[House Hearing, 110 Congress]
[From the U.S. Government Publishing Office]


 
 NATIONAL SECURITY AND LATIN AMERICA: CHALLENGES AND OPPORTUNITIES ON 
                           ENERGY COOPERATION 

=======================================================================

                                HEARING

                               before the

                   SUBCOMMITTEE ON NATIONAL SECURITY
                          AND FOREIGN AFFAIRS

                                 of the

                         COMMITTEE ON OVERSIGHT
                         AND GOVERNMENT REFORM

                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED TENTH CONGRESS

                             SECOND SESSION

                               __________

                             MARCH 11, 2008

                               __________

                           Serial No. 110-177

                               __________

Printed for the use of the Committee on Oversight and Government Reform


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              COMMITTEE ON OVERSIGHT AND GOVERNMENT REFORM

                 HENRY A. WAXMAN, California, Chairman
EDOLPHUS TOWNS, New York             TOM DAVIS, Virginia
PAUL E. KANJORSKI, Pennsylvania      DAN BURTON, Indiana
CAROLYN B. MALONEY, New York         CHRISTOPHER SHAYS, Connecticut
ELIJAH E. CUMMINGS, Maryland         JOHN M. McHUGH, New York
DENNIS J. KUCINICH, Ohio             JOHN L. MICA, Florida
DANNY K. DAVIS, Illinois             MARK E. SOUDER, Indiana
JOHN F. TIERNEY, Massachusetts       TODD RUSSELL PLATTS, Pennsylvania
WM. LACY CLAY, Missouri              CHRIS CANNON, Utah
DIANE E. WATSON, California          JOHN J. DUNCAN, Jr., Tennessee
STEPHEN F. LYNCH, Massachusetts      MICHAEL R. TURNER, Ohio
BRIAN HIGGINS, New York              DARRELL E. ISSA, California
JOHN A. YARMUTH, Kentucky            KENNY MARCHANT, Texas
BRUCE L. BRALEY, Iowa                LYNN A. WESTMORELAND, Georgia
ELEANOR HOLMES NORTON, District of   PATRICK T. McHENRY, North Carolina
    Columbia                         VIRGINIA FOXX, North Carolina
BETTY McCOLLUM, Minnesota            BRIAN P. BILBRAY, California
JIM COOPER, Tennessee                BILL SALI, Idaho
CHRIS VAN HOLLEN, Maryland           JIM JORDAN, Ohio
PAUL W. HODES, New Hampshire
CHRISTOPHER S. MURPHY, Connecticut
JOHN P. SARBANES, Maryland
PETER WELCH, Vermont
------ ------

                     Phil Schiliro, Chief of Staff
                      Phil Barnett, Staff Director
                       Earley Green, Chief Clerk
               Lawrence Halloran, Minority Staff Director

         Subcommittee on National Security and Foreign Affairs

                JOHN F. TIERNEY, Massachusetts, Chairman
CAROLYN B. MALONEY, New York         CHRISTOPHER SHAYS, Connecticut
STEPHEN F. LYNCH, Massachusetts      DAN BURTON, Indiana
BRIAN HIGGINS, New York              JOHN M. McHUGH, New York
JOHN A. YARMUTH, Kentucky            TODD RUSSELL PLATTS, Pennsylvania
BRUCE L. BRALEY, Iowa                JOHN J. DUNCAN, Jr., Tennessee
BETTY McCOLLUM, Minnesota            MICHAEL R. TURNER, Ohio
JIM COOPER, Tennessee                KENNY MARCHANT, Texas
CHRIS VAN HOLLEN, Maryland           LYNN A. WESTMORELAND, Georgia
PAUL W. HODES, New Hampshire         PATRICK T. McHENRY, North Carolina
PETER WELCH, Vermont                 VIRGINIA FOXX, North Carolina
------ ------
                       Dave Turk, Staff Director
                            C O N T E N T S

                              ----------                              
                                                                   Page
Hearing held on March 11, 2008...................................     1
Statement of:
    Goldwyn, David, president of Goldwyn International 
      Strategies, LLC; Paulo Sotero, director of the Brazil 
      Institute, Woodrow Wilson Center; Ray Walser, Ph.D., senior 
      policy analyst for Latin America, Douglas and Sarah Allison 
      Center for Foreign Policy Studies, the Heritage Foundation; 
      and Eric Farnsworth, vice president, Council of Americas...    11
        Farnsworth, Eric.........................................    46
        Goldwyn, David...........................................    11
        Sotero, Paulo............................................    27
        Walser, Ray..............................................    36
Letters, statements, etc., submitted for the record by:
    Farnsworth, Eric, vice president, Council of Americas, 
      prepared statement of......................................    49
    Goldwyn, David, president of Goldwyn International 
      Strategies, LLC, prepared statement of.....................    15
    Shays, Hon. Christopher, a Representative in Congress from 
      the State of Connecticut, prepared statement of............     8
    Sotero, Paulo, director of the Brazil Institute, Woodrow 
      Wilson Center, prepared statement of.......................    30
    Tierney, Hon. John F., a Representative in Congress from the 
      State of Massachusetts, prepared statement of..............     4
    Walser, Ray, Ph.D., senior policy analyst for Latin America, 
      Douglas and Sarah Allison Center for Foreign Policy 
      Studies, the Heritage Foundation, prepared statement of....    38


 NATIONAL SECURITY AND LATIN AMERICA: CHALLENGES AND OPPORTUNITIES ON 
                           ENERGY COOPERATION

                              ----------                              


                        TUESDAY, MARCH 11, 2008

                  House of Representatives,
     Subcommittee on National Security and Foreign 
                                           Affairs,
              Committee on Oversight and Government Reform,
                                                    Washington, DC.
    The subcommittee met, pursuant to notice, at 10 a.m., in 
room 2154, Rayburn House Office Building, Hon. John F. Tierney 
(chairman of the subcommittee) presiding.
    Present: Representatives Tierney, Shays, Braley, Welch, 
Burton, Lynch, and Platts.
    Staff present: Dave Turk, staff director; Andy Wright, 
counsel; Hank Smith and Andrew Howell, interns; Davis Hake, 
clerk; Nick Palarino, minority senior investigator and policy 
advisor; Mark Lavin, minority Army fellow; and Todd Greenwood, 
minority professional staff member.
    Mr. Tierney. Good morning. Did you have difficulty getting 
in, Mr. Farnsworth? We apologize for that, we are glad that you 
are with us.
    A quorum is now present. The Subcommittee on National 
Security and Foreign Affairs, the hearing entitled, ``National 
Security and Latin America: Challenges and Opportunities on 
Energy Cooperation,'' will come to order. I ask consent that 
only the chairman and ranking member of the subcommittee be 
allowed to make opening statements, and without objection that 
is so ordered. And I ask that the hearing be kept open for 5 
business days so that all members of the subcommittee be 
allowed to submit a written statement for the record; again 
without objection, so ordered.
    Good morning and thank all of you for joining us here. 
Today we are going to conduct oversight of the U.S.' National 
Security Policy in the Western Hemisphere by exploring energy 
security issues in Latin America. It is an area that I think we 
all agree begs more attention, given all that is going on in 
the world today and understanding how important our neighbors 
are.
    On its way to producing 30 percent of the world's gross 
domestic product, the United States imports enormous amounts of 
energy, mostly in the form of oil. One need look no further 
than our strategic interest and troubling history with oil 
exporting nations in the Middle East to recognize that ``petrol 
politics'' are a critical element of our national security 
policy.
    This nexus between national security and a energy policy is 
self-evident, yet it has not received a commensurate amount of 
attention, and integrating these policies is vital to our 
national security interests.
    Two former directors of the CIA, John Deutch and James 
Schlesinger, have leveled significant criticism of the U.S. 
approach. In the 2006 report entitled, ``National Security 
Consequences of U.S. Oil Dependency,'' they concluded: ``Over 
many years and administrations, the U.S. government has failed 
to pay sufficient attention to energy in its conduct of foreign 
policy or to adopt a consistent approach to energy issues. The 
result is that energy matters typically appear on the foreign 
policy agenda as a surprise, usually in times of crisis, or as 
the unexpected consequence of other foreign policy actions.'' 
Retired military leaders and other prominent businessmen have 
also called for a more integrative approach to our Nation's 
energy and foreign policy. In a 2006 report, ``Recommendations 
to the Nation on Reducing U.S. Oil Dependence,'' the Energy 
Security Leadership Council summarized by saying: ``Put simply, 
the reliable and affordable supply of energy--`energy 
security'--is an increasingly prominent feature of the 
international political landscape and bears on the 
effectiveness of U.S. foreign policy. At the same time, 
however, the United States has largely continued to treat 
`energy policy' as something that is separate and distinct, 
substantively and organizationally, from `foreign policy.' This 
must change. The United States needs not merely to coordinate 
but to integrate energy issues with its foreign policy.''
    The Deutch/Schlesinger Report had a number of 
recommendations going forward. They noted, for example, that 
the United States should ``increase efficiency of oil and gas 
use'' and ``switch from oil-derived products to alternatives.'' 
Because of the national security challenges in the Middle East, 
they also recommend that the U.S. Government should 
``[e]ncourage supply of oil from sources outside the Persian 
Gulf.''
    Latin America's substantial energy reserves supply 28 
percent of the U.S. petroleum imports and 95 percent of our 
natural gas imports. The Middle East, by contrast, currently 
provides 17 percent of U.S. oil imports.
    We have invited a panel of energy and security experts to 
be with us here today to examine all the issues surrounding 
energy in Latin America and to ask what challenges exist for 
U.S. national security and what opportunities can our country 
take to maximize Western Hemispheric energy supplies, to 
improve our relations with our Latin American neighbors, and to 
strengthen our national security.
    As noted by the title for this hearing, our energy 
relationship with Latin America is filled with both challenges 
and opportunities. Done correctly, I am hopeful that we can 
turn existing challenges into opportunities and create win/win 
situations.
    Mexico's government, for instance, predicts that it will 
run out of oil reserves within 8 years. As the second largest 
supplier of oil for the United States, how will Mexico's 
potential oil production crisis affect U.S. national security? 
How will Mexico's diminishing oil reserves affect Mexico 
itself? Mexico relies on revenues from its oil to fund much of 
its government's work. What will happen when this revenue dries 
up, and what can the United States do now to help?
    Venezuela, the fourth largest supplier of oil to the United 
States, is also experiencing diminishing oil production. 
Political tensions in the region, highlighted by the recent 
military posturing between Venezuela and Colombia, and the 
volatile relations between Venezuela and the United States 
present significant additional challenges. How should the 
United States approach these sets of challenges?
    Looking beyond oil, Latin America holds tremendous 
potential and opportunities for non-traditional sources of 
energy. Brazil is already the world's second largest producer 
of ethanol, trailing only the United States. With oil prices 
above $100 per barrel, the market for ethanol is growing and 
many Latin American countries are well positioned to take 
advantage of this growth by creating their own resource-
efficient production.
    Many Latin American countries are also ideally positioned 
to capitalize on the growing demand for solar and wind energy. 
As we grapple with impending consequences of climate changes, 
we must ask ourselves how our foreign policy can encourage 
positive developments in Latin America's nontraditional energy 
sector.
    A foreign policy that carefully considers energy security 
could help meet the energy demand of the United States, grow 
the economies of Latin American countries in ways that benefit 
all the people of those countries, and help stem the flow of 
greenhouse gases into the atmosphere.
    On all of these critical questions, we look forward to 
hearing from our distinguished panel of experts. Now, I would 
like to recognize Mr. Shays for his opening remarks.
    [The prepared statement of Hon. John F. Tierney follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT
    
    Mr. Shays. Thank you, Mr. Chairman, for holding today's 
hearing. The issue of energy in the Western Hemisphere is 
especially timely in light of the recent events in Colombia and 
Ecuador. President Bush in his 2006 State of the Union speech 
stated our problem very clearly: America is addicted to oil. 
Access to reliable and plentiful energy is directly related to 
our economic prosperity and to our national security.
    The sad reality, however, is that many of the world's 
leading oil-producing nations are either politically unstable 
or, in some cases, at serious odds with the United States, or 
both. We must recognize the role played by the Organization of 
Petroleum Exporting Countries, referred to as OPEC. OPEC 
members produce 40 percent of the world's oil and hold 80 
percent of proven reserves. OPEC nations are the strategic 
pivot of world politics and the global economy, and they know 
it. Two Latin American nations, Venezuela and Ecuador, are 
members of OPEC.
    In recent years, our engagement in Latin America has been 
constrained by governments which express hostility toward the 
United States. Some also appear to have ties to terrorist 
organizations. This presents a tangible threat to our energy 
supply and our national security. For this reason we should be 
paying more attention to this critical region, but we cannot 
talk about hemispheric energy resources without discussing the 
political challenges facing Latin America.
    The United States has two obligations. One, we, the 
Congress and the administration, must step up efforts to 
promote conservation and diversification energy sources. 
Congress must continue to find a commitment to research and 
investment in alternative fuels.
    Two, we must also continue to work with our partners in the 
hemisphere to ensure political and economic stability as well 
as respect for the rule of law in each nation.
    I thank all of our witnesses for being here today, and I 
hope we will have the opportunity to hear from administrative 
witnesses in the future. This would enable us to further 
determine how the executive branch is addressing the geo-
politics of the Western Hemisphere.
    Thank you again, Mr, Chairman, for holding this vital 
hearing, and thank you again, as well, to our witnesses.
    [The prepared statement of Hon. Christopher Shays follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT
    
