the border, and yet we have
put $51 billion more into their economy. It does not make any
sense.
Ms. WHITAKER. I think it is a question of making some of the
very difficult decisions in terms of structural reforms, whether they
are labor, economic, or
Mr. BURTON. Well, where are we on structural reforms, and who
is making them? Mexicans? Us? Or are we doing it in cooperation
with one another?
Ms. WHITAKER. Well, Mexico did make some structural reforms
at the time NAFTA was brought into effect, as you know. There is
still certainly more to be done, whether on the fiscal side, the energy side, the labor side, and while those are certainly sovereign
decisions for Mexico to make

30
Mr. BURTON. Well, I do not want to belabor this point, but are
we pressing the Mexicans to make the structural reforms necessary
so that the NAFTA benefits that they are getting are going to create more jobs in the middle classes or lower classes?
Ms. WHITAKER. Yes, we are.
Mr. BURTON. We are pushing them on that?
Ms. WHITAKER. Yes.
Mr. BURTON. Well, can I see some manifestation of that in some
kind of documentation? Is there anything you can send us on that?
Ms. WHITAKER. I will be glad to get that to you.
[The information referred to follows:]
WRITTEN RESPONSE RECEIVED FROM MS. ELIZABETH A. WHITAKER TO QUESTION
ASKED DURING THE HEARING BY THE HONORABLE DAN BURTON
Both President Fox and President-Elect Calderon have committed to deeper structural reforms that will accelerate economic growth and ensure that its benefits are
shared by all Mexicans. We are supporting Mexicos commitment to reform in many
ways. Most importantly, President Bush launched the Security and Prosperity Partnership (SPP) together with his Mexican and Canadian counterparts in 2005. A
number of trilateral working groups have been set up to implement the SPPs prosperity agenda of providing greater economic opportunity for all our citizens and enhancing the global competitive position of North America as a whole. In response
to your request, I would like to submit for the record the 2006 Report to Leaders
from Secretaries Rice, Chertoff, and Gutierrez and their Mexican and Canadian
counterparts, together with the Prosperity Agenda annex.
In addition to the SPP initiative, Presidents Bush and Fox inaugurated the bilateral Partnership for Prosperity (P4P) in 2001 with a focus on bringing foreign investment and development to those areas of NAFTA that benefited least from
NAFTA. Under P4P, our governments signed an OPIC agreement, which has
brought $800 million in new financing to projects in Mexico. Through P4P, the U.S.
Embassy, the American Chamber of Commerce, the Mexican Business Chamber,
and the Mexican government have established a Quadripartite Competitiveness
Committee that makes recommendations to improve Mexicos Doing Business environment. Furthermore, a range of U.S. officials, from Cabinet members and Ambassador Garza to our Assistant Secretary for Western Hemisphere Affairs Thomas
A. Shannon and below, have consistently encouraged their Mexican counterparts efforts to continue down the reform path. Also via P4P, USAID has funded programs
in Mexico to expand access to credit for small enterprises and farmers, encourage
community-based conservation of energy and natural resources, conduct educational
exchanges (known as the Technology, Internships, Education and Scholarship or
TIES program) for poor and indigenous Mexicans working on development issues,
and advance judicial reform. I would also like to submit for the record the USAIDMexico country profile which discusses these initiatives in greater detail.

Mr. BURTON. Okay. I have a request from the Vice Chairman for
one more question, and I think she left. But if you have one more
question, go ahead.
Mr. WELLER. Actually, Mr. Chairman, I have two quick questions.
Mr. BURTON. Okay. Stretch it.
Mr. WELLER. Thank you, Mr. Chairman. Ambassador Arcos, I for
one have raised concerns regarding the concept of selling economic
citizenship where there are certain countries in our hemisphere
which to this day for a fee you can go and say that you are going
to invest in that particular country and then they will in return
give you essentially documentation suggesting that you are a citizen of that particular nation, including passports even under an
assumed name. The concerns are obvious. What is the status of
your agencys efforts to address this issue?
Mr. ARCOS. Congressman, we are aware that this has happened
in a very sizable business type of situation in the 1980s and 1990s.

31
Increasingly that is not the case with the countries we are talking
to in the region. We have manifested our concern about how citizenshipit is not so much the citizenship as passports that were
being given to noncitizens of these countries in return for investment, and there was not much due diligence, and that has been a
concern for years. Since I was even in the State Department, we
were concerned about this back in the 1980s and the early 1990s.
Because what has happened in the last 6 years in the world in
terms of terrorism, countries have now begun to tighten up. I can
get you the figures in terms of which countries are the ones that
still do this.
Mr. WELLER. It is my understanding there are two or three countries that are in the Caribbean that still to this day continue this
practice. Is that the case? Is that true?
Mr. ARCOS. My understanding, it is true, but I do not know the
numbers or have any specifics on it.
Mr. WELLER. So why would we accept a passport from one of
those countries if they were?
Mr. ARCOS. Well, first of all, if they have a passport, it does not
mean that they get into the United States. They have got to go get
a visa, and then there are different checks. They go through a
whole process in obtaining a U.S. visa. So it is not because they
have a passport of a certain country in the Caribbean that they are
allowed to enter the United States.
Mr. WELLER. Now is this a priority for your agency to seek an
end of this practice?
Mr. ARCOS. Certainly it is part of the concern that we get proper
documentation, worldwide proper travel documentation.
Mr. WELLER. Okay. Well, you know, Ambassador, I would very
much welcome greater details on the status of your efforts
Mr. ARCOS. Thank you.
Mr. WELLER [continuing]. As well as the current status of who
is continuing this practice, and also I would be interested in knowing who has taken advantage of it. It would be interesting to see
who are these individuals from elsewhere that are coming to these
particular countries and pursuing documentation that would suggest they were a citizen of that particular nation.
Ambassador, one of the other questions I would like to ask you,
it was once said to me that we do not station the Coast Guard outside of Baltimore or Washington in the Chesapeake Bay to stop
drugs from coming into these cities, but we are concentrating our
current immigration enforcement assets pretty much solely on our
border.
A lot of us believe that we need to do a better job of engaging
the source nations, the source and transit nations, to develop a
comprehensive strategy to discourage illegals from making that
trek north. Can you tell us what is the status of our partnership
on developing a comprehensive strategy and whether or not we are
having any success?
Mr. ARCOS. If I understand your question correctly, Mr. Congressman, you are asking a comprehensive strategy to deter smuggling, human smuggling?
Mr. WELLER. Well, I am interested in knowing what are we doing
in partnership with our friends in Mexico and Central America and

32
elsewhere to develop programs which discourage their citizens from
making the trek north to come to the United States as illegals?
Mr. ARCOS. Well, from the Homeland Security point of view, we
work directly with our counterparts, the law enforcement community, in terms of having public information programs to advise
them of the dangers, first of all, if they are coming by sea or coming across deserts or dangerous terrain and the threats that are
presented there. We work in terms of closely trying to monitor and
cooperate with each other in terms of the information that we get.
And we also have this OASISS program that we have now, as I
mentioned in my prepared remarks, with Mexico in terms of addressing the traffickers and smugglers on both sides of the border.
And we have gotten very good cooperation from the Mexican attorney generals office in terms of addressing this issue.
Mr. WELLER. Ambassador, can you share some initiatives? There
is a famous comic book that many of us heard about about a year
ago that suggests the Mexican Government was actually giving
people tips on how to cross our border. Have you seen a change?
Have there been other materials they have been distributing to actually discourage
Mr. ARCOS. Well, the biggest change has been that there are virtually no reports of anybody having these comic books anymore, sir,
which is encouraging in fact that anybody was putting these comic
books out and putting people in danger and basically encouraging
them to violate U.S. law.
Mr. WELLER. Thank you, Ambassador.
Mr. Chairman, you have been very generous. Thank you with the
time.
Mr. BURTON. Okay. How many questions was that? Was that
two?
Mr. WELLER. It was two.
Mr. BURTON. It was two. Okay. Mr. Engel.
Mr. ENGEL. Thank you, Mr. Chairman, and my apologies for not
being here at the start of the hearing. I was on the House Floor
managing two bills, and although I was told it would come up at
least an hour or 2 before our hearing, it came up right as our hearing was starting.
So I do apologize, and I am going to turn it over to Ms. Lee for
a minute to ask a question, but I just want to say that I know my
opening remarks have been submitted into the record. I am happy
about that. And I want to talk a little bit about NAFTA and some
of the other things, but I am going to yield to Ms. Lee, who has
not completed her questions.
Ms. LEE. Thank you very much. Let me just ask Ms. Whitaker
about the correlation between CAFTA and NAFTA and illegal immigration in terms of the trends that you are seeing. Has there
been a decrease in illegal immigration from Central America since
CAFTA was passed, and has there also been a decrease in illegal
immigration from Mexico since NAFTAs implementation?
Ms. WHITAKER. Congresswoman, I do not have those numbers
offhand. I would be glad to check. NAFTA, of course, we have 12
years of experience. CAFTA is a more recent phenomenon, but I
am glad to see if I can get you some data.

33
Ms. LEE. Thank you. Mr. Ambassador, would you happen to
know just the general trends? I mean, you indicated earlier, Ms.
Whitaker, I think that 40 percent of the jobs under NAFTA were
higher wage jobs.
Ms. WHITAKER. Higher paying, yes.
Ms. LEE. So you have that information, but in terms of what has
happened in terms of illegal immigration, do you have an idea?
Mr. ARCOS. Well, we have figures in terms of what has happened
in the last 10 years. Clearly we can get these figures to you, Congresswoman, in terms of NAFTA. In terms of CAFTA, it was just
approved this year, and it has not been instrumentalized yet, so it
is not really in full force, and there is still one country that has
not approved it, Costa Rica.
Ms. LEE. Okay. So you will give us the information on NAFTA?
Mr. ARCOS. Well, ever since NAFTA came on.
Ms. LEE. Yes. Okay. Thank you very much.
[The information referred to follows:]
WRITTEN RESPONSE RECEIVED FROM THE BUREAU OF WESTERN HEMISPHERE AFFAIRS/OFFICE OF MEXICAN AFFAIRS (WHA/MEX), U.S. DEPARTMENT OF STATE, TO
QUESTION ASKED DURING THE HEARING BY THE HONORABLE BARBARA LEE
We note that during the hearing Ambassador Arcos replied to Congresswoman
Lee that he could get her post-NAFTA immigration numbers, but then pointed out
that CAFTA has not yet fully entered into force, thus making post-CAFTA immigration numbers impossible to obtain at this time. Congresswoman Lee took his point
regarding CAFTA and confirmed that she would still like to get the post-NAFTA
numbers, which Ambassador Arcos committed to do. As a result, WHA/MEX believes State does not need to provide an insert on this subject.

Ms. LEE. Thank you, Mr. Chairman.

Mr. ENGEL. Yes. Thank you. Thank you, Ms. Lee. And I am glad
you raised those issues because they are foremost in many of our
minds as well as the balance of trade that the Chairman pointed
out regarding NAFTA. You know, the bottom line is that if we can
do something, and I know it is easier said than done, to create good
paying jobs and creating a middle class in the rest of the hemisphere, they will not want to come here illegally because they will
have opportunities in their own country.
Everything we are talking about doing from a wall to everything
else is really just a stop gap situation, and it is treating what is
happening rather than the causes of what is happening. So, you
know, we have had a frustration, many of us, that NAFTA has not
had more of a positive effect on the average Mexican worker so
that there is a greater incentive to pursue employment there rather
than here.
I know you have commented on it, but I just wanted to add my
voice to the frustration that you have heard from both Ms. Lee and
the Chairman, and I do not know if you have any further comments. I would be happy to hear them.
Ms. WHITAKER. I hate to repeat myself. I do not know if you
heard me, so stop me, please. I think we have seen some encouraging developments in Mexicos political position. One is, of course,
the published statement, bipartisan or multipartisan statement,
nonpartisan statement on the part of the Mexican Government, all
parties, in which they indicated their understanding of the importance of the immigration issue to any country, the right of any

34
country to protect its borders, and also in terms of Mexicos own
responsibility to create opportunities so that its own talented people will not leave that country.
We have a political position there. And I do not know if you
heard me mention that in the most recent Presidential campaign,
all of the candidates were not focused on many of the other issues
related to immigration, but rather, all were one in saying that indeed Mexicos responsibility is to create opportunities to keep its
people employed and at home.
Mr. ENGEL. Thank you. Ms. Whitaker, last time you were here
I had mentionedI am going to mention it again because I would
like your commentsmy chagrin at the Presidents Fiscal Year
2007 foreign operations request. His request proposes slashing
overall core development spending in the region by 22 percent,
which is over $40 million, from the last 2 fiscal years, which I
think continues a shortsighted post-September 11 trend to redirect
foreign assistance to other regions.
Given the fact that 25 to 40 percent of the regions population
still toils in grinding poverty, how do we justify another consecutive year of drastic cuts in core development accounts in the Western Hemisphere? Given that such cuts certainly undermine U.S.
immigration objectives by cutting efforts to promote economic jobs
and economic growth elsewhere in the hemisphere, how can the
Administration assert that immigration reform is a policy?
Ms. WHITAKER. I remember the question from before, and it is
good to hear it again. It is still a very important one. I think the
best answer is that we respect the Presidents budget proposal for
the Department of State and foreign assistance, and that guidance,
of course, is established by the President.
Within that amount that is set, which is I know a very difficult
decision to make, additional decisions are inherent therein as to
how to divide up that pie. And while I will speak for myself only
as someone who served her entire career in the Western Hemisphere, I have often thought we should be spending more. But I am
also well aware of the fact that we have an entire world to assist.
And all I can tell you is I know our leadership has been heard
on this. I know the discussions are ongoing as we look into outyears. We continue to try to put forward the accomplishments that
the money we have put into the region so far have made with the
understanding that we do live within a particular ceiling and that
the decisions as to how to apportion that pot are very, very difficult
ones indeed. I am happy to take your comments back with me of
course to my leadership as well.
Mr. ENGEL. Well, I appreciate that. I am wondering if the Ambassador would care to comment.
Mr. ARCOS. In terms of the resource issue, I do not have much
comment to make on that, sir. We are 3 years old in terms of
Homeland Security, and we have been up on the Hill many, many
times in terms of dealing with resources. In terms of specifically
the issue that you raised here, we do not deal with it in terms of
Homeland Security.
Mr. ENGEL. Okay. I just think it is just so evident and obvious.
And I know resources are scarce all around, but I just think that
if we are really serious about trying to stem illegal immigration to

35
this country that the key is having job development in other countries. And if we are going to cut core assistance, that makes it
harder for us to help create those jobs. Then I think we are becoming our own worst enemies, and I think that we really need to have
another look at these cuts, and I just would hope that we can restore some of them.
The Congress immigration debate has prompted, and I think regrettably, some harsh anti-immigration rhetoric by some who have
little tolerance for immigrants or appreciation for their contribution. I think surely the present U.S. domestic immigration debate
has a diplomatic spillover and I believe in a negative effect.
So I am wondering if you can tell us how has our heightened
U.S. immigration debate affected U.S. bilateral relations and public
opinions of our country in the hemisphere, and to what extent has
the United States immigration debate impacted Presidential campaigns in Mexico and elsewhere?
Ms. WHITAKER. In this age of global interconnectivity and 24/7
news cycle, the Mexicans, of course, are listening and watching the
immigration debate here with great interest. While indeed there
have been some statements which have been more critical than
others in response to some of the harder edge statements on the
part of different Americans, the Mexicans with whom we deal on
an official basis have been quite clear that they understand this is
an internal debate, that this is for the American people and its government, its representatives to decide.
The government itself has done nothing to encourage any kind
of protest on the part of Mexicans who are disaffected with the
rhetoric they are hearing. What we have found encouraging is the
number of nonpartisan statements from various parts of the Mexican Government which have indicated an understanding based on
their own southern border and based on an understanding of the
depth and breadth of our relationship, that this is a very complicated question and one for the Americans to decide.
I do know also that the Mexican representatives here, the Ambassador and company, are quite active in speaking with you all
and providing their perspectives and providing information on the
kinds of things that they have done to try to stem the flow of illegal
immigration.
Mr. ENGEL. Well, I would add that immigration problems we
have is not obviously just a Mexican issue.
Ms. WHITAKER. Yes.
Mr. ENGEL. It is more than that, and anything that impedes our
ability to establish good bilateral relations with other countries
worries me.
I have a final question, and it is not all that much connected to
immigration, but it is. And it is a concern that both the Chairman
and I share, and we in fact had a meeting last week discussing it,
and that is the international criminal court, Article 98.
Ms. Whitaker, when you testified this spring about United
States/Mexican relations, we discussed the negative impact of the
international criminal court sanctions against countries that have
not exempted U.S. citizens. And today 11 or so countries in the
Western Hemisphere have not signed the bilateral immunity agree-

