of Public Affairs
Under Secretary of Commerce for International Trade
Grant D. Aldonas
"International Trade Administration:
The Commerce Department's Trade Policy Agenda"
U.S. House of Representatives
Committee on International Relations
June 21, 2001
Thank you, Mr. Chairman, Congressman Lantos, and Members of the Committee, for inviting me to testify before the Committee on International Relations. I am honored to testify before a Committee whose work is so tightly woven into the fabric of our own nation's history. The Committee traces its roots to the Continental Congress in 1775. The Continental Congress established this Committee's forerunner, the Committee of Correspondence, as the first institution created to represent the United States in foreign affairs. Benjamin Franklin served as its first chair, and throughout its history, the Committee has been composed of some of America's most able legislators, statesmen, a future President - James K. Polk served on the Committee 1827 to 1831 - and a past President - John Quincy Adams, became the Committee's chairman in 1842, after having served as the nation's chief executive.
Mr. Chairman, that great tradition continues. Your activism and energy is reflected in this Committee's ambitious agenda. I applaud you for holding this hearing to enable us to discuss the importance of our trade policy agenda. Both Secretary Evans and I welcome the attention from the Committee in its leading oversight role. We look forward to establishing an effective working relationship with you and your staff. Secretary Evans asked me personally to convey his interest in your advice and counsel as we represent the United States commercial interests abroad.
An American Legacy of Freedom
Mr. Chairman, the President's trade agenda is the focus of our work in the International Trade Administration. President Bush believes, and I agree, that trade means considerably more than just economic growth, more higher-paying jobs, and a rising standard of living in America. Trade is ultimately about freedom.
America has always been a trading state, and commerce has been the life's blood of our democracy. It is often forgotten that British restraints over the American colonists' freedom to trade, particularly the Stamp Act, led to the Boston Tea Party and helped trigger the revolution that followed. The freedom to trade has been a recurring theme in our history.
Ever since Alexander Hamilton penned the Report on Manufactures in 1795, the question has been whether free trade was in the best interests of all Americans. Tariffs were a divisive issue in the 1800s, when the Tariff of 1828 - also called the Tariff of Abomination - furthered a regional split between north (which sought protection from foreign industrial imports) and the south, fueling economic tensions that became a factor leading to the Civil War. In 1896, in the west, William Jennings Bryan decried the gold standard - the "Cross of Gold" - and attacked tariffs - tariffs that eastern manufacturers wanted to maintain in the face of complaints from western farmers.
Restraints on world trade have been one of the leading causes of international friction as well. The Smoot-Hawley Tariff of 1930 - the last tariff schedule enacted line-by-line by the U.S. Congress - produced the highest tariffs overall in our history, triggering retaliatory tariffs by our trading partners and disrupting the flow of international trade. As former Senator Daniel Patrick Moynihan has said, "any short list of events that led to the Second World War would include the aftermath of the Smoot-Hawley Tariff."
The Economic Case for Free Trade
More recently, critics of free trade and open markets focused on the advent of the North American Free Trade Agreement (NAFTA) and the implementation of the Uruguay Round of multilateral trade negotiations that created the World Trade Organization (WTO). Critics as diverse as Ralph Nader and Pat Buchanan argued that the NAFTA and the Uruguay Round would destroy American manufacturing and impoverish American workers. They maintained that trade would encourage a race to the bottom that would erode America's labor and environmental protections. They claimed that these trade agreements would only benefit the powerful multinational corporations.
Well, what happened? Let's look at the hard facts. Over the last decade, while the United States was negotiating and implementing the NAFTA and the Uruguay Round, the U.S. economy achieved the highest rate of sustained economic growth we have seen in a generation. That produced the longest period of uninterrupted economic growth in our nation's history. Inflation fell to near zero; unemployment fell below 4 percent.
