Rebuilding U.S. Trade Policy The Case for Relentless Innovation to Shape Economic Globalization

Mar 6, 2001

Honorable Sander M. Levin
Ranking Democrat
Subcommittee on Trade, Committee on Ways and Means

Center for Strategic and International Studies

(Washington D.C.)-  At a time when the Washington spotlight beams on taxes and the budget, there are lurking in the shadows some important issues of international trade.  My hope today is to shed some light on those issues.

 In that regard, I believe we stand at a point of both promise and peril.  The promise of this moment is that we have the opportunity to build on the progress of the last 18 months efforts to shape globalization in China PNTR, CBI-Africa, the Cambodia textile agreement, and the Jordan Free Trade Agreement.  If we pay attention to the lessons of the last 18 months, I am confident we can move forward on the trade agenda for 2001.  The peril of this moment is that if we fail to learn those lessons -- turn our back on innovation and return to a rigid approach that excludes issues like labor standards or environmental regulations from the trade agenda or seeks to marginalize them then the opportunities before us can easily be dashed and our direction reversed.

 In this town, there is the reality of counting votes.  But the reality in the thorny areas of international trade is that it is dangerous to start counting votes before confronting the underlying issues and presenting specific proposals.  Recently, there has been speculation in the media that one trade vote might simply be swapped with another to ensure passage.  That approach would do a tremendous disservice to policy, is misguided on the politics and is a sure fire prescription for a return to stalemate on trade issues.

The Five Realities of International Trade in the 21st Century

 The first reality is the changing nature of trade.       

 Over the last decade or two, the volume of trade has expanded, if not exploded. The number and types of countries that are trading have also increased exponentially.  Ten or fifteen years ago, discussion about trade centered on Japan, European countries and other developed economies--countries with market-based economic systems, rule of law and regulatory systems roughly similar to those in the United States.  Today, we are talking about large nonmarket economies such as China and Russia joining the WTO in the immediate or foreseeable future, while large, more advanced developing countries such as Brazil and South Korea play a larger and larger role.

 The number of sectors in play has also increased, as competition with developing and transitional economies has come to include not just footwear, clothing and toys, but cell phones, semiconductors, steel, even cars and aircraft.

 A second reality is that there is no turning back on the globalization of trade.  It is a fact of life in our time.  Efforts to marginalize the role of trade overlook the role it has played in the American economic expansion, and the determination of evolving economies to get into the action, to participate in and secure their share of world trade.

 Third, globalization here to stay must be shaped.

 Those who deny the need to shape globalization basically assume that it will, on its own, work out any problems.  This approach treats increasing trade liberalization as an end in and of itself, regardless of the framework of rules involved.

 I view trade liberalization as an important tool, not an end in itself.  It is a tool, as the preamble of the GATT itself states for raising standards of living, ensuring full employment, developing the full use of the resources of the world and note that this is the last point mentioned expanding the production and exchange of goods.
 
 I agree that as we deal with the consequences of globalized trade, we must adopt far more creative and comprehensive domestic retraining and other programs to soften dislocating impacts on workers, farmers and businesses.  But, we must shape international trade policies themselves in the first place to maximize the benefits and minimize the pitfalls of globalization.

 Fourth, that means constant, relentless innovation in trade policies themselves.  It also means recognizing one size does not fit all.  Jordan is not China.  A bi-lateral or regional agreement is not the same as a multilateral negotiation.   In terms of the search for a broadened American consensus on international trade, the goal must not be to seek an expedient middle ground but to build a new common ground.  It is not about splitting the differences, but making a difference.

 Fifth, that means tackling new issues. 

 Changes in technology and ever-deepening integration of commerce across borders have brought new issues into the mix.  Ten or 20 years ago, trade negotiations were primarily about lowering tariffs.  Today, the trade agenda is scarcely recognizable, having expanded to include antitrust principles for dealing with telecom monopolists, and efforts to promote utility deregulation.  We now focus as much on services trade and investment as we do on trade in goods.