36
ment with the U.S., thereby triggering U.S. economic, political, and
military sanctions.
Do United States sanctions impede our ability to assist Mexican
law enforcement efforts to stem immigration? And again, how do
the sanctions impact our ability to support programs that address,
and we talked about the root causes of immigration, such as poor
governance, poverty and issues like that?
Ms. WHITAKER. Indeed Mexico has made it clear that it will not
sign an Article 98, and I do not know that we have a final determination on what funding will be in terms of Economic Support
Funds.
According to United States legislation, the Foreign Operations,
Export Financing, and Related Programs appropriations acts for
2005 and 2006, the Nethercutt Amendment, Economic Support
Funds can no longer be provided to Mexico. Those funds indeed
were used to support the reform of the criminal justice system in
six Mexican states and to help implement anti-corruption, government transparency, and competitiveness measures at the state
level.
As I said, my understanding is that we do not have a final determination as to how this will be implemented. I understand this is
being discussed at the highest levels at this particular time, but it
is certainly on our screen, and if indeed ESF is suspended, it will
cut off many of the sources of funds that we were using to support
law enforcement, criminal justice reform, and a number of the anticorruption measures that we discussed earlier.
Mr. ENGEL. Let me just conclude by saying that in terms of the
Article 98, Secretary Rice has said that in essence, we are cutting
off our nose to spite our face, and I would agree with that statement. And I believe that Congress inevitably may have to step in
to change the policy if we cannot get it changed any other way. So
I thank both of you, and I thank the Chairman.
Ms. WHITAKER. Thank you.
Mr. BURTON. Well, I have a number of questions I would like to
submit to both of you for the record, but before you go, Ms.
Whitaker, I cannot understand. It has been 12 years since we
passed NAFTA. I would like to just go through this one more time
in my mind, and you can make a final comment if you would like.
We have gone from a $1 billion trade surplus to over $50 billion
in trade deficit, and I believe you are going to find and we are
going to find when you send us the figures that we are probably
still getting well over a million people we estimate coming across
that border.
I do not think there has been an appreciable change, and if there
has been a change, it is probably on the negative side. And so we
are putting all that money in the industry down there. The
Maquiladora Program we came up with was designed on the border
to create industry on the Mexican side so people would stay there
and work. So we put a Maquiladora Program in.
Now we put NAFTA in. We have got a $51 billion trade at least,
maybe $53 billion, trade deficit that has been created, which is a
pretty large one, not the largest in the world, but it is pretty big,
and they are still coming across the border in droves. And you are

37
telling me that the money is not really getting down to the people
in poverty down there. It is staying up near the top.
It seems like there ought to be some way that our Government
in concert with the Mexican Government can say hey, look, if we
are encouraging industry to go down there and we have got a free
trade agreement that is really helping, and because of your lower
wage structure over there, people should be able to get jobs, you
guys have to do something to make sure that the money is filtering
down to the people that really need the jobs and they are getting
the jobs so they do not come to the United States.
I mean, I just do not get it. And the deficit continues to go up,
and the immigration continues to remain constant or go up, and
Maquiladora did not help much. NAFTA did not help, not much.
What are we going to do? Throw the kitchen sink down there next
and still have the problem? I mean, you guys that are the experts
need to come up with some kind of an answer for us, because I do
not know if anybody in Congress is looking at this as closely as I
am, but I just do not understand it.
Ms. WHITAKER. I agree with you absolutely, sir. I mean, more
needs to be done.
Mr. BURTON. I know. I know you agree. You said that before, but
that is not cutting it. I mean, I really would like to know what are
we going to do about it? We are putting the money and the industry and everything else down there and they are still coming, and
we need to find out why.
Ms. WHITAKER. I would, as I said, come back to the point that
while indeed Mexico I thinkand I am not an economist, so let me,
you know, just warn you there. I am happy to try to get you a better economic explanation of all of this, but my understanding is
that while Mexico did make some structural reforms at the time it
acceded to NAFTA, there is still lots more to be done.
There is still lots more to be done in terms of the investment climate, in terms of making Mexico as competitive as other countries.
There are still areas of structural reform, labor reform, fiscal reform that need to be taken on, and as you know, those are very
difficult questions. Am I saying that it should have taken 12 years?
Mr. BURTON. Well, are there ongoing negotiations with the Mexican Government and their industry, their commerce people, down
there to discuss this problem?
Ms. WHITAKER. Absolutely. Absolutely. We again are coming presenting issues, presenting the situation, and again, I think the
Mexicans are quite well aware of this. They have, as you know, a
very sophisticated business community that is aware of the various
points of competition from many different nations around the
world, in particular China, and trying to determine what they need
to do to make themselves more agile to create more opportunities.
They do have a terrific labor source there. The question is, how do
they create the opportunities to do that? And we need to continue
to press that.
Mr. BURTON. Well, if NAFTA and other mechanisms are not
working, they are going to end up with a labor force that is all up
here before too long, and then they are not going to have to worry
about Mexico.

38
Ms. WHITAKER. No, I hear you. And I think that is why we also
have things like P4P and we have international financial institutions trying while we are still waiting for a number of those reforms to be made to try to fill in some of the gap.
Mr. BURTON. Okay. Well, we will submit a number of questions
for the record. We appreciate you and Ambassador Arcos for being
here.
Mr. ARCOS. Thank you, sir.
Mr. BURTON. And we will see you again before too long. Thank
you very much for being here.
Our next panelwhere is our next panel? Okay. You have to forgive me. I have to fight my way through all this. Our next panel
consists ofwhere is my next panel? Okay. The Honorable Robert
Charles, President of the Charles Group. He has served as Assistant Secretary of State for International Narcotics and Law Enforcement, the INL, under Secretaries Colin Powell and Condoleezza
Rice from 2003 to 2005, and he has served as Staff Director and
Chief Counsel for the National Security International Affairs and
Criminal Justice Subcommittee and as a chief staffperson on the
Speakers Task Force on a Drug-Free America. It is nice to see you
again.
Eric Farnsworth is Vice President of the Council of the Americas
with over 170 corporate members. The Council has promoted a policy in commercial interests in the Western Hemisphere for over 40
years, and he has testified before the Subcommittee before, and we
welcome him back.
And Manuel Orozco is a Senior Associate at the Inter-American
Dialogue specializing in remittances and rural development. He is
Chair of the Central American and Caribbean at the U.S. Foreign
Service Institute and a senior researcher at the Institute for the
Study of International Migration at Georgetown University. Would
you please rise so I can swear you in like we usually do?
[Witnesses sworn.]
Mr. BURTON. Okay. Let us see. We will start with Mr. Charles.
What happened to your arm?
TESTIMONY OF THE HONORABLE ROBERT CHARLES,
PRESIDENT, THE CHARLES GROUP, LLC

Mr. CHARLES. Shoulder operation, sir.

Mr. BURTON. Rotator cuff?
Mr. CHARLES. I could tell you it is the result of my opinions, but
I will hold off.
Mr. BURTON. But is it rotator cuff?
Mr. CHARLES. It is rotator cuff and a tendon sewn back.
Mr. BURTON. Yes. I have had two of those on each side, so you
will be all right. It is just a matter of going through the rehabilitation.
Mr. CHARLES. Yes. Thank you.
Mr. BURTON. Keep plugging. Do not let it freeze on you.
Mr. CHARLES. Right. Thank you. Mr. Chairman and Members of
this distinguished Subcommittee and Committee, thank you for inviting me to testify today. Please know that sitting before you on
a topic as vital as this one, immigration, is a distinct privilege. I

39
want to just make four quick observations, and then I will be very
eager to hear questions.
First, we live in a land of laws, as John Adams and some of the
founding fathers were quick to put into writing and to say, not of
men, but of laws. When we choose to depart from fidelity to these
laws, we lose something more important than votes. We lose the integrity of the law.
As inconvenient as it is to enforce the law when there are those
who violate it with impunity, our own experience in this country
and the experience of democracies worldwide reinforce the importance of abiding by the rule of law.
If we choose to water down cornerstone norms and enduring established practices long viewed as fair because it is convenient to
do so, we lose the very thing we are seeking. We lose the content
of citizenship, of being an American.
So, on the homefront, we cannot diminish the process of legal immigration and naturalization without diminishing the sacrifice of
those who over some 20 generations have hoped, struggled, and assimilated and worked for their citizenship. If we fail to secure our
borders or fail to hold high the standards of American citizenship,
we diminish the meaning of citizenship and the sacrifice of those
Americans who have defended this country over generations.
Second, the rule of law is not a principle that applies to Americans alone. No democracy can sustain the will of its people, the
protection of lives, liberty, or property without a serious commitment to the rule of law.
John Locke in his Second Treatise made clear that a democracys
social contract involves first securing the nation. When security has
been established and there is an expectation that laws will be honored and enforced, people begin to mix their labor with the land,
his words, or in modern terms, they invest themselves with confidence in the future of their country.
In short, establishing the rule of law in a representative democracy and maintaining fidelity to it are the foundation stones on
which greater economic prosperity and political liberty are built.
Full stop.
Nations which have struggled with violence but which have
leaped the pit to land on the side of representative government like
Panama and El Salvador, Poland, the Czech and Slovak Republics,
former East Germany, Romania, Russia and of course the CIS
states, all have found that consistently protecting the individual
leads to greater investment by that individual in his or her society.
Nor do all good and democratic things come in the packaging of
a democratic revolution. Allies in this hemisphere, in Europe, Africa, the Middle East, and Far East have often by degrees evolved
toward greater reinforcement of democratic institutions. Required
has been a strong political will internally in that country and at
times stronger U.S. support, which leads to the third observation.
Our allies, rich and poor, admiring and envious, dependent and
independent, near and far, sources of legal and illegal immigration,
all of them have within their own borders the same inherent potential for self-determination, greater economic prosperity, widening
circles of political contentment, and a future built on pride in their
own sovereign status, flag, and fellow citizens as much as we do.

40
Too often recently what has been missing is the leadership necessary to keep people from fleeing their own home countries, the
leadership necessary to unify and secure, solidify and build, attract
and maintain the allegiance of people to the country in which they
were born. In short, the problem of so-called brain drain from these
countries must be addressed at least in part by the home country.
Far easier it has been to allow them to bleed north or south, east
or west into another countrys thriving economy, to send remittances back, a poor second best to self-sufficiency, pride in ones
own economy, or holding onto ones citizens by the appeal of a prospering state.
When a nation encourages illegal immigration, they encourage
the leaching of their own body politic. They lose their best and
brightest, the ones with the entrepreneurial spirit, the work ethic,
the commitment, courage, intelligence, and ambition to succeed.
Those who dare to succeed elsewhere by definition have chosen
not to dare to succeed at home. The loss is all to the country that
has not invested itself in retaining, attracting, inspiring, and affirming their future on its own soil.
So what is needed? A mutual commitment from our allies to invest and commit, encourage and appeal to the best in their own
people, to get them to stay and build stronger states, economies,
and political systems at home rather than giving that talent and
energy to another nation.
Finally, because all nations are not equal, even if all people are
equal in the eyes of their creator, Americans do have an obligation
to help those who labor to help themselves. Here we can get more
concrete.
At the State Departments nearly $2 billion Bureau of International Narcotics and Law Enforcement, we often underwrote institution building, capacity creation, the writing of laws, the implementation of those same laws, the creation of well trained law enforcement forces, prosecutors, judges, and even defense counsel.
We worked to reinforce the best efforts of nations that struggled
to tamp out public corruption, kidnapping, homicide, drug trafficking, and terrorism on their own soil. We began programs that
seeded democratic values such as the Culture of Lawfulness, which
has taught tens of thousands of kids worldwide in places like Colombia and elsewhere in this hemisphere the respect for law.
We taught human rights and restraint, proportionality and nonlethal riot control even as we also taught counterterrorism and the
ways in which the rule of law must be retrieved when it has begun
to slip away. We believed in and we still believe in our allies, in
their peoples, in the men, women, and children who want to have
a better, safer, and more prosperous life.
Most of all, we encourage those who work to restore the ballast
of their own economies and political systems, securing individual
rights, trying to establish those conditions, as John Locke said,
which permit a safe and secure democracy to thrive.
We do that today, but what is now needed more than ever is a
collateral commitment, a mutual commitment, a rejoined commitment by many of our closest allies to reflect on what it will take
to keep their own best and brightest from leaving.

41
When we round that corner, we will be on the home stretch.
When we round that corner, this hemisphere and those outside this
hemisphere will have recalibrated themselves to truly and
sustainably succeed. Thank you.
[The prepared statement of Mr. Charles follows:]
PREPARED STATEMENT

OF THE HONORABLE ROBERT

CHARLES GROUP, LLC

CHARLES, PRESIDENT, THE

Mr. Chairman and Members of this distinguished subcommittee and committee,

thank you for inviting me to give testimony today. Please know that sitting before
you on a topic as vital to our national security as immigration is a distinct privilege.
While there is much to say, I will limit my remarks to four short observations this
afternoon. Within that four-cornered frame, details can be debated. Without that
frame, it seems to me that meaningful debate is lost, or at least left aimlessly wandering.
First, we live in a land of laws. Not of men, but of laws. When we choose to depart
from fidelity to these laws, we lose something more important than votes. We lose
the integrity of the law. As inconvenient as it is to enforce the law when there are
those who violate it with impunity, our own experience in this country, and the experience of democracies worldwide, reinforce the importance of abiding by the rule
of law. If we choose to water down cornerstone norms and enduring, established
practices, long viewed as fair, because it is convenient to do so, we lose the very
thing we are seeking. We lose the content of citizenship, of being an American. So,
on the home front, we cannot diminish the process of legal immigration and naturalization, without diminishing the sacrifice of those whoover some 20 generationshave hoped, dreamed, loved, aspired, struggled, learned, assimilated and
worked for their citizenship. If we fail to secure our borders or fail to hold high the
standards of American citizenship, we diminish the meaning of citizenship, and the
sacrifice of those Americans who have defended this country over generations.
Second, the rule of law is not a principle that applies to Americans alone. No democracy can sustain the will of its people, the protection of lives, liberty and property, without a serious commitment to the rule of law. John Locke, in his Second
Treatise, made clear that a democracys social contract involves first securing the
nation. When security has been established and there is the expectation that laws
will be accepted, honored and enforced, people begin to mix their labor with the
landor in modern termsinvest themselves with confidence, in the future of their
country . . . They begin to believe that all they work for is not in vain, that property can be fairly earned, protected and passed to their children.
In short, establishing the rule of law in a representative democracy and maintaining fidelity to it are the foundation stones on which greater economic prosperity and
political liberty are built. Nations which have struggled with violence, but which
have leaped the pit to land on the side of representative governmentnations like
Panama and El Salvador, Poland, the Czech and Slovak Republics, former East Germany, Romania, and of course Russia and the CIS states, all have found that consistently protecting the individual leads to a greater investment by the individual
in his or her society, and in time to greater economic growth and political freedom.
Nor do all good and democratic things come in the packaging of a revolution. Allies in this hemisphere, in Europe, Africa, the Middle and Far East have, often by
degrees, evolved toward greater reinforcement of democratic institutions, generally
designed to protect the individual from an oppressive government, with the salutary
effect that they have seen both growing economies and widening circles of political
contentment. So, in short, the promise of fighting for, establishing, and maintaining
the integrity of self-government and rule of law is not confined to any one nation,
but is available to all.
Which leads to the third observation. Our alliesrich and poor, admiring and envious, large and small, dependent and independent, near and far, young and ancient, approving and disapproving, populous and spare of people, sources of legal
and illegal immigration, those always at the ready or reluctant to stand by usall
of them . . . have within their own borders the same inherent potential for self determination, greater economic prosperity, widening circles of political contentment
and a future built on pride in their own sovereign status, flag and fellow citizens
as we do.
Moreover, whatever the economic conditions at any given time, there is always
room for improvement of those conditionsproviding the rule of law exists and can
be maintainedby the collective dedication of a people to their own future. Aside
from natural disasters and the scourge of war, both of which challenge the very ex-

