The Administration's Focus on Promoting Free Trade and Enhancing U.S. Trade and Export OpportunitiesDaniel Sullivan, Assistant Secretary of State for Economic, Energy and Business Affairs
Address to the National Association of Manufacturers
September 26, 2008
As Prepared for Delivery
Thank you. It is great to be back at the NAM, one of the premier organizations in Washington. I am delighted to be with you again to discuss our efforts to expand free and fair trade during this Administration and to look to the future as we continue to aggressively move forward with our trade agenda.
At the State Department, we ensure that all tools are deployed where and when needed, here and overseas, and add our own efforts—what I call the Total Economic Engagement approach to promoting economic growth and U.S. economic interests around the world. Rest assured that we understand the importance of U.S. manufacturing and are working tirelessly to open markets and break down trade barriers.
As the President said during his speech before the UN General Assembly, “one of the most powerful engines of development and prosperity is trade and investment, which create new opportunities for entrepreneurs, and help people rise out of poverty, and reinforce fundamental values like transparency and rule of law. Thanks to the President’s leadership in promoting trade and investment, the United States remains a global leader in manufacturing, services and agriculture.
The tremendous growth in U.S. exports has helped to strengthen our economy. Last year, the U.S. exported a record $1.6 trillion in goods and services. U.S. exports are 18% higher in the first half of 2008 than the same period in 2007. During the last 8 years, and despite great shocks to our financial markets and the global economy, the United States has achieved an outstanding record of vigorously promoting international economic freedom and prosperity, and in fostering development of emerging economies through innovative and sustainable new strategies.
As the President recently said, “This country is the best place in the world to invest and do business. Consumers around the world continue to seek out American products, as evidenced by record-high exports.”
Since 2001, our economy has faced multiple challenges from the September 11 attacks to natural disasters and the current financial crisis. The economy has weathered every one of these challenges and still managed to grow.
Without a doubt, trade has been a positive story for the U.S. economy and will continue to be the driving engine of economic growth. The latest trade figures show that our export boom has improved our trade balance – significantly reducing the trade deficit.
The events of the past week demonstrate our desire to move forward with our trade agenda. I just returned from New York, where we launched two important trade initiatives.
Pathways to Prosperity in the Americas
Over the last few years, my colleagues and I at the State Department have traveled throughout Latin America to strengthen our regional partnerships. During these trips, I have heard over and over again that our friends desire a closer relationship with the United States but are worried about rising protectionism. They fear that the Unites States is only a fair-weather friend. They fear that we will heed those voices that unjustly blame free trade for the economic and social challenges we all confront.
I join our partners in believing that free trade is not the problem. Indeed, free trade can help reduce economic inequality, improve labor standards, ensure that the products we purchase are safe, and put a stop to the environmental degradation that threatens our future.
The leaders released a communiqué with two key points:
To achieve this goal, Pathways members will work jointly to:
We believe Pathways will become a valuable tool for its members, each of which has demonstrated a strong commitment to increasing the opportunities for all of its citizens to fulfill their economic potential and aspirations. We plan to meet at the ministerial level before the end of this year and regularly thereafter to develop an agenda to advance these objectives and determine next steps.
Trans-Pacific Strategic Economic Partnership
Participation in this Agreement provides an excellent opportunity for the United States to actively engage in the Asia-Pacific through a high-standard agreement intended to promote trade liberalization and serve as a vehicle toward regional trade integration.
The proposed agreement would facilitate U.S. trade and investment by ensuring common trading rules and supporting U.S. economic interests in such areas as intellectual property rights, standards, transparency, labor rights, and the environment.
The Asia-Pacific region accounts for about 60% of world GDP and 50% of global trade. The current rate of economic growth in the region is faster than the world average, and the International Monetary Fund forecasts that it will remain higher through at least 2013.
The Trans-Pacific Partnership will help ensure the United States remains an integral part of this dynamic and growing market. Ultimately, the objective is to expand the membership of the Agreement to other nations that share our vision of free and fair trade. The Trans-Pacific Partnership could provide as one possible foundation for, and build momentum towards, a Free Trade Area of the Asia Pacific. The Trans-Pac partners and the U.S. will meet with potential new partners over the next few months to explain further the provisions of the Agreement and to discuss their possible participation in the negotiations.
We believe that these initiatives – Pathways to Prosperity in the Americas and the Trans-Pacific Strategic Economic Partnership – complement other priority U.S. trade initiatives including passage of the pending free trade agreements with Colombia, Panama, and South Korea, as well as the successful conclusion of the WTO Doha Round.
WTO Doha Round
Although the ministerial level Doha negotiations reached an impasse in July, WTO members did make tremendous progress in moving the Round forward. The linchpin to achieving a successful conclusion to Doha remains securing meaningful market access from key emerging markets in Non-Agricultural Market Access (NAMA), agriculture, and services.