The Last 18 Months Building a New Foundation for American Trade Policy

 Among the new issues that confront us, none is more difficult or more important than how to address labor standards and environmental regulations in the context of global competition.  Our inability to address them until last year was most responsible for creating the five-year stalemate on trade legislation in the Congress.

 However, over the last 18 months we did grapple with these issues, on a case by case basis, providing some evidence that we can deal with these issues effectively in the future.

         In the case of CBI, we elevated the labor standards condition for receipt of enhanced trade preferences.  The main thrust of the new CBI arrangement was that Caribbean nations should receive enhanced access to the American textile and apparel market.  Our assumption was that increased exports to the United States based in part on the use of lower cost labor would have some dislocating impact on American business and workers in the short run.  But in view of Asian competition that would increase when quotas are removed in 2005, all Western Hemisphere countries would benefit in the medium term by improving their competitive position through complementarities of capital and labor among those countries.  The CBI already contained a core labor standards condition based on the over-all U.S. Generalized System of Preferences.  In return for increased access to the American market, we inserted into the expanded CBI a heightened threshold for a Caribbean countrys implementation of the five ILO core labor standards.  That heightened threshold has had real-world consequences.  In implementing the new CBI, the Clinton Administration gave only conditional approval to four countries, contingent on further improvement of such implementation.

 In the case of Jordan, the agreement includes labor and environmental provisions enforceable in the same manner as all other provisions.  The agreements labor and environmental provisions are a responsible and effective mechanism to implement the two countries shared commitment to strong labor and environmental standards and effective enforcement of labor and environmental laws.  The provisions are appropriate to the agreement and context in which they were negotiated.  Moreover, the mechanism is reinforced by the two countries jointly expressed commitment to press for a dialogue on such issues in the WTO through the establishment of a working group.

 In the case of Cambodia, an increase in textile and apparel import quota is being provided as a positive incentive to strengthen labor standards.  In other words, the motivation for Cambodia to improve labor standards enforcement is an expansion of quota in case of success, not a reduction of quota in case of failure.  Accordingly, the agreement stands as a retort to those who claim that the goal of acknowledging the nexus between trade and labor standards is to restrict trade.  An additional benefit of the agreement is that the United States and Cambodia have developed a way to harness ILO expertise and resources in the trade area.  It is true that there have been problems in the agreements implementation.  However, its benefits are many and valid and should be carried forward, even as problems are corrected.

 In China, we took account of the huge size of that country, its different economic structures, and its lack of rule of law, as well as the fundamental question before us not negotiating a bilateral or regional agreement, but bringing China under the framework of multilateral rules in the WTO.  We established in conjunction with the grant of PNTR a Congressional-Executive Commission with jurisdiction over human rights, worker rights and rule of law.  We included major provisions for oversight.  We drafted the toughest safeguard ever written into U.S. law for instances in which non-market structures in Chinas economy lead to overproduction that could cause product to surge into the U.S. market.

Overcoming Polarization Debunking Myths and Misconceptions

 Each of these trade initiatives involves a different context.  None is a carbon copy of another or a single model for the future.  All have enabled us to begin to move beyond a persistent tendency in issues of international trade polarization.

 In the 1980's in the United States, the polarization focused on how to respond to causes of the burgeoning trade deficit with Japan.  The label of protectionism was attached to proposals to pressure Japan to open its markets, including in key sectors such as beef and citrus products, automobiles and auto parts, semiconductors, supercomputers, and wood products, among other areas.  Yet, many of those proposals were enacted and are now accepted parts of U.S. law.

 In the 1990's, we have increasingly witnessed a new polarization, related to the role of labor market and environmental standards in the broadening dimensions of global competition.  Over the last 18 months, we began to move beyond that polarization with innovative, case-by-case solutions.  That is why I believe that the recent effort by some in the House Republican leadership to stymie efforts within the business community to address the issue of labor standards and trade, and environmental regulations and trade could be so destructive.  Anyone who is serious about continuing to build a new foundation for trade negotiations and trade legislation should encourage more not less work on these issues.  Work on these issues will help dispel some prominent myths and misconceptions.