42
istence of an economy and a nation, there is always the great potential of a unified
commitment to the nation and its future.
Too often, recently, what has been missing is the leadership necessary to keep
people from fleeing their home countriesthe leadership necessary to unify and secure, solidify and build, grow, inspire, attract and maintain the allegiance of people
to the country in which they were born. In short, the problem of the so-called brain
drain from these countries must be addressed at least in part by the home country.
Far easier it has been to allow them to bleed north or south, east or west, into another countrys thriving economy, and to send remittances backa poor second best
to self-sufficiency, to pride in ones own economy, or to holding onto ones citizens
by the appeal of a prospering state. When a nation encourages illegal emigration,
they encourage the leaching of their own body politic; they lose their best and
brightest, the ones with the entrepreneurial spirit, work ethic, commitment, courage, intelligence and ambition to succeed. Those who dare to succeed elsewhere, by
definition have chosen not to dare to succeed at home. The loss is all to the country
that has not invested itself in retaining, attracting, inspiring and affirming the future on its own soil. So, what is needed? A mutual commitment from our allies to
invest and commit, encourage and appeal to the best in their own peopleto get
them to stay and build stronger states, economies and political systems at home,
rather than giving that talent and energy to another nation.
And then, the last side of the frame. Because all nations are not equal, even if
all people are equal in the eyes of their Creator, Americans do have an obligation
to help those who labor to help themselves. Here we can get more concrete. At the
State Departments nearly two billion dollar Bureau of International Narcotics and
Law Enforcement, we often underwrote institution building, capacity creation, the
writing of laws, the implementation of laws, the creation of well trained law enforcement forces, prosecutors, judges, even defense counsel. We worked to reinforce the
best efforts of nations that struggled to tamp out public corruption, kidnapping,
homicide, drug trafficking and terrorism on their own soil.
We began programs that seeded democratic values, such as the Culture of Lawfulness taught to tens of thousands of kids worldwide, in places like Colombia and elsewhere in the hemisphere. We taught human rights and restraint, proportionality
and non-lethal riot control, even as we also taught counter-terrorism and the ways
in which the rule of law must be retrieved when it has begun to slip away.
We believed inand we still believe inour allies, in their peoples, in the men,
women and children who want to have a better, safer and more prosperous life.
Most of all, we encouraged those who worked to restore the ballast to their own
economies and political systems, securing individual rights, trying to establish those
conditionsas John Locke saidwhich permit a safe and secure democracy to
thrive.
We do that today, but what is now neededmore than everis a collateral commitment, a mutual commitment, a rejoined commitmentby many of our closest allies to reflect on what it will take to keep their own best and brightest from leaving.
When we round that corner, we will be on the homestretch. When we round that
corner, this hemisphere and those outside this hemisphere will have recalibrated
themselves to truly and sustainably succeed.
Thank you.

Mr. BURTON. Thank you, Mr. Charles. Mr. Farnsworth.

TESTIMONY OF MR. ERIC FARNSWORTH, VICE PRESIDENT,
COUNCIL OF THE AMERICAS

Mr. FARNSWORTH. Mr. Chairman, thank you for the opportunity

to be with you today and the Members of the Subcommittee. It is
a privilege to be here before you again, and I thank you for your
kind words of introduction.
Let me go right to the heart of the matter if I might. Migration
we believe is not an issue that can be resolved per se. It is only
an issue that can be managed in an orderly, safe, and humane
manner, and the reason for that is elegant in its simplicity. The
perceived economic benefits of migrating from Latin America or the
Caribbean to the United States and increasingly Canada outweigh
the perceived security and economic risks in addition to the emotional cost of separation from family and community.

43
It is fairly well established in fact that all other things being
equal, many migrants would prefer to remain with their families
in their countries of birth where language, customs, and social patterns are well known and comfortable.
It is a matter of the economic desperation that some people feel
in their home countries and the lack of economic opportunity at
home and the economic opportunities they perceive in el Norte that
they will actively seek legal or, if necessary, illegal means into this
country.
It is also well established, Mr. Chairman, that migrants do not
necessarily have to be unemployed or without any job prospects at
home in order to attempt to travel to the United States or increasingly Canada or for that matter from Bolivia to Brazil and Argentina or Nicaragua to Costa Rica or Guatemala to Mexico.
Rather, with the exception of political persecution, which is
thankfully no longer a significant issue in Latin America outside
of Cuba, it is the prospect for economic advancement that potential
migrants perceive for themselves and for their children that weigh
heaviest in the minds of intending migrants. Most of the recent migrant community in the United States, for example, is concentrated
in low skill, low wage industries, agriculture and meat packing,
landscaping, hospitality, construction, and other jobs which tend to
be harder to fill at prevailing wages.
On its face, this situation might indeed appear paradoxical. Why
would anyone, the thinking goes, leave home and hearth if they already had a job in order to travel north to take work that might
be seasonal, episodic, or lacking in job security or may even be subject to law enforcement actions? The answer appears to be that this
allows workers the opportunity to send significant support back
home in the form of remittances until such time as family members
can join the original migrant in the United States.
Once families are reunited in the United States, children of migrants then have the opportunity to improve themselves through
education and training unavailable to them in their home countriesand I want to come back to that in the question and answer
period if I canthat will allow them to pursue even greater economic opportunity than their parents.
In fact, the Inter-American Development Bank has done some excellent work on remittances and has found that these cash flows
make up a significant portion of national accounts in Latin America and the Caribbean. And I give statistics in my testimony submitted for the record, so I will not go into it here, but it is significant.
Ultimately migrants want what we want, the opportunity to
make a better life for themselves and even more so the opportunity
for the children to move up the economic ladder, which due to social, labor, or political rigidities they may not have at home.
The key question then is how to encourage opportunities for upward mobility in Latin America and Caribbean nations themselves.
In reality, there are numerous actions that governments can take
with the understanding that there are no magic bullets and there
are not any short-term solutions.
Rather, there is only a long-term commitment to economic
growth, competitiveness in the global environment, and actions to

44
reform labor codes, political access, and the rule of law which will
improve labor market flexibility, encourage workers to enter and
remain in the formal economy, and keep any nations most valuable
commodity, its people, at home.
For its part, the United States has only limited means to address
these matters at their source. Fundamentally reforms must be
made in the nations themselves. Regional development is the most
effective means to reduce and manage migrant flows to the United
States, not to eliminate them, which I believe would be impossible
and frankly unwise. But trade policy is one of the most effective
means to be able to do that, and we had the discussion in the earlier panel about direct assistance and ESF as well, and I think that
is also an important element.
But regional development is crying out for a more focused attention to several priority areas that go well beyond trade liberalization, which is a necessary though not sufficient by itself element
to engender the long-term sustainable growth that will create those
jobs required to keep citizens at home.
In fact, in one particularly chilling statistic that you all have
probably already seen, the World Bank recently reported that between 1980 and 2000, Latin America grew in total less than 1 percent. China over the same period of time, 1980 to 2000, grew 8 percent per year, and that is the challenge that Latin America as a
whole faces. Clearly the region as a whole must do better.
Latin American and Caribbean nations, as elsewhere, find themselves fighting to excel in a global economy. Foreign and domestic
investment that might normally have flowed into the region, one
of the most important ingredients of long-term economic growth,
now has other options, especially in Asia and eastern Europe.
Those nations which do not take direct steps to improve their respective investment climates will fall increasingly behind.
As a start, greater attention must be paid to formal education,
which now averages a mere 6 years across the region, worker training and workforce development, personal security and security of
property, the rule of law, and social inclusion, which strengthens
democracy. These are basic investment climate issues.
I would like to give in the question and answer period perhaps
some examples of some countries that are trying to do the right
thing and some examples of some countries where there might be
room for progress.
Finally, Mr. Chairman, let me make one final point if I might.
Beyond investment climate reforms, Latin American and Caribbean
nations would do well to take direct steps to liberalize their labor
markets in order to create greater incentives for job creation while
bringing greater numbers of their people within the framework of
a formal economy where they would enjoy greater social protections, job security, and not coincidentally be more fully vested in
the success of democratic governance at home.
We have tried to do a lot of work in terms of labor reforms across
the region, and there are some interesting facts and figures that
are coming out of that, and it really is an area that requires a lot
of further investigation. By bringing workers more actively into the
formal economy, that is going to create some of these protections

45
for the labor market which will have the incentive as well of keeping some workers at home.
Mr. Chairman and Members of the Subcommittee, as you know
and as we have discussed already, migration issues are complicated, difficult, and longstanding. They cannot be addressed
overnight because the solutions are long-term, and in the meantime, migration pressures will likely continue, but that is no reason
not to work in conjunction with our hemispheric neighbors, who, to
be sure, recognize their joint responsibilities in these matters, to
find ways to address the underlying economic calculus facing numerous individuals across the Western Hemisphere.
For our part, we can and should be supportive through trade expansion and other means even as the sending nations more aggressively take steps to improve their respective investment climates,
focus significant attention on education reform and social mobility
and liberalized labor codes. So, Mr. Chairman, thank you again for
the opportunity. I look forward to your questions.
[The prepared statement of Mr. Farnsworth follows:]
PREPARED STATEMENT

OF

MR. ERIC FARNSWORTH, VICE PRESIDENT, COUNCIL

AMERICAS

OF THE

Good afternoon Mr. Chairman and members of the Subcommittee. It is a privilege

to be with you to discuss a topic of long-standing and growing significance in hemispheric relations. As you know, the Council of the Americas (Council) is a leading
policy voice in Latin America, the Caribbean, and Canada. Our members include
over 175 companies invested and doing business every day in the Western Hemisphere. For over 40 years, the mandate of the Council has been to promote open
markets, democracy, and the rule of law throughout the Americas. Thank you for
the invitation to speak before you today.
Patterns of Migration are Well Established
As you have heard from the government witnesses earlier, migration is not an
issue that can be resolved, per se; it can only be managed in an orderly, safe, and
humane manner. The reason is elegant in its simplicity: the perceived economic benefits of migrating from Latin America or the Caribbean to the United States and,
increasingly, Canada, outweigh the perceived security and economic risks, in addition to the emotional cost of separation from family and community. It is fairly well
established, in fact, that all other things being equal, many migrants would prefer
to remain with their families in their countries of birth, where language, customs,
and social patterns are well known and comfortable. It is a matter of the economic
desperation that some people feel in their home countries, and the economic opportunities they perceive in el Norte, that they will actively seek legal or, if necessary, illegal means into this country.
It is also well established that migrants do not necessarily have to be unemployed
or without any job prospects at home in order to attempt travel to the United States
or Canada (or, for that matter, from Bolivia to Brazil and Argentina, or Nicaragua
to Costa Rica, or Guatemala to Mexico). Rather, with the exception of political persecution which is thankfully no longer a significant issue in Latin America outside
Cuba, it is the prospect for economic advancement that potential migrants perceive
for themselves and for their children that weigh heaviest in the minds of intending
migrants. Most of the recent migrant community in the United States, for example,
is concentrated in low skill, low wage industries: agriculture and meatpacking, landscaping, hospitality, construction, and other jobs which tend to be harder to fill at
prevailing wages.
On its face, this situation might appear paradoxical. Why would anyone, the
thinking goes, leave home and hearth if they already had a job in order to travel
north to take work that might be seasonal, episodic, and lacking in job security or
may even be subject to law enforcement actions? The answer appears to be that this
allows workers the opportunity to send significant support back home in the form
of remittances, until such time as family members can join the original migrant in
the United States. Once families are reunited in the United States, children of migrants then have the opportunity to improve themselves through education and

46
training unavailable to them in their home countries that will allow them to pursue
even greater economic opportunity than their parents.
The Inter-American Development Bank has done excellent work on remittances,
and has found that these cash flows make up a significant portion of national accounts in Latin America and the Caribbean. In 2005, it is estimated that total remittances to Latin America and the Caribbean reached nearly $54 billion, including
over $20 billion to Mexico, over $6 billion to Brazil, over $4 billion to Colombia, over
$2 billion each to Guatemala, El Salvador, the Dominican Republic, Peru and Ecuador, and almost $2 billion to Honduras and over three quarters of a billion dollars
to Nicaragua. These figures are staggering in magnitude, when one considers that
the total level of Mexicos exports in 2005, for example, was $217 billion, while El
Salvadors was $3.6 billion, Honduras was $1.7 billion, and Nicaraguas exports are
barely $1.5 billion per year. It also explains why the Temporary Protected Status
program for El Salvador, Honduras, and Nicaragua, which covers over 300,000 people, is seen as such a lifeline, and why its continued renewal is always such a priority for affected Central American governments.
Ultimately, migrants want what we would want: the opportunity to make a better
life for themselves, and even more so, the opportunity for their children to move up
the economic ladder which, due to social, labor, or political rigidities, they may not
have at home.
Regional Development is the Key to Better Management of Migration Flows
The key question is how to encourage opportunities for upward mobility in Latin
American and Caribbean nations themselves. In reality, there are numerous actions
that governments can take, with the understanding that there are no magic bullets,
nor are there short-term solutions. Rather, there is only a long-term commitment
to economic growth, competitiveness in a global environment, and actions to reform
labor codes, political access, and the rule of law which will improve labor market
flexibility, encourage workers to enter and remain in the formal economy, and keep
any nations most valuable commodity-its people-at home.
For its part, the United States has only limited means to address these matters
at their source; fundamentally, reforms must be made in the nations themselves.
Regional development is the most effective means to reduce and manage migrant
flows to the United States (not eliminate them, which would both be impossible and
unwise), and trade policy is the most effective means we have to impact regional
development. As the Councils North American Business Committee showed based
on US government statistics, for example, NAFTA has had a moderating impact on
the flows of illegal migrants from Mexico. We would anticipate the same to occur
with the DR-CAFTA agreement with Central America once that agreement is fully
in force.
This linkage, in addition to US counternarcotics policy, has also been at the heart
of trade preference programs in the Andean region. Specifically, the Andean Trade
Preferences Act and its successor ATPDEA program for Colombia, Peru, Ecuador,
and Bolivia were originally designed to help narco-source nations to develop jobs in
legitimate sectors to wean workers away from the coca and marijuana fields. This
program is set to expire at the end of this year unless re-authorized by Congress
in the context of an overall hemispheric trade expansion strategy as a bridge to free
trade agreements in the Andean region.
Development and job creation is also at the heart of the Security and Prosperity
Partnership for North America that was launched by the three North American governments in Waco, Texas, in 2005 and solidified in Cancun last March. The purpose
of the SPP, which the Council fully supports, is to identify and promote specific
areas where actions by the three governments can make each nation more competitive globally, thus improving development prospects individually and collectively.
This is particularly pertinent for the southern half of Mexico, which is the most underdeveloped region in North America and which, not coincidentally, also voted most
heavily in Mexicos recent presidential election for populist candidate Andres
Manuel Lopez Obrador. As President Vicente Fox said during the Cancun meeting,
the Government of Mexico recognizes that it shares responsibility for security along
the border as an element of the overall migration picture, but the economic development of Mexicos southern half will be the most effective element, over time, in moderating the flow of migrants north from Mexico.
Regional Development Goes Beyond Trade
More broadly, regional development is crying out for a more focused attention to
several priority areas that go well beyond trade liberalization, which is necessary
though not sufficient by itself to engender the long-term, sustainable growth that
will create those jobs required to keep citizens at home. In fact, in one particularly

47
chilling statistic, the World Bank recently reported that Latin America as a whole
grew less than one percent from 1980-2000; over the same time period, China grew
over eight percent per year. Clearly, the region as a whole must do better.
Latin American and Caribbean nations, as elsewhere, find themselves fighting to
excel in a global economy. Foreign and domestic investment that might normally
have flowed into the region, one of the most important ingredients of long-term economic growth, now has other options, especially in Asia and Eastern Europe. Those
nations which do not take direct steps to improve their respective investment climates will fall increasingly behind. As a start, greater attention must be paid to
formal education, which now averages a mere six years across the region, worker
training and workforce development, personal security and security of property, the
rule of law, and social inclusion which strengthens democracy and social stability.
In this regard, countries like Bolivia that have recently taken steps to nationalize
foreign investment or nations like Ecuador where some investments are subject to
a fluid interpretation of the law will find that the international business community
will look elsewhere, as indeed is already happening, to make those direct investments that drive job creation and improved economic performance. Countries like
Chile, Colombia, the Dominican Republic, and Uruguay which take global competitiveness seriously will continue to reap the benefits of strong investment flows. Ultimately, of course, investment-led development in the region is the key to developing
broad-based economic growth, and such growth is the sine qua nonof moderating regional migration flows.
Beyond investment climate reforms, Latin American and Caribbean nations would
do well to take direct steps to liberalize their labor markets in order to create greater incentives for job creation, while bringing greater numbers of their people within
the framework of the formal economy where they would enjoy greater social protections, job security, and, not coincidentally, be more fully vested in the success of
democratic governance at home.
My colleague at the Council, Dr. Christopher Sabatini, who just testified before
the International Relations Committee on the state of democracy in the region, has
been doing some outstanding work on labor reforms in Latin America and what it
will take to broaden the economic base. This is critical as Latin America and the
Caribbean face a demographic time bomb in terms of significant numbers of youth
coming of age. Over one third of the population is under the age of 16. In a few
short years, this will be the population cohort which tends to be most likely to migrate when good jobs in the formal economy simply do not exist. Conversely, were
Latin American job markets liberalized, perhaps in exchange for greater social protections for workers, jobs would be created by the private sector which currently
faces perverse incentives in hiring and firing. As a result, additional workers would
be drawn into the formal economy, thus decreasing incentives for migration.
Mr. Chairman, members of the Subcommittee, migration issues are complicated,
difficult, and long-standing. They cannot be addressed overnight, because the solutions are long term, and in the meantime, migration pressures will likely continue.
But thats no reason not to work in conjunction with our hemispheric neighbors,
who, do be sure, recognize their joint responsibilities in these matters, to find ways
to address the underlying economic calculus facing numerous individuals across the
Western Hemisphere. For our part, we can and should be supportive, through trade
expansion and other means, even as the sending nations more aggressively take
steps to improve their respective investment climates, focus significant attention on
education reform and social mobility, and liberalize labor codes.
Mr. Chairman, thank you again for the opportunity to be with you today. I look
forward to your questions.