To generate the kind of economic growth, development and poverty alleviation that we all committed to when we launched the Round, key emerging markets, particularly India and China, must make commitments that result in new trade flows, not new trade barriers. The economics are real – Doha will set the terms of trade through the next decade and beyond. The IMF projects that 50% of global economic growth between now and 2013 would be provided by China, India, Brazil, Argentina, and ASEAN.
The U.S. continues to work toward a strong NAMA package to create real market access for U.S. exporters. We continue to press for an ambitious sectoral element in NAMA that can provide real market openings in advanced developing countries. The U.S. needs a NAMA outcome that includes commitments on key sectors, such as chemicals, electronics, industrial machinery, and forest products. The U.S. is also a sponsor of sectorals on healthcare, gems and jewelry, and sports equipment and will continue to promote them.
We seek constructive engagement on these sectors from advanced developing countries (such as Brazil, China and India) so that we can understand their specific sensitivities and work to address them through different options in each sector. We will remain engaged with USTR and with NAM and U.S. industry as these discussions progress.
FTAs with Colombia, Panama and South Korea
The economic benefits are clear. The countries that we have FTAs with account for less than 9% of non-American global GDP, but purchase more than 40% of our exports.
It’s popular to criticize the pursuit of free trade agreements by pointing to our trade deficit, but these criticisms are misleading. The U.S. trade surplus has more than quadrupled with countries that have become FTA partners during this Administration, from $3.8 billion in 2000 to $21 billion in 2007.
At the beginning of the Administration, the U.S. had three FTAs in force. Today, we have agreements with 14 countries as well as three approved by Congress but not yet in force. Now is the time for Congress to act on the three pending FTAs with Colombia, Panama and Korea. For decades, a bipartisan consensus in support of free trade existed. We need to rebuild that consensus so that we are participating in the global economy.
The President met with Colombian President Uribe on September 24 and reaffirmed our support and commitment to Colombia, and to securing Congressional approval of the FTA. Today, more than 8,000 U.S. companies export to Colombia and about 84% of them are small and medium-sized enterprises. U.S. goods exported to Colombia in 2007 totaled $8.6 billion, an increase of nearly 28% from the previous year.
With strong U.S. support, Colombia has come a long way over the past decade. Security has vastly improved, terrorist groups are being pushed back, and the economy is growing rapidly. GDP per capita has more than doubled since 2002, while poverty continues to decline. The FTA is the tool that the Colombian people need to sustain and build upon these accomplishments.
If we do not seize the opportunity to approve the FTA with Colombia, our commitment to one of our strongest allies in the region would be called into question. Instead, we need to recognize the tremendous success Colombia has had in becoming more secure, fighting terrorists and providing economic opportunities for all Colombians.
Rejecting the FTA with Colombia would not help American businesses. In fact, the U.S. charges virtually no tariff on Colombian products coming into America, while U.S. goods entering Colombia pay between a 7 and 10% tariff. This arrangement has cost American firms over $1.25 billion in tariffs, and who knows how much in lost sales. The U.S.-Colombia FTA, if ratified by Congress, would change that and put U.S. producers on an equal basis as Colombian producers.
The second FTA waiting for Congressional approval is with Panama. Despite high tariffs established by the Panamanian government, more than 5,600 U.S. companies export to Panama, and over 80% of them are small and medium-sized enterprises. Panama is a growing market for the United States, as evidenced by the 38% increase in goods exported to Panama, reaching $3.7 billion in 2007. Also, the Panamanian Government is launching a major renovation and expansion of the Panama Canal, a $5.25 billion effort to expand its capacity. This is a win-win for us – American enterprises will be integral to the expansion project and will then benefit from decreased transportation costs for goods flowing through the canal.
The FTA with Panama is also of important strategic interest to our country. Panama’s increasingly open market has given its citizens strong economic growth of 11% in 2007, unemployment below 10%, and one of the highest per-capita incomes in Latin America. The FTA will allow trade to further Panama’s economic development and poverty reduction.
The third FTA we hope will be put to a vote in Congress is with South Korea. U.S. businesses in 2007 exported $34.7 billion worth of goods to South Korea. Korea has taken bold steps over the last 10 years to open its economy to foreign competition and investment, becoming our 7th largest trading partner with two-way trade in goods topping $80 billion in 2007. South Korea is the world’s 13th largest economy with a GDP of nearly $1 trillion.
Korea currently charges almost 7% tariffs on American manufactured goods. Our average tariff on Korean products is about 2%. The FTA will level the playing field and make our products more competitive. Korea is a vital force for stability at a time of great challenge and change on the Korean peninsula and the broader Northeast Asia region. Ratification of the FTA will strengthen America’s critical strategic partnership with Korea, which dates back more than fifty years. The FTA will also ensure that the U.S. continues to be a powerful voice for security and prosperity in the region. It will send a strong signal to Japan, China, and other Asian trading partners that they will need to reform and open up their markets or risk falling behind.
Securing Congressional passage of these three FTAs is a key Administration priority, and President Bush reiterated this commitment to Korean President Lee during their August summit. We appreciate NAM’s strong support of these FTAs and our trade agenda.
