With the completion of the Uruguay Round and the creation of the World Trade Organization, the world seemed to be headed for a more open global trading system. Then came the bitter confrontations with Japan over auto parts and with China over Most Favored Nation renewal. The U.S. withdrew its offer to open the satellite phone market, calling other countries' efforts to open their markets inadequate. While the U.S. has numerous trade cases pending at the WTO, Brazil, Venezuela, India, and the European Union have filed claims that the U.S. isn't playing by the rules it has championed.
Has America soured on free trade? Earlier this year, Steven Wagner, president of Washington-based polling firm QEV Analytics, interviewed members of Congress and monitored focus groups of average Americans to assess their attitudes toward trade. Wagner found the two parties inversely symmetrical in their attitudes. Whereas the Republican leadership is staunchly pro free trade, many freshman members of Congress are much less so, having "absorbed the negative rhetoric of Ross Perot and Pat Buchanan." The Democratic house leadership is consistently negative on free trade, but party rank-and-file are "more ambivalent than negative." The average American is ambivalent about the benefits of free trade, according to Wagner, because, "we have an economy in transition where it's easy to stir up apprehension."
But despite the administration's vocal support--and several victories--for open trade, some observers argue its policies are confusingly followed by moves for managed trade or steps that encumber markets with new regulations. With administration support, the environmental and labor lobbies have succeeded in gaining permanent seats at the trade table of U.S. policy, according to William H. Lash, associate professor of international trade law at George Mason University and a former International Trade commissioner. When environmental or labor considerations become another non-tariff barrier, he argues, this undermines the GATT principle of nondiscrimination and distorts world trade.
Part of Clinton's National Export Strategy aims to increase data distribution of global opportunities that would lower export costs. Such moves have been applauded by free and managed traders alike. But the administration doesn't stop there. The NES targets "big emerging markets" for coordinated government export penetration, Exim Bank loans, and government-negotiated contracts on behalf of industry sectors such as aerospace, telecommunications, and environmental technology. "These sectors may well be the future for U.S. exports," Lash remarks, "but shouldn't the decision be made by businessmen and not bureaucrats?" The sale of Boeing and McDonnell Douglas aircraft to Saudi Arabia--a deal "made possible" by the vigorous efforts of the late Commerce Secretary Ron Brown, Secretary of State Warren Christopher, and Counsel to the President Mack McLarty--highlights the dilemma of managed trade even when U.S. business is the beneficiary of government favor. Competing nations will respond in kind and increase their own managed trade policies and export finance, adding further to the distortions of global markets. Will this come back and bite the American taxpayer when U.S. managed trade has to compete with other nations managing their trade?
In the following roundtable, held in partnership with Andersen Consulting and conducted in the Roosevelt Room of the White House, National Economic Advisor Laura D'Andrea Tyson outlined the administration's international trade strategy, arguing that it has been vigilant in removing tariff barriers and opening up markets. In responding to specific concerns of participating CEOs, Tyson and McLarty were joined by SEC Chairman Arthur Levitt.
PARTNERS IN TRADE
Laura D'Andrea Tyson (National Economic Advisor): In a 1993 speech at American University, President Clinton clarified the U.S. policy toward the international economy and free trade as such: "We must compete, not retreat." That statement still holds true three years later. To achieve that aim, we have attempted to strengthen our competitive capacity at home and to work with the rest of the world to break down barriers to competition.
On the domestic front, we now have the lowest deficit as a share of GDP among the G-7 countries. We've created more highwage jobs than the other six countries combined. Technology, quality products, innovation, and tremendous sales efforts have led to increased improvement and competitiveness in the automotive, computing, and aircraft industries, among others.
In the international arena, we are trying to negotiate trade agreements and are working with business and foreign governments to improve selling opportunities. This is essentially a partnership effort. We are on track to develop an open trade area in Asia Pacific by 2020, and one in the Americas by 2005. This year, we will be going to Singapore with a proposal to the World Trade Organization to eliminate all tariffs in the technology area.