Mr. BURTON. Thank you, Mr. Farnsworth. I will have some questions about your statement in just a minute.
Mr. Orozco. I will get that right before we are through.
TESTIMONY OF MANUEL OROZCO, PH.D., SENIOR ASSOCIATE,
REMITTANCES AND RURAL DEVELOPMENT PROGRAM,
INTER-AMERICAN DIALOGUE

Mr. OROZCO. That is okay. My boss still calls me Miguel. My

name is Manuel. Thank you very much for inviting me to come to
speak to you.
Mr. BURTON. As long as your wife does not do it, that will be
fine.

48
Mr. OROZCO. I will not give you the name of my boss of course.
Thank you for inviting me to speak to you. I am very encouraged
that you want to address the question of how the United States can
encourage and assist Latin American countries to address the problem of poverty. What I am going to do is point to three policy recommendations that I think may shed some light as to how we move
forward. And before doing that, I think I want to point to three
issues that were highlighted by Mr. Farnsworth.
One is the challenge of economic growth in these countries, in
Latin America and the Caribbean, are far more greater than we
think they are, and in fact, there is a chance that there might be
possible economic recession coming up in the next 5 years. But in
practical terms, the very low economic growth rate that these countries are achieving, which is about 3 percent, do not meet the necessary growth that it should have, the region, which should be in
practical terms about 10 percent for 10 consecutive years.
The second issue is that the cost of living in practical terms does
translate to the fact that the cost of living of people living in Latin
America is three times greater the average wages that people earn.
The average wage a person makes in most of these countries is less
than $200 a month; yet the cost of living is about $500 or more a
month in order to survive. And in fact, when you look at the volume of remittances in terms of the average amount sent by an immigrant, they almost mirror the equivalent to the cost of living in
these countries.
For example, take Haiti. The average amount of money that an
immigrant sends to Haiti is about $200, and that is more or less
the cost of living in Haiti. The same thing with Mexico. Three hundred and seventy dollars a month are sent by immigrants in the
United States, and that mirrors more or less the cost of living in
these countries.
The problem is that even though the impact of remittances, for
example, and other economic activities of migrants are quite important, the reality is that these are not the solutions for development,
but at the same time, we have the reality of migration and remittances.
So I think three policy approaches that we can look into is first
of all, at the level of leveraging the already existing economic activities that migrants are having with their home countries and increasing access to financial institutions to increase the savings
ratio of the household as well as the country.
The experiences that we have had implementing policy in those
fields have been very successful. Basically there has been a transformation rate of a person who does not have an account to a person who have a 30 percent among those people who withdraw their
money at the financial institution.
Another area of importance is education. We need to increase the
standards of education by providing education services to remittance recipient households, and that can be attached to education
loans, education funds, tutoring classes, et cetera.
Second, I think the work that the developing agencies, USAID as
well as Inter-American Foundation and other international financial institutions have done, has been very important, and I think

49
the urgency to work even more in this region is quite critical and
imperative.
One of the areas of work that USAID has done is providing financial services to small and medium enterprises. They are the
critical linchpin of building a middle class, but unfortunately, in
most of Latin America, anyone who has to invest and needs to have
a loan that goes between 20 to $100,000 is unable to get that. You
can have access to micro loans or you can have access to the
wealthy loans. That explains why, for example, a few people in
Mexico have not been able to enjoy the benefits of NAFTA.
Another area is continued deepening strategies of diversifying exports. The Caribbean-based initiative in Central America has been
very successful, was very successful in diversifying exports, but
still, in most of Central America and the Caribbean, 70 percent of
exports to the United States are based on less than 20 commodities.
So the challenges are still remaining there, and that means we
need to pay attention to strengthening free trade not just simply
by reducing tariffs but also by providing technical assistance to improve the competitive capacity. If you do not improve the competitive capacity, it does not matter how much trade you open because
these countries are not going to be able to sell their goods at high
quality product.
And, finally, there is the issue of education. Education matters.
Most of Latin America has a sixth grade education when in practical terms, in order to compete in the global economy, you need to
have a 12th grade education. And in the event that a guest worker
program is addressed, I think a program such as that needs to be
attached to conditionality, to conditions that those countries participating in it need to perform better economically and need to
also invest in a return migration program for those who are returning after the program has been implemented.
And thus policies can be dealing again in issues relating to investment as well as with increase in savings ratios to those who
receive remittances. Thank you very much.
[The prepared statement of Mr. Orozco follows:]

50

Immigration, remittances and development:

responding to regional dynamics

Manuel Orozco
Inter-American Dialogue
Washington, DC

Testimony presented before the Committee on International Relations'

Subcommittee on Western Hemisphere at the hearing entitled,
"Immigration: Responding to a Regional Crisis". July 26, 2006.

51

Introduction
P<lrtiy <IS a result of prev<liling inequalities, persistent poverty and the adverse effects of an
increasingly glohalized world economy, achieving sustmn:lhle economic growth :lnd
development continue to be major challenges for Latin America ,md the Caribbean. One
critical factor associated with this reality is widespread immigration to the United States,
Europe and other v,/calthicr cconornics in the region itself. This rnigration has had a

substantive impact on development and grmvth in many parts of the \Vestern Hemisphere,
one which mel~ts a closer look.
This briefing addresses the challenges of growth and the impact of remitt;mces and related
econolllLc practices on Latin Anlerica and the Caribbean; it further explores policy solutions

ti1at respond to these realities. Specifically we recommend three areas of policy attention:
to further leverage existing legal economic practices of immigrants by adopting
policy options that have been shown to promote development;
to accelerate regional and country specific cconornic rcfotllls \v1th a strong crnphasis
on enhanced social dcvc1opnlcnt, focusing on increasing educational attainnlcnt and
\vealth generation; and
adopting a guest . .yorker progranl \vith conditionality clauses for 11ligrant sending
governnlents about their perfOffilatlCe.

1. Poor econonlic growth

Despite a pel~od of macroeconomic stability since the 1990s after the political transitions in
Latin America and the Caribbean, most of these countries continue to struggle to grow and
deliver hasic social goods and services to their societies. Partly as a result of persistent
income disp<lrities, as well <IS the negative effects of glob,tii7-<ltion, economic growth and
\vages rates continue to be 10\1,7. In addition~ local currencies have ren1.ained \veale Overall
these economies have not been able to gro\1,7 above 3.5~/o a year, \vhich is equal or near

population growth.

115
110
105
100
95
90
85
80

7
6
5
4
3
2
1

o
-1

-2

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005
Source: I :conomic Commission of I ,atin Amcrica and thc Caribbean

52

Conlpounding this situation is the Llct that the region has a predonlinantly young

population, bringing its productive force to less than 400. Moreover, the way in which the
region has tried to keep up with the demands of the global economy has not offered
opportunities to increase productivity throughout the region, but rather has focllsed on
enclave econornies in tourisrn, non-traditional exports or rnaquila exports. These sectors are

highly vulnerable to external tluctuations that arc usually out of the control of these
econonlies and oftentimes exhibit lcn.ver distributive effects than other activities \vith greater

value added components.

Lltin American and Caribbean countries face additional serious difficulties in competing
\vith global rnarkets that are either subsidi:,.;ed in the industriali:,.;ed econornies, oversaturated

with similar commodities or have a demand for high quality high technology oriented
manufachlring. Thus, the way most of the reglon has kept its global integration mode has
he en through a few commodities. A stark example took place in the late 1990's when the
value of coffee exports declined, resulting also in the commodity's reduced share of tot""1
exports.
Table 1: C otTee E xports as p ercentage 0 fT otal Exports
1990 1995 1998
Costa Rica
12.3
12
7.3
IFI Salvador
40A 21.8 13.1
Guatemala
26.7 26.8 20.7
20.2 23.9 21.5
1H0nduras
21.4 24.9 2/.9
~icaragua
lPanama
3.1
5.8
3.4
Source: ECLAC

6,000
5,000
4,000
3,000
2,000
1,000

o
1999

2000

2001

2002

2003

2004

2005

Source: Central Danks of each country

53

6,000
5,000
4,000
3,000
2,000
1,000

o
1999

2000

2001

2002

2003

2004

2005

Source: Central13anks of each country

Together these [,lctors have not been conducive to sustainable growth rates. Instead. the
productive base of these econonlies have struggled to cope \vith increasing costs of living,
now more pronounced as energy prices exact a heavy toll on many of these societies.
lvbny Latin i\mel~can and C:at~bbean cities operate on low wages ;md preGu~ous
employment, making them unable to compete even with domestic markets, much less in the
global economy. \vages are often one third or one quarter of the cost of living. ror
example, an agricultural \vorl.;;:er in Catanlayo, Ecuador, \vorking in sugar cane fields earns
CS$150 a month, and a store clerk in Salcaja, Guatemala or Suchitoto, El Salavdor earns
LS$200 and lIS$150, respectively. "-\t the same time, the cost of the basic food basket in
these countries ranges between US~150 and LJS$350. This reality makes it difttcult I()r
workers to maintain a decent standard of living through their own employment and the g,'p
bet\veen earnings and cost of living has been a key Elctor in the decision to llligrate for many
people.
Table 2:

~[onthly

Cost of Living. Income ,11ld Remittances

Cost of living.
Food
Services (utilities)
Education
Health
Entertainment
Income ...
\vages
Total earnings, rcrnittanccs included
T\,fonthlv remittances anlount received

219
60
13
40

27
323

030
637

201
43
56

41
3

209
40
20
34
40

303
501
331

125
622
515

162
353
181

228

44
32

68
35

Source: Survey of 12(1 remtttance reuptents and non-reuptents

54

flinallYl natural disasters have also had an adverse effect in nlany of these countries)

p,lrticularly in those in the Caribbean Basin. A series of events have severely affected the
region in the last few years, including the decline in coffee prices, drought, hurricanes, and
earthquakes. These events devastated the local populations and economies.
Along with the coffee crisis, Central America was hit with a drought in early 2000 that
significantly affected four countries in particular: Cuatenlala) El Salvador and, even nlore
dramatiGllly, Honduras and Kicaragua. According to the Cnited "fations \vorkl rood
Progr;l1ll, neerrly 1.(, million Centr:ll i\mericans were affected, h:llf of them from Hondums.
Many Central "-\mericans EKed starvation. In (~uatemala, more than one hundred peasmlts
died during the ttrst six months of 200 I as a result of the drought. Tn other countries the
death toll was even higher. The main source that help sustain Guatemala during the coffee
md drought were remittance transfers (see cherrt 1\2 in appendix).
Table 3: Drought in Central America: Population affected
Country
Population
affected
(~uatem:lla
113,5%
El Salvador
412,064
Honduras
791,970
"ficaragml
187,645
Source: \vorld coO(l Progmm, Vv cO. L N

Following the drought in 2001,1'0''10 e:lrthquCLkes in El Salvador :lffected the economic md

housing infrastructure of more dun one hundred thousand households. Five years later. the
country is still recovering and rebuilding from that disaster. Between 2002 and 2006, the
region has also faced other natural disasters, which have added to the strains on the
economy and increased flow of migrmts.
Foreign labor market's demand for immigrant workers coexists with the push factor of
poor economic performance in Latin America. That is, migration has also been shaped by
a foreign labor market demand among industrialized countries facing their own challenges in
n1eeting the dernands of a con1petitive global econorny. This foreign labor force y\/orks in

service industries that are intrinsically connected to the glob,tl economy, demanding cheap
labor and activities that other players in the economy are not prepared to carry out. This is a
labor force that often lives under poor conditions and works in vat~ous hbor intensive
industries such as hospitality, cleaning. construction, and retail.
Andrade-Eekhoffl argues that this process oflabor "integration" suffers relatively high levels
of exclusion and marginalization due to the undocumented nahlre of many of its migrants
who respond to economic push-pull and transnational networks and linkages. For example,
migrmlts in the poultry industry in the US South working for Tysons Foods 2 live under
1 (Andrade)-Fekhoff, T-':::atharine. Globalizarion of the periphery: The challenges of transnational migrarion for
development in Ccntr<li Al1lcric(l. II:] Salvador: 1'1 ,i\CSO Prognm(J, i\pril 2003.

Fink, Leon, The j\,faya of j\,forg::ultown: work and cOlll1mmity in the Nuevo new south, Chapel Hill: The
University of North Carolina Press, 2003, p. 2UO. and StriftPr, Steve, "\Ve're all Mexicans llere: Poultry

55

precarious circunlstances, \Jlorking long hours 'with it linlited social safety net. Sinlilar
conditions can also be found an1.ong foreign part time \vorkers in the so called 'logistics
sector', such as ['edR" delivering packages on time from all over the world. 3 Interestingly,
this demand for this kind of foreign bbor in the United States has not changed dramatically
over the past seven years. For exarnple. the decline in unernployD1ent rates arnong TTispanics
suggests that a demand I()f I()feign labor has increased in the economy after the 2000-2002
econonlic recession.

Source: US Bureau of Labor Statistics

Moreover, one can not ignore the political events that influenced the emigration of many in
the eighties and created transnational farnily ties. 'rhe repression and civil \vars of the
seventies and eighties led to D1aSS D1igrations. C;uatcrnala, EI Salvador, TTonduras and
l'\iGlragua experienced brutal forms of political repression directed by a ruling class formed
by praetorian guards, consen,''"ative oligarchies, and confornlist elites. The end result in each
of these count1~es was civil war. each lasting over ten years and forcing millions to t1ee. Haiti
,md Colombia have also faced htes similar to that of Central America. brought on by
violence or repression. Finally. there are also the latest crnerging neopopuhst D10veD1ents
that discouraged many citizens from remaining in countries like Bolivia, Ecuador or
Venezuela.