Did trade destroy America's manufacturing base? Not at all. In constant 1996 dollars, manufacturing's share of GDP has held steady at slightly over 17 percent between 1987 and 1999. Between 1992 and 2000, when the overall economy grew by 35.4 percent, manufacturing output increased by 54 percent. Productivity in manufacturing has grown at an average rate of 4.3 percent during the current business cycle, and it accelerated to a 5.3 percent pace in 1996-2000. Liberalized trade is a boon to the U.S. manufacturing base, which benefits from a greater supply of inputs at lower prices, enabling U.S. manufacturers to be globally competitive.
I'd like to add that services make up an increasingly large part of both the U.S. and the global GDP. Global services trade was valued at $1.4 trillion in 1999, which is 19 percent of 1999's nearly $7 trillion in global goods and services trade. We estimate that some $296 billion in U.S. services exports supported 4.4 million jobs in 2000, up significantly from 1994 when $185.4 billion in services exports supported an estimated 3.4 million jobs.
Did trade hurt the American worker? The U.S. economy has created more than 20 million new jobs since the early 1990s. Since 1995, total U.S. private sector productivity has increased 3 percent a year and real wages are up. Exports supported some 12 million U.S. jobs this past year. Workers in jobs supported by these exports receive wages 13-18 percent higher than the national average. Estimates of the effect of trade liberalization through the Uruguay Round and the NAFTA suggest that, between higher incomes and lower prices, the average American family of four benefitted $1200-$2000 annually.
Did expanding international trade opportunities lead to the erosion of environmental protections or of U.S. labor laws? To the contrary, the U.S. environmental laws remain on the books and we benefit from cleaner air and water. NAFTA, in fact, proved to be a catalyst for environmental cooperation between the United States and Mexico that did not exist previously.
On the labor front, strong worker protections remain in place and have been reinforced by a more active international agenda. That agenda includes active American support for the International Labor Organization declarations promoting freedom of association, collective bargaining, elimination of forced and compulsory labor, abolition of child labor, and nondiscrimination in respect of employment and occupation.
I firmly believe that the real nexus between trade, labor and the environment is that trade contributes to rising standards of living, and rising standards of living are the key to achieving higher labor and environmental standards. Some studies have shown a positive link between rising per capita income, to which trade contributes, and improved labor and environmental performance.
That is why we must ensure that, whatever steps we take with respect to trade and labor and trade and the environment, we do not undercut the most important driving force behind improving both labor and environmental standards - trade and economic growth.
Were big companies the only ones to profit from trade liberalization? Our data shows that 97 percent of U.S. merchandise exporters are small- and medium-sized companies. Their exports accounted for $161.7 billion in 1998, or 29% of the total dollar value of our exports.
U.S. export trade has expanded even faster than the U.S. economy. Exports of U.S. goods and services increased from $57 billion in 1970 to $1.1 trillion in 2000. That represents an increase of more than 10 percent per year and a doubling of U.S. exports roughly every 7 years.
Trade has provided enormous benefits worldwide. WTO figures indicate that tariffs on manufactured goods averaged nearly 40 percent at the time the GATT was created in 1947. By the end of the Uruguay Round, for developed countries, those rates had fallen to below 5 percent. During that same time, trade increased 16 times. The OECD has estimated that the Uruguay Round delivers annually the equivalent of a $200 billion tax cut to consumers world-wide.
That does not mean that our work is done. A recent study by Robert Stern at the Gerald R. Ford School of Public Policy at the University of Michigan underscores that point. Professor Stern estimates that a one-third reduction in global barriers to trade in agriculture, services, and manufacturing, would yield $613 billion in world economic growth, the equivalent of an economy the size of Canada. Eliminating all trade barriers would boost global growth by $1.9 trillion, the equivalent of adding two Chinas.
What is still more important, in human terms, is that trade helps lift countries out of poverty. According to the OECD, developing countries with more open markets achieved twice the rate of economic growth of those that kept their markets closed.
In short, the economic case for free trade is unassailable.