    Mr. Tierney. Thank you, Mr. Shays.
    We will now receive testimony from the witnesses that are 
before us here today. I want to begin by introducing them.
    Today we welcome David L. Goldwyn, who is president of 
Goldwyn International Strategies LLC, an international energy 
consulting firm. He is a senior fellow in the energy program at 
the Center for Strategic and International Studies and serves 
on the Council of Foreign Relations Task Force on Energy 
Security, and the Council Center for Preventive Action Task 
Forces on Angola, Venezuela, and Bolivia.
    Mr. Goldwyn served as Assistant Secretary of Energy for 
International Affairs, Counsel to the Secretary of Energy and 
National Security Deputy for the United Nations Ambassador Bill 
Richardson. Mr. Goldwyn also served in the office of the Under 
Secretary for Political Affairs at the State Department under 
President George H.W. Bush and President Clinton, acting as 
Chief of Staff from 1993 to 1997.
    Mr. Paulo Sotero is the director of the Brazil Institute of 
the Woodrow Wilson Center, a nonpartisan institute that fosters 
research, study, discussion and collaboration among a full 
spectrum of individuals concerned with policy and scholarship 
in national and world affairs. For the past 17 years Mr. Sotero 
was the Washington correspondent for Estado de Sao Paulo, a 
leading Brazilian daily newspaper. Since 2003, he has been an 
adjunct lecturer at Georgetown University both in the 
Department of Spanish and Portuguese, and in the Center for 
Latin American studies of the Edmund A. Walsh School of Foreign 
Service.
    Mr. Sotero is also co-author of a recent article examining 
how Brazil can use its environmental assets as an element of 
soft power to assert its role in the world.
    Mr. Ray Walser is a Senior Policy Analyst for Latin America 
at The Heritage Foundation. He is a 27-year veteran Foreign 
Service Officer with the State Department assigned to Colombia, 
Costa Rico, Mexico, and Nicaragua. He has also served as the 
director of the program of Western Hemisphere Area Studies at 
the Foreign Service Institute from 2005 to 2007. Dr. Walser was 
also a visiting professor of International Relations in Latin 
American politics at the U.S. Military Academy at West Point, 
NY.
    Eric Farnsworth is the vice president of the Council of 
Americas, an international business organization consisting of 
companies representing a broad spectrum of sectors. Mr. 
Farnsworth is also on the Advisory Committee on International 
Economic Policy of the U.S. Department of State and recently 
co-authored the article Discovering the New World, which 
addresses how the next U.S. President should approach relations 
with Latin America.
    I want to welcome all of you here this morning. It is the 
policy of the subcommittee to swear you in before you testify, 
so I would ask if you would all please rise and raise your 
right hands.
    [Witnesses sworn.]
    Mr. Tierney. The record will reflect that all answered in 
the affirmative. Again, I appreciate all of you being here this 
morning. Your statements are going to be placed in the record 
without objection, so you need not feel compelled to read the 
entire statement. Even Mr. Goldwyn's, who I mentioned earlier 
was about this big, but it was informative, so it was worth the 
read on that.
    We give 5 minutes for opening statements. You will see 1 
minute remaining, the light will come on, then the red light 
comes on after that. We understand that you might go a bit 
over. We want you to finish your thought and your sentence or 
whatever, but please try to keep it as close as you can on that 
so that all of the witnesses can get their testimony in, and we 
can have a good dialog back and forth.
    Mr. Goldwyn, would you please open with your remarks.

STATEMENTS OF DAVID GOLDWYN, PRESIDENT OF GOLDWYN INTERNATIONAL 
     STRATEGIES, LLC; PAULO SOTERO, DIRECTOR OF THE BRAZIL 
  INSTITUTE, WOODROW WILSON CENTER; RAY WALSER, PH.D., SENIOR 
  POLICY ANALYST FOR LATIN AMERICA, DOUGLAS AND SARAH ALLISON 
CENTER FOR FOREIGN POLICY STUDIES, THE HERITAGE FOUNDATION; AND 
      ERIC FARNSWORTH, VICE PRESIDENT, COUNCIL OF AMERICAS

                   STATEMENT OF DAVID GOLDWYN

    Mr. Goldwyn. Thank you, Mr. Tierney. Thanks for your 
attention to this issue. Thank you for the opportunity to 
testify. My apologies for the small print. As my colleague 
helpfully suggested, I was reducing my carbon footprint by 
using smaller print and fewer pages.
    This issue, national security and energy, is extremely 
important, and in my mind there is no question that today the 
United States is more energy-insecure than any time since 1975. 
Our dependence on oil and the dependence of our allies and our 
friends is a huge strategic vulnerability. It frays coalitions 
when we try and do things on Sudan, which I know, Mr. Chairman, 
you have paid attention to, but also on non-proliferation on 
terrorism. It enriches our adversaries, competitors, and with 
that enormous oil wealth they can act with impunity toward 
their own people and also toward their neighbors.
    It makes energy markets more fragile because the wealthier 
countries get, the more they want to sit on their oil rather 
than produce it, and it makes prices volatile and puts our 
economies at risk.
    We have evidence, as you have suggested, in the hemisphere. 
Venezuela's wealth has turned it into a competitor, and that is 
how I would term it, really. They are an ideological 
competitor, they are a competitor for influence in the region 
right now, and they have an ability to do enormous things by 
the debt of their other countries, give oil and products away 
and compete for political influence in a way that we are not 
competing with.
    Argentina, Bolivia, and Ecuador are good examples of the 
resource curse, and I think cases where both their countries 
are still poor and underdeveloped, and they have economic 
models which are likely to make them less stable, not more.
    This challenge is very well studied and understood. You 
mentioned the Council on Foreign Relations study. I think all 
the experts agree there is no such thing as energy 
independence. We cannot drill our way out of this. There is no 
silver bullet, there is no one solution that is going to get us 
off dependence on oil. There is nothing we can do for ourselves 
that is going to help us be more secure unless we do it for our 
allies and friends as well, and because we consume in the 
United States 20 million barrels a day. The world consumes 86 
million barrels a day, an enormous amount of energy, there is 
no fix that is going to happen before a couple of decades. It 
is going to be gradual, it is going to be incremental.
    But I think people also agree that we will have to deal 
with the existing suppliers in the interim and manage our way 
through, and the time to get started on this problem was 
yesterday.
    So I think that the diagnosis is well established, and the 
key elements of solution are outlined pretty well, also. 
Controlling domestic demand is one. Hurrying technological 
change helping the market is a second one. Integrating energy 
and foreign policy is a third.
    And then competing asymmetrically for political influence 
using soft power, or whatever the term is, but basically trying 
to make themselves relevant to other countries in the region by 
using our influence, our culture and political influence.
    But these solutions seem to be politically impossible to 
accomplish, and I want to talk about four of them really 
briefly. Demand is the key. Transportation in the United 
States, oil is for transportation, 75 percent of every barrel. 
If we do not deal with planes, trains, and automobiles, we do 
not deal with this problem. And the way this problem gets fixed 
has been well established in Europe and Asia. They use taxes, 
and they already have cars that are more efficient than we even 
aspire to. They have cars that make 40 miles a gallon. We are 
only hoping for 35 by 2020, and 40 isn't even on the table.
    And that is politically acceptable in those countries. CAFE 
standards that would be way higher than we have now, that would 
be another way. There are other tradable permits and other 
economic means, but if we do not find a way to make it 
necessary or make the price of gasoline so high that 
alternatives are commercially viable, big money will not come 
into alternatives; the structure of transportation will not 
change; and we will not do anything on this problem. All the 
R&D and technology is wishful thinking and window dressing 
unless the price of gasoline stays maybe not higher than where 
it is now, but basically so it cannot go below where it is 
right now.
    So that is really No. 1. Hurrying the technology is 
important. We have a lot of money in R&D. It is deployment. It 
is actually seeing whether these technologies can be deployed 
at a commercial scale.
    Now venture capitalists, when we do this, if they think 
that they can make money on these alternatives for 20 and 30 
years, so it goes back to price, but if we do have the right 
market for it, then government can play an extremely important 
role in deployment, in trying to accelerate technology.
    A third area is just integration of energy and foreign 
policy. We have suggestions for the wiring diagram in the 
Council on Foreign Relations study, but it is really a mind-set 
that needs to change. We need to do a lot of things to look at 
that, how we make ourselves more secure.
    Now, one of the ways we do this is make energy high policy. 
We should be talking to China, president to president, about 
the influence of their investment policy on regional stability. 
We should also be talking to them about efficiency. We should 
also be talking to them about how they control demand in their 
own economy, but you cannot do that at the sub-ministerial 
level and make any progress.
    The same thing with Europe. If we are worried about Russian 
monopoly and Russian dominance of Europe, we need to be talking 
head of state to head of state to Europe about alternate 
pipelines, about not being dependent on Russian gas, about 
efficiency in their system. Lots of other things we ought to 
focus on.
    Conflict resolution. Do you want 600,000 barrels a day? 
Solve the conflict in the Niger Delta. Where is that on the 
U.S. policy agenda?
    Collective energy security. We built the International 
Energy Agency, and we did it at 40 percent of the world's--60 
percent of the world's consumers. Today it has 40 percent 
because the Chinese and the Indians are not in. We ought to 
bring them into our collective system rather than leaving them 
on the outside.
    Promoting reform and transparency--I have testified before 
Congressman Shays on that issue--is a way of ensuring long-term 
stability, and we ought to use our economic power. We ought to 
demand reciprocity from other people who are closing their 
markets to us while our markets are open to them. Not as a 
sledge hammer, but we have a free trade agreement or trade 
promotion authority. We ought to get something back in return.
    And the sugar tariff with Brazil is a classic example. If 
we want to build support in the region, bring Brazil closer, 
build regional security, promote jobs, create development. 
Lifting the sugar tariff is not an issue about the corn syrup 
lobby; lifting the sugar tariff is a strategic move to make 
ourselves more important in Latin America.
    But we do not treat it that way. We do not talk about it 
that way, and it does not get that kind of prominence. That is 
the kind of thing that we need to do.
    The last thing, and my colleagues will talk about this more 
than I, is we need to compete asymmetrically. We will not get 
countries to reverse nationalization nor to give us access to 
resources by saying we really, really need the oil. The way we 
do it is, we are better partners; our model is better, and that 
means we have to talk to them about the issues they care about 
which are not just drugs and terrorism, particularly, in the 
hemisphere.
    We need to talk to them about development, about 
martialization of societies, about poverty, because that is 
what has driven this move for nationalization; and if we can 
talk to them about their issues and we use tools like trade 
promotion or free trade agreements, bilateral or regional, but 
also the kind of development assistance, technical assistance 
that matters to them, we are more important. We matter to them, 
we talk to them about things that are important, and they are 
much more likely to adopt policies that are consistent with 
ours.
    But we treat them, basically, as countries which ought to 
snap to when we have a policy and, in Iraq or someplace else, 
and then we kind of ignore them on the other issues, and we 
give them the Washington consensus. And when it doesn't work 
out as well as any of us hoped, we are not really back to them 
with another model which is why Venezuela is mopping the floor 
with us in that region, because they have a model even though 
it is a bad one, and we are not competing. So we need to 
compete that way.
    In conclusion, let me just say that I understand these are 
all hard political issues, but the two things that you all are 
doing which are really important is speaking the truth to the 
American people about what it takes to get the problem fixed, 
and then hold our Government accountable for having policies 
that do it.
    Thank you for your attention.
    [The prepared statement of Mr. Goldwyn follows:]

    [GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT
    
    Mr. Tierney. Thank you very much.
    Mr. Sotero.