2. The impact of transnationalism in Latin America and the Caribbean

All of these t'lctorS combined have helped sustain and create transnational families-ddLned
as groups that nlaintain relationships and connections \vith honle and host societies. 4 Their
Proce~~ing, Latino .\Iigration, and the Tran~fonnation of (lass in the South" in The .i\1llerican South in a
Global \Vorkl, ed-ited by James Peacock, Harry \Xlatson, and Calne R.. \1atthe\vs, Chapel Hill: 'I"be Univers-ity of
I'\orth Carolina Press, 2005.
:'>

Smith, Barbara Ellen,

~vfarccla

i'vfcndoza and David II. Cisccl, "Thc \"\/orld on Timc: D1cxiblc Labor, Nc\v

Immigrants, and Global LOb~stics" in 'fhe ~:\merican South in a Global \\/odd, edited by James L Peacock,
Harry L \1\latson and Carrie E. Ivfatthews, Chapel Hill: TIle University of North Carolina
4111ere are a range of definitions of transnationalism, h:)1" example, "groupings of migrants \vho participMe on a
routine basis in a field of relationships, practices and norms that include both places of origin ~nd destination"

56

cross-border engagenlents enconlpass a range of activities including but not limited to

renlittance sending, social net\vorks, econonllc relationships, cululral practices, and political

partlC1patlon.
Money transfers,

tOU1~sm, tr~nsportation. telecommunic~tion,

,md nost:llgic tmde, together

kno\vn as the 5Ts, have had a significant inlpact on the economics of these countries and
pose inlportant policy questions about the relationship between transnationalisnl and

development. In practical terms, a typical immigrant's economic linkage with their home
country extends to at least four practices that involve spending or investment: family
renlittance transfers; dctnand of services such as tdecotnnlunication. consunler goods or
travel; capital investnlent; and charitable donations to philanthropic organi:,.;ations raistng

timds for the migrant's home community (see box below).'

Remittances, the iirst of these linkages, :lre the most widespread and import:lnt migrant
economic activity. \Vhilc the detenninants of sending do not vary between nationalities, the
frequencies and quantities of rnoney sent fluctuate across groups. For exanlplc. ] .atinos and

Filipinos in the C.S. send an average of U5$300 a month, whereas Southeast Asians in Japan
send $671, Filipinos CS$600 and Ghanaians in Europe send US$~OO every six weeks 6
Migrants ~lso m~int:lin links with their home count1~es by st:lying in touch with friends and
f~mily by calling ,md visiting their homeLmd. They purch~se and consume foodstuffs from
d1eir home country such as tortilLts, beef jerky, cheese, rum and coffee, and spend money on
phone cards to call their families. Eighty percent of Lltinos buy phone c,lrds ,md spe,lk to
their relatives by phone for an average of two hours a month. This exchange creates
important revenue for U.S. linns.
The final t\vo transnational activities involve donations and investnlents. Tn the case of
donations, migrants raise funds to help their hometowns through organized civil society
groups. Belonging to a hometown association (HTA) is an important migrant activity that
Gm provide substantial economic resources for the communities of origin. Individu~l
donations may amount to between US~l 00 and US$200 a year per person, and in some
countries, like Mexico, donations on aggregate may translate to mote than tlfty million
dollars.

Jiinally, nligrants often have a desire to invest in a property or a s111all business,

LS~5,OOO :lnd LS$10,OOO to th~t activity.

devoting betvveen

(J .ozano 1999). The trend of ties is spreading everywhere north-south, as well as south-south \vith significant
regional migration patterns
S j10r

an

of the 5Ts,sec Manuel Orozco Tn'Hmafio'Haj RlIgQG'fJI"'lf, Re1Jliff(J!lcej' and fheir RdafionJhip
ol,a the Caribbe({fl. Institute for the Study
i'vIigration, Gcorgcto\vn

La,il!l "/lJ1i'et7Ca

6 Orozco, j\,fanuel with Rachel Fedewa, "Regional Integration? Trends and PattenlS of Remittance flows u,>1.thin
South F~st /\sia." Tnter-/\merictln Dialogue, Y\/ashington, DC, August 20()S. South Fast Asia report, 2()()S

57

These practices generate significant revenue and benefits for tnany. Take, for exan1plc, the

cases of Salvadorans in the United States. This migrant community has been established for
more th311 thirty yeats in the U.S. and has maintained its associations widl the homeland at
different levels. The tCLhle helow shows estimates of the numher of transnational activities
that keep these migrants connected with their home country. The highest ,unount of money
spent is on renlittances (fronl \vhich earn average conlpanies revenues of 10 % ); ho\vever,
other activities are also important relative to their inlpact on the t\vo econonlies, such as

phone calls.
Table 4: Percent of Salvadorans who.

These practices anlong diasporas are not fungible, but rather retlect specific needs and
priorities anlong migrants and together do not necessarily represent assets in thenlselves.

58

The consumption of goods and services, for example, is attributed to daily livelihood
realities. Remittances, on the other hand, are both a combination of soci,ll protection and
stock accumulation. Studies show that, depending on the groups and families, migrants may
see a portion of remittance as an asset in itself because they then use it to invest in their
7
t~ltn1lics' D1atcrial circurnstanccs to transfonn their lives.
Rcrnittanccs sent to address
educational nccds~ for cxatnplc, create such a basis for asset building.
Investnlents in business and real estate and migLlnts' donations to their local C0111111unities
are unatnhig;uous, concrete fonns of ;lsset accutTIUhtiol1 at the individual and cOl11ffiunity
levels. In the case of iin,mcial activities we tind that nearly two in ten migrants invest in
their horne country, and nearly three in ten build savings at hOD1C. The table bclov.' sho\vs
the kind of asset building practices that were found to take place among migrants from
twelve different Latin American countries.

Table 5: Percent of remittance senders ,md recipients who ...

Sender
Have a bank account
27
Mortgaue loan
10
Have a small business
3
I lave a small business loan
Have a student loan
~\re payil1CT insurance policies
2
Lends money to family to invest
2
Do not have tinancial oblij'",ltions
~A

Recipient

50
10
17
4
3
6
2
32

Source. ()rozco, .\hnuel 1 rdfl.111dll0lldi l:..J{f!,dp,etJJefll ..

T,lble 6: Percent of remittance senders/recipients who in addition to remittances help/are

helped Ly their family to address other economic obliuatiollS, such as ...
Recipient
Sender
12
28
Pays loans to tak:e care of a sn"lall business
2
27
2
Pays for a student loan
8
Helps pav for health insurance
2
16
Other hnancial oblipltions
22
26
Source: Orozco, \1anuel. TruIlJncJ/7OJ/f1j F.fl.ga.gemrJllt.
i. ') '/Ie din;d i1llpad

rj re1llilianceJ"

The volume of remitt;1tlce Hows to Latin "-\merica and the Caribbean has increased to over
tifty billion dollars in 2005 (see Figure 6). The increase is due to a number of factors that
include reactions to econornic downtun1s in r ,at1n .''\n1erica and the Caribbean, strengthened
tics bet\veen the C.S, and r ..atin Anlerica, inlprovcd conlpetition in money transfers,
increases in the contact among members in a transnational family, and improved accounting
of the money received. For example, in 1980 only 17 countries reported dows on
7 Pozo, Susan and (atalina _iunuedo-Dorantes "Remittances as Insurance: Evidence from
]OlltncJ/ ?fPopllicJtioli Pcollomi(j-, 2006,

~vfexican

j\fig1'illltS,"

59

remittances; by 2004 the number W<lS 30. Even these tLgures, reported by Centr<ll Banks, <lre
considered to be consen;rative estinlates.
$60,000,000,000 , - - - - - - - - - - - - - - - - - - - - - - - - - - - - ,
Figure 6: Annual Remittance flows to Latin America and the Caribbean

$50,000,000,000 + - - - - - - - - - - - - - - - - - - - - - - - - - - - A I
$40,000,000,000

+------------------------

$30,000,000,000 + - - - - - - - - - - - - - - - - - - - - - - $20,000,000,000 + - - - - - - - - - - - - - - - - - - - - - - - - ;
$10,000,000,000 + - - - - - - - - - - - - - - = 0

$O~il!!Il!IlllIIjiI!l/lll_
"",<>

"",'1>'"

"",~ "",~

"",'1>'1>

,,<f'' ' ,,<f'' '

"",<I' "",<I'

"",,,,'I>

<f'",,,, <f'",,,, <f'~

These t10ws have had '111 economic impact in several of these economics. First, the sheer
volume has become an important source of foreign savings that help to sustain foreign
currency reserves. For example, in many Caribbean and Central American countries,
remittances are the most important source of income and exhibit far more stable nows than
other factors.
Second, remittances respond to macroeconomic shifts, particularly to
intlation, thus manifesting countercyclical tendencies. Third, in some countries, particularly
in slllaller ones, these savings have an effect on the country's gro\vth rate. Pourth, they
represent ,Ul econonlic engine attached to an internlediating industry tllat includes other
kinds of services and transactions. Fifth, remittances have a distributive impact in a
country's cconorny.
Tthle 7: Central America in the glohal economy, 2005, in million CS$
Sector

Guatemala

El Salvador

Remittances

2,992.8

2,830.2

1krchandisc
E:.q10rts (no t
including
maquiladora)

5,U28.6
352.4

218,4

Maquiladora
Official
l)cvclopmcnt
Assistancc't
Tncome from
'l'ourisl1l

GOP

Honduras

Nicaragua

Costa Rica
362.0

D.R.

1,763

60liA

2,4111.8

1381.47

875.(1

857.9

2,954.0

1,397.9

1,920.7

886.4

682.1

4,072.3

4,734.6

211.5

641.7

1,232.4

13.5

86.9

868.')

542.()

-1-72.2

21J7.1

1.5')8.')

3,51').7

27,400.0

17,2+1.0

8,000.0

5,000.0

20.014.5

29,333.2

40:0

58""

72 n/ o

45"0

R+X+A+"J/GDP
35","
Source: Central Bank uf each CUlUltry

41""

60

Tn the broader Latin Anlerican and Caribbean context, renlittances are increasingly taking on
an important share of the National Income. Although they only represent 2 percent of
regional Gross Domestic Product, the impact of remittances varies across countries and
regions and is greater in smaller economies.
At the national level. such variations are associated with the relationship to C;DP, to per
capita tlo\vs and per capita CDP as \J,,~ell as to the cost of sending the nloney. [lor exanlple,
Haiti, Honduras, Nicaragua, TIl Salvador and Jamaica are countries \vhere remittlnces
received represent more than 10% of tot;)l GDP. However, not all of these counll~es are
rclevtUlt \\,hen rernitt./lnces are nleasured in per capita terrns. Those countries that receive
nlore than CS$100 per capita include ten countries, atnong which are i\.{exico, Guatetnala,
Ecuador, Barbados and Grenada. These differences arc also noted in the average amounts
sent as well as in the relationship between the annual amount sent and per capita income in
these countries. These differences can be observed in the table below. Although the
average amount sent is around $270 per month, when that tigure is comp,uced to per capita
GDP, again the results vary. Recipients in 11aiti, 110nduras and Bolivia, for e"amp!c, receive
amounts that are nearly three times per capita GDP. The cost of sending money also varies
across countries and may be associated \,"'ith volume: the lower the volume entering a
country, the more expensive the transfer will be.
The differences in these trends arc a tllllction of specitlc country conditions as well as the
history of migration. Por example, although Central America, the Caribbean and i\.{exico
luve a historical relationship of migration to the Cnited States, each migratory pattern and
its subsequent remittance flows respond to the realities of these count1~es.
Thus,
Salvadorans and Dominicans may receive relatively similar volumes: however, their mignl1lt
populations are different in size and the titning of HoY','!s responds to varying dynarnics. Tn
the case of Fl Salvador, they responded to the civil war and its post-conflict process,
\vhereas in the Donlinican Republic there is a response to a longer historical tradition \vith
one reference point being the exiled conununities esc;)ping the Trujillo dictatorship.
Table 8: Remittances and kev economic indicators
Relnittance transfers ...

Country

andGDP

Cost

Annual

2.W;o<J

187.18

6.0 0 <J

Average
Transfer
3Sl.IHI

13razil-f

1.09%

30.85

8.13',:,

.141.00

4.84%

911.48

.s. C)'=; ~:,

5,750,flOO,OOO

Colomhia*"

220.lJlI

4,126,000,000

Guatemala*

l1A2~.'o

237.54

5.GIJ'~J

363.00

2,992,770,000

U Salvador*

18.28~:o

411.31

5.21\0

33').00

2,830,200,000

l)ominican R.epublicf

13.35%
(J.lHo,<:o

271.IB

6.4<1

176.1111

2,410,800,000

Ecuador'"

136.07

3.9,<:-

293.no

1.800,000,000

Tamaica-+'

18.33~,'o

622.78

8.2%

209.00

1,651,flOO,OOO

3.71~:o

89.21

4.6"",

lW.OO

2,495,11110,000
1,762,980,000

l'vfexico

Pcnr*

Per capita

VolUlne
20,034,000,000

Hondurasi'

23J19~/\1

244.72

5.8/<1

225.1111

Ilaitit

34.53~'1I

115.50

123.U(l

985,11110,000

l'\icaragua i .

19'()5%

154.91

6.7""
:).2 /0

133.111.1

850,000,000

8.S2,~)

89.31

9.11%

263.00

550,000,000

ParaguayY

10

61

Remittance transfers ...

Country

Cost

Average
Transfer

Annual
Volume

11),17%

93.66

5.6<1

235.(11)

2.11%

92A4

9.46'~:,

301.IHI

400,000,000

9.021J,~:-

212.00

270,flOO,000

Costa Rica"
Argentina

Per capita

andGDP

Rolivia-r

0.2~,'0

-!,

Pancullcrt

8GO,000,000

1.3G~"J

61.')0

10.5fjl\o

1%.00

200,IJOO,000

36.89%

359.52

10.14''',

179.1HI

270,000,000

4.3,<:-

418

11.66-=>'0

220.lHI

113,000,000

O.771J,~:-

70.75

10.41',:,

200.00

92,400,000

0.3')"

71

11.28/0

198.00

93,(11)0,01)0

Belize

3.771~/O

148.70

8.78%

220.00

40,150,0110

Surin,ul1ct

4.20~/o

122.4()

10.17/0

22U.(I(l

55,IJIIO,000

Guyana

Barbados

Trinidad and Tobago'

UUl.6'1l ay i.t

Grenada--+ i .
Venezuela, Rl)t
Chile

220
4.64

0.0%

.L'1.ntigua and Barbudat

Dominica i

5.2%
lJ.l1'o
~

St. I..,::itts mId Nevis't

St. Luciaf't.
Sr. Vincent and the
Grenadines _H

220.(11)

23,000,000

17.10,<:-

138.1HI

124,000,000

8.90%

279.00

13,flOO,000

1.5~:o

140

220.00

11,IJIIO,000

1.5%

56

220.(11)

4,000,000

1.2,<:-

86

220.lHI

4,000,000

0.6<:0.8 u'0

25

220.lHI

27

220.00

4,000,000
3,000,000

SOlin!!: C,:nlm/ BilllkJ' oj ,,</"-0 (f)unJl)', II orlcJ Bank Dl'zdoPllJeJJ/ InclJw/orJ', cla/a m//",Jai b Ihl' all/llor. i-..roJI':

* 2005; ** 2003.

Table 9: Remittances and other indicators

Rllralareas

Female
ReClplents
('J,o)

.i:"emale
Senders
('.)

ReCipients

Jm

:~:;~p"nt'

J.<:ducahon (

Accounts

("'0)

54

84.14

52

45

1-1-.5

)3

45

33.31.)

66

58

21.1

57

7-1-

08

-1-3.l11

46

34

29.8

39.5

7:!.

46

50

31

19

10.6

8Cl

29

59.41

41

I'

44

CIIYHTlfJ

~,

71

48

22.8

Ci:?

H~l1tt

54

53

32

86.4

68.4

Honduras

PLTIl

35

25.5

3'

34

16

49

CiS

(in

63

17

29

28

-1-S

"

44

46

53.92

.il

11.7

-1-5. 7

}""o",,
"l(,~HI~I~

1:',0)

68
,

GII;IIt-ITl;JI;1

'V[~XlCl)

lnv..;stmcnt

("0)

'1

Colombia

EISalvauol

~:~t'nt;

52

Bobvla

J.<:cUJdoL

\X/irh

Invcstmcnt

Senders

(0.)

Cl

D.RepubLtc

Non-

Accounts

1'-'

111

37

35

17.