The Moral Case for Free Trade
As President Bush has said, however, free trade is about more than just material well-being; it's a moral imperative. The genius of the free enterprise system is that it relies on and encourages human freedom. Free men and women conducting their business in free markets can pursue their own economic destinies and go as far as their drive, dreams, talents and initiative take them. In the end, that requires freedom of opportunity and freedom of choice, politically as well as economically.
President Bush has said that free trade helps create the habits of liberty that profoundly affect a man or woman's view of themselves and their society. With freedom comes the responsibility to account for one's own actions and the obligation to demand from governments policies that unleash human potential. Freedom is not served when governments erect barriers to individuals' success, whether those barriers are political, social or economic. And, freedom is not served when governments erect barriers that prevent people from providing for themselves and their families.
In the United States, we have come to trust the relationship between economic development and human freedom. Government's role is to create the environment in which our people can succeed on their own merit - to give them the freedom to use their God-given talents to develop a sense of pride and hope. This encourages them to build better futures for their families, their communities and themselves.
In fact, as Amartya Sen, the Nobel-prize winning economist, has made clear in his writings, individual rights are inextricably linked to economic freedom. That is because freedom is indivisible. When we trade, when we press for open markets, when we call for a level-playing field, it is ultimately in the interest of all Americans and our friends abroad. The freedom we cherish is the key to our economic future because it opens doors both economically and politically. Freedom is ultimately our most important export.
The President's Trade Agenda
With that, let me turn to the President's trade agenda and the role I expect the Commerce Department's International Trade Administration to play in that effort. Since the conclusion of the Uruguay Round, the United States has lost its leadership role on international trade. Our negotiators have been forced to sit on the sidelines while the game has gone on without us.
President Bush recently observed that, "Free trade agreements are being negotiated all over the world, and we're not party to them." There are more than 130 preferential trade agreements in the world today. The United States belongs to only two. The President's point is that we have to get off the sidelines and back into the game.
The President intends to press forward bilaterally, regionally, and multilaterally, to expand our trade and the economic opportunities that it creates for all Americans. When the President laid out his international trade legislative agenda in May, he identified the specific trade negotiating objectives he intends to pursue in order to advance America's interests. That agenda can be summarized simply. Our goal is to eliminate all barriers to the free flow of American goods, services, investment and ideas. That basic principle applies with equal force whether we are talking about soybeans, aircraft, financial services, energy, or software.
One key element of our strategy is the renewal of the President's Trade Promotion Authority (TPA). President Bush has asked Congress for renewed trade negotiating authority. Whether or not Congress grants that authority rests ultimately on trust - trust that the President will make sure that our trade policy works for all Americans. We expect to earn that trust.
Our Constitution grants Congress the power to regulate foreign trade, and, as this Committee's work reflects, Congress plays a large role in shaping our foreign policy. It is the President's job to represent the American people at the negotiating table with foreign governments. TPA represents a workable means of accommodating Congress' authority with the role of the President as the nation's voice in foreign affairs. It reflects an agreement between the President and Congress on the conduct of trade negotiations and the implementation of any resulting agreement.
Under TPA, the President works with Congress on trade negotiations from the outset, both in setting the U.S. negotiating agenda and in consulting throughout the course of trade talks. In addition to that ongoing right of involvement, Congress preserves its ultimate role in determining whether the results serve the long-term interests of the United States by voting "yes" or "no" on any resulting agreement.
It is often said that we don't need Trade Promotion Authority until an agreement is concluded and Congress has to vote on its implementation. What that argument ignores is the fundamental role that Congress was intended to play in setting our trade policies under the Constitution. In fact, what Trade Promotion Authority really provides is a vehicle to ensure that the Congress and the President have agreed on our objectives and on how they will work together to achieve them. This open process, in which public comment is actively sought, allows problems to be identified and resolved during negotiations.