                   STATEMENT OF PAULO SOTERO

    Mr. Sotero. Thank you, Mr. Chairman. I am grateful for the 
invitation, and I bring you greetings from the President of the 
Wilson Center, former Congressman Lee Hamilton from Indiana. We 
are grateful for the support the U.S. Congress provides for the 
work we do at the Wilson Center.
    Relations between the United States and Brazil reached a 
new level of maturity in the last two decades thanks to two 
historic developments: on the one hand the consolidation of 
democracy and economic stability in Brazil; on the other hand 
the end of the cold war which freed Washington to rethink its 
policies toward the neighbors in the Americas. That is the 
important context in which Brazil should be viewed by the U.S. 
policymakers interested in the challenges and opportunities for 
energy cooperation in the Americas.
    Over the last three decades, Brazil has established itself 
as a leader in the sustainable production of ethanol. This 
renewable fuel has replaced close to half of the national 
consumption of gasoline for light vehicles in the country and 
is a key component of the national energy matrix which is not 
only the cleanest in the world but also put Brazil on the verge 
of obtaining energy self-sufficiency.
    As the graph shows, close to half of all energy used in 
Brazil are 44 percent comes from clean and renewable sources. 
It compares to 13 percent in the rest of the world, and 6 
percent in the OACD countries. Huge offshore oil and gas 
reserves found recently along the southern coast of Brazil will 
ensure self-sufficiency in approximately 5 years. When fully 
developed, which should happen in approximately 10 years, the 
new reserves will make Brazil both a major global oil exporter 
and Latin America's leading producer, supplanting both 
Venezuela and Mexico.
    The potential geo-political implications of Brazil's 
success in the energy field should not be lost to those who 
believe that the Americas should be and can be a space of 
peace, democracy, stability, and economic and social progress.
    I would like to focus on renewable energy. This is the 
topic that led Presidents Luiz Inacio Lula da Silva and George 
W. Bush to make clear their understanding that Brazil and 
United States stand at a moment of promise and can work 
together to advance their own national/international interests. 
One year ago, during a visit to Sao Paulo by President Bush, 
the two leaders launched a joint initiative to promote research 
and development of biofuels in the Americas.
    Since the mid-1970's, the Brazilian sugar cane industry 
experienced massive investments in science and technology both 
from private and public sectors. Today sugar cane is the basic 
input, not only for sugar but also for a diverse range of 
value-added products, particularly ethanol for cars.
    Just last month ethanol consumption exceeded the use of 
gasoline. More than 85 percent of all new cars sold in Brazil, 
many of them built by American companies, are flex fuel. Their 
tanks can be fueled with either ethanol, gasoline, or any 
mixture of the two in the country's 33,000-plus service 
stations. Sugar cane is by far the most successful and 
efficient feed stock for the production of biofuels.
    Several international studies conducted by respected 
institutions, including many of the U.S. Government, have 
independently corroborated the environmental and economic 
benefits of Brazilian sugar cane ethanol. These benefits remain 
unmatched by any other type of biofuels produced on a 
commercial scale.
    The energy balance of Brazilian ethanol is four and a half 
times better than that of ethanol produced from wheat or sugar 
beet, and almost seven time better than corn ethanol. As a 
result, Brazil ethanol achieves a reduction of greenhouse gas 
emissions of up to 90 percent compared to gasoline today. 
Ethanol for sugar cane also offers high productivity, higher 
productivity than other alternatives.
    New varieties of sugar cane developed for Brazil and 
improved processing techniques will double yields. The result 
is that without any increase in and use, these technological 
improvement can double the production of sugar cane in Brazil. 
Sugar cane currently occupies only 2.3 percent of Brazil's 
total arable land. Half of that is dedicated to the production 
of ethanol. This means that with about just 1 percent of the 
country's arable land, Brazil had replaced nearly half of our 
gasoline consumption.
    Harvesting of sugar cane is being fast mechanized. Labor 
conditions for seasonal workers involved in manual harvesting 
have improved markedly, but, as demonstrated by a recent 
finding by Federal inspectors of violations of labor conditions 
in one operation in Sao Paulo, enforcement remains key.
    Nearly 85 percent of all the sugar cane grown is harvested 
in the Southern Central region of Brazil. The remaining 
production comes from the Northeast. Both regions are well over 
1,000 miles from the Amazon rain forest. The future expansion 
of sugar cane production will occur in South Central Brazil, 
particularly in the degraded pastures, further improving our 
efforts to reduce greenhouse emissions.
    The process of ethanol production has the added advantage 
compared with other biofuels of being a net source of electric 
power. Bioelectricity is reduced by burning sugar cane 
byproducts: bagasse and straw in steam boilers. The power 
generated from this process not only makes our processing mills 
100 percent self-sufficient but they also sell surplus 
electricity into the national electricity grid.
    It is estimated that generation capability could rise to an 
average of as much as 15,000 megawatts by 2020, enough 
electricity to supply 15 percent of the country's electricity 
needs or the equivalent of electricity consumption in today's 
Sweden or the Netherlands.
    It is for these reasons that Brazilians have become 
promoters of ethanol for themselves and for the rest of the 
world. Sugar cane ethanol is far superior than ethanol made 
from other feed stocks in terms of energy balance, 
environmental efficiency, productivity, and cost effectiveness. 
Its production should be expanded and international trade 
encouraged. There is ample room for expansion of production and 
trade beyond Brazil. Maybe more than 100 countries have the 
conditions to do this, to be engaged.
    Sugar cane has all the prerequisites to become a global 
commodity. This will not happen, however, until developed 
countries, starting with United States, abandon the perverse 
logic now in place which raises barrier for the trading of 
biofuels and allow fossil fuels-based products to move freely 
around the globe unimpeded by trade or any other barriers.
    Thank you very much.
    [The prepared statement of Mr. Sotero follows:]

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    Mr. Tierney. Thank you, Mr. Sotero.
    Dr. Walser.

                    STATEMENT OF RAY WALSER

    Mr. Walser. It is a pleasure to be here. I come from The 
Heritage Foundation, but the views I express today are 
essentially my own and do not represent any official position 
of The Heritage Foundation.
    Mr. Tierney. I am not sure, you might have to draw that 
microphone closer to you.
    Mr. Walser. OK, thank you. This is sort of my virgin 
appearance.
    Mr. Tierney. That is all right. These microphones are 
getting to be a little tricky on people. Thank you.
    Mr. Walser. My first appearance before Congress, I have to 
sort of get over my jitters here, but thank you for having me 
today. It is a pleasure to be with you.
    I would agree with Mr. Goldwyn that energy security begins 
at home. In the testimony that I have prepared, I have raised a 
couple of points. Heritage has taken very strong views on the 
importance of market-based solutions for their expiration, 
looking at such undertakings as nuclear energy, capping the 
shale reserves of Colorado and the like. So I will not go 
further into that area. It is not my area of particular 
expertise.
    First of all, I think the United States is very fortunate 
to have two solid reliable energy suppliers are our NAFTA 
partners. North America, we do remain energy interdependent, 
and I think both Canada and Mexico recognize this. As long as 
we stick with our NAFTA commitments, as long as we recognize 
that a prosperous Canada and a more prosperous Mexico are in 
our national interest, we can have strong confidence in our 
capacity to work with our neighbors north and to the south.
    Clearly, the oil sands at Alberta hold an immense amount of 
recoverable petroleum. Yes, their extraction and production 
costs are higher, but this is certainly a very promising area 
of development. It is my understanding that some of the 
linkages between the United States and Canada, particularly 
pipelines and transmission, electrical transmission lines are 
areas that need some attention and considerable updating.
    The petroleum situation in Mexico, as pointed out in 
numerous reports, is less rosy. March 18th will mark the 70th 
anniversary of oil nationalization in Mexico, and Mexicans will 
celebrate the event; yet, overall, Mexicans will have little 
reason to be jubilant. As all the witnesses point out, Mexico's 
production is reaching decline, as you made reference to in 
your opening remarks, Mr. Chairman.
    Clearly, the Mexicans believe that there is a considerable 
amount of reserves to recover: something in the order of about 
100 million barrels of various categories of reserves, 
sufficient, according to the Mexican energy secretary, for 60 
years of meeting Mexico's needs. But getting to it is 
increasingly costly, PEMEX is short on capital. It clearly 
needs strategic partners to move forward.
    The problem is that the Mexican Constitution, of course, 
prevents any foreign ownership or participation, or even 
domestic participation in oil exploration.
    At this point, we cannot--I think that Mexico is waking up 
to this fact; will it wake up fast enough? Hard to tell. We 
cannot alter Mexico's, that is considered to be a sovereign 
decision, but we can continue to demonstrate a constructive 
approach to bilateral relations and promote favorable climate 
for future energy cooperation.
    One of the pieces of legislation that is before Congress 
these days, the Merida initiative to deal with counter-
narcotics threat can help set a very important or, by 
participating, can send a very important message to our 
colleagues or friends to the South.
    I will not say anything more to add to Mr. Sotero's 
statement as to the importance of Brazil. It is a giant. It is 
growing. We have to pay attention to it. I concur with the 
other two witnesses that removing the 54-cent per gallon tariff 
on Brazilian ethanol can have a catalytic effect on U.S. 
Brazilian relations. It can encourage Brazilians and others to 
invest in research on promising second-generation biofuels such 
as cellulosic ethanol, and it could perhaps bring us a little 
closer together in dealing with international trade talks in 
the DOHA Round.
    Final comment, I have extensive remarks regarding Mr. 
Chavez. I presume that he will be discussed in the discussion 
session. That he is mopping the floor with the United States, 
well, yes. If you spend the sorts of money that he is using his 
grow revenues as a kind of massive ATM machine for domestic 
spending; to prop up the Castro-ite Communist regime in Cuba; 
to purchase influence in PetroCaribe and acquire Russian arms, 
yes, he has a lot of money. And I think that money that he is 
throwing around is sort of the key.
    He is also engaging in considerable acts of self-
containment. You can see the reaction to his engagement with 
the FARC in Colombia, his interventions in Peru and elsewhere. 
So he in some respects is his own worst enemy.
    I think we have a dilemma ahead of us. I think that Mr. 
Chavez at home is increasingly less popular. He runs into some 
very serious domestic issues. The failure of the constitutional 
referendum in 2007 gave hope to the opposition circles that the 
Venezuelans may be able to select new leadership in 2012.
    What we have to be very careful is that in designing a 
policy to deal with Venezuela that we try to avoid alienating 
the Venezuelan people who are going to be around, and hopefully 
our friends in a post-Chavez world. Clearly, as our colleague 
said, there is no silver bullet. What we can do is to continue 
to work for democratic developments, constitutional 
governments, the rule of law.
    We should definitely continue to strengthen our ties with 
the passage of pending free trade agreements with Colombia and 
Panama, and we should not move forward into a protectionist 
stance, which will probably be the most harmful national policy 
decision we could make, vis-a-vis the Western Hemisphere.
    Thank you.
    [The prepared statement of Dr. Walser follows:]

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    Mr. Tierney. Thank you very much.
    Mr. Farnsworth.