27

A look at these !lows and their manifestations in d1e Lltin American and Caribbean region
show the presence of three distinct groups :IS they relate to the impact these funds 11:lve in
each country. One group is represented by those countries whose !lows have an effect in
n10st if not all the indicators rnentioned above. This rneans that rcn1ittances have an

11

62

important presence both in the country's national and per capita income, as "\vell as in the
intlo\v to a household's inconle, \vhich is at least t\vice the average per capita inconle. -'-~
second group is one wherein the effect of remittances is felt in half of these indicators, and
the third group is that which is minimally impacted by remittances.
Table 10: Trnpact of rcrnittances on Latin i\rnerican and Caribbean econornies

Strong
Ciuatetnah
Ecuador
Kicaragua
El Salvador
Haiti
Honduras
Bolivia
Guyana
Janlaica
Mexico

Medium
P;)mgu;)y
Colombia
Peru
Dominican Republic
Brazil
Surinatne
Costa Rica
Belize
Crenada
Barbados

Low
Dotninica
Pan~1nla

Antigua and Barbuda

St. Vincent and the
Grenadines
Chile
Trinidad and Tobago
Argentina
St. Kitts and "Jevis
Uruguay
St. Lucia
Venezucla, RB

Ratio 01 remiLLances: 1: < .66; 2:0.6"7-1.5; 3: >. 1.51; RemiLLances

"~, 01 GDP:1: '. 1 I; 2: 1 Lo
capiLa: 1<36; 2: 3 7 -1110; lOll; RemiLlances cosL: 1
7.5; 2: 7.6-9.5; 3: <9.5

+r~~);

3: .">+

~):

RemiLLances per

alld otber ecoNomic actilities o/migrallts ill the U.S.

import;)nt to acknowledge that the imp;)ct of remittances and other migrant related
economic activities also extends to the U.S. economy. For example, despite this substantive
amount of resources sent, they only represent less than 20"/0 of migrants' income: the rest is
spent in the United States.
T;)ble 11: Basic r ropensity to remit ratio hehveen amount sent and incOlne)
Country of origin
Colomhia
Cuba
I :cllttdor
Salvador

Guatemala
C;uv:ll1a
HOlldLlra~

iviexico
l'\icarab'1la

Dom. Rep.
13ohv-1.a
T:ll11aica

Total
Source.

UlO1:CO,

Mean
ratio

Standard
Deviation
.ll9665

.1357
11743
3718
.1550
.3041
.1434
.lll8lJ
289U
.1128
.1246
.1154
.2)(,9
.1883
\1anuel. Survey~

1)7022
.29328

N
2lJ4
151)
96

.13706
372
.25154
94
.21995
174
.lm13
67
25-1-27
440
.08273
135
.11146
149
.07710
68
..03903
18ll
.24774 2129
conducted by the author

i\,{oreover, the revenues these econornic activities create for U.S. businesses, srnall and large,
<lre quite substantial and in revenues represent ten percent of the volume sent abroad. The
nloney transfer industry itself, handled predominantly by nlinority o\vned businesses, creates

12

63

between thirty to three hundred jobs with indirect benetits to thousands of agents operating
natiollsvide. 8 Thus, a decline in volull1e transferred \vould affect companies.
l

The phone industry also has had great financial gains from these economic activities.
TD1tnigrant contacts account for a substantial share of telephone con1panics' revenues on
service between the United States and Latin America. TTalf of calls from the Cnited States to
L,tin America, for example, are household to household calls (Table 12). Similarly patterns
are found in the airline industry, where revenues from internationa1 flights are substantively
rehted to visits made hy migrants and their families.
Tahle 12 Phone Calls hetween the United "tates and Selected T atin .'\merican Countries
PalS
I\Att1utes
Household
Payment
'clonthly
U.S.
20m (11011)
l1111lutes
revenue
to countIy pay
(000)
(US$) (000' (US$)(OOO)
152,11(,7
l'\icaragua
1211,2811
38,868
18,670
$45
El Salvador
129,727
1,016,670
492,510
90,267
$26
Guatetn<:ua
L455,877
299,989
103,677
305.442
$33
$6(1
Honduras
411,481
169,418
108,621
9\946
1)0111ttltCan Rep.
7811,344
6611,8116
124,328
51,226
$27
(,34,9411
Colombia
838,9113
%,195
$22
55,651
234,111111
231,7(,(,
Haiti
31,640
19,057
~

"
Source: Data from author's 200.)--200-+ survey of 11llIll1t-,:rrants m NC\v \ork~ Los ~:\.ngclcs; Y\'<1shlllt-,rton,
DC;
ChicagQ; and j\,fiami; administered by Emmanuel Syhrestre and Associates. United States Census Bureau. 2000;
2001, 2CJ02 International Telecomm"LU1ication~ Data, Federal Communications Commi~~ion, Decemher 2CJCJ1,
and January 200:1. I\"ote: C:omputation ha~ed on an average of four calls a month at S, 8, 1.'), 25, and :10
minutes per calL FOffilula \va~ ~U1n of phone calb = annual minutes x percent calling x immigrant percent
remitting (from 20UfJ U.S. census)
0

There arc other realities that arc not to be neglected, These include, for example, the
emotional effect of separation among families, the effects of migration on gender relations,
in settings "\vhere social capittt\ still has a strong gender bias agtlinst "\vonlen.

3. Alternatives and policy options

The challenges to address the lack of robust growth in Latin America ,md the Caribbe,m
require the increase of cooperation as well new policies that can leverage on the existing
tlows of money, Here we look into those issues,
First, people generally do not wish to migrate and stay apart from their families, thus they
prefer a hetter performing home country economy. The pressures of glohalization and the
higher costs of living in their countries do not encourage potential nligrants to stay. Second,
current imnligration includes undocunlented border crossing practices "\vhich upset nlany
groups \vho argue that the nligration of lo\v skilled undocumented \vorkers is unsustainable,
Orozco, rVlanuel. Tt/terncJtiOlifl/ T'lmw' of RrmittcJIU"fJ: C'oJ/.
Caribbean- (oward 1m illdf{J(~)' J&vt7:!card. \Vashin-b'ion DC: IVlay
Dcvclopmcl1t Bank.

dlld jt/idlh?"al
LatiJ/ A1IJrricIJ dt/d tbr
2UU6. Report prepared for the Inter-American

'J First Data Corporation, for example, argued that the C.S. immigration activities and debate "in the second
quarter negatively impacted \",\7e nern l-nion'~ total revenue growth hy 2(;'0 and total operating profit hI'
FDC attributed their drop -in transactions to T'vfex-ico from 17% to 6')/oln the second quarter of thls year.

13

64

is as high as 12 million people, has a direct effect on wages, takes jobs from the native born
and is illegal. Although the actual Egure of undocumented migrants may be lower''', and the
effects of migrants may vary and have different implications, governments have the
obligation to reduce undocumented flows and better manage migration.
TnHncdiatc policy solutions to prorlloting cconorntc gro\vth and reducing undocurncntcd

migration still intersect with the ways in which development is accelerated in many of these
countries. Here we suggest three practical approaches, namely, to leverage the already
existing economic practices of immigrants hy adopting policy options that are tested and
directly associated with development; accelerate economic reforms with strong social
cODlponcnts focusing on increasing educational attainnlcnt and wealth generation; and

support a guest worker program with conditionality clauses for migrant sending
governments about their performance.
Lel'el'{~e trall.>"I.'atzolltd emllofllh"j)ra,tm.l ... ''''S'

Z.

/",",/

'1hcrc exists an inlpcrativc urgency to leverage

that encourage asset accutnulation
among n1.igrants and their families that requires creative thinking about ho\v to proceed.

Moser stresses the consideration of Erst and second generation policies. The Erst focuses
on laying out a social and economic intrastrllcture (such as access to financial institutions or
hetter education), while the second one attempts to "strengthen accumulated assets, to
ensure their further consolidation and to prevent erosion.>?

\,Tidlin the context of transnational n1.igration, and speciEcally anlong remittance senders and
recipients, Erst generation policies should also concentrate on increasing the percentage of
mi?f'Ults and families with access to Enancial institutions. In addition, they should center on
\vays and D1eans of accelerating the process of educational attainrnent by increasing average

schooling and improving student academic performance. This means that education,ti
serv-ices need to conform to the purchasing po\ver of remittance senders and recipients to

offer hetter quality education. Second generation policies should focus on designing tailored
financial products that build assets for individuals, fmnilies 'Uld communities.
Broadly speaking \ve identify six initiatives where donor activity can be critically irnportant to

promoting asset accumulation by leveraging schemes through remittance flmds and migrant
capital investment.
First genemtion policies:
L Accelerating tlnancial intermediation projects with credit unions and MFls;
2.

Engaging b<:u1.king institutions nlore actively by identifying their opportunity costs in

rural areas;

3. Design projects that include education and health services among range of services
offered by MFls in cooperation \v~th schools, public or private:
a.

Education

funds~

tutoring classes, extracurricular activities, internet,

b, Health insurance, speciali7-ed medicine tllllds;

W\"X/e estimate that the number of undocumented Hispanics/Latinos is seven million at most (see table 1 in
appendix). Undocumented mignuHs from nationlliities outside Latin -,-~merica cmud amount for as much as hvo
million.

14

65

Define goals and standards anlong conlnlunity leaders, financial institutions

<:uld local governments to raise educational attainnlent fronl 6lh to 12lh grade
levels;
Second generation policies
4. Supporting projects on feasibility investtnent schernes to develop investnlent
portfolios) including recornrnendations on business consolidation \\,here
microenterprise is ineffective or inefficient;
5. Link investment opportunities to the transformation of subsistence agriculture;
6. Engage local governments and the private sector to review their roles as
environnlent enablers to prornote investrnent {uld increase productivity.
c.

All eX"amp!e oldollorillilialil'e: Ihe Mullilaleral ill1'eylmelll hllld olihe i!llel'Amelicali IJel'e/opnmzl Halik
One of the pioneel~ng institutions in addressing the link between remittances and
development has been the Multilateral Investment Fund ('v!IF) of the Inter-i\mel~can
Development Bank (lADB). The _'v1lF has addressed this issue from a research, advocacy
,md operatiolul perspective. Since 1999, it has engaged in a series of discussions <lnd studies
about the impact of remittances in Latin America and the policy problems posed by high
tr<:ulsaction costs. ~;\s its research and public discussion ensued, the J\HP encouraged
movement on this tront by taking the initiative to fund projects aimed at modernizing a
financial infrastructure that could attract Dloney transfers at lo\ver cost, \vhi1c addressing the
financial needs of unbanked reDlittance receiving households.
To that effect, the 'v!IP has funded over 20 million dollars in projects in several countries in
Latin America (Brazil, Colombia. Dominican Republic, Ecuador, El Salvador, Mexico,
l'\icaragua), rn,U1Y of \vhich go to rnicrofinance institutions or altern,lt1ve savings ,uld credit
institutions. Table 13 identifies some of the more widely known projects funded and related
to rcrnittance transfers.
Table 13: Projects funded bv the Multilateral Investment Fund, 2001-200+.
Project

CouoCJY

Expansion and stremrthening of a rnicrof11lance institution FIE

Rcrnitt<lnce Fund for Entrepreneurs
~\10btlization of ren1ittances through microtlnance institutions
Distribution Channels for Rernittances

.Ar!ZC'ntina
Brazil

Financial <Uld business services for rcrnittance recipients

D01ninican

Colombia
Dorninican

Amount
$2,396,060
$.0,111111,111111
$82+,7711
$2,.000,000

Republic
$840,000

Republic
Support lvlicro-Enterprises Utilizing a Line of Credit
Stren.l,rthenin.g of I"111a11cial Service~ and RenLittances
Capitalization of Remittances lor I >oeal ~:conomic I )evelopment
Strengthening Sa\'ings and Credit Unions
Investment of Retnittances
Investment in }-<inanciera Nicaragilense de 1)esarrollo
Support for returning entrepreneurs
f-<:nhance dey. inlpact ot-Peruvian \'vorkers' retnittances Fron) JP
Financi110 for l11icro and Siv'1Es thnl for111al financial intei1nediaries
'v[][i-lfiAD partnership litcility for rural private sector c\e\'-LAC
Total

Ecuador
IJ Salvador
1kxico
\Jicaraoua
Peru

Peru
Regional
Re}.,>1()l1al

$2,200,000
$1,51111,111111
$1,115,11011
$3,.000,000
$+611,111111
$1,750,11(111
$511(1,1 ICII 1
$7,2011,111111

$8,200,000
$4,111111,111111

$41,985,830

15

66

The Pund has also engaged in partn.erships \vith other donors and institutions. Por exan1.ple,

it now has an alliance widl the International Pund for Agricultural Development (I PAD) of
the United Nations. In ApriI200.t, the two organizations announced the creation of a $7.6
million dollar fund aimed at funding remittance related projects that addressed microttnance
and investment. Under this agreement, for which 'v!IF provided $.t million, local
counterpart organi7.ations, such as microfinance institutions and credit unions, are expected
to commit $1.6 million to the projects they propose (LlDB-'>lIr 2004).

One of the more successful cases resulting from LWB efforts is the Red de la Gente
project. Tn 'v[exico, BAKSFFT, the Kational Savings and Financial Services Bank, a quasigovernment institution mandated to expand tinancial products and services to all Mexicans,
entered dle remittance market and received funding to strengthen its technology and
network of banks. In 2003 GANSEb'l established a network of over 1200 distribution
centers called L(iyRed de la (~ente. together with popular banks, micro-finance institutions
,l11d credit unions, to act as a remittance payer. In addition, BANSEb'1 forged agreements
with severall>ITOs including GiroMex, Dolex, Vigo, and MoneyGram. Purthermore, it also
linked its network to the FecL\CH International SM Mexico Service.
Lnder this scheme, the members of L(il)Red de ]a Gente offer remittance transfer services in
n1.ostiy lcn.v-incomc urban and nIrai areas that experience significant enligration to the US,

,lllel where the formal financial system has no coverage. Tn January 2005, BA'\JSErT made
25,000 transactions a mondl and had opened accounts for 10 percent of the individuals who
had come in for remittance services, an improvement from the 6 per cent who opened
accounts in 2003. By June 2006 L@Red de]a Gente grew four times to 100.00D transactions
a rnonth and continued banking rernittance recipients.

Other TADB-MTP gr,llltee institutions like PEDECACES, the federation of credit unions in
El Salvador. have targeted remittance recipients directly as potential members of the credit
union. Approximately 2.1 percent of remittance recipients who choose FliDEC""CES to
receive their remittances arc also b'EDECACES clients.
Table 1.t. Kumber of accounts opened by remittance recipient household clients of
Fedecaces

Institution

New ilCCOttnts
opened

Monthly Conversion
transfers

rate

Rural
presence

431.1
HOO
2/03

U.S. foreign assistance can help enable credit unions to transfers remittances through
them and enhancing their capacity while reducing costs. At the same time, by offering
money transfer services, credit unions and micro-finance institutions will bank the
unbanked in the region, having a direct economic effect on their counhies. Banking the
unbanked has direct distributive and multiplier effects in an economy as the savings rates

16

67

increase, opportunities to invest are expanded at the local level and the inflow of
remittances resulting from a decline in prices also increases. U SAlD can establish
programs to facilitate the access of remittances recipients to credit unions for microfinance opportunities, but also to receive remittances. USAID in particular can set up
programs to enable savings and loans cooperatives to establish interfaces with credit
unions and community banks in the United States.
USATD's successful experience in Jamaica is a proven example of what can be
accomplished by leveraging remittance flows through financial access. Through a grant
from the United States, in November 2003 USAlD entered into an agreement with Jamaica
National Building Society (JNBS), one ofthe country's remittance companies holding 15'1.) of
market share in the country, to introduce smart card technology to reduce the cost of money
transters and create greater accessibility to tlmds. In addition, JNBS would leverage the savings
created from the implementation of the smalt card into development work. As result in less than
two years JNBS was able to activate 20% of its transfers through debit card while it used tenninal
point of sales among its merchants to enhance the use of the card among remittance recipient
costumers. To date. JNBS is perhaps the only institution worldwide with the highest percent of
recipients withdrawing money with a debit card and using it for purchases, thus reducing cash and
transiting to account to account transfers domestically. II USATD provided a quarter ofa million
dollars to JNBS to achieve this goal, in tum more than ten thousand remittance recipients use
debit cards today and the IWljority of JNBS costumers have bank accounts.
-,,"1crde/ate
r~l()rfl!J
T\/fany r .attn Arncr1can
Caribbean countries exhibit lo\v education rates, and the
opportunities to increase wealth afe partly associated with access to eduGltion. Bilateral and
nlUltibteral developnlent agencies as \vell as governnlents <:uld civil society have stressed the
importance of targeting support in key :!reas such CIS free tmde, social policy in education,
lUld health, and democrati~ation. There arc at least ten issues where attention is needed, and
substantive cooperation 1s in1portant. Sornc of these issues include strengthening trading
capacity~ as \vcll as financing for srnall and D1ediun1 enterprises.

