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Remarks by Franklin L. Lavin
Under Secretary of Commerce for International Trade

Nortel Annual Meeting

Willard Hotel, Washington D.C.
Thursday, October 12, 2006

As Prepared

Thank you Mike (Zafirovski) for that warm introduction. It’s good to be here.

There are three reasons why I’m pleased to be here tonight. First, because Nortel is a terrific company. Second, because of the important role the telecom sector plays across the entire economy. And third, because this is a great opportunity to highlight an outstanding example of U.S.-Canadian collaboration.

We are delighted to have Nortel competing in our market, and we are even more delighted to have you produce, design, and innovate here.

II. International Trade Trends

In my view, you can’t have a successful economy without a successful telecommunications industry. When your industry innovates, the entire economy benefits.

Globally, this is a time of enormous opportunity, with three unprecedented geopolitical trends unfolding.

First, over the past 25 years we have seen the emergence of three billion new customers as China, India, and other nations have come on stream. Some might also note this could imply three billion new competitors. It is a different world than it was even a generation ago, with effectively a doubling of the world’s population open to commerce.

Second, we are seeing the emergence of a global business model that assumes distance is no longer relevant for communications, and that instantaneous global communications is an expected part of the business environment.

Third, the revolution in trade liberalization since the GATT was established in 1947 means that today it is easier for foreign companies to do business in the U.S. and it is easier for U.S. companies to do business abroad than ever before. In 1947, the average weighted tariff of the U.S. was about 40 percent, and now it is less than four percent. This is a net positive for the world’s economy, for innovation and for the creation of dynamic markets.

These three trends help explain why we have seen exponential growth in telecommunication services in recent years. One example is long distance calls. In a little more than a decade, the number of international calls placed in the U.S. has gone up by nearly 600 percent, while the cost of those calls has dropped by 85 percent, and it is likely that this trend will continue, if not accelerate.

III. The Administration’s Economic Policies

Underpinning all these trends is a record of solid economic growth in the U.S. The number one policy goal of the Bush Administration and the number one requirement for the telecom sector is to ensure we have a growing economy. This Administration is firmly committed to this path through policies that lower taxes, encourage innovation and promote free trade.

This formula works, and the numbers prove it.

Today, we have low unemployment of 4.6 percent, double-digit export growth, and a U.S. economy that grew 4.1 percent in the first half of the year. The President’s tax cuts have returned more than a trillion dollars to the pockets of working Americans. More Americans are working than ever before, with more than 6.6 million new jobs created in the last three years.

We continue to be the most dynamic and innovative economy in the world. We are a world leader in patents, with 3700 of them filed by Nortel. Looking at the news this week, it seems we win more Nobel Prizes than any other country as well. I don’t think the government can take credit for Nortel’s success in innovation, but perhaps we can take a bit of credit for a tax policy that rewards research and development, and an economic policy allows the process of discovery to be set in motion.

Beyond the research and development tax credit, innovation is also helped by our strong commitment to intellectual property rights worldwide. Companies are not going to invent unless they can benefit from their work.

And when it comes to opening up foreign markets, this Administration has signed free trade agreements with more than a dozen countries since 2001. Although seven percent of the world’s GDP comes from countries with which we have a free trade agreement, more than 42 percent of our exports are to those countries. Free trade agreements work for America and when you take down barriers to competition, U.S. companies do very well.

On our agenda now are free trade agreements with South Korea and Malaysia. In these FTA’s we are pursuing provisions covering technology neutrality, transparency and government procurement that are important to the American telecom industry. Greg Farmer and his team here in Washington have been very helpful as we go through this process, and I would like to thank him for his partnership.

Beyond the FTA’s, there is no more important negotiation underway than the Doha Round at the World Trade Organization. We had a frustrating summer as negotiations went into abeyance, but we look forward to getting talks back on track soon. A successful Doha Round would add billions to the global economy.

IV. Nortel and the Department of Commerce

It has been a pleasure for us to work with Nortel around the world. I am delighted that Nortel will be joining a business mission I’m leading to India next month. I hope your participation will be helpful to Nortel as it is shaping up as an outstanding mission – the largest ever in the history of the federal government.

And we are able to work together in China, where I served as lead negotiator over the past year for our Joint Commission on Commerce and Trade. We know that China has the highest capitalization requirements for telecommunications service providers in the world- most countries there is no capitalization requirement at all- one that serves as a barrier to competition. We negotiated a commitment from China to change that requirement.

And in some markets, we have been able to be helpful to Nortel even once the deal is done. Last year, Nortel encountered a payment problem in a country in this hemisphere. We were able to intervene and help secure payment your work. Most importantly, it was done in such a way that Nortel is now pursuing other opportunities there.

IV. Conclusion

Ladies and gentlemen, you can tell that we have a very simple business philosophy. Our goal is simple: to make it as easy as possible for companies to offer their products to customers anywhere in the world. We know when given an even chance, companies here can compete anywhere, with anyone, and win. And Nortel competes and wins every day.

The last few years have been a challenging time for the telecom industry. There was overcapacity during the 1990’s. Nortel got caught up in that and the dot com boom as well. The economy has worked through that, and Nortel has too.

Let me leave you with this final thought. As the railroads and telegraph drove commerce in the 19th century, the internet and mobile connectivity will drive our economy in the 21st century. Nortel is going to lead the way by creating the “telegraphs” and the “locomotives” for the economy of tomorrow.

Thank you.