                  STATEMENT OF ERIC FARNSWORTH

    Mr. Farnsworth. Thank you very much, Mr. Chairman, Mr. 
ranking member, members of the subcommittee. I am really 
pleased to be here with you today. I am very honored by the 
invitation.
    As you know, and as we have already discussed the United 
States, as the world's top energy consumer, depends on a stable 
and secure supply of energy on a cost-effective basis. And 
given this reality, I fully agree with the opening statements 
that both of you made in terms of the strategic importance of 
energy and how it needs to be integrated into the overall 
foreign policy aspects of the United States.
    The Eastern Service Center, Mr. Chairman, has abundant 
energy resources. We have discussed that a little bit. In fact, 
after the Middle East, our hemisphere has the second largest 
global production capability. Nations in the Western Hemisphere 
that are rich in natural resources are in some cases using the 
opportunity to develop their resource endowments in a manner 
that leads to board-based economic growth and poverty 
reduction, and so the potential for true partnership in the 
Western Hemisphere, we believe, is readily apparent.
    What is not apparent at this time, however, is the means by 
which Latin America will be able to draw the massive direct 
foreign investment that is needed to maximize exploration and 
production of the natural resources. The United States is well 
poised to provide such investments in the form of private-
sector-led initiatives and expertise, but countries in the 
region must also do their part by creating stable and 
transparent investment climates.
    In this regard, countries such as Brazil, Canada, Colombia, 
Peru, and Trinidad, and Tobago have made important reforms to 
their energy sectors. Other countries have gone the other way, 
taking steps that have dissuaded investment, therefore reducing 
their own prospects in the global economy.
    Within this framework, let me note a couple of points if I 
can. We have discussed a lot of these issues already, so I am 
just going to be very brief, but let me start closest to home 
in North America.
    North America, as we have discussed, is the most important 
energy region for the United States, which is often overlooked 
because Canada and Mexico are two of our closest friends, 
stable democracies which are joined to us through NAFTA and a 
multitude of other linkages. It is important, I believe, that 
we not take these relationships for granted either in energy or 
more broadly. Canada and Mexico are consistently among the top 
three exporters of energy to the United States.
    Canada is the world's second largest proven oil reserves, 
after Saudi Arabia. Of course, the vast majority of those are 
in the oil sands deposits. Canada is also a large producer of 
natural gas and supplies most of the natural gas imported to 
the United States.
    In the electricity sector, we are closely linked through 
trade and integrated networks. For its part, Mexico is a huge 
energy producer in the Western Hemisphere, although Mexico's 
production levels have begun to decline, as we have already 
discussed.
    Mexican officials believe that their nation enjoyed 
substantial undiscovered gas reserves, but greater investments 
required to confirm and take advantage of these reserves to the 
extent, in fact, they exist. We have already talked about the 
oil reserves that exist in the deep water and other places.
    Such investment, we believe, is actually urgent, 
incredibly. At this time, Mexico actually imports natural gas 
from the United States despite having massive potential 
reserves. Because of their investment climate, they are 
actually importing from the United States, and that has a huge 
impact on national budgets and balance of payments.
    Several mechanisms have deepened North American energy 
cooperation. NAFTA, of course, opened energy trade among the 
three countries by eliminating tariffs and restrictions on the 
quantity if imports. As well, the Trilateral Security and 
Prosperity Partnership that was created in 2005 was designed to 
increase cooperation and information-sharing among the three 
countries in North America. Energy is a part of that dialog, 
and we strongly believe that it should continue.
    Much has been done, but much remains to be done. U.S. 
energy security is inextricably linked to its two neighbors, 
and greater progress must be made to harmonize regulations and 
standards, and to improve infrastructure as well.
    As has already been discussed, Mexican officials will need 
to find ways consistent with their Constitution and laws to 
reform their energy sector to draw the increased foreign 
investment that is needed to increase reserves and set the 
Mexican economy on a course for greater development over time.
    Brazil, as we have also heard, is an emerging player in 
hemispheric energy markets, and Secretary of State Rice's 
pending trip there later this week offers the opportunity to 
highlight a number of important advances. Of course, Brazil is 
at the forefront of developing renewable energy, and we have 
heard a lot about that, and I would simply affiliate myself 
with those comments in terms of alternative energy.
    In addition, by working with Central American and Caribbean 
countries to help them develop or advance biofuel production 
capacity, the United States and Brazil are working to promote 
development in these countries and decrease their dependence on 
traditional fuel.
    So what we have is U.S. collaboration with Brazil working 
in conjunction with willing partners in Central America and the 
Caribbean to develop energy partnerships which will benefit all 
parties, and I think this is a wonderful example of ways that 
collaboration along areas of specific and tangible interest can 
pay real benefits and address some of the issues that we are 
seeing in terms of challenges to the United States and the 
hemisphere from other countries that we have already discussed 
just a little bit.
    Of course, I will be the fourth and final member of the 
committee to call for the elimination of or the reduction of 
the tariff on sugar-based ethanol. We believe that is an 
important aspect as well.
    Outside of biofuels, Brazil is also an important producer 
of oil, although most of its oil is consumed domestically. This 
may change. We have heard, of course, about the finds just 
recently in the very, ultra deep water off Brazil, but one 
thing to note is that because of the location, extraction is 
extremely difficult and costly, and the results there are not 
yet guaranteed. But these very promising developments are well 
worth watching.
    Very quickly, if I may, on the Andean region, which, of 
course, includes only two members of OPEC in the Western 
Hemisphere that we have discussed, this offers perhaps the 
greatest contrast in terms of what is really going on in the 
Western Hemisphere. Energy politics in the Andean region, I 
think, encapsulates very much what is going on more broadly in 
the Western Hemisphere. Colombia and Peru, for example, offer 
examples of nations which desire foreign investment and have 
taken appropriate steps to attract it. We believe that will 
increase to the extent that the U.S. free trade agreement with 
Colombia is voted on and goes forward.
    On the other side of the ledger, Bolivia, Ecuador, and 
Venezuela have taken steps to assert a much more significant 
state role over their respective energy sectors, steps which 
have directly or indirectly reduced the appetite of investors 
to participate in those markets.
    And, really, that is a shame because the region is poor, 
and it is in desperate need of additional resources for 
development, but without the ability to explore, develop, and 
sell resources at top prices into tight global markets, it is 
the people of the region, we believe--not international oil and 
gas companies or investors--who are paying the true long-term 
costs of the resource nationalism that is sweeping parts of the 
region.
    So let me leave it at that. Thank you again for the 
opportunity, and I look forward to your questions.
    [The prepared statement of Mr. Farnsworth follows:]