Progrmn :!ssistance has cont:L~huted to maintaining hasic needs; however, given the prevailing
constr:!ints, there is need for more attention. To that effect it is important to incre:!se aid
t1ows. Foreign aid to the most of Latin America and the Carihhean has steadi! y droped since
d1e 1990s, with the exception of aid to Colombia. Specifically, pre-existing programs will
require strengthening while new programs need to be created. The list below highlights the
main issues for m initiative on development in Central America. Here we point to some but
of these opportunities

Ten OpportuniTies
Democmcy :!nd Politics
1. Strengthening justice and the rule of law:
2.

Anti-corruption options

3. Democratization: party modernization, equality and civil society

Economics and 'hade
11

Tn most places remittance payers have less than 5% of its costumers use debit cards

17

68

.t. firee Trade liberalization

5. Administration of Remittances
6. Small and medium enterprise for urban and rural development
7. Regional Integration

Social
8. Education
9. Public Safety and Crime
10. -"ational Disaster Prevention: e:lrly warning systems, reconstruction initi:ltives and
food security
1800
1600
1400
1200
1000
800
600
400
200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Support for rural development continues to be :l stmtegic :lrea for the region and one in
which lISAID has been relatively successful. In particular. LS funds allocated to improve
IJII,:m-elll-e!p[1J,!,,- have been irnportant in creating (ill cconornic base
rnarkcts. Current allocation of these funds, hov,lcvcr,

has been relatively small (under $3,000,000 per country). Further expanding credits to
finance local development activities in the rural sector will prove an important tool for the
development of local markets, which in tum generate wealth in these areas. Current
evidence of the int10w of remittance money from the Lnited States into micro-credit
activities shows that with further tlnancing, local development can occur. Speciiically, U.S.
assistance can focus its energies on providing resources to small tlnancial groups.
Another important :lrea in the rural sector has dealt vv~th the dil'el'rijicatioll
A focus on diversification and non-traditional exports rather than
grains 1S a
longstanding strategy that works in the long term as it yields higher value returns than other
tr,l(\itional produce. This approach will also have an effect on the 'lffected coffee industry in
two ways. fiirst, it will help support the shift from coffee production into non-traditional
exports. Second, it will support strategies to produce more competitive coffee in the
international nlarkct. To that effect. continuous support to train fanner to produce
alternative crops is an essential strategy which \\'111 also be connected to ttnance
opportunities. '\lthough this area has been of great import"nce to LJSATD, hl1lding has been

18

69

limited; depending on the country, funding for <llternative crop diversitic<ltion has been
under one million dollars.
Closely related to agricultural change is the constraint brought by the lack of identification
and access to market
t1Iid modern tedJno!~f?J. These 1\\/0 issues, ho\,vcvcr. arc not
restricted to the
m<lrket but rather <lpply to all industry sectors. The ability to
expand exports
get businesses involved in c0l11petitive ventures depends on access to
llTarkets and alli<:ulces '-'lith international businesses.
L .S. assistance can foster development alliances between L .S. ,md Central "-\merican
businesses to quickly in1port technologies that v,I111 ]O\VCT production costs and increase
productivity and competitiveness.

T"oodreclI1ity is also another area that requires significant attention. Current weather
projections estimate that El -"Jirlo will hurt Central lunerica again with a serious drought.
The immediate effect is not only a loss of production, but also an inability to feed people in
mral areas. A prevention plan for the region is required to confront the unfortunate but
coming disaster this summer. U.S. assistance to Central America to confront drought has
been essential, yet it hasn't meet the demands of food for the nearly one million people
affected. 'ihis year assistance needs to arl~ve on time and in significant qUCLntities.
J/I"I\(;lh"III'(g.!"elmde is another area of critical importance. The legdcy of the Caribbean

(CEl) in Central America, for example, has been an important one. Since its
implementation, commerce has continued to increase. The growth in non-traditional
exports has been signiticant, and an important economic transfonnation took place: the
region's industrial exports have benctited more under the CBI than have its agricultural
exports. The t<lble below shows how the manuElcture of textiles and g,lrments is a key
source of export revenue for these countries. Under the Ile\v free trade agreenlent, CAPTADR, these count1~es require suhstantive technical assistance in order to adopt greater
conlpetitive cap~1City and irnprove investtnent in tle\\i areas.
Table 15: C.S. Imports of Centr<ll American Goods. (as percent of total imports. 2005)
Product
Textiles and
Gat1llcnts
Coffee, tea, spices
Total

D.R.

40%

45%

/0

Costa
Rica
14%

El
Salvador
81%

1(~:o

3(~:o

9.:0

14.01~0

84~'o

650

720

Guatenlala

Hondur<ls

56,'0

Nicaragua

70%

60'

4'
64'

Source: CS Intcrnanonal Trade CommIss1On, IntcractLvc Tanff and Trade Data \Xlco, 2006.

Education is a major area that needs fundamental attention. The global economy dermmds
people \vith education levels above secondary education, yet Dl0St of r .attn Arncr1ca and
Cal~bbean count1~es hold a sixth grade education, and drop ou t rates are alarmingly high in
many count1~es. 'v[oreover. skills acquisition is inadequate and many in the labor force leam
to adapt remediCLl techniques on productivity. whether in agriculture or manufactures.
C;ovcnUllcnts arc to be urged to increase invcsttncnt in education, involve the private sector

19

70

to invest in its labor force and retain it, and deepen and expand learning tools for econonlic

development.
Wl1ile

C1~ticism

in the United States by some sectors argues that most of the Mexican labor

force has lo\v education levels and is predorninantly unskilled, the effect in \,fcxlco is

distinctively different: there is a high percent of Mexican individuals with graduate and
postgraduate education that luve left VTexico. Retaining professionals, while sponsoring
return migration programs to skilled labor force is critically important to enhance
development opportunities in Latin America and the Carihhean.

Percent of All Mexican Born Adults Residing in the United

States by Level of Completed Education, 2000
IJjj

Male

DFemale

ill 40

1';

-g

"''"
'"~

'~"

30

20

!'!

'0 10
c
(])

f!

(])

Do-

Primary or
Less

Middle
High School
School
(P repaloria)
(Secundaria)

Bachelor

Maslers

Prof. or
Ph.D.

Source: Mexican and U.S. Census microdala

Data collected bv r Dwell, Lindsav. High Skilled Mobility: Changes and Challenges, 2006.

iii.
Adopt a reliable and mponiible glleit J)'OIkerprogram
Any analysis and recommendation about leveraging migrant foreign savings as sources for
asset accunlulatton cannot ignore the broader context of nligration. Specifically, the context

in which migration takes place between the United States and Latin America is a
conlbination of market denland for foreign labor, inefficient government migration
nTanagenlent and poor economic perform<:ulce in Latin -L\nlerica. The end result is the

employment of foreign labor working under precanoLls conditions, hving on low wages ,md
struggling to tunl their resources into assets.
The local econonlLes and governments in the countries \vhere nligration occurs are

constrained by pl~vate sector unwillingness to leverage foreign savings, an uncertainty as to

20

71

ho\v to proceed, and struggling econonlies that are barely grcJ\ving, thus linliting the options
for asset building or accuHlUlation. Given the realities of continued transnational nligration, a

demand for and ready supply of foreign labor, and increasing interest among donors to
leverage these nows, managed migration through a guest worker program and the
lcgali/:ation of undocuDlented \vorkers is of critical irnportance.

A,dopting a guest worker program as recommended by President Bush bClsed on country

quota allocations is an impommt step forward. This kind of initiative should include two
important components tied together hy a conditionCLlity framework. First, the guest worker
progr,un should be accomp,mied by a small but compact foreign assistance package aimed at
supporting a local financial and econornic base to encourage Dligrants to eventuall y return

home on better conditions. Second, local governments should commit to adopt policies
aimed at leveraging remittance nows, while strengthening their ties to their diasporas. Thus,
access to a guest worker program should be conditioned to the leveraging of migrant's
foreign savings through policy incentives and initiatives and sound econonlic pe1i-orrnance.

Govemments, with the exception of Mexico, have adopted few policies to encourage
financial access either through direct governnlent incentives or through incentives for

private banking institutions.

Although in January 2004 at the Summit of the Americas, the United States committed to
help reduce transaction costs, along with its Latin American counterparts, the United
States and Mexico are the only countries that have followed through with their
commitment. Western Hemisphere states agreed to "adopt, as needed or appropriate,
measures such as: the promotion of competition between the providers of these services,
the elimination of regulatory obstacles and other restrictive measures that affect the cost
of these transfers, as well as the use of new technologies, while maintaining effective
financial oversight." Furthermore, in late 2004 these and other etlorts on the part of
government, private, nonprofit, and international organizations led to major money
transfer companies signing a "Goals and Recommendations" letter stating that
"remittance institutions should compete on the basis of fair and non-discriminatory
contractual anangements." Moreover, they recommended that "public authOTities should
t~lcilitate remittance markets, and avoid attempts to tax, over-regulate or otherwise take
actions that impede the flow ofremittances."
Unfortunately this commitment has fallen short of compliance, yet immigration continues
to be of critical importance to these countries. Setting conditions to compliance to the
Summit of the Americas declaration and adopting meh'ics to measure success of their
implementation should be a guiding indicator to allowing a country participate on a guest
worker initiative.

21

72

Appendix
'rable l' \\enwe estimates nfiemittance senders and undocumented miPicltlts
;'." in LIS
Av.
/\nnucll Remittance
Senders
A,vcra.6'l'
[ircq.
sent
Volume
70l;":)
ombia
218
12
$4,126,000,000
L580,OH
90%
~1 ,01111,01111,001)
155
12
537,337
~1 ,8(10,0(10,000
7tY',o
lador
222
12
676.437
l11try

".'"

Lindoc

Llldoc.
32c;"::,

rem.

9.3%

(#'
353.923

/\11 undl
(#)
460.

H,975

58

284,1(14

369

;alvador

246

12

$2,830.2(10,000

~)S8A20

9lY'/u

6fY'"
37"'"

31'U54

414

atcmala

298

12

$2,992,770,000

838.035

90%

60()/~\

452.539

588

yana

H1

12

$270,000,000

67,63.1

80',/"

3C)'=;/o

16,232

21

nduras

151

12

$1,762,980,000

971,232

90%

51%

445,795

579

95'0
GtY',O)
SOl;":)

56(0

2,949,1(11

3,833

15/(0

40,266

52

S',:,

79,091

102

301

12

f20,034,0(10,OOfI

3nlgtl<l

158

12

~850,000,000

5.5H423
4H.4(1fl

m. Rep.

163

12

$2,410,SOO,000

1,235,SOI

al

2~()

12

$S(,O,OOO,OOlJ

291,(,(,7

8(Y;~)

5S'~:,

13.1,333

175

375

12

$1,6"1,0IJll,000

367,Yi8

7(Y>'o

3C)'=;/o

254

12

PO.587,750,000

13.514.758

77,14"
5,197,659

6,756,

1CJ[l

22

73

fiigllre A2: Gllatem,lla ,mel the Coffee Crisis

250

200

80.00

J r:~:;';;;;';;;~1

70.00

(i "JVIJ\ I ~

60.00

,!

150+---~----~----~--------------------+--h~d-------~

50.00
40.00

100+------~-~------~--,~--~----_.~w_------~~~--~

30.00
20.00

50
10.00

,-.,../ ,>..~" "':, ; ~.J ,of.

n

23

74
Mr. BURTON. Let me start the questioning with you, Dr. Orozco.
It was interesting where you said that the ability of people, entrepreneurs, in the very low class can get some loans, and the ones
who have the more affluent businesses can get loans, but the people in the middle cannot. Can you elaborate on that a little bit?
It seems to me that may be a big part of the problem or the crux
of the problem, because there are probably people down there that
would like to start businesses but do not have the wherewithal to
do it. If we could figure out a way that they can benefit from the
trade surpluses that Mexico now enjoys, maybe we can start dealing with the immigration problem.
Mr. OROZCO. I think one of the problems is that most of the
banking industry in Latin America has focused predominantly on
large exporters, so they have reduced their investment portfolios
and the loan portfolios for the small and medium enterprises.
There is almost like a glass ceiling, and sometimes there is a practical ceiling for the small businesses to prosper.
Mr. BURTON. Well, how can we change that?
Mr. OROZCO. Well, I think we need to go back to conditionality.
We need to condition for economic assistance, free trade, guest
worker programs, to provide access to the middle class or to the potential middle class. For example, one of the areas that we can pay
attention to is implementing or motivating the countries in Latin
America to implement the equivalent of our Community Reinvestment Act. It does not exist.
For example, 15 percent of the revenue of Salvadoran banks in
El Salvador comes from the remittance transfers that the poor people here, 40 percent of them who are undocumented, are sending.
They live here in precarious conditions. The banks are becoming
very wealthy. What percentage of that is invested in those communities? Zero. And I think we need to put as far as our cooperation
strategies
Mr. BURTON. Are there any things that our Government in concert with the government of these countries like El Salvador or
Mexico could do to encourage the banking and investment industries to make sure that the money that is going back there is in
part loaned out to the potential entrepreneurs in the middle class?
Mr. OROZCO. Yes. I mean, there are three ways. One is what
USAID did, for example, in Jamaica. They invested in credit unions
and microfinance institutions there to reduce cash transactions and
instead promote card-based transactions so that you could increase
your access to savings, and that was very successful. Jamaica is
the only country in the world where 25 percent of the remittance
recipient population withdraws the money with a debit card. That
is very important. So that is one area, forwarding assistance, paying attention to financial access.
The second is that conditionality works. If you condition further
cooperation to reforms that deal with this type of financial democracy, you can get quite far. And the third area is sharing the lessons that we have here in the United States about how we have
been able to be successful to provide economic citizenship to minorities, and that can be done in those countries, too.
There is not reluctance of governments not to do it. Sometimes
they do not know how to do it, and sometimes the private sector

75
is very powerful. But the reality is that the private sector wants
NAFTA, wants CAFTA, and wants free trade. So if you condition
those reforms, more cooperation to those reforms, I think you can
go quite far.
Mr. BURTON. Could you provide maybe an outline of your suggestions to the Committee? I would like to see that. I do not know if
we could do anything legislatively to encourage that, but we can
sure look at that avenue as a potential.
Do you gentlemen have any comments that you would like to
make in regard to that? Mr. Farnsworth?
Mr. FARNSWORTH. Just a couple things to focus on if I could. I
fully agree that access to capital remains one of the limiting factors
in terms of development in the region. I think that is absolutely the
case. You know, access to capital or the building of capital can take
several forms, and one is the domestic stock of capital and another
is direct foreign investment.
And I think the two are not obviously the same, but they are related, and ultimately the growth profile of the country in question,
whatever country that may be, is going to be directly linked to the
stock of capital over time in that country. I mean, that is just a
basic economic equation. And so the key question is how do you
build a stock of capital in those countries.
One of the ways to do thatand we have been talking a little
bit about, you know, harnessing the remittances into Latin America over this past year, 2005. We have had almost $54 billion of remittances go into Latin America and the Caribbean as a whole.
About $20 billion of that has gone to Mexico itself. Brazil was next
with over $6 billion. I mean, that is real money.
I think there is a question of how can government harness what
is essentially private sector or personal transactions. I mean, people sending money to their own family is really what you are doing,
to your brother, sister, mother, what have you. So there is a question there, but I think working through USAID programs, working
through the MCC, Millennium Challenge, which we have talked
about, frankly working with the Inter-American Development Bank
to create if you will incentives in the local banking industries to
provide loans based on money that may be coming in through remittances.
I mean, it is basically subsidized lending. You can then begin to
push some of that resources out into the local communities. I think
that
Mr. BURTON. But that is not taking place at the present time.
Mr. FARNSWORTH. No, not in any systematic way.
Mr. BURTON. Along with Mr. Orozcosee, I got that right that
timealong with Mr. Orozco, if you could give us a suggestion on
how we could encourage that from the Congress.
Mr. FARNSWORTH. Sure. Absolutely.
Mr. BURTON. I would like to see it.
Mr. FARNSWORTH. I would be happy to.
Mr. BURTON. I would like to see that personally.
Mr. Charles.
Mr. CHARLES. The only thing I would add to that is that I do not
think there is a grain of disagreement here at the table. I think
conditionality is something that works. As you know, the United