Our intent is to work closely with the Congress, not only for the passage of Trade Promotion Authority, but to rebuild the political consensus necessary for our negotiators to engage with their counterparts at the negotiating table. In the President's view, the Members of Congress are indispensable partners in this enterprise.
The Commerce Department's Role in Trade Policy
Mr. Chairman, you requested an overview of the Commerce Department's role in U.S. trade policy, our role in trade promotion, and our relationship with the Office of the United States Trade Representative. The International Trade Administration (ITA) serves as the principal advocate for American enterprises doing business overseas. ITA and its predecessors have done so since the establishment of the Department of Commerce and Labor in 1903. (The Department of Commerce was established as a separate department in 1913.) Language in the Department's original authorizing statute, "to foster, promote and develop the foreign and domestic commerce of the U.S." has served as the Department's principal authority to promote exports since its establishment.
ITA, in its current form, was established in 1980. ITA strives to create economic opportunity for U.S. workers and firms by promoting international trade, opening foreign markets, ensuring compliance with our trade laws and agreements, and supporting U.S. commercial interests at home and abroad. ITA is a $334 million agency with over 2,430 employees, and has four main operating units: Market Access and Compliance (MAC), Trade Development (TD), the Commercial Service (CS), and Import Administration (IA).
ITA and the Department have three significant roles in the trade negotiating process. First, our goal is to build our negotiating objectives from the ground up by focusing on the needs of U.S. businesses. The Administration has begun a series of meetings with industry to discuss our trade agenda. I am also consulting with our industry advisory groups. Earlier this week, I met with our District Export Councils at their national conference. Our goal is to cast a wide and open net to make sure our negotiating objectives reflect the current and future needs of American industry. I believe that this is an important step towards rebuilding the consensus on trade.
Second, ITA's units participate in trade negotiations in a variety of ways. ITA develops negotiating priorities, recommends tariff negotiation procedures, and identifies non-tariff barriers. ITA's expertise in trade analysis, database tools, and coordinating policy across industry sectors enables Commerce to provide invaluable assistance to USTR during negotiations. And we actively participate in the negotiations themselves. With our country and functional expertise, ITA has both led and supported bilateral and multilateral negotiations.
Third, ITA is a key player in WTO accession negotiations. ITA provides industry expertise on U.S. export priorities and identifies changes in countries' laws needed to bring their trade regimes into conformity with WTO rules. ITA identifies subsidy practices of the applicant country and plays a lead role in negotiating effective WTO subsidy commitments and transparency requirements for that country.
Monitoring, Compliance and Enforcement
Compliance is the job of everyone in ITA. While there may be honest disagreements about trade, no one disagrees that we should ensure our firms actually see the benefits of the agreements we reach. MAC plays a lead role, but all of ITA's units work on ensuring that foreign countries comply with the agreements that they sign with us. Even our Senior Commercial Officers, who work in Embassies abroad, now have compliance as a component of their performance evaluations.
Our Compliance Program ensures that all parts of ITA work together. This involves bringing together all parts of the organization, particularly the country desk officers, industry specialists, Commercial Service Officers, and legal experts in the Office of the General Counsel. The Trade Compliance Center (TCC) holds bi-weekly meetings attended by country desk officers, industry analysts and other experts to review trade complaints and develop compliance action plans to resolve these complaints. When a compliance complaint is received, the TCC puts together a team of experts, including country desk, industry, functional and legal experts. In addition, technical experts at the Department's Patent and Trademark Office and National Institute for Standards and Technology provide valuable expertise on intellectual property rights protection and standards-related issues.
The Trade Compliance Center has established designated monitoring officials (DMO) throughout ITA to ensure that foreign countries comply with the agreements that they sign with the United States. Each trade agreement has a DMO assigned to it to be responsible for monitoring compliance and to ensure proper implementation. For example, our China desk reviews the MOUs we have on Intellectual Property Rights with the People's Republic, and our Office of Telecommunications analyzes Japan's commitments under the Satellite Procurement Agreement. As the Department's resident expert on an agreement, the DMO is available to provide proper guidance and respond to questions about that agreement.