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    Mr. Tierney. Thank you, Mr. Farnsworth.
    Thank all of you for your testimony here this morning. We 
have a period of time here maybe we can get some uninterrupted 
dialog going back and forth.
    Mr. Braley, you are recognized for 5 minutes.
    Mr. Braley. Well, thank you, Mr. Chairman, for holding this 
important hearing. Coming from a State that I represent, Iowa, 
which is at the forefront of the renewal energy explosion in 
this country, and given that today is the day we are voting on 
a resolution honoring the 150th anniversary of the Iowa State 
University of Science and Technology, which has been 
instrumental in training and educating a lot of people from 
Latin America over the last century. This is an issue that is 
very important to me. One of the things that is also important 
to me is what type of progress we have been making in 
democratic reforms throughout Latin America. I remember about 
30 years ago writing a research paper on the role of the CIA 
and IT&T in the overthrow of the Allende Regime in Chile. And 
so I am going to ask all of my panelists, all the panelists 
here to comment on a portion of Mr. Goldwyn's written statement 
where he said what the United States lacks is a positive agenda 
in the hemisphere, one that recognizes the need to improve 
education and infrastructure addresses the negative social 
impact of trade liberalization and offers the respect and 
cooperation of the United States to these countries that work 
with us.
    And, Mr. Goldwyn, since you are the author of that remark, 
I am going to ask your other panelists to comment on that 
first, and then come back to you. But what I would like to ask 
you all is, first, do you agree with his assessment? Second, if 
so, why do you think the United States currently lacks this 
positive agenda?
    Mr. Farnsworth. I'd be happy to start. Thank you very much, 
and if I could just note that my father actually attended Iowa 
State University, and I was born in Ames, so I appreciate the 
plug and congratulate Iowa State for the wonderful work that 
they do.
    I would think that these comments are, in general, accurate 
as to why that may be the case. The way that U.S. domestic 
issues are developed oftentimes have unintended consequences 
for the Western Hemisphere that are not seen in the same way 
that we perhaps see the issues ourselves.
    Let me just give you three or four very quick examples. One 
is U.S. immigration reform discussions, seen one way in 
Washington or on the United States side of the border; seen 
completely differently in the Western Hemisphere. Trade policy 
discussions seen one way in Washington, seen completely 
differently in Colombia, Peru, Panama, other countries. Let us 
discuss, for example, the whole idea of NAFTA seen one way on 
this side of the border, seen another way in Canada and Mexico. 
And so these discussions that are very, very complicated 
domestically, politically, we view them as is normal in a 
domestic political sense, but we do not necessarily have the 
same understanding of how those issues, or appreciation of how 
those issues play in the Western Hemisphere.
    Now, I think that there are a number of very positive steps 
that the United States has been taking in the Western 
Hemisphere on a bipartisan basis: the passage of the Peru trade 
agreement in December I think is a wonderful example of 
bipartisan collaboration along those lines. We have been 
working very closely with some of our partners on the security 
discussions. The Merida initiative has come up, and that is one 
way to advance these discussions further, and there is a bill, 
a bipartisan bill, that has been introduced into Congress in 
terms of increasing the amount of direct foreign assistance and 
development assistance for the Western Hemisphere, and I think 
that should be very seriously considered as well.
    I do not think that there is necessarily a determination to 
undercut Latin America or not to collaborate with Latin America 
or to not appreciate Latin America. Simply until we raise these 
issues in the overall discussions of our foreign policy, 
including on the energy side, I do not think we will have, 
necessarily, an appreciation of how our domestic policies are 
actually impacting the region and how we can mitigate, perhaps, 
negative impressions and negative effects of those aspects.
    Mr. Braley. Dr. Walser.
    Mr. Walser. A couple of comments. I am not a representative 
of the Bush administration, I was a former State Department 
employee up until last year, so I guess I still have a certain 
affinity for the Department of State and the official views.
    But the Bush administration, I think, has done a reasonably 
good job. It has introduced a Millennium Challenge Account 
which is designed to program assistance to performance. 
Clearly, the problems there oftentimes seem to be 
implementation of compacts and the funding. I think that 
overall aid increases have been substantial under the Bush 
administration.
    Again, this is in a very tough resource environment. I 
think that the desire of the administration and probably most 
in Congress is to provide more assistance to Latin America, 
particularly targeting those areas that were highlighted in the 
President's trip last March, which is the social agenda. It 
definitely cries for more U.S. assistance, but a creative 
approach rather than just sort of throwing money at the 
problem.
    Clearly, as I mentioned in my testimony, free trade 
agreements, going ahead with the Colombia and Panama free trade 
agreements, will be a very positive sign that we are, indeed, a 
reliable partner, and I think that, clearly, we need to utilize 
American assistance in the future to assist, to address the 
social agenda but also look at areas of Latin American 
competitiveness, to look at educational reform, to look at the 
sorts of things that particularly, say, an Andreas Oppenheimer 
talks about is the need to try to capitalize on the current 
overall economic growth in Latin America, but to make it more 
competitive, more prepared to meet the challenges of a 
globalized world.
    There is a lot of work to be done in the next 
administration. I think this administration has done a 
reasonably good job, but there is plenty more to do in the 
future.
    Mr. Tierney. Thank you. Thank you, Mr. Braley.
    Mr. Burton, you are recognized for 5 minutes.
    Mr. Burton. First of all, let me apologize, Mr. Chairman, 
for being late. I had another meeting I had to go to, and I 
hope I am not redundant in what my comments are that I am going 
to make.
    Obviously, South America and Central America, Mexico, are 
very, very important as far as our energy resources are 
concerned.
    We are also, as my colleague said, I just read his notes, 
very dependent on the Middle East as well as all OPEC 
countries. But the thing that bothers me is that we continue to 
depend so much on foreign oil to the detriment of the United 
States, and I think it is extremely important that we start 
thinking in a more realistic way.
    When we talk about alternative energy sources, and this is 
not the subject of this hearing, but when we talk about that, 
we are talking about something that is going to take place 
maybe 5, 10, 15 years down the road. We do not know how long it 
is going to take for us to make the transition to the non-
inter-combustible engine. So it is going to take some time.
    Our dependency on foreign oil from countries like 
Venezuela, Chavez and Mexico which may or may not be a stable 
country in the future, we just do not know, as well as OPEC 
with the problems we have in the Middle East are things that 
really concern me. It seems to me that one of the things we 
ought to be doing while we try to make this transition to more 
environmentally safe energy sources and move toward energy 
independence is to realize that we have to start doing 
something to protect ourselves now. And that means that we 
ought to be considering drilling in the ANWR.
    I have been up there. We could do it in an environmentally 
safe way, and we can get one to two million barrels of oil a 
day out of there. We have, according to some sources, as much 
as 500 years of natural gas, if we can drill in those areas 
where natural gas is supposed to be. We can drill off the 
Continental Shelf 100 miles out, 90 miles out and get an awful 
lot of energy that will keep us from depending as much as we do 
on foreign oil.
    Right now, Castro, Raul now, has cut a deal with the 
Chinese to drill within 45 miles of the U.S. coastline because 
their territorial possession, if you will, goes out halfway 
between us and Cuba. So if they drill 40 miles out from Cuba, 
that is within 50 miles of the United States, and they will be 
drilling into our oil reserves because those oil reserves are 
not just contained in one soft small spot, they spread out. And 
so they will be drilling into oil that we could be getting to 
become more energy independent in the short run on fossil 
fuels.
    And we cannot even drill 90 miles or 100 miles out? It just 
does not make any sense, especially when we see ourselves 
becoming more and more dependent on foreign energy sources.
    So I am anxious to hear what the panel has to say. I mean, 
I presume they have made their opening remarks, and I will read 
their opening remarks. But I feel very strongly that during 
this transition period from fossil fuels to other sources of 
energy is going to take time, and we ought to be more 
realistic.
    And I know my colleagues, many who are very close to the 
environmental lobby, are reluctant to start doing some of these 
things that I think are absolutely necessary if we are not to 
get ourselves in a real bind down the road, if things break out 
in the Middle East. If we have a war in the Middle East, which 
could very well happen; if Mr. Chavez goes bananas down there, 
we get about 25 percent of our oil from there. If something 
happens in Mexico, we're up the creek without a paddle. And 
that is why we need to start thinking about not only foreign 
energy sources and alternative energy sources, but what we are 
going to do, internally, to protect this country.
    With that, thank you very much, Mr. Chairman.
    Mr. Tierney. Thank you, Mr. Burton.
    Mr. Welch, you are recognized for 5 minutes.
    Mr. Welch. Thank you very much, Mr. Chairman. Thank the 
witnesses very much for your excellent testimony. I missed the 
beginning, but I have had a chance to read your comments.
    Mr. Goldwyn, I just wanted to ask you a couple of 
questions. In an article you wrote, unless we change our 
foreign policy course for the next couple of decades, we are 
going to enrich OPEC and the producers that maintain high 
prices and weaken the ability of the United States or allies to 
influence these countries, which is exactly the opposite of 
what the goal is of most people around here.
    I am wondering if you can just explain in some detail, but 
briefly, how you see us developing the kind of producer/
consumer compact that you also wrote about there.
    Mr. Goldwyn. Sure. Thanks for the opportunity, Congressman.
    Let me start on the consumer side. Consumers have an awful 
lot of power. Neither the Venezuelans nor the others can eat 
the oil. They have to sell it to someplace. They have to sell 
it to refineries that can use it. We did ourselves a tremendous 
amount of good in 1975 when we formed the IEA. We pooled 
strategic resources; we have effectively deterred embargoes for 
30 years; we have pooled resources on new technologies, and we 
really changed the market.
    So I think if we bring the Chinese and the Indians in, in 
particular, we have more in common in stable prices, 
controlling demand, efficient vehicles in two countries in the 
world. But as long as we are competing for resources on the 
outside, we are going to have destructive competition. So if we 
bring them in, that collective energy security system, make 
them want to be a member of the club, we can use a lot of our 
economic power.
    We can also do things like demand reciprocity. We can say 
we are consuming nations, if you do not give us upstream 
access, then we are not going to let you build an LNG plant 
here. We are not going to give you access to our--it has to 
work both ways. And we can help ourselves that way.
    In dealing with producers, I think we need a compact or at 
least to engage producers. Although I do not think--in a 
formalized system, I think we need to point out examples of, to 
use the hemispheric example, Brazil.
    Mr. Welch. Yes.
    Mr. Goldwyn. In a country that says with an open framework 
that brought in foreign investment that allowed the government 
to make money and companies to make money, they dramatically 
increased their production and their prosperity.
    Then you look at the other models, Mexico for internal 
reasons, Venezuela has harsher terms for other reasons, Russia 
for another one, and say, that way instability and disaster 
lies, because, ultimately, the price may soften, and then it 
will take 10 years to build the new resource in ANWR and 
anyplace else. So I think that is a conversation we can have.
    Mr. Welch. Thank you.
    Now, kind of followup on that, Mr. Sotero. You are from 
Brazil?
    Mr. Sotero. Yes.
    Mr. Welch. Whereabouts?
    Mr. Sotero. Sao Paulo.
    Mr. Welch. Well, when I got out of law school, I hitchhiked 
from Presidente Prudente to Sao Paulo to Rio, across the Matta 
Grosso, and I made it.
    Mr. Sotero. Wonderful.
    Mr. Welch. You have a nice country.
    Mr. Sotero. It is much changed now. The roads are paved.
    Mr. Welch. They weren't then. They were not then.
    Here is the question. Brazil has, obviously, exploded. They 
elected ``a socialist'' just before the election of Lula. The 
stock market plunged, and there was great apprehension, but, 
obviously, since then Brazil has demonstrated a vibrant economy 
and very powerful energy sector, and its model is somewhat 
different, obviously, than Venezuela and Bolivia. And my 
question is: What is the model that you would describe for 
Brazil versus these other countries that have adopted, I 
gather, resource nationalism?
    Mr. Sotero. Sir, it is somewhat different in political 
terms from Venezuela because we are very proud of being a 
democracy, and President Lula is very much a part of it. He is 
a man that ran for the presidency three times, lost and ran a 
fourth time and won, so the label being ``a socialist,'' he is 
the most left-wing person we ever elected for President of 
Brazil. He is also the first man of the people to be elected 
president in a very unequal society. This is very important, 
symbolically and effective, in effect in real terms for us. And 
President Lula understood very well something that Brazilians, 
after living for 30 years with near hyperinflation, had had 
enough.
    So in spite of the fact he had had the political life, 
denouncing a lot of economic programs that to foster economic 
stability, in order to be elected president of that country 
that had conquered inflation--and that was then in 2002 in the 
path of economic stability--the president basically embraced an 
economic program which is a classic capitalist market-driven 
economy with, obviously, many problems.
    I would say that we have somewhat told about the business 
climate, this is recognized in Brazil. We have to improve a lot 
in the business climate in order to foster investment. It is 
President Lula himself who recently, before introducing a bill 
to reform our tax system, saying that to invest in Brazil is to 
be punished.
    So we are very aware of the problem. Brazil has an open 
press. All the problems we have are clearly in front of 
society.
    Mr. Welch. Thank you. Yes, that is very good.
    Just one last question, Dr. Walser. What is the effect, if 
the United States drops all tariffs on Brazilian ethanol?
    Mr. Walser. I would actually like to defer to Mr. Sotero, 
but my understanding is that at this particular point Brazil is 
operating at a fairly full capacity and is meeting sort of 
domestic demands. So you would begin to open up a market for 
expansion.
    Now, I think that the argument is that the lands that would 
be cultivated would not encroach upon the Amazon, but there 
would be some pressures to push into potentially sensitive 
environmental areas. And other than that, I am afraid my 
expertise does not carry me much further, so I do not want to 
venture down the road.
    Mr. Welch. Dr. Sotero.
    Mr. Sotero. Could I add something?
    Mr. Welch. Yes, go ahead.
    Mr. Sotero. The worst thing the United States could do is 
to suddenly open up, because this would probably disorganize 
our internal market. We produce ethanol mainly for internal 
use, for domestic use in Brazil. We can produce much more, and 
this is important to do this in a cooperative engagement.
    There are ways that you can continue to improve your 
production of corn ethanol, produce the productivity of that. 
Actually Senator Lugar proposed some ideas in a bill that he 
introduced, I believe, last year which are to, for instance, 
make the subsidy vary according to oil prices and make the 
subsidy, the tariff actually a stabilizer of prices in the 
American market.
    Actually the members of the Brazilian industry welcomed the 
effort in the United States to create the market for ethanol 
here. We just wanted, and that is what they keep saying, that 
Americans get more creative in the way you apply the policy to 
develop the sector in Brazil in a way that could allow 
Brazilian ethanol, and ethanol not only for Brazil, from other 
places including the Caribbean, including all the areas to come 
to the United States.
    Mr. Welch. Thank you. Thank you, Mr. Chairman.
    Mr. Tierney. Thank you, Mr. Welch.
    I ask, generally for the panel here, the premise of this 
hearing was that there was a lot we could do within this 
hemisphere if we started cooperating and we looked at 
everybody's strengths and tried to work in a manner that 
maximizes everybody's strengths on that. So we ask each of you, 
the next President coming in, what would the advice be in terms 
of trying to reach out, understanding the differences of the 