          Myth One: Labor market and environmental issues are simply social issues, not economic issues.  Reality:  These are fundamentally economic issues that are directly relevant to the structure of international competition.  In the domestic context, we dont hesitate to say that right to work laws or emissions standards, to pick two examples, are issues that affect economic competition.  Indeed, it was the economic relevance of the right of workers to associate, organize and bargain that made it so central in early, decades-long struggles in our nation.  Accordingly, it is illogical and inconsistent to suggest these issues are irrelevant with respect to international commerce and competition.  Certainly, labor or environmental issues can have social aspects that may involve humanitarian or human rights considerations, or considerations about conservation of natural resources.  But it is unrealistic to suggest that as the issues operate among nations, they are not in substantial measure economic in their nature.  Indeed, the intensity of the controversy over them, especially between nations, is in good part because they are economic, and not just social.
 
         Myth Two:  The inclusion of labor and environmental standards will undermine the comparative advantage of evolving economies.  Reality: Such claims of evolving nations about labor and environmental standards underscore their basic economic nature.  But the objective is not to erode comparative advantage by imposing U.S. standards, but for nations to abide in practice by basic standards to which in virtually every case they have agreed the five core ILO labor standards on child and prison labor, non-discrimination, and the right of workers to associate and bargain collectively.  As President Clinton said in his Davos speech about a year ago, the objective is simply to promote a leveling up rather than a leveling down of standards.

 In addition, while it is possible to use issues of labor and environmental standards as an excuse for protectionism, and that must be guarded against, it is seriously mistaken to dismiss them with that argument or to view them as stemming from pressures of interest groups.  The greater danger is to ignore their legitimacy and the vital issues at stake.  Their difficulty emanates in good measure from their relevance to trade and competition among nations.

 Myth Three: Labor standards ought to be left to the ILO.  Reality: The ILO has expertise.  It has increased attention to the status of core labor rights in developing nations, where according to the recent OECD analysis, the rate of compliance is sporadic at best, and it is increasing its technical assistance.  But it has no powers of enforcement.  In that sense, it is misguided to compare it with the WTO with its dispute settlement mechanism.  In this regard, it is ironic to hear the argument that the WTO is already overloaded.  That was not sufficient reason to keep China out of the WTO and is not a good reason to ignore labor and environmental issues with important trade ramifications.

 Myth Four: The inclusion of labor and environmental standards will open U.S. laws to challenge and destroy American sovereignty.  Reality: That is far fetched.  The Jordan FTA in no way poses a threat to the National Labor Relations Act, the Clean Air Act or any other U.S. laws.  The fact is that there is an increasing interaction between domestic laws and international law.  Consider the case of investment or services regulations, food and safety standards, or many other areas covered by existing trade agreements.  There may have to be adjustments in some areas.  But the claims that our laws will be in jeopardy are exaggerated.

 I hope that we can move beyond these misconceptions so that we can move forward as we did the last 18 months on the urgent agenda that globalization continues to generate.  In doing so, we must remind ourselves that trade liberalization and the rules of trade are a means to an end and require constant, relentless innovation.  Surely that is poignantly clear as we struggle to reconcile the need to protect intellectual property rights with the crucial needs of millions within developing nations for AIDS medicines.

The Trade Agenda for 2001 The Way Forward

 I now turn to several challenges confronting us in the months ahead.
 
 1. Enact the Jordan Free Trade Agreement

 Negotiated last year, this agreement is important to both our countries in that it establishes a state-of-the-art framework for free trade between our countries.  At the time of its negotiation, it enjoyed overwhelming bipartisan support.  Its implementation is a first essential building block in the construction of a foundation for future American trade policy.

 Some have urged that the Jordan agreement be delayed because it contains enforceable labor and environmental provisions.  Rather, successful implementation of the Jordan agreement ought to be seen as an opportunity to generate momentum for progress in the trade agenda.  In addition, the agreement is an integral part of U.S. efforts to promote peace and stability in the region.

 Let me be clear.  To delay the implementation of this agreement would very likely derail most if not all of the remaining trade agenda.  The agreement should be passed by Congress in time for King Abdullahs visit next month.

         2.  Approve the Bilateral Trade Agreement with Vietnam with understanding to include positive incentive labor provisions in textile agreement.