The Trade Compliance Center conducts outreach to let businesses know where they can take their compliance problems. In February, Secretary Evans invited each Member of Congress to designate one staff member to work with our Trade Compliance Center to refer constituent market access and compliance problems; if you aren't already working with us on this, I hope that you will.
Our goal is to solve problems at a practical level. If and when that is not possible, ITA works with USTR to build cases that can be litigated at the WTO or in other formal dispute fora. ITA prepares Section 301 retaliation lists by conducting trade and economic analyses to produce effective lists that also minimize the harmful impact on U.S. importers and producers.
I realize that you are most interested in hearing about the areas of ITA over which you have jurisdiction - Market Access and Compliance, Trade Development, and the Commercial Service - but I would be remiss not to say a few words about the Import Administration (IA). IA plays a vital role, and, frankly, many of the people who work in the other units started out in IA, so it's important for you to understand where they received some of their professional training in terms of negotiations, monitoring and enforcement.
IA is responsible for administering the antidumping and countervailing duty laws. IA has an extremely heavy caseload of investigations and reviews covering a wide range of products and numerous countries.
IA's role in administering the unfair trade laws is vital. As Secretary Evans points out, there is nothing more dispiriting to American workers and farmers than to believe that they are not competing on a level playing field. When our companies face unfair trade, IA provides relief while we seek long-term solutions to get rid of the government interference and underlying distortions in the market. These actions are consistent with our international obligations and the President's commitment to trade liberalization.
In addition to its important role in trade negotiations, IA plays a lead role in monitoring trade agreements in the antidumping/countervailing duty area. IA, working with the International Trade Administration and U.S. Customs, sees that the unfair trade laws are enforced.
Pursuant to the Uruguay Round Agreements Act, IA is also responsible for coordinating multilateral subsidies enforcement efforts through the Subsidies Enforcement Office. This office works actively with the private sector to remedy harm caused by subsidies provided to foreign competitors of U.S. exporters. The Subsidies Enforcement Office evaluates the subsidy in relation to U.S. and multilateral trade rules to determine what action may be possible to take to counteract any adverse effects.
In addition, IA and MAC have been directed by Congress to expand their activities, and we are developing an overseas trade compliance team with staff in Beijing, Tokyo, Seoul, and Brussels.
Mr. Chairman, trade promotion represents the core of ITA's mission, and the Commerce Department, in fact, is the lead agency for trade promotion. As you know, Secretary Evans chairs the Trade Promotion Coordinating Committee. In that capacity, he intends to use this vehicle to improve all government export promotion services and to play a leadership role on export promotion.
At ITA, even before we negotiate trade agreements with countries, we help U.S. companies crack those markets. After we've negotiated trade liberalizing agreements, we help U.S. companies take advantage of the new market opportunities. We are constantly trying to find new and better ways to help companies - especially small- and medium-sized companies - export.
During the last fiscal year, our Trade Information Center (1-800-USA-TRADE) handled 85,401 direct inquiries and had 645,284 website hits. Our Advocacy Center, recorded 73 successes (small- and medium-sized companies represented 16 of these successes), worth $9 billion with an estimated $4.3 billion in U.S. content. Our Commercial Service helped facilitate 9255 export transactions worth $21.3 billion.
I would like to say a few additional words about the Commercial Service, since they are our staff who interact on-the-ground with the American business community throughout the United States and abroad. This worldwide network of 1800 employees strives to help U.S. firms realize their export potential and emphasizes outreach to small- and medium-sized enterprises.
We have Commercial Service officers posted in 160 locations in 85 countries abroad; they are our "eyes and ears" on the ground, providing information back to Commerce headquarters and our district offices. Our 105 U.S Export Assistance Centers (USEACs) throughout the nation have become the hubs in a hub-and-spoke network. The USEACs - which include federal, state, and local government partners (in places including officials from the Small Business Administration and the U.S. Export-Import Bank) - offer export counseling, market research, trade events and international finance solutions to U.S. exporters. I strongly encourage you to send your constituents to the ones close to your districts.