different political situations in each country, how would we go 
about trying to find some cooperative way to maximize each 
country's strength to the benefit of their neighbors?
    Mr. Goldwyn. I will take it. I think, let me start with 
structures and then policies. I think the first thing we need 
to do is go back to engaging at a senior level of all the 
countries to hear their agenda as well as ours. We had the 
Summit of the Americas process. We used to meet at the foreign 
minister level, but also justice ministers and things like 
that. We talked to countries about both of our agendas. So I 
would resume that. It is a sign of respect. It is also a way to 
hear what their concerns are.
    Second, I would revive the trade agenda, and I think we 
will have our own spin on it, I think, in a new administration 
in terms of environmental labor standards, but I think the 
culture has changed in Latin America on that as well. So we 
have something to put on the table.
    Third, I think we ought to have a serious conversation 
about poverty and social exclusion, and what we can do. It is 
not an American problem to fix, but there are certain ways that 
we can help: build civil societies that we can build 
structures, lessons we have learned. Just paying respect to 
that issue I think would help an awful lot, and I think that 
will pay dividends on bilateral policy because if we have a 
good relationship with Brazil and respectful relationship with 
Argentina, that if we want to talk about the Venezuelan model 
and why our model is better, our model is better economically, 
socially, politically, or whatever it is, then we have 
reasonable partners to talk to, and they can have that 
conversation in the hemisphere. And that is a much better 
strategy than the United States just waving a stick. So I would 
start it there.
    Mr. Sotero. This is still, I would say, along the same 
lines. In case of Brazil, what is important is engage with 
Brazil. It is something that has to be said about this 
administration that is, in terms of the case of Brazil, the 
Bush administration did very well to Brazil. It what? It 
engaged, it was interesting that a very conservative leader of 
the United States and a very left-wing leader of Brazil 
recognized that the common interest of both countries were 
convergent, and started at least this initiative on biofuels. 
That is very important.
    In Brazil, we are aware of our social problems. There is--
and I have been saying this for years--we recognize that there 
is nothing you have to do to help us solve our social problems 
that we do not have to do first. It is very clear, and we are 
making progress on that front in Brazil. But I think an agenda 
that really is inclusive, that takes, makes the social policy 
for the region is a central element and that differentiate 
between countries.
    Countries in Latin America, the notion, actually, in Brazil 
we do not even use much ``the notion of Latin America.'' We 
say, our diplomats like to say this is a French concept. We are 
in South America, we are individual countries, we have 
different needs. Brazil can solve many of its own problems; it 
is a matter of allocation of resources and fight this in 
Congress, like you do here.
    But I think a more open attitude and an attitude that 
avoids something that has been natural throughout the years 
from America, to avoid this patronizing view of Latin America. 
Latin America, the region does not need that. We need partners, 
and in the case of Brazil, clearly. On energy, we are not 
asking you to do anything for us; we are working together, we 
can work with you. We can contribute.
    And again, on oil the same thing. PetroGrass, which is in 
25 countries including the United States, it operates here, is 
also a company that, among other companies, other, many 
Brazilian companies that are here not--but, in general, I think 
that it is mental change, mentality change that has to happen 
in the United States and see us as neighbors and partners.
    Mr. Tierney. Thank you. Doctor.
    Mr. Walser. I would see sort of four basic points 
continuing to advance the free trade agenda. I do not think it 
is time to back off on that, the commitments, or to review 
them. I think we have to move forward on free trade.
    I think it would be useful if a new administration would 
try to pull together the very sorts of strands into a kind of 
comprehensive educational, health, and poverty alleviation. It 
would be tangible, it would have broad bipartisan support with 
the goal being to develop human capital in the Western 
Hemisphere for sort of global competitiveness, continue to 
sustain the Millennium Challenge Account.
    I think the fourth area where Latin America may be very 
interested in our assistance is dealing with security issues, 
particularly the continuing threat of drugs and the rising 
threat of gangs and lawlessness that affect many areas from 
Brazil to Central America to Mexico. Showing some understanding 
for this basic security problem, utilizing our military assets 
in different and creative ways could show continued U.S. 
engagement in the hemisphere.
    Mr. Tierney. Thank you. Mr. Farnsworth.
    Mr. Farnsworth. Thank you, Mr. Chairman. I completely agree 
that engagement should be the watch word in terms of our 
relations with the hemisphere. I think if you ask Latin and 
Caribbean leaders what benefit they get from a close 
relationship with the United States, a lot of them will have to 
pause and think about it for a minute. But if you ask some of 
those same leaders, what benefit do you get from a partnership, 
for example, with Venezuela or other countries, they can 
immediately give you answers.
    Now, that is not to say we agree with that model, but it is 
to say that I think the United States for a period of time has 
been very good about asking or presenting an agenda that we 
have and the very important national security issues that we 
have, but not doing such a good job of listening to what the 
agenda may be from the Western Hemisphere countries themselves. 
And when we do listen, we don't necessarily deliver on what the 
requests are. It does not mean we have to give everything that 
is requested. Some things would be impossible, or impractical, 
or frankly, against our own interest.
    But I think we need to start by changing the tone of the 
relationship. The word partnership has been used, the words in 
terms of building a true understanding of a mutual agenda. I 
think that is exactly right, and we are not going to agree with 
all the countries all the time in the Western Hemisphere. But, 
for example, energy is one area where we can collaborate 
closely with some countries, and that is to all of our benefit.
    Another area of trade has been mentioned but, for example, 
the Congress just renewed the Andean trade preferences for all 
four countries, which I think is marvelous. I mean, you even 
have two countries that were part of that which strongly 
disagree with the United States, Ecuador and Bolivia. And yet 
we are reaching out, we are engaging, and we are continuing to 
have dialog even when we strongly disagree with a number of 
things that those countries are doing. And so I think that 
should be the watch word.
    I also think it would be, frankly, a real setback for U.S. 
interests in the region if we do not deliver on the things we 
have already committed to delivering, particularly the 
Colombian-Panama trade agreements. And I think it would also be 
a real opportunity missed if we do not move forward in support 
of the Mexican government with the Merida initiative, so I 
would start there.
    Mr. Tierney. Well, thank you for that, the premise being 
that energy would be one good area that we should all find some 
agreement on as opposed to something to fight about.
    Mr. Shays is recognized.
    Mr. Shays. Thank you very much. I appreciate all of you 
being here. Let me ask you first a more generic question. Why 
is the claim that the world has peaked in oil when there are so 
many parts of the world that have not yet been examined? And 
so, tell me that.
    Mr. Goldwyn. Well, the peak oil theory looks at the size of 
fields that we have known about over years and said the basic, 
if you look back over the last 20 years, the huge, giant 
fields, we have only discovered really one, I think it is 
Kashagan in the Caspian. So if they think that while the 
reserves are there, these big, large fields have been drained.
    The other factor we are dealing with is the unknown, which 
is that really only in western countries are reserves actually 
audited. And so you have people like Matt Simmons, who look at 
Saudi Arabia and say they have not had a real audit, and if you 
look at the amount of money that they are spending trying to 
squeeze the last drop of oil out of some of the existing 
reserves, it is really kind of worrisome, because if you have 
all of this other oil, why would you be spending that much 
money when you can put a straw in the ground and take it out 
for three dollars?
    So it is a combination of the lack of transparency. The 
sort of pattern of discoveries has been made, and they say that 
not that, basically, we have peaked in terms of production, but 
we still have a long way to go. I think it is belied by----
    Mr. Shays. Do you all basically agree with that answer? I 
mean, I think the biggest tragedy that has befallen us this 
century has been that after September 11th, I think the 
President had a magnificent opportunity to say we are going to 
be energy independent, and he would have said to me, you are 
going to get what you want, conservation; but I want nuclear 
power, I want to mine the slopes on the outer continental shelf 
of the Atlantic Ocean. And we would have had alternative source 
and so on. It would have been everybody giving a little and 
getting a lot in return.
    And I would disagree, I think, pretty strongly with The 
Heritage Foundation. I think you have to have government 
intervention. The President said to me a number of years ago, I 
was asking about conservation, and he said the market will get 
us there. But the market is not getting us there, and I look at 
Toyota as the only company that really seemed to look at better 
ways to deal with the energy challenge.
    Give me a redeeming quality of Mr. Chavez. I mean, my view 
was we went after him big time and failed, and so, clearly, we 
have an enemy. But was there ever a point in the relationship 
where we could have had a decent relationship with him had we 
not targeted him? Or was there no way but to target him, one?
    And, No. 2, just tell me--I'll start with you, Mr. 
Farnsworth, tell me some redeeming qualities about his 
leadership and the good that he might be able to do for the 
hemisphere.
    Mr. Farnsworth. Absolutely. On the theory that no human is 
all good or all bad, but, thank you, sir.
    I think that a redeeming quality of Mr. Chavez is that he 
is genuinely concerned with the well-being of his people. I 
really believe that he is concerned with poverty and 
underdevelopment. I really believe that.
    I do not necessarily think he is addressing it in the 
appropriate way, and I do not think what he is doing outside of 
his borders is appropriate in any way. But, having said that, I 
believe that is one redeeming quality, and to the extent that 
those issues are firmly put on the agenda because they are 
relevant for Latin America more broadly, that is not a bad 
thing. These issues need to be address because, if they are 
not, we see what has been happening through some countries in 
the Andes, which is that governments are elected to power, and 
they are trying to respond to the needs of their people, as 
they view them. And they take policy actions that may be 
against the policy interests of the United States.
    And so there is a very real strategic component for the 
United States to be active in supporting and partnering with 
countries in the region to address some of these social 
development issues.
    Mr. Shays. Dr. Walser.
    Mr. Walser. My comment, clearly, the April 2002 was seen as 
a turning point. I was not involved with Latin American affairs 
at the time. I have talked with a number of people who are 
policymakers, and I am sure that Members of Congress have had 
even further briefs.
    The argument is that he was not a target of any U.S. 
operation; that, in fact, he received warnings.
    Mr. Shays. I do not mean that we were looking to 
assassinate him, but we actively tried to defeat him. I should 
have clarified that.
    Mr. Walser. And, clearly, what he played upon was our not 
embracing immediately the democratic charter and supporting a 
democratically elected head of government. But I think that did 
constitute a turning point in which he had drawn on a deep sort 
of sense of anti-Americanism. His Boliviarian program leads 
him, ultimately, to sort of clashing with the United States.
    On his redeeming side, he represents, yes, his social 
aspirations for the marginalized people. He also represents a 
large racial group, either Mestizo or indigenous, who have not 
been included in the politics of many of the countries in the 
Andes. And he has wide resonance because he is different.
    He is not like the traditional elites, and, clearly, the 
elites of Latin America still control much of the politics and 
are, really, sort of have to confront the social realities of 
their own countries in the future.
    Mr. Shays. Thank you.
    Mr. Sotero. I agree that is the redeeming quality of 
Chavez. Obviously, we in Brazil, in generally, I want to tell 
you he is not popular at all. He is probably one of the most 
unpopular leaders of the hemisphere, in Brazil. He reminds us 
of something we had before, which is the military figure in 
government. We do not like it, we fought to defeat that.
    In terms of the missed opportunity, I think was precisely 
that the April 12th episode in which, by coincidence, the 
leaders of Latin America, of the region, were meeting in Costa 
Rico that day or the day after, and they all said, this is a 
coup, and this is against the Democratic Charter. And believe 
me, when Latin America tells you, this is a coup, take it 
seriously, because we have seen them all.
    Unfortunately, the United States did not act immediately. 
Secretary Powell, I believe, was traveling in the Middle East. 
He came back to Washington a few days later, went to the OAS 
ministerial meeting there, and finally declared a U.S. position 
denouncing the coup. That was too late.
    But that was a missed opportunity, because had the United 
States sort of denounced the coup, I think you would have 
preempted a lot of Mr. Chavez's behavior. And later on in the 
administration, I think the lesson was learned: Instead of 
answering to every provocation by Mr. Chavez, the 
administration kept silence. And because Mr. Chavez is the type 
of leader, precisely now when he is in a weaker position, that 
he lives off of the microphone. That is what he needs.
    Actually, the other day in an episode between Colombia and 
Ecuador, a very tragic episode, he immediately jumped in and 
started promoting more conflict. And the countries of the 
hemisphere meeting at the OAS counteracted, and one of the end 
results--and Brazil was very much part of that--was to isolate 
Mr. Chavez from the problem, isolate the problem and deal with 
the problem. Venezuela is not part of the group of countries 
that is now managing the situation and will propose a solution.
    Mr. Goldwyn. I can add to that. On the first part of the 
question, I think 1998 to 2000 at least, the time that I was in 
Government, we had a very civil relationship with Venezuela. 
Now the State Department, I think, formerly had supported the 
other side. When President Chavez was campaigning, I think 
there were only two minor people at the State Department who 
were willing to see his team.
    But we had pretty civil discussions, and I was the 
principal coordinator with Bernardo Alvarez, now the Ambassador 
but then the deputy minister. And we talked about energy, and 
they were at the process of, basically, having the government 
get control over the national oil company, something we preach 
in other countries, but we had a problem with the style in 
which Venezuela did it.
    And we disagreed, I would say, on 8 out of 10 of the items 
on the agenda, and we did it pretty openly and with a pretty 
big team. But it was a very open, civil discussion, that we do 
not think this is the right way to go, we do not think this is 
going to be good. You do not think you are going to get 
investment here, we need better data. But we had a very civil, 
very normal conversation, and we had it pretty often. So we had 
a good sense of where the other side was.
    There was a dialog. There was investments going on, and 
they were responsive to TUS investment projects there. So I 
thought it was pretty civil, and I think April that was 
damaging.
    I think the three positive things I would say about 
President Chavez, one is that he does spend the oil money on 
his people. I spent a lot of time in Sub-Saharan Africa working 
on those issues, and that is what we are trying to get those 
governments to do. Is it political? Sure. Is it wasteful? 
Probably. But it is happening, and that is a good thing. Having 
a government have control over the national oil company so the 
government policy dictates things is an orthodoxy we preach 
everywhere.
    If PEMEX was sort of in revolt against the Mexican 
government, there is no way we would be siding with PEMEX. We 
want the government to get control over its resources. We would 
run that policy in a whole different way, but in the theory 
that governments ought to control state-owned enterprises. That 
was pretty sensible, and there was an awful lot of corruption 
in the Venezuelan system there.
    There was another one of these Council studies, since there 
has been sort of a negotiated democracy in Venezuela for years. 
There was huge corruption, poor distribution. The old regime 
was pretty bad, also, and so there were legitimate issues that 
President Chavez took up, so he had the right agenda, but it 
has been done in a way that is completely unnecessary, 
gratuitous, and has been repressive on the press and, in 