The President’s policy statement has guided our subsequent work in multilateral and bilateral settings devoted to open investment. The 2007 G8 summit represented a success in bringing the open investment agenda to the leaders’ attention. Likewise, the Heiligendamm process launched two years ago brings major emerging countries – Brazil, China, Mexico and South Africa – into the multilateral discussion of open investment policy.
Furthermore, at the OECD, the State Department leads our efforts on investment and we continue active participation in the Freedom of Investment project.TheFreedom of Investment and National Security Project, which involved key OECD member governments and key emerging economies, including Russia, China, Brazil and India, developed policy guidelines to assist governments in addressing legitimate national security concerns without compromising the long standing open investment policies promoted by the organization. We look forward to participating in the eighth Freedom of Investment roundtable at the OECD Investment Committee meetings next month.
Our success in advancing policy principles which underlay our own CFIUS (Committee on Foreign Investment in the U.S.) process provided the platform for OECD’s rapid response to the October 2007 request by the G7 Ministers that the OECD develop best practices for the treatment of investment from sovereign wealth funds (SWFs) by recipient countries. NAM’s commitment to the investment principles of transparency, clarity and national treatment are reflected in these best practices. We were also able to use the OECD Ministerial declaration to encourage commercial behavior on the part of SWFs.
These discussions do influence the policy environment in key markets and create the potential for more tangible gains in the negotiation of bilateral investment treaties (BITs). We are actively pursuing bilateral investment treaties with key emerging markets. BITs are important tools to protect investors and expand their access to foreign markets. They deepen our economic relationships and support open investment regimes. Within the U.S. Government, the Department of State co-leads on BITs with the Office of the U.S. Trade Representative.
In June at the Fourth meeting of the U.S.-China Strategic Economic Dialogue (SED), the U.S. and China agreed to launch BIT negotiations. The first round of negotiations was held in early September. We have scheduled a second round to be held in mid-October (Oct. 13-17), and we are working to make substantial progress in the coming months.
At the U.S.-Pakistan Economic Dialogue on August 11, we and the Pakistanis agreed that we have a strong interest in resuming BIT negotiations and that our investment experts should meet as soon as possible to do so.
We have recently proposed to India that we schedule a first round of negotiations.
Earlier this year, in February, the President signed a BIT with Rwanda during his visit, which is a very high-standard agreement and an outstanding precedent.
We are concerned that China's stepped-up lending to developing countries risks saddling them with additional debt. We would like China to do more to coordinate its aid programs with other donors and urge it to incorporate debt sustainability criteria into its lending practices. We encourage China to become involved overseas in ways that enhance rather than undercut international efforts to nurture good governance and sustainable growth.
China must also do its part in addressing global imbalances by stimulating domestic demand, reforming its financial markets, and allowing greater exchange rate flexibility. As Secretary Paulson has said, "strengthening and reforming financial markets will ultimately allow the Chinese to freely float their currency."
As part of that effort, we held the fourth Strategic Economic Dialogue (SED) meetings with the Chinese in Annapolis in June, and under Treasury Secretary Paulson's leadership we will meet again with Chinese economic leaders in Beijing in December. While we are using SED meetings to discuss longer-term, cross-cutting economic issues that affect US-China economic relations and the global economy, we also want to make progress on more pressing issues that strain our relationship in the short term, such as China's inflexible currency and weak IPR protection.
In preparation for the December SED meeting, we are working closely with the Chinese on several strategic areas. We are discussing the development of efficient service sectors and the creation of an innovative economy. Our two countries have agreed to a 10-year cooperative plan to promote sustainable and clean energy use and to better protect the environment. We are also discussing how China can rebalance its growth through a strengthened social safety net and increased household consumption. Progress on these issues will benefit not only China and the U.S. but will also contribute to stronger growth for the entire global trading community.
We are concerned with Russia's actions. As the President has said, Russia's ongoing actions "raise serious questions about its intentions in...the region. In recent years, Russia has sought to integrate into the diplomatic, political, economic, and security structures of the 21st century. The United States has supported those efforts." Russia is now putting its aspirations at risk.
And as Secretary Rice said last week, “To reach its full potential, Russia needs to be fully integrated into the international political and economic order. But Russia is in the precarious position of being half in and half out. If Russia ever wants to be more than just an energy supplier, its leaders have to recognize a hard truth: Russia depends on the world for its success, and it cannot change that. . . . Russia’s bid to join the World Trade Organization is now in jeopardy.”
We still believe Russia's accession into the WTO would be to the longer term benefit of everyone, including your businesses.
With regard to our trade relationship, we will take steps to broaden and deepen trade relations, including working under the U.S.-Georgia Trade and Investment Framework Agreement (TIFA), exploring negotiation of an enhanced bilateral investment treaty, proposing new legislation to expand preferential access to the U.S. market for Georgian exports, and providing trade-related technical assistance, including by helping Georgian producers take the fullest possible advantage of the Generalized System of Preferences (GSP) program.
Our doors are always open to you to listen to your concerns, and we look forward to your advice and assistance in continuing our free and fair trade agenda. Thank you for your attention.