Mr. Chairman, I have brought with me copies of our 2000 Export Programs Guide - which highlights these programs. Our 2001 version will be ready in mid-July, and I will have copies sent to you when it is ready.
Let me now turn to an important management
issue for ITA. ITA constantly faces new demands as the international trade
environment rapidly changes. Challenges are continually emerging, with
new markets to target, new barriers erected, new firms in need of export
assistance, shifts in industry dynamics, a stronger role for international
organizations and alliances, and various policy mandates. We are an organization
that has to keep adjusting, improving, and re-inventing ourselves in order
to operate on the cutting-edge.
To best implement the President's trade agenda, we have some stock-taking to do, and I would be interested in your ideas on how to best enhance the Department of Commerce's leadership role on export promotion. The Secretary and I intend to reinvigorate the TPCC by undertaking a major benchmarking exercise of federal trade promotion and finance programs over the next six months. I am interested in asking tough questions and building a framework to test our goals versus our performance. We will look at the best practices of our trading partners and develop a road map of recommendations for the next four years.
Our goal is to update and improve our services for exporters while eliminating duplication between agencies. The end result will be innovative reforms in areas like small business trade finance, e-commerce and domestic and overseas coordination. If we are not meeting our goals, I want to know why. Do we need to refocus our resources? Do we need to reorganize? I also am in the process of meeting with the new leadership in place at our sister TPCC agencies to get their support - and to examine their best practices as well.
The bottom line is this: I want to hold ITA accountable, and I want you to hold us accountable. We should always look for better ways of doing things - and I expect our benchmarking exercise will accomplish that.
Key Issue Areas: Global Trading System, China, Transatlantic Relationship, Steel
You've also invited me to share my views about some key issues areas, so I will now turn to the global trading system, our transatlantic relationship, China, and steel.
The Global Trading System
Mr. Chairman, the WTO is now focusing on whether to launch a new multilateral trade round at the 2001 Ministerial, scheduled for November 9-13 in Doha, Qatar. I'm optimistic that will succeed.
Negotiations began last year under the so-called "built-in agenda" of issues left over from the Uruguay Round. These talks cover agriculture and services. WTO Members have agreed on work plans and are now starting substantive discussions on specific negotiating proposals that should ultimately lead to further market access liberalization.
WTO Members are now working on how these negotiations might be expanded beyond agriculture and services. Members are taking a step-by-step approach in Geneva, building consensus. We hope to have a good idea by July or August of whether launching a new round of negotiations will be possible.
We'll only be able to launch a round this fall if all WTO members can agree on the scope and timing of a round. At present, many developing countries are arguing that they can't take on the obligations that a new round might entail while they are still struggling with existing WTO agreements. Some developing countries are even insisting that they be allowed to backtrack on their current obligations or want to open agreements for renegotiation.
We have done a great deal to assist these countries in implementing their current obligations. For example, we have provided funds and training to many of them in an effort to help them fulfill their WTO obligations. But, we want to ensure that current WTO obligations be met.
I will discuss our bilateral relations with China shortly but would like to point out here that I believe that the agreements on WTO accession that Ambassador Zoellick reached recently in Shanghai have helped provide new impetus to international efforts to launch a new round of WTO negotiations, and China itself has endorsed the launch of a new round.