democracy, in a way that, frankly, given President Chavez's 
popularity, he never needed to do. And that has engendered a 
tremendous backlash.
    But I would say for the future, for the next administration 
or for whatever, I think it is possible for us to repair our 
relationship with Venezuela, and I think if we can keep the 
United States out of the middle of Venezuelan politics, the 
Venezuelan people still have power. They still have voice, and 
it is our job to make sure and to speak up if their voice is 
trampled on.
    But I think Venezuela has the potential to evolve as long 
as we do not make ourselves basically the center of their 
politics and the way in which people can campaign to stay in 
power because we are the bogey man.
    Mr. Tierney. Thank you. It is amazing how we keep learning 
that lesson, whether it is Pakistan or Venezuela, is it not?
    Mr. Lynch, you are recognized for 5 minutes.
    Mr. Lynch. Thank you, Mr. Chairman. We have seen a lot of, 
well, we have had a lot of talk about engagement which I agree 
is important, but, Mr. Goldwyn, you also referenced in your 
written testimony the challenge with Venezuela, and you 
advocate for ``an objective assessment as to whether 
Venezuela's actions are undermining the other important U.S. 
security interests.''
    There have been some very recent reports in The Washington 
Post and in other publications regarding the question of 
whether Mr. Chavez is possibly funding FARC, and that would 
truly present a U.S. security interest matter. If this link is 
confirmed, and it does not look good, if this link is 
confirmed, what do you think our response should be? I know you 
are calling for engagement and cooperation, but if Mr. Chavez 
is actively supporting and funding a terrorist organization as 
labeled by the United States and Europe, how should that affect 
our policies toward Venezuela and the other relationships that 
you spoke of?
    Mr. Goldwyn. I have seen those reports, and if they are 
true, that is a very serious allegation. And our objective is 
to get, if it is true, is to get Venezuela to stop.
    I think diplomatically, the way that I would do that is not 
for the United States to put itself in the center and basically 
point, say we are going to start imposing sanctions on 
Venezuela. I would start with the Colombians. They are the ones 
who are directly affected. I would go to the neighbors and say, 
if this is true, supporting these kinds of insurgencies, 
certainly inimical to the interests of all of the countries of 
the region; I would go to the United States third and say, you 
have just issued a statement where Colombia apologized for 
crossing the border, but Venezuela and every other country 
agreed that it is completely inappropriate to giving safe 
harbor and comfort to terrorist organizations.
    And I would try and work, diplomatically, through the 
region, through regional leaders to get them to stop, because 
that is the real objective. If that fails, or if we cannot get 
regional support for this initiative, I think then you look at 
stronger measures. But I think the idea is to hold countries 
accountable to their neighbors first, and I think we saw a 
great example in this conflict between Colombia and Ecuador 
where President Chavez jumped into the middle of it, but in 
fact, Colombia and Ecuador worked this out, and they did it 
both bilaterally, and they did it multilaterally.
    And the fact that we had a position but we stayed on the 
sidelines, facilitated the expeditious resolution of that 
conflict. So I think we need to keep that in mind. We just need 
a little bit of nuance in how we get there, but in terms of the 
gravity of the accusation, I agree with you completely, and 
that is a prime example of something where U.S. security, our 
support, our support for Colombia, probably our advisors down 
there are implicated.
    Mr. Lynch. Mr. Sotero.
    Mr. Sotero. Can I just add something about this? It would 
be probably important to understand, for instance, where Brazil 
would place itself in this.
    Mr. Lynch. Sure.
    Mr. Sotero. What conditions, the government's position in 
this vis-a-vis the Colombia, Ecuador issue and Venezuela, is 
the impact of drug trafficking, organized crime in our society? 
And we know for a fact in Brazil that some of that has directly 
connections with the FARCs. The master mind there, the main 
drug lord in Brazil was arrested by the Colombians in FARC-
controlled territory and sent to Brazil.
    So when we act in Brazil, and it is more and more clear to 
Brazilian society, that we are going to have to take a stand 
about the actions of FARC that was once gorilla movement, a 
social movement, etc., that has deteriorated, basically, into 
an organization that is involved in narco-trafficking, in 
kidnapping of people, etc. So this issue is very important, and 
I totally agree with Mr. Goldwyn in this: the engagement should 
go in that direction because Brazilian society is fed up with 
crime, and we know that crime in big cities, in major cities in 
Brazil, is directly connected to narco-trafficking coming from 
the Indian region.
    Mr. Lynch. Mr. Walser.
    Mr. Walser. It is without doubt that Chavez is offering 
sort of moral and political support for the FARC beginning with 
his engagement in the humanitarian exchange process for which 
he was invited to participate through the exchange of, or the 
release of six different hostages. Increasingly, he became 
strident in his moral and political support, raising them from 
a narco-terrorist group to a belligerent force, what he called 
a revolutionary force for a Bolivarian cause.
    Mr. Lynch. If you could, Doctor, I understand those facts. 
I have been following them very closely.
    Mr. Walser. OK.
    Mr. Lynch. I just want to know what you suggest our 
response might be to that.
    Mr. Walser. I would agree with my colleagues. At this 
particular point a direct response does not appear appropriate. 
I think that it is reminding our leaders in the region such as 
Brazil the importance that if you do not want waters violated 
by other armed forces, you also have to not allow hostile 
forces, terrorist groups, even revolutionary insurgencies, to 
take safe haven in your own country, and I am saying 
particularly in Venezuela.
    So it is up to regional players to remind Chavez of his 
responsibilities. I think it is up to us to try to use our 
intelligence capabilities, our capacity in information-
gathering and monitoring drug traffic to help bolster the case 
and to truly try to understand as much as possible what is 
going on in an opaque environment such as Venezuela.
    Mr. Lynch. Good.
    Mr. Farnsworth, if you would?
    Mr. Farnsworth. Thank you very much. Very quickly, I think 
we first need to establish the facts on the ground. We have 
seen the press reports, but we need to see exactly what was in 
those computers and source those, appropriately. I believe that 
is being done now, but in the interim I agree completely, the 
United States should not be the middle of this story; the 
United States should be ensuring that we stay out. Venezuela 
should be in the headlines here, and I think the steps that we 
can take with our regional partners, I think, are very 
positive.
    But let me add one additional element, if I can, and that 
is on the energy side, because Venezuela, of course, has 
massive resources. And it is through the energy well that 
President Chavez is able to conduct some of these activities. I 
think this is particularly why we believe that cooperation with 
other countries in the region on energy is so strategically 
important. Yes, it provides alternatives for the United States 
in terms of our own energy needs, but it also provides 
alternatives for the region in terms of their strategic needs. 
So they do not have to depend, necessarily, on the largess of 
folks like the President of Venezuela.
    The relationship we are developing with Brazil, again I 
come back to, which is very, very positive because it is 
bringing in some of the smaller states in the Caribbean and 
Central America which have no production capacity of oil and 
gas on their own, and yet they are brought into this energy 
equation in a very productive and positive way.
    So these are issues where we can collaborate with willing 
partners that produce a positive model and a positive agenda 
and, I think, over the long term will have very positive 
results.
    Mr. Lynch. Thank you. Thank you, Mr. Chairman.
    Mr. Tierney. Thank you, Mr. Lynch.
    Mr. Burton, do you have any questions?
    Mr. Burton. Yes, Mr. Chairman, thank you.
    Chavez has been, according to the information we found on 
that hard drive or was found by the Colombian government, has 
been working with the FARC since 1992, and I cannot believe 
that Colombia would be lying about what they found on that hard 
drive; and Chavez ha given FARC $300,000,000. In addition to 
that, he has exported his philosophy of government to Ecuador, 
tried to improve in Nicaragua, and so what he is trying to do, 
he is trying to do what Che Guevara couldn't do back when Cuba 
was moving toward revolutionizing all of Central and South 
America.
    I am concerned about all of that, but I am more concerned--
and Colombia is an ally of the United States, and they have 
been doing a great job, President Uribe is doing a great job 
down there. I do agree with you that we ought to push for the 
free trade agreements and the extensions that we just passed. 
We should have that free trade agreement for Colombia very 
quickly because I think all that--and I do also agree with you 
that we should not be the central figure in trying to deal with 
these problems down there. The OAS and other organizations 
should be doing the job, and we should just be in support mode 
because nobody like Big Brother telling everybody else what to 
do. So I agree with all that.
    My big concern is if all hell breaks loose down there, and 
all the people in Venezuela do not like this guy--I was 
chairman of the Western Hemisphere Subcommittee for a long 
time, and I am senior Republican on that committee now--and I 
have people coming to my office all the time from the business 
community and people who have been hurt by the Chavez, and 
their rights have been shortened or removed entirely by their 
political approaches down there--so the people down there are 
not thrilled with him of course.
    I know that he is giving money to some parts of the country 
where they have not had health care or education for a long 
time, and I think he does that more for political support than 
anything else. But the thing that concerns me, and you can 
comment on this, is what does the United States do if there is 
a problem down there?
    Let's say that he goes into Colombia and with Ecuador and/
or some way a spark takes place and we have an ignition down 
there, and we have a war. And the ability of the United States 
to get energy from there is diminished. Right now, we have 
gasoline that could go up to $4 or $5 a gallon, and the impact 
on our economy is pretty evident.
    If we have a cut in supply from Venezuela or the Middle 
East, if things go awry over there, Iran is trying to develop a 
nuclear program, they have threatened Israel, and Israel is not 
going to stand by and let that happen. So if we had a conflict 
arise, occur in the Middle East and in South America, i.e. 
between Colombia and Brazil and Ecuador and other countries 
down there, what do you think the United States would do as far 
as our energy resources?
    Right now, it has been said by many that if that occurred, 
we would not have an alternative strategy other than to use our 
emergency supply of oil that we have until it runs out, and 
then we would be at the mercy of these folks whose oil we are 
not going to be able to get. And it is not just oil for 
gasoline, it is oil for creating energy, electricity, for a 
whole host of things, making plastics, all kinds of things that 
we need to survive as a country.
    And so, in a worst case scenario, what do you think the 
United States should do to protect ourselves against severe 
problems that take place in Central America, South America, and 
in the Middle East?
    We have had those problems already in the Middle East. 
Saddam Hussein invaded Kuwait. We do not think that is going to 
happen again, but it could. We could have a problem. In South 
America, we have had problems. Communists took over a number of 
countries, and they were moving toward revolution all over that 
place down there, and we moved toward democracy, and under 
Reagan we were able to democratize all of those countries, but 
it appears as though there are countries moving to the left 
down there now.
    So my question is very simple. What should the United 
States do to protect itself against cataclysmic things that 
might occur in the Middle East and in South America where we 
get a great deal of our energy, and how do we protect 
ourselves?
    Mr. Goldwyn. If I can take the first shot at that one, 
first I would say in terms of Venezuela, that is an extremely 
unlikely scenario. I think, even as we saw with the strike down 
there in 2002, Venezuela needs its own energy resources. It can 
spend down its reserves for a while, but a deliberate move by 
Venezuela to basically cutoff exports, I think, is unlikely.
    Mr. Burton. I mean in a worst case scenario, because nobody 
has a crystal ball.
    Mr. Goldwyn. In a worst case scenario, say, all the 
Venezuelan supply comes off the market.
    Mr. Burton. Well, or it is reduced dramatically, and we 
have a huge reduction from the Middle East and it impacts on 
our economy. So what should United States do to protect itself 
against that.
    Mr. Goldwyn. We would activate, I mean, we planned for this 
kind of a catastrophe in 1975, and I would not dismiss at all 
not only the U.S. strategic petroleum reserve, but we built 
through the International Energy Agency a coordinated emergency 
response mechanism, which means we convene all of these 
consuming countries; we all agree to an immediate stock draw, 
which is a way of showing the market that there are huge 
supplies close to markets here in the United States that we can 
release that can completely replace Venezuelan supply, and 
Venezuelan supply and some others, for a significant amount of 
time. So that is step one, is we do a stock draw.
    Step two is we implement some demand conservation measures. 
Countries like Canada tend to go to demand conservation before 
a stock draw. There we free up things like suspending the Jones 
Act so we can allow the different kinds of oil to come in; we 
probably release some of our own domestic fuel standards so 
that kind of gasoline that is only appropriate in Chicago can 
be used in California, so, essentially, make our market a 
little bit more liquid.
    Probably, before all those, we would go to existing 
suppliers, and we are back to the Saudis, people who have an 
excess capacity which is defined by the IEA, a supply they can 
put on in 90 days, and get them to release some of their 
commercial stocks. And then that triggers--all of those actions 
trigger an action by other producers to start ramping up 
production and try to grab a piece of that market.
    The other thing we would do, frankly, is do what we did not 
do on September 12th, is we would probably go back to people 
and say we need to be doing an awful lot more in terms of 
getting ourselves, transforming our economy, to get off of oil. 
And then we might look at legislation.
    Personally, I would come back to Congress and say now is 
the time to look at significantly higher fuel efficiency 
standards as a way to look at measures to change the 
transportation system. Long term, this may happen one way or 
the other. We need to change the transportation paradigm and 
not wait for a crisis to occur. If it does occur, we have 
planned for this, and we could deploy immediately to ameliorate 
the most significant economic effects.
    Mr. Tierney. Thank you. Thank you, Mr. Burton.
    Mr. Burton. Anyone else have a comment on that?
    Mr. Walser. I think the other point would be if there were 
actual military aggression, that Chavez's forces crossed into 
Colombia for an action, then I think we would have seen a very 
different scenario in which the United States should have been 
prepared to support an ally, at least within, I was thinking--
what I thought of was, is he going to exercise the [phrase in 
foreign language] option? Is he going to play his own sort of 
Falklands there? But he clearly backed off fairly quickly last 
Friday.
    So there is the scenario, as you mentioned, for potential 
military aggression, but I would not say it is a likely one at 
this time. And I think the evidence of the last week is that 
it, hopefully, will not replay itself.
    Mr. Burton. If I may make one more comment, not a question. 
I hope you are all right, and if we ever do have that kind of a 
problem, and it goes on for an extensive period of time, the 
economic chaos that would occur in this country would be 
severe. And we need to plan and move toward energy independence 
and not rely on foreign sources as much as we do.
    Mr. Tierney. Thank you.
    Mr. Welch, you are recognized for 5 minutes.
    Mr. Welch. Thank you. One of the themes that each of you is 
presenting, I think, is it is better for us to be engaged than 
to be confrontational in that within Latin America the 
countries that are engaged, rather than have a kind of populous 
confrontational approach to politics, seems to work better.
    And two questions, and maybe each of you can just address 
it very, very briefly, as we have 5 minutes. But what would you 
identify in the United States is the impediments to us to 
adopting a policy of engagement which requires, obviously, a 
certain amount of restraint when what are considered by many 
here are provocative actions incite us to be confrontational?
    And, on the other hand, what are those constraints in 
countries, say, like Venezuela where they choose confrontation 
in the relations with us over some type of cooperation?
    So, just very briefly, what are the things we have to do in 
this country to move toward cooperation in Latin America like 