             This agreement was essentially completed in early 1999, and therefore does not reflect the progress on addressing labor and environmental provisions we have made in bilateral and regional agreements over the last 18 months.  As the U.S.-Vietnam trade relationship grows, I believe that we need to have an up to date framework of rules governing competition.  For Vietnam, a key component of our trade relationship will involve negotiation of a U.S.-Vietnam textile and apparel agreement.  We should make clear that our objective will be to achieve incentives in the labor standards area, as was done in the one negotiated with Cambodia.  Such an approach presents an opportunity for Vietnam to achieve improved access to the U.S. market based on improved enforcement of core ILO labor standards.  I believe that we can reach agreement in principle with the Vietnamese on the negotiation of such an agreement prior to approval of the Bilateral Trade Agreement, preferably this summer.

         3. Address the recurring crisis in steel

 The crisis facing U.S. steel companies and workers presents an initial test for this Administration as to whether it will passively accept the consequences of globalization, or whether it will try to shape globalization to affect those consequences. 

 At the core of the crisis facing the U.S. steel industry is substantial over-capacity in the global steel industry caused in substantial measure by foreign government subsidization, directed lending, collusive practices among foreign steel producers, and closed foreign markets.  Some will argue that the market will eventually correct these problems.  It will not, and, in fact, our failure to address these problems in the past helped lead to the crisis we face today.

 I will soon be sending a letter to the President to urge him to request that the ITC initiate section 201 investigations and to find ways to work with our trading partners to rationalize capacity worldwide.

        4. Intensify efforts to resolve the outstanding issues with the E.U.

 This week, E.U. Trade Commissioner Pascal Lamy visits the United States.  He will be meeting with the new Administration and with a number of us in Congress.  Outstanding trade disputes with the European Union include failure of the E.U. to implement its WTO obligations following the Beef and Bananas cases, as well as the E.U.s re-opening of an international tax matter we thought we had resolved two decades ago (the Foreign Sales Corporation matter).  And, looming in the background is the question of European subsidization of the new Airbus.  We must intensify our effort to resolve these matters in an amicable manner so that we can move forward in the WTO on the outstanding issues of agriculture, services, reform of WTO dispute settlement procedures, among others.
 
 5. China

 The key when it comes to China is follow-through, both in the United States and in the WTO.  When China ultimately does accede to the WTO, our work will not have ended.  It will just have begun.  It will be our job to monitor Chinas compliance with its new obligations, which is why I felt so strongly about including in the PNTR legislation a requirement that the WTO engage in an annual review of Chinas compliance, and that our own USTR also engage in an annual review.  Further, for Chinas accession to the WTO to be a success, we will have to work with China to develop strong rule-of-law and market institutions within China.  That is why it is so vital that we follow through on the commitment made in the PNTR legislation to support commercial, labor, and democracy-building rule of law programs in China.  We need to ensure that these programs are adequately funded and made operational this year.  Finally, I cannot emphasize enough the importance of following through on our commitment to establish a Congressional-Executive Commission on China, to review human rights and worker rights in that country.  The President and Congress must appoint members to that commission in the coming weeks, so that it can issue a competent, strong report by October.

 6. Renewal of Andean Trade Preferences Act (ATPA)

 The Andean Trade Preferences Act, our preferential trade program with Colombia, Ecuador, Bolivia and Peru, expires in December of this year.  As most of you know, the ATPA was enacted in 1990 to create viable economic alternatives in the region to the coca cultivation and cocaine production. 
 
 The program has been successful in spurring regional economic growth.  Most would also agree that the program should be extended, and that we should consider ways to enhance the benefits provided, including by extending benefits to Andean apparel products.  That can be accomplished, but only if, as we did in the context of the CBI, we find ways to build on the complementarities between the U.S. textile and apparel industry and the Andean industry, and we address the labor-trade nexus.  In addition, if we are going to have an impact on the drug trade, ATPA extension and expansion should be considered in the context of a broader aid and development package.