At Commerce, we're very interested in improving our access to overseas markets - and therefore are interested in a new round. As I mentioned, our country and industry trade experts here in Washington and our Commercial Service officers abroad work diligently to help U.S. businesses export. A new round will provide even greater opportunities for U.S. firms overseas. We'd like to make further progress with regard to "zero for zero" agreements, both expanding participation in those negotiated during the Uruguay Round and securing agreement for those new sectors developed in the APEC context. Under these initiatives, countries agreed to eliminate or harmonize tariffs on products ranging from agricultural and construction equipment to chemicals to furniture to toys. Additional sectors would include scientific instruments, environmental technologies, energy, gems and jewelry. We'd also like to see expanded WTO-member participation in the Information Technology Agreement (ITA), which eliminates tariffs on a wide range of high technology products. And we'd like to finalize "ITA-2" which would further expand liberalization in this important area of our economy.
We also want our WTO partners to agree that tariff cuts agreed to during a negotiation can be implemented on a provisional basis. We don't want to have to wait for a new round to be completed before we can move ahead with liberalization. We should also bind all industrial tariffs as we did with agricultural tariffs in the Uruguay Round.
At the same time, we're interested in ensuring that our firms do not face unfair competition, and want to make sure that a new round preserves our ability to take necessary action. In discussing a potential new round with our trading partners, we've made it abundantly clear that we oppose any weakening of WTO trade remedy rules. The Administration has been unwavering in its position that trade remedies are a critical and integral part of the multilateral trading system, part of the balance of rights and obligations necessary to maintain that system. The United States has the most open and transparent system in the world, and we believe it is critical that our trading partners' trade remedy laws also operate fairly.
Of course, if we want to launch a new round, we will need to work in partnership with the European Union. Secretary Evans and I are paying a lot of attention to Europe. In our official capacities, he has traveled there twice - he attended the U.S.-EU Summit with the President last week, and I have gone once - in fact, I left for Europe only hours after having been sworn into office. We both have met several times with the Transatlantic Business Dialogue (TABD) and key transatlantic business interests and welcome the private sector's strong commitment to improving commercial relations. Secretary Evans and I both will meet with the TABD in Sweden this October.
The U.S.-EU Summit presented a timely opportunity for us to review our trade priorities. Therefore, we welcome the U.S.-EU Summit's Statement in support of the launch of a new round of multilateral trade negotiations at the WTO Ministerial Meeting in Doha as well as to explore ways to settle our trade disagreements more quickly and effectively, including compliance with recommendations of the WTO Dispute Settlement Body. While we did not resolve the many trade issues between us at the Summit, we are intensifying our bilateral efforts to address mutual concerns in steel and other sectors. We have seen that while our close relationship gives rise to disputes, by the same token, our close ties make compromise possible. In order to expand closer multilateral ties through the WTO, we must lead by example and show how close partners can resolve disputes.
Transatlantic trade relations serve as a bellwether of progress on world trade. The EU is a key economic relationship; in 2000, our two-way trade in goods and services measured $556 billion ($257 billion in exports). The U.S. and EU markets are largely open to each other. Not surprisingly, given our level of trade and similar industrial interests, our trade relations with the EU have been subject to an increasing number of trade disputes and other unresolved issues that tend to raise costs for exporters or create uncertainty. It is important to manage our trade relations carefully because of the complex and interdependent nature of our trade. Our immediate focus is to address our trade compliance concerns that are related to biotechnology, telecommunications and electronics products, aerospace, and the regulatory processes which adversely affect several billion dollars of exports.
The prospect for future transatlantic relations are good. EU economic growth should remain above trend as the EU integrates. Central and Eastern European markets are growing and adopting open market principles for trade and investment. The EU integration process accelerates political stability, reduces risks and broadens market potential for U.S. trade and investment. Transatlantic relations should benefit from these internal European developments. Many of our bilateral trade disputes are really symptomatic of the need to launch a WTO multilateral negotiation. The agenda for the next multilateral Round will contribute in major ways to advancing our transatlantic trade relations.
The big question of the moment is to see when China will accede to the WTO. We have recently seen progress made on some contentious issues, and a Working Party meeting in Geneva has been scheduled for the end of the month. While we want to see China and Taiwan join the WTO as soon as possible - and welcome their support for launching a new round of global trade negotiations - it is incumbent on the Chinese to take the necessary steps to get there.