76
States Congress tries many times to condition things when an
international accord is underway.
We have direct and indirect ways of conditioning the banking
system. We have certainly regulated far more directly our own
banking system than we have tried to regulate some of these foreign banking systems, but you have the World Bank, the IMF, the
IFC, lots of international instruments through which you could
simply say that support by the United States Congress for various
initiatives is going to be conditioned upon breaking down certain
clear barriers of entry such that a percentage of investing will be
done at a level which allows or encourages entrepreneurship by the
middle class.
Mr. BURTON. So we could contact these various worldwide financial institutions that do have a tremendous amount of influence
over these various countries and their lending institutions and
maybe by jawboning get them to put pressure on them to loosen
up so that the funds would be more available.
Mr. BURTON. I think you could.
Mr. BURTON. Yes. Mr. Engel.
Mr. ENGEL. Thank you, Mr. Chairman. Dr. Orozco, I do not have
trouble with your name, you see, because I root for the New York
Mets in baseball, and the last time they won the World Series was
in 1986, and the best relief pitcher was Jesse Orozco. So I never
have trouble with your name.
Mr. BURTON. The New York? What was that again?
Mr. ENGEL. See, that is the difference between coming from New
York and coming from Indiana. You see, we can mention, we can
pronounce those names, but the Chairman did a good job actually.
Could you explain, Dr. Orozco, what is the relationship between
remittances and microfinance? Can remittances be used as steady
income for the purposes of qualifying for loans or mortgages or
property?
Mr. OROZCO. The relationship is twofold. First, what we are
doing, for example, we had a big substantive fund with Inter-American Development Bank and International Fund for Agricultural
Development where you provide $200,000 in technical assistance to
enable microfinance institutions to be payers of remittances. That
is, instead of going to a supermarket to pick up your money, you
pick the money at a microfinance institution.
And the funding goes to design financial products to those remittance recipient households. Those products are marketed in a way
that are attractive to the recipient of money. So you offer them savings accounts, health insurance, life insurance, body repatriation
we all die at some pointand that becomes an interesting approach.
So, by providing those financial services, microfinance institutions are able to attract this volume of money, and then they can
mobilize the savings that are kept as well as the cash flow that
comes through the remittances for lending to the local community.
So everybody benefits, not only the remittance recipient but also
the local entrepreneur that needs to borrow money, and that is basically the relationship that we are looking at.
We have microfinance institutions, for example, that use the history of receiving remittances as a source of income or sometimes

77
as credit history, and so that is used then to provide a loan. Either
it is a loan for productive activities or for consumption.
Mr. ENGEL. Mr. Farnsworth, I saw you were nodding your head
when I asked that question, so do you have any comments on that?
Mr. FARNSWORTH. Mr. Engel, nothing to add. I think he summarized it pretty well.
Mr. ENGEL. If someone wants to buy a home and they have this
money, but they have it because of remittances, right now it is very
difficult, if not impossible, to get them to qualify for a loan or anything else, am I correct?
Mr. OROZCO. Yes. And that is one of the areas that we are working on. There has been an increase in mortgage lending as a result
of financial intermediation through remittances.
Mr. ENGEL. Dr. Orozco, do you believe that illegal immigrants
should have access to U.S. banking services? I think I know your
answer, but how can the informal remittance flows which exist
largely on a cash transfer basis be regularized through account-toaccount transfers, and what specific banking sector reforms would
you recommend that you have not already mentioned?
Mr. OROZCO. Well, I think yes, my answer is that anyone should
have access to a financial institution. It is actually a good security
measure because you can track the identity of the individual that
has the financial resources stored in a bank, but more importantly
is that it has an effect in the local economy in the U.S. and in the
home country.
The Federal Reserve Bank of Atlantas program, Dinero a` Mexico, that is, it is a network of United States banks connected to
banks in Mexico, has been very successful. You can open an account and send money back home, but at the same time, you have
access to loans and different kinds of opportunities. The reality is
that anyone who improves their economic citizenship eventually
will have more value added to our U.S. economy than anyone who
is in the margin of the economy.
Mr. ENGEL. Dollar for dollar, which has a greater impact, funds
from the migration remittance sector or U.S. foreign aid and development programs from your observations? Do they achieve similar
objectives, or do they complement each other?
Mr. OROZCO. Let me put it this way. Remittances can keep you
out of poverty, but they cannot get you out of it. To get you out
of poverty, you need to have a systematic strategy of development,
and if you assume that the remittance issue is a strategy of development, you are failing as a state. So, in my view, I mean, I work
on remittances, and I think we need to focus more on policy
leveraging, but the reality is that you have to go back to the constraints of developing in these countries. So foreign aid is more important to a large extent.
Mr. ENGEL. Thank you. The Inter-American Development Bank
has done work on remittances ability to, and I quote them, promote financial democracy. Could you elaborate on what they
mean?
Mr. OROZCO. Yes. Right now in most of Latin America, 20 percent or 2 out of 10 people have access to financial institutions. That
is what we call effective financial disenfranchisement. That pre-

78
cludes you from, for example, having access to a loan but also having the opportunity to build savings systematically.
So what we have been advocating is using the transfer of money
as a way to provide greater access to financial institutions to remittance recipients. Somewhere between 10 to 20 percent of people in
Latin America are receiving remittances in that area. So we speak
of financial democracy in a way that you provide this access to savings, to loans, and to expand to the local economies.
Mr. ENGEL. Thank you. Mr. Farnsworth, you refer to efforts by
the Council for the Americas to address the issue of labor reform
in Latin America. Could you please elaborate on how labor reform
might broaden the economic base and address Latin American
youth unemployment?
Mr. FARNSWORTH. I would be happy to, and if I could just beg
your indulgence to make two very quick points on remittances.
Number one, to go back to your question about can you use remittances to leverage other that lending for regular payments, for example, mortgages, it is very, very interesting what the statistics
tell you, that remittances on average are sent back 10 to 14 times
per year, in other words, on average, about once a month, give or
take, and they average between $240 to $250 per payment. It is a
regular payment to the extent that the loan is given on those
terms, something very creative and interesting to have a look at.
The second thing is in terms of the viability of these as a development strategy, I would agree that if remittances is a development strategy, it is certainly incomplete. But the size of the remittance flows is much larger than the foreign aid that the United
States is sending to Latin America. Again, $20 billion last year to
Mexico alone. We do not give $20 billion to Mexico in terms of official assistance, so it is something to keep in mind.
To your question very briefly and thank you for the opportunity,
labor market reform is probably one of the most pressing issues we
believe facing Latin America as a whole, and the reason why is because right now for the private sector to create jobs, which we believe is the sine qua non of keeping workers at home, in other
words, reducing migration pressures to create jobs, labor markets
have to be made more flexible to bring workers into the formal
economy.
On average, 50 percent of nonagricultural workers across Latin
America are in the informal economy. That is astounding. That
means people who are outside of the official statistics, they do not
have the labor protections, they do not have access to Social Security, they are essentially outside of the protections of the state.
That is unacceptable. Even Chile, which has the best record there,
has over 40 percent of nonag sector in the informal sector. That has
got to change.
The way to do it we believe and we have been doing some work
on this, much more work has to be done, but is to reduce the disincentives for the private sector to create jobs by, for example, allowing the ability to reduce the workforce for cause.
So, for example, in many countries in Latin America, if a worker
is to be fired, even if the worker is incompetent, the law states that
the company has to pay sometimes multiples of the persons salary

79
over a period of many years to be able to essentially buy out their
labor contract. That could be even if the worker is incompetent.
Well, if you know you are going to have to do that by hiring an
incompetent worker, the alternative is simply not to hire the worker, and so the worker has one of two choices. He or she can work
in the informal economy, which is to say provide the labor in a way
that is not a formal job maybe on a consulting contract or something like this, or to try to be self-employed, and you see that all
over Latin America.
This is going to become particularly acute in the next few years
because right now there is a huge demographic bubble facing Latin
America where the percentage of workers that will be entering into
the labor force in the next couple years is going to far exceed the
ability of the economies to actually create jobs even with growth
projected as ECLAC, the Economic Institute for Latin America,
came out on Tuesday with projections for 2007 that Latin America
would grow at 412 percent, which is fairly robust. But the fact of
the matter is even with sustained growth rates that high, the countries will not be able to soak up this demographic bubble that is
rising to the surface.
So labor markets have to be made more flexible so that jobs can
be created. It is not a magic bullet. It is not a panacea, but it is
one thing that needs to be addressed.
Mr. ENGEL. Thank you. I have no further questions, but I wanted
to give Mr. Charles an opportunity if there is anything he wanted
to comment on, what the other two gentlemen have said.
Mr. CHARLES. Not that they have said but just to add and I appreciate the opportunity to do so. I would just point out that we
have focused a lot of this discussion today on the remittances, and
they are an important component. The foreign aid is of course
leveraging things that you seek. You target that money at something, whether you are building courthouses or training prosecutors
or training law enforcement. So it is much more significant. It is
like a fulcrum under the board rather than just sprinkling it across
the board.
The second thing is I think we omit to our peril two huge sources
of revenue or problems in this hemisphere. The first is drug money.
The Chairman has said $5153 billion in remittances back to Mexico. The rough estimates on the drug economy the market the
United States represents is $600 billion. That money flows back to
many of the countries here, and it is something you cannot look
away from. You must stare down the barrel of that problem and
keep at it, which incidentally I think the United States Congress
has effectively, perhaps very effectively done in the last 5 years.
The second thing is public corruption, which is very closely tied
to that drug money, and you cannot look away from those two
issues. That is why the law and the rule of law are so fundamental
to future investment.
There is a critical distinction which seems to me forever lost in
the media and sometimes on the Floor and certainly outside between illegal immigration and legal immigration, and I just want
to make the point that you can be heartily in favor of strong, progressive, encouraging immigration on a legal basis and dead set
against permitting further illegal immigration, something we have

80
all talked about and thought about, but I find they are blurred
again and again and again to no good.
And the last point is an issue Ms. Lee raised, which is the linkages between illegal immigrationand I want it to be clear it is
illegal immigrationand terrorism. I do not want to get into classified things here, but let me say for more than a year and a half,
I read the CIB every morning, and there are very clear ties. It is
absolutely indisputable that there are situations arising in this
hemisphere that put the United States of America at peril as a result of weaknesses in our bilateral and multilateral relationships
on the security front.
And what I am saying there very specifically is you have passport fraud in the extreme in places like Bogota where they took
down 17 operations with 34 individuals, some of whom were actually processing, so they reported al-Qaeda-related linkages to the
al-Qaeda organization. You have situations in which we have
picked up weapons, caches that have nothing to do with human immigration in California off Calexico, things like man pads. Drug
traffickers do not use man pads. Shoulder-fired missiles are not
used by drug traffickers. So there is something else going on there.
On the Texas border, you have things being picked up that seem
very directly tied to radical Islam, things like lots and lots of prayer robes and Korans. They do not tie to the traditional hemispheric
patterns of both materiel and people, and I think the point I make
there is we have to be aware of the interconnectivity.
Going to your point about a 22 percent cut in the budget in this
hemisphere, it seems to me we have to see that these issues are
tied together. Drugs and public corruption, the fact that illegal immigration is tied to terrorism and ultimately also even if it is only
1 percent, yes, a 1 percent chance of a suitcase nuclear device going
off in an American city is big enough for me to be concerned. I just
leave you with that, that I think there is a wider circle of interest
and concern that circles the remittances.
Mr. ENGEL. I thank you. I thank you, Mr. Chairman.
Mr. BURTON. Let me thank you all for being here. We will have
some questions we would like to submit for the record. I really
would like to have your outline on how to solve the problem of
lending money to small businesses and the middle class down
there. If you could get that to me, we will see if we cannot either
write a letter to the world financial institutions and/or try something legislatively that will do that job.
Thank you very much for being here. We stand adjourned.
[Whereupon, at 4:28 p.m., the Subcommittee was adjourned.]

APPENDIX
MATERIAL SUBMITTED

FOR THE

HEARING RECORD

PREPARED STATEMENT OF THE HONORABLE ELIOT L. ENGEL, A REPRESENTATIVE

CONGRESS FROM THE STATE OF NEW YORK

IN

Mr. Chairman, as were all aware, todays hearing is part of a series of Republican-called summer hearings to spotlight the issue of immigration, an important
and serious topic.
Immigration affects not only Americans, but just about everyone worldwide. As
you recognize, the challenge of immigration is a global phenomenon that is connected with international events and the opportunities and freedoms (or lack thereof) that exist elsewhere.
As a global issue, we all have a story to tell. Each story is different; and, yet, the
patterns and lessons are remarkably similar.
Mr. Chairman, my family came here from Europe to seek the freedom and promise of the United States. Similarly, most immigrants to this country come for a better life. Lacking freedom and/or opportunity in their home countries, immigrants are
driven by a desire to improve conditions for themselves and their families.
For instance, I represent sizeable Irish and Irish American populations who came
here in large numbers when jobs at home were unavailable. As Irelands conditions
have improved, immigration flows to the United States have slowed or even reversed. Today, Ireland is not a source country. Rather, in a remarkably short timeperiod, Ireland has become a destination for immigrants fleeing other troubled
lands.
But, while large-scale Irish immigration to the United States and elsewhere has
now ended, new immigrant communities are forming, as people flee poor conditions
elsewhere. For example, I also proudly represent a large Haitian community that
has emigrated from Haiti because of its history of political and social unrest and
severe poverty. As in the case of the Irish, once Haiti becomes stable, frees itself
of violence, grows its economy, and creates jobs, Haitians will no longer risk their
lives to come to the United States.
Until we recognize the interconnection between immigration, global freedom and
economic opportunity, we will never solve the problem of illegal immigration. But,
in todays highly-polarized, political environment, our immigration debate glosses
over the basic facts.
At a recent Senate hearing, the Mayor of New York City, Michael Bloomberg, said
it well: Its as if we expect border control agents to do what a century of communism could not: defeat the natural market forces of supply and demand and defeat the natural human desire for freedom and opportunity. You might as well sit
on your beach chair and tell the tide not to come in.
So, I agree with you Mr. Chairman: Illegal immigration is NOT just an American
problem. That is why this can be a useful hearing. When thinking about the issue,
it is both important and refreshing to look outside our borders on the root causes
of immigration to the U.S., such as poverty, lack of economic opportunities, low
wages, political instability and unrest, and other causes. Unless we address these
root causes, the problem of illegal immigration will remain.
Similarly, source, transit and recipient nations of our hemisphere all have a dog
in this fight and they too are responsible for curbing illegal immigration. As they
work to address their own internal problems, particularly through economic expansion and job creation, illegal immigration will diminish.
The lessons are so simple theyve somehow been overlooked. For example, the primary driver of migration from Mexico to the United States is the significant wage
gap between our two countries. Thus, lowering the wage gap will help stem the
problem.
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Of course, there is much more to be said about the international aspects of immigration, as its a complex relationship. For example, immigration, legal and illegal,
often benefit source countries by easing pressure on social service systems and labor
markets. Remittancesmoney sent home by immigrants in the United Statescan
help in reducing poverty, especially in low-income households and communities. In
fact, at $50 billion per year, remittances from immigrants in the U.S. to countries
in the Western Hemisphere represent substantial portions of our neighbors GDPs.
These are the exact kinds of immigration issues I look forward to hearing about.
Mr. Chairman, I would also like to hear our witnesses address what the U.S. and
the international community can do to promote more sound economic circumstances
in the nations to our south. What types of aid programs can help? What has been
the result of free trade agreements? Can micro lending fill the gap? What else can
be done?
Mr. Chairman, immigration is, indeed, a global phenomenon, and illegal immigration stemming from the Americas is a problem that requires a broader perspective
than the current immigration debate has previously allowed.
Ultimately, a wall on the border is a mere band-aid. It will not stop the flow of
illegal immigrants to our country. Only by changing circumstances inside of source
countries will immigration begin to slow. So, I suggest that for an International Relations Subcommittee, this is the proper focus. And, there is no more important or
relevant Sub-committee to explore the regional implications of immigration than
ours.
I thank you, Mr. Chairman, for your leadership in framing the immigration issue
as you have, and for calling this important hearing. I look forward to todays testimony.