 7. Fast Track FTAA and  WTO negotiations

 Let me offer several comments on the question of renewed fast track authority for the United States to negotiate trade agreements, particularly when there are large numbers of other countries at the negotiating table, as in the FTAA or the WTO. 

 At the outset, I would observe that two basic reasons are given for a revival of fast track authority at this time.  The first is that if the United States does not have in law clear negotiating objectives and a process for approval of trade agreements, we cannot take full advantage of new trading opportunities for American workers, farmers and businesses.  The second is that if the fast track mechanism does not contain an up-to-date set of priorities including, but not limited to, inclusion of new issues such as enforceable labor and environmental standards into trading rules we will not be shaping trade in the ways that we must to maximize its benefits and minimize its costs and down sides.  Both points have merit.

 Next, we should recall that there were three distinct elements to the old fast track equation.  The first was to identify priority negotiating objectives for the United States, established in law by Congress, in consultation with the executive.  The second element was a set of procedures to ensure that Congress and all interested members of the public were involved at each phase of the negotiations.  Finally, Congress agreed to certain procedures that provided for an up-or-down vote on implementing legislation for the trade agreement.

 In the original fast track, agreement with regard to the third element hinged on a satisfactory agreement with respect to the first two elements.  I believe that we should follow that approach. 

 With respect to priority negotiating objectives, we need to update the list last compiled in 1988 to take account of the new issues I have already discussed, including enforceable labor and environmental standards with flexibility sufficient to provide for Congress and the executive to apply a given standard on a case-by-case basis, depending on the type of agreement involved, the nature of trade and competition between the foreign country(ies) and the United States, the number and nature of countries involved, whether international  (e.g., ILO) standards or enforcement of national law is the most effective way to promote adherence to core labor standards, etc.  In the area of labor standards, as in the area of services negotiations, agriculture, trade remedies and others, we have substantial work to do to compile the priority negotiating objectives for the United States in the years ahead.

 In regard to mechanisms for consultation and collaboration in the negotiating process, and revival of a meaningful advisory committee system, much work also needs to be done.  In recent years, neither business groups nor others, such as environmental NGOs, have felt that they are having a meaningful ongoing impact through the existing advisory committee system.  We must explore ways to make the existing system more open and effective or replace it.

 The next comment I would offer is that this issue cannot and should not be considered in a vacuum.  If the trade agenda I have outlined above is successfully implemented, those steps will serve as important building blocks to improve the prospects for reaching agreement on fast track.  That means, swift passage of the Jordan Free Trade Agreement, addressing the labor standards dimension of the Vietnam Bilateral Trade Agreement, as well as ongoing meaningful proposals to integrate labor market and environmental provisions into the preparations for the April Ministerial for the Free Trade Area of the Americas (FTAA) and the Summit of the Americas.

 If these steps are taken, I believe that Congress should be prepared this year to collaborate with the Administration to establish new procedures for the United States to negotiate and implement new bilateral, regional and multilateral trade rules.

 But let me be very clear.  An approach that attempts to marginalize emerging issues like labor and environmental standards with old or recycled ideas, an approach that substitutes coming up with a new name for fast track for coming up with new proposals, an approach that mandates a single model in all contexts or rules out a particular model under any circumstances will, as it should, fail.

Conclusion

 The challenge is now to move ahead, not turn back the clock to shape globalization innovatively as each situation requires.

 But there is a consistent thread globalization is here to stay and it needs to be shaped.

 Those who challenge the need to shape globalization either because they believe more trade is always better or because they believe globalization must be stopped stand poised to derail the progress of last year.  These approaches can serve only to create new poles, with those who see no downside to globalization facing off against those who see it as one giant downside.  As someone who has grappled with the bruising battles of past polarizations, I would hope we could avoid creating another one.

 So I say to those who think we can ignore the vital new issues of the trade debate, or finesse them through clever legislative language and maneuvering, do so with the full knowledge that you are imperiling the trade agenda for this year.

 I believe there is a better course that acknowledges that the very nature of trade is changing and adapts our trade policy to meet these new realities head on.  As we strive to carry forth the promise of economic globalization and avoid the pitfalls, American workers, farmers and businesses deserve no less.