the same? And I would really like to hear, briefly, each of you 
respond to that, and I will start with you, Mr. Goldwyn.
    Mr. Goldwyn. Skilled leadership and pay attention.
    Mr. Welch. Skilled leadership and what?
    Mr. Goldwyn. That there really is no impediment; we just 
have to have people who are charged with diplomacy and knows 
something about the region, pay attention to it, invest their 
time in it, and follow this policy. I mean, there really is no 
impediment to it. We just have other things that have crowded 
Latin America off the agenda, and sometimes particular 
political interests or constituencies have a disproportional 
influence over the people who get those jobs in the State 
Department.
    Mr. Welch. Right. Thank you.
    Mr. Goldwyn. So just skilled leaders.
    Mr. Welch. Mr. Sotero.
    Mr. Sotero. Knowing and understanding the issues in their 
complexity. And in the case of Brazil, one major constraint in 
the whole dialog has been for years now, the whole subject on 
trade negotiations which maybe now it is the opportunity with 
commodity prices this high.
    And maybe the American taxpayer does not need to spend this 
much public money to support the foreign sector. You could be 
much more selective in what you do here, and that could unlock, 
for instance, the DOHA Round, and get a lot of goodwill in 
Brazil. Brazilians like to engage with United States. There are 
400 plus American companies in Brazil. They have been there 
forever, and Brazilians think that both Ford and GM are 
Brazilian companies.
    So again, stay focused, pay attention, keep diplomats and 
people highly skilled, highly knowledgeable, about the region.
    And another example, a simple example, something that could 
do wonders to Brazil-U.S. relations, reengage in a negotiation 
of a tax treaty with Brazil. A tax treaty between Brazil and 
the United States would probably do more to bilateral 
relationships, bilateral engagement than any trade agreement in 
the foreseeable future.
    Mr. Welch. Thank you. Dr. Walser.
    Mr. Walser. I think the biggest challenge will be to 
continue to grow Latin America to move beyond the commodities 
boom, to get stable and sustainable growth that can carry out 
into the next decade. I think that the biggest challenge and 
the biggest constraint are developing Latin America's 
democratic institutions so that they truly deliver the 
democratic benefit.
    The problem we have is that we have said that if you vote, 
you are going to have a better government. Well, that does not 
necessarily win the case. Latin Americans vote, but they do not 
necessarily get better governance. Somehow or another, that 
institutional barrier, those political bodies that have stood 
in the way of genuine reform have to be reformed.
    Mr. Welch. Thank you. Mr. Farnsworth.
    Mr. Farnsworth. I would agree very much with your comment 
that, indeed, with Latin America engagement works a lot better 
than confrontation, and there are long historical reasons for 
that which we need not go into. But I think, as a general 
approach, that works.
    I think that to the extent that there are times when the 
United States finds itself needing to do something more 
directly or perhaps more quickly, to the extent we have already 
developed a reservoir of goodwill with our friends and allies 
in the region that can be called on to support us in those 
times of need, I think that is very good. And that has to start 
with an engagement now when times are not necessarily bad.
    Mr. Welch. Right.
    Mr. Farnsworth. So that we develop those strong relations.
    And the last point I would make on that is the one thing we 
really have not discussed today, is the whole idea of people-
to-people exchanges. I mean, the number of folks between North 
America and Latin America that are going back and forth is 
immense. And that in some ways is the best way to develop the 
relations with the neighbors to the South with one exception: 
And that is that, given the change to security paradigm in the 
United States since September 11th, and the appropriate changes 
that have occurred, nonetheless, the view from Latin America 
from students and visiting professionals and people who 
normally would simply travel to the United States and develop 
those relationships has been that, well, maybe it is a little 
bit more pain than it is worth.
    So they go to Europe, or they go to Africa, or they go to 
Asia. And so we are losing a whole cadre of emerging leaders 
from the region that we normally would have taken for granted 
as a developing relationship with the whole region.
    So to the extent that we can concentrate on things like 
increased Fulbrights, increased visitors exchange programs, 
increased cultural activities, I think that would be a very, 
very good place to consider.
    Mr. Welch. Thank you very much.
    Mr. Tierney. Mr. Shays.
    Mr. Shays. Two questions. First, I am stunned when the 
United States gets so actively involved in another country's 
election because, if it was in reverse, if Venezuela told me 
that I should support Barak Obama or John McCain or Hillary 
Clinton, I would probably do the exact opposite, if it was so 
aggressive.
    So tell me, why do we think that somehow our getting 
involved in their elections will get the result we want?
    Mr. Sotero. Let me say something as to Latin America. In 
Brazil, really what you think about our election really does 
not matter much. We are going to vote the way we are going to 
vote, like, I believe, it is exactly the same way Americans 
think and should think.
    In general, Brazil is a very big country. In other 
countries, I think that you are right in your assessment. Maybe 
by declaring your support to this or that you identify, you 
produce the opposite, you energize the position to that person.
    Mr. Shays. We would make it illegal for you to spend money 
in the United States. Is it legal for us to spend money in 
Venezuela or Brazil to help elect the candidate of our choice?
    Mr. Sotero. No. In Brazil, I know it is not legal at all.
    Mr. Walser. I do not think that the United States backs 
particular candidates. In 2006, you had, what was it, 11 or 12 
elections. There was probably one where there was some apparent 
interpreted as interference which was to, in Nicaragua, when 
the embassy--I think Ambassador Trivelli spoke against or 
interpreted statements against Daniel Ortega.
    I think we were very studious in keeping out of the Mexican 
elections, very close to us, very contentious.
    Mr. Shays. Well, I do not think we were in Venezuela. In 
fact, if we wanted to defeat him, we probably should have 
endorsed Chavez and said he was our closest friend, and we have 
been working all the time with him.
    Mr. Walser. I have always agreed. But I think that 
separately supporting, what I mean, both sides are doing 
through the MED and the NDIRI is supporting the institutions in 
political process. I think that is a legitimate undertaking 
which has been long endorsed by----
    Mr. Shays. As long as it is not partisan to favor one 
candidate.
    Mr. Walser. Right.
    Mr. Shays. Mr. Sotero, I have a number of wonderful 
Brazilians who live in my district who are there, illegally.
    Mr. Sotero. Yes.
    Mr. Shays. And they make huge arguments about why they are 
such good citizens in the United States. But I would love to 
know if I went to Brazil and extended my visa, and then sought 
to get work in Brazil, what would be the attitude of the 
government?
    Mr. Sotero. You would not be able to because we are 
actually, unfortunately, very bureaucratic in the way we do 
things. So you would not have any of the documents necessary to 
get employment in Brazil.
    Mr. Shays. Well, could I not get an employer to hire me, 
illegally?
    Mr. Sotero. Sir, it is unlikely. We have some illegal 
immigrants from the neighboring countries, 50,000 Bolivians, a 
number of people from Colombia that live in Brazil, illegally. 
They live in the informal sector which is very huge in Brazil 
because of excessive regulation. Half of new jobs created are, 
euphemistically, called the informal sector.
    But I fully understand what the problem is here. There may 
be, according to Brazilian government estimates there may be 
some 800,000 Brazilians living in the United States, about 83 
percent, that are estimated that they are----
    Mr. Shays. Let me tell you, they are wonderful neighbors. I 
mean, not next-door neighbors, but in the community. But it is 
something we are wrestling with, and it is just--anyway, thank 
you.
    Thank you, Mr. Chairman.
    Mr. Tierney. Thank you, Mr. Shays.
    Let me just ask, Mexico, by most of the accounts we 
anticipated today, may be out of oil in 2016. I think if they 
give almost 623,000 barrels to the United States, what is the 
impact on the United States when that happens? What is the 
impact on Mexico when that happens? Mr. Farnsworth.
    Mr. Farnsworth. Thank you, Mr. Chairman. I think it is a 
very important question, it is a very timely question.
    I think in the first instance, Mexico itself understands 
this. The president is a former energy minister. He is very, 
very capable, I believe. His energy minister is quite good. The 
head of PEMEX is a former Ambassador to Washington. They 
understand the issues, they understand the imperatives, they 
understand the urgency. In fact, right now the administration 
in Mexico City is trying to work with the congress, which it 
doesn't control a majority to try to get through legislation 
that would open up in parts at least some of this sector.
    The complication is, as you know, that this is a 
constitutional issue in Mexico, and it is deeply ingrained in 
the Mexican psyche, and it is not something that will be able 
to be changed, necessarily, until the----
    Mr. Tierney. Will you tell us a little bit about the 
constitutional provision and what might be done to it that is 
going to satisfy that psyche and also get to the result that 
you think is favorable?
    Mr. Shays. Why is it a constitutional issue, I do not know.
    Mr. Farnsworth. It was created in the Mexican constitution 
when the oil sector was nationalized during the revolution in 
the last century. And it has formed a basis of Mexico's 
understanding of itself as a nation, because what they 
essentially did is they, euphemistically, kicked out 
international oil company and international investors to be 
able to control the national resources and to reserve the 
resources for the Mexican people.
    And so the Mexican people, themselves, see ownership of 
these issues, and so it is not something that can just be 
changed by decree. It really has to be constitutionally 
reformed. And it would be like our own Constitution in a 
certain sense would need that type of reform. That is the 
complication.
    Now, having said that, there may be ways to change that 
with contracts that would allow in partnerships and sharing, 
and I think that is what is being explored right now, and that 
could be a short-term solution. Ultimately, in order to get to 
the reserves that people believe are there, particularly in the 
deep water of the Gulf of Mexico, Mexico needs investment, 
management expertise, and a better understanding of how to get 
to those resources which they currently do not possess.
    Mr. Tierney. So I am wondering, since that is such a short 
period of time, and constitutional changes take long periods of 
time--and you answered me in part there--what is it that we can 
do to work with them as they work to some of these sort of 
informal arrangements, or whatever? And do you think there is 
no arrangement that you can envision that would allow them to 
both keep the psyche intact that, this is our oil, but we are 
going to work cooperatively with other people and have them 
work for us to produce more oil?
    Mr. Sotero, you may comment.
    Mr. Farnsworth. Let me just make one quick point, if I can 
be responsive to the question, because I think that it is 
extraordinarily complicated for the United States to be helpful 
in that particular issue, and so working with friends and 
allies, for example the Canadians, who have developed a very 
interesting model for investment where the Canadians themselves 
continue to own the resources but yet have found a way to 
develop the resource and get them to market and monetize them.
    Mr. Tierney. I was wondering why they could not do that.
    Mr. Farnsworth. There are models out there. Brazil has done 
some very interesting things. Colombia is doing things, and by 
bringing the parties together for discussion with the Mexican 
body politic, I think that could be very helpful.
    Mr. Tierney. I have to tell you, I would assume that it is 
very interesting to people who think they want to own their own 
resources. I think Mr. Goldwyn mentioned that earlier, as why 
would you argue against that, particularly with a bad history 
in the past with people abusing it in fraud and waste, or 
whatever. But there has to be some accommodation where it all 
works.
    Mr. Sotero.
    Mr. Sotero. Well, Brazil used to have a state monopoly on 
oil exploration. PetroGrass was created in the 1953 year, and 
the slogan was, ``The Oil Is Ours.'' There was the same sense 
of identity.
    Well, the oil is ours, but we understand now to take it 
from down there for consumption, we need partners. We do not 
have all the money to invest in PetroGrass. We changed the 
model. PetroGrass has controlled 55 percent by the government, 
but its shares are in the stock market traded there, and we 
have waste contracts. There are foreign companies from all over 
the world working with PetroGrass, as PetroGrass works in 25 
other countries as a Brazilian multinational company.
    Now, I think it may be useful for the Mexicans, and there 
has been contacts to look into the Brazilian example. There may 
be some lessons, interesting lessons, there to make PEMEX 
become a more efficient company. It may sound as a 
contradiction in terms for Americans, but I can assure you 
PetroGrass is a state-controlled company that is very, very 
efficient because it knows precisely what market it operates, 
and that market determines that it has to be an efficient 
company.
    So I believe, again, maybe engagement in the hemisphere can 
open up ways for PetroGrass, and maybe later in the future even 
better than this, or to be better run.
    Mr. Tierney. Well, they provide such a large part of the 
revenues from Mexico, and if we think that we have immigration 
issues now, and I was expecting, Mr. Goldwyn, that you might 
want to comment on that--Dr. Walser or both of you--what 
happens if that dries up and there is no other resource.
    President Calderon is not able to increase the tax 
situation, as he has been trying to do. I would think that it 
becomes a large impetus for people to go where they can support 
their family somewhere.
    Mr. Goldwyn. Well, it depends on how they react. I am 
somewhat optimistic now that the party that was out had this 
idea. Now that it is not in power it is sort of against it. 
There is a potential compromise there which will allow probably 
not U.S. companies but other state-owned companies like Statt 
Oil and like PetroGrass to come in there in a very limited way, 
experimental way look in the Gulf.
    So I am somewhat optimistic. It can go two ways with a 
country like Mexico. This oil well is not always great for 
countries. One possibility is that Mexico makes itself much 
more competitive for manufacturing other kinds of business, and 
it sort of migrates out of the oil business. Or the other is it 
stands still and does nothing, and they just lose revenue, and 
then you have job loss, drop of standard of living, increased 
migration across the border, which is the U.S. concern.
    But there is this odd correlation between countries, you 
know, which do not have great oil wealth and their ability to 
reform their economy is to make them more prosperous, like the 
[phrase in foreign language] in the Middle East.
    The answer for us, though, is if Mexico declines in a 
significant way, we import more Middle East oil probably a 
little bit more from Africa, and significantly more from the 
Middle East.
    Mr. Tierney. And I am telling you it is not just a problem 
for us on immigration; it is a problem for them. There are some 
pretty good people, innovators that, you know, people that they 
know enough to go someplace else and make themselves a success; 
they'll probably do a bang-up job staying home on that.
    Anybody have any final statements? Dr. Walser, do you want 
to make a comment on that?
    Mr. Walser. Just that it is important to continue to grow 
Mexico. I mean, PEMEX loses 42 percent of its money to support 
the national budget. This money could be shifted, obviously, to 
investment if it could operate as a basic going concern.
    Tax reform, economic growth in Mexico could take some of 
the pressure off of PEMEX to allow them to invest in oil 
exploration, but again that is a long-term challenge.
    Mr. Sotero. Sir, as Eric mentioned, obviously, the findings 
of oil in Brazil has to be concretely verified. But they are 
very, very significant. PetroGrass, as I tell you, is a very 
competent company, is the world leader in deep water drilling. 
This oil is five kilometers down, but we already take oil from 
three kilometers down very well, and so it is a matter of 
investment, but there is, I think, a lot of positive thinking 
going on in Brazil that the country could emerge in a framework 
of 10 to 15 years as also an exporter of oil. So it could be a 
player in that market, also.
    Mr. Tierney. Thank you. Let me thank all of you for your 
participation today. We are going to revisit this issue, and we 
may take a congressional delegation down to the area to talk in 
more detail with people.
    We see this as a very serious issue of security as well as 
economics, and I think the challenges are enormous, but the 
opportunities are even larger on that, and you have helped us 
frame that issue today. So thank each and every one of you for 
your participation. We really do appreciate it. Thank you.
    [Whereupon, at 12:03 p.m., the subcommittee was adjourned.]

                                 
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