Text: The United States and the Future of Fair Trade Alan P. Larson Assistant Secretary of State for Economic and Business Affairs

BG9708E | Date: 1997-02-20

I would like to address a challenging topic: the United States and the Future of Fair Trade. Let me set forth two propositions at the outset.

The first proposition is that, to an extent unmatched in our history as a nation, America's economic well-being today depends upon our ability to compete successfully in the world economy. The second proposition is that freer trade serves American interests and that the United States must take the lead in shaping a progressively more open, rules-based world trading system.

Prosperity and the World Economy

Let me elaborate on the first point. In 1960, trade -- exports plus imports -- was equivalent to just 9 percent of U.S. gross domestic product, not much different from what it was all through the nineteenth century and the first half of this century; today, however, that figure is 23 percent. Early next century it will almost certainly be above 30 percent. During the last ten years, growth in exports has accounted for roughly one-third of the nation's growth in output and in jobs.

Exports of goods and services exceeded $780,000 million in 1995, up $82,000 million over 1994. U.S. exports are up more than 31 percent since 1992. America is the world's export powerhouse -- having surpassed Germany as the world's leading exporter. The United States has been ranked number one on competitiveness for three years in a row, and the American economy continues to produce higher living standards than those in Europe and Japan.

These results provide strong evidence that our trade policy is working. The underlying theme of that policy was summed up by President Clinton shortly after he took office: "We must compete, not retreat." Five broad principles underlie this policy.

First, more than ever before, our prosperity as a nation depends on our ability to compete in international markets. Ninety-five percent of the world's consumers live outside our borders, many of them in dynamic emerging markets in Latin America and Asia, markets that are growing four times faster than our traditional export markets. We can benefit from their growth, selling the goods we produce to consumers around the world, capitalizing on U.S. ingenuity, productivity, and hard work -- but only if their markets are open to our products, and our markets are open to their products.

Second, opening markets is the best strategy for creating high wage job opportunities for American workers. Roughly eleven million American jobs are supported by exports; and those are good jobs. Exporters pay workers on average ten percent more than other employers. Moreover, a recent study found that exporting companies "grow jobs" almost 20 percent faster than other companies.

Third, America benefits from free trade that is also fair trade. We use our domestic trade laws aggressively when foreign firms attempt to dump their goods here at prices below the cost of production, or when they benefit from illegal subsidies. Moreover, we have shown that we will not hesitate an instant to use the dispute settlement system of the World Trade Organization (WTO) to enforce our rights. This year alone, we have filed 12 dispute settlement cases in the WTO, more than any country in the world.

At the same time, we are working in the WTO to foster a greater understanding of core labor standards. These prominently include the prohibition against child labor and the guarantee that workers have the right to association.

Workers in this country can compete with workers anywhere. In industry after industry, America's workers are the most productive in the world. American workers don't need protection, just a chance to compete in foreign markets.

Fourth, staying competitive depends on helping our workers and managers to upgrade their skills through training, education, public-private cooperation, and local initiative, especially by community colleges. These efforts are key to maintaining this competitive edge.

Fifth, expanding trade is a win-win proposition, not a zero-sum game. When our trading partners prosper, American workers and companies benefit from increased sales abroad and income.

The Need for U.S. Leadership

Now, I'd like to return to my second major proposition: the need for an activist U.S. trade policy that strengthens international rules. The U.S. must take the lead in solving problems that inevitably arise as we move into a globalized, interdependent economy. Much as we might wish it to be otherwise, no other country or group is able to assume that role. The EU, with its high unemployment rates and preoccupation with monetary union is too fundamentally introspective. Japan's unfortunately insular attitudes and traditional ambivalence about trade precludes sustained global leadership. The United States' preeminent influence on the world stage leaves us with the capability -- and I would add, the responsibility -- to assume this leadership.

Our support for global trade negotiations and the World Trade Organization reflects America's vital interest in a global system open to trade, investment, and financial flows. The new World Trade Organization enshrines common trading rules that will help ensure that others are held to the same high standards by which we have played. The first year of the World Trade Organization has been highly successful. At the first WTO-sponsored gathering of trade ministers in Singapore in December, 1996, we strengthened it as an institution by:

-- Expanding membership in a commercially meaningful way. State Department officers are at work in Russia, China and the Newly Independent States pushing for market reform and liberalization to insure that their entry into the trading system create market opportunities for U.S. industry.

-- Our overseas missions are pressing governments to follow through on promised domestic reforms.

-- Laying the groundwork for addressing new trade issues, such as overseas bribery intended to win commercial contracts. This has become a major campaign, in the UN, in the OAS and NAFTA, in other regional and global trade conferences, such as the WTO. We believe that illicit payments in the pursuit of commercial contracts is criminal behavior, and we will continue to pursue that goal, particularly in the Organization for Economic Cooperation and Development, the OECD. The practice of offering and receiving illicit payments is a drag on vibrant trade, weakens rule-based trading systems, and lessens the transparency and practices of good governance which most of the world has agreed upon.