As you know, the permanent normal trade relations legislation signed into law last October will go into effect only after China joins the WTO on terms equivalent to what is in our November 1999 bilateral agreement. President Bush announced his intention to extend normal trade relations (NTR) status to China for another year. This is not something that we are doing as a favor for the Chinese; we are doing this because it is in our own economic and strategic interests. No one should read this agenda as an endorsement of China's policies and values.
Let me stress this point again: the renewal of NTR is in our interests. China is our 11th largest export market - and despite a myriad of market access barriers, trade with China was up by 24% last year and by 36% in the first quarter of this year. Some 400,000 American workers are employed in or benefit directly from America's trade with China. U.S. firms now export services valued at more than $7 billion annually to China and Hong Kong, with our services exports to China surpassing the level of our services exports to Hong Kong for the first time in 1998. Last year, American farmers exported more than $3 billion to China and Hong Kong; this year, they should export even more as China removes bans on key American products like citrus, wheat and meat. It isn't just the big companies that are making inroads into the Chinese market: nearly 80 percent of our exporters to China are small- and medium-sized companies. Trade is in the interests of American consumers, who benefit from a larger selection of lower-priced goods. And with WTO accession, our exports to China will be even stronger as their restrictions are removed.
But this isn't just about economics. Our trade with and investment in China promotes transparency, accountability, good business practices (including higher labor and environmental standards), and the rule of law. As President Bush put it, renewal of NTR "sends a clear but simple message to the people of China: the United States is committed to helping China become part of the new international trading system so that the Chinese people can enjoy the better life that comes from economic choice and freedom."
We want to see an economically open, politically stable and secure China. We have many common interests in the region and in the world. Maintaining a healthy trading relationship enables us to share what is perhaps our most important common interest - the betterment of the lives of people in both of our own countries.
Steel is an issue that has been in the headlines lately, so I'd like to take the opportunity to mention a few key points that have not made it in all of the newspapers. Our steel companies continue to face a 50-year legacy of competing with state-owned and state-subsidized steel producers. The net effect has been a glut of excess capacity that outstrips world demand. This distorts the playing field on which U.S. industry must compete.
The time has come to find a lasting solution - one that restores market conditions to the steel trade globally. That is why President Bush will push for international agreement to eliminate unfair subsidies, and the inefficient, excess capacity propped up by such subsidies. We must find a way to get rid of the government interference and underlying distortions in the market that have produced the global glut in the first place.
The President has asked the International Trade Commission to initiate a comprehensive investigation of whether imports are a substantial cause of serious injury to the steel industry. That action is entirely consistent with our international obligations and world trade rules. The President's action is a sensible one and does not prejudge the outcome of the investigation.
I want to underscore the President's commitment to trade liberalization. The President intends to press forward bilaterally, regionally, and multilaterally, to expand our trade and the economic opportunities that it creates for all Americans. A key part of the President's trade agenda is the renewal of trade promotion authority. As I mentioned earlier, whether or not Congress grants that authority rests ultimately on trust -- trust that the President will make sure that our trade policy works for all Americans. We expect to earn the trust of the American people, and the President's action on steel is part of that process.
Let me close by saying that, together, we have some tough work ahead of us. That is true of the work we have to do abroad in opening new markets. It also is true of the work we have to do here at home in setting the stage for further trade liberalization by the renewal of trade promotion authority.
There will be opponents who will raise valid concerns. We should listen and address them, provided that we do not undercut the basic benefits that trade brings. We need to make the case - and help your constituents back home understand - that trade creates wealth that can spur economic innovation, create new and higher-paying jobs and pay for a cleaner environment here and abroad. Furthermore, if we want our values to continue to take hold, we must press ahead.
Thank you again for inviting me to testify. I welcome your oversight and your ideas about how we can continue to improve the workings of the International Trade Administration. I look forward to your questions.
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