-- Fighting to further reduce tariffs on key sectors of interest to the U.S. -- such as information technology. We are also working to get a high-quality agreement in the WTO on basic telecommunications -- a field in which American industry is a major technical leader.

Some of you may have heard a lot about the WTO and sovereignty. Yes, we are subject to the same rules as other WTO members; we fought for those rules and we believe America benefits from having a strong trade referee. As I have noted, we are using these rules to level the international playing field. But the WTO has no power to change U.S. laws. Only Congress can do that.

Some global efforts are being pursued outside the WTO. I am personally involved in negotiating through the Organization for Economic Cooperation and Development -- a group of 26 leading industrialized countries -- an agreement which opens new investment opportunities and will ensure a high standard of protection for U.S. investment overseas. This Multilateral Agreement on Investment will further liberalize investment possibilities and provide for greater protection for investors and their capital.

In recent years, the vision of freer trade has been the driving force behind ambitious efforts to increase regional cooperation. Initiatives in Asia-Pacific and in the western hemisphere commit some of the largest and fastest-growing countries in the world to eliminate barriers to foreign trade and investment over the next two decades. To give you a sense of the magnitude of the opportunities these markets represent, I need only note that our merchandise exports to Asia have risen 58 percent in the last three years, while merchandise exports to South America have risen 42 percent.

APEC, the Asia-Pacific Economic Cooperation Forum, is a good example of our efforts to build our ties with the world's fastest-growing economies. In the three years since President Clinton hosted the first summit of APEC leaders, APEC has been transformed into a dynamic forum that is setting the agenda for trade and investment liberalization in the Asia-Pacific region. APEC has set an ambitious goal -- free trade and investment in the region by the year 2010 (2020 for developing countries). APEC is also exploring steps to provide business benefits in the near term, such as streamlined customs procedures, more transparent telecommunication regimes, and reform of trade-restricting technical standards

The countries of the Western Hemisphere are working toward the development of a free trade area of the Americas by 2005. At a recent meeting in Cartagena, Columbia, trade ministers reaffirmed this commitment, reiterated a mandate to working groups to continue to set the stage for negotiations, and agreed on immediate steps to start us toward our goal such as the deregulation and modernization of customs procedures.

Finally, I'd like to briefly mention Japan and China, both examples of intensive bilateral efforts to ensure market access. In recent years, the U.S. has reached 22 market opening agreements with Japan in areas such as autos and auto parts, telecommunications, investment, and intellectual property.

Our approach is showing results. The merchandise trade deficit with Japan decreased from $66 billion in 1994 to $59 billion in 1995, the first decline in four years. And the trend continues to head in the right direction. Meanwhile, U.S. exports to Japan have grown 34 percent since 1992. Exports of autos and auto parts to Japan are up 35 percent in 1995, with vehicles alone up around 50 percent. Japan is our largest and fastest growing market for agricultural products, with exports reaching $11 billion in 1995.

China may well be the trade challenge of the next decade. It is profoundly in our interest to see China accept trade obligations of the WTO and, more generally, accept the obligations of membership in the community of relations. We remain deeply concerned, for example, about Chinese activities that, in the past, risked spurring the proliferation of nuclear weapons capability. We also have pressed hard for China to implement faithfully its past agreements to protect our intellectual property rights.

At the same time, the President has decided it does not serve American interests to condition normal trading relations with China on an annual report card on their human rights performance. We believe that trade does open China to Western influences and we actively pursue our human rights concerns directly.

Serving You: America's Desk

Our bottom line is to actively negotiate and enforce agreements -- be they global, regional, or bilateral -- that advance, promote, and protect U.S. interests. To reinforce our ability to do this, we've created at the State Department what we call the America desk. Behind that desk are officers in the State Department and economic officers in Embassies in every corner of the globe working on a very practical level to ensure that American business and workers can compete in the global economy. In a world of limited resources, our Embassies and economic officers provide a very cost-effective out-reach to foreign governments to change the business environment and safeguard our interests in world trade.

Our people are on the ground in more than 250 posts around the world making it their business to advance U.S. interests in a very hands-on way. Let me give you two recent examples:

-- Our economic section in Angola successfully guided a U.S. company through litigation in local courts that saved them $35 million in back taxes.

-- In El Salvador, our Embassy pressed the national telecom company to honor a $50 million contract with an American company.

Our Ambassadors and economic officers also lead and participate in negotiations on economic agreements, including civil aviation, tax treaties, investment agreements, intellectual property rights protection, and market-opening measures. Our embassies are the watchdogs in the field monitoring the implementation of agreements to insure U.S. interests are protected.

In conclusion, let me reiterate that foreign trade is more important to our prosperity than at anytime since the Declaration of Independence. We should be optimistic about our future since the U.S. economy is well-positioned to compete successfully. It is an important American interest to pursue such an activist trade policy, which can do so much to strengthen global trade rules and ensure our free and fair engagement in the business of this rapidly changing world.