I recently heard someone say that when they turn on the radio in the Midwest, all they hear is people complaining about NAFTA. It's incumbent upon all of us to address the powerful forces of isolation and consumer protectionism that swirl around this country and are becoming more powerful in Congress.
How can we address this sentiment? One way is through education, making it clear to people that if we cut ourselves off from 95 percent of the world's consumers in the fastest-growing markets in the world, they will cut us off, and that will be the end of our prosperity going into the future. And at the federal and corporate levels, we must address the underlying insecurities that foster protectionist tendencies. Americans must feel they have the keys--education and training, the ability to move health and pensions around, the ability to change jobs--to make the most of the opportunities or to confront the challenges. The only way to do that is for business and government to work together as partners.
Arnold B. Pollard (CE): In the area of intellectual property issues, Microsoft is frustrated because for every unit it sells internationally, eight are knocked off illegally--with China being the most serious offender. How can we resolve this problem'
Tyson: It is likely to be a continuing struggle. This year, we came close to imposing stringent sanctions on the Chinese for their failure to enforce an intellectual property protection agreement pertaining to our firms that they had signed a year ago February. After talking to many companies, we found things had not gotten any better, and in some instances, had gotten worse. So we put together a plan that spelled out how many plants had to be dosed down and what kind of monitoring system had to be put in place. At the eleventh hour, the Chinese agreed to this plan.
We created a periodic review process to determine whether the enforcement plan is being honored; the first review will take place some time this fall, so I can't tell you how it's been working just yet.
Dean Management (Batterymarch Financial Management): I travel a lot internationally and often hear the word "bully" used to describe the U.S. because of the size of our markets. Clearly, we are not seen as an intellectual leader in free trade practice. In fact, we continually claim that trade is not an instrument of foreign policy, yet we threaten trade sanctions and revoke China's Most Favored Nation status, while extending it to other nations that commit the same offenses.
Tyson: Keep in mind that you are talking about two different kinds of sanctions. One is the use of economic sanctions for economic reasons, and the other is the use of economic sanctions for non-economic reasons. Unfortunately, both the Japanese and Chinese have created a pattern in which they take no action until they evaluate the sanctions we threaten. We got action with the Chinese on intellectual property protection because they believed our threatened sanctions were going to be harmful to them. Of course, those sanctions also would have hurt us economically, but the cost was not as great as the costs of not enforcing the intellectual property protection agreement. I would rather have the enforcement mechanism be handled by the WTO rather than our imposing sanctions, but China is still not a member because it won't meet the commercial conditions its trading partners require.
The Japanese claim that the U.S. wants to manage trade, set quotas, and not have any real competition. That characterization is misleading. Right now, we are involved with the Japanese in two disputes, one in the aviation area and the other in insurance. We want to have an Open Skies arrangement. That is hardly what I'd call managed trade.
In terms of sanctions for non-economic reasons, we believed that the threatened use of sanctions would bring benefits in terms of our foreign policy objectives that we could see no other way to realize. For example, we could not get our multilateral trading partners to agree on the situations with Libya and Cuba right now, so we turned to sanctions. We would love for our trading partners to come to us with some alternatives.
Ernest S. Micek (Cargill): The problem is that these sanctions seem to serve a short-term purpose. I worry that we are doing some long-term damage to trade because if we unilaterally impose a sanction, dozens of other countries are waiting in the wings to replace us. In China, for example, we are an agricultural supplier. The Chinese are the customers. When we take actions that threaten them, they do not see us as a reliable supplier.
Tyson: In the case of threatening sanctions for intellectual property rights enforcement, we spoke to a large group of American industry leaders, including companies that might be adversely affected by retaliation by China. The consensus was that if we don't send a clear signal to China early on, as she grows in importance in the international economy without adhering to international rules, we will give up too much in the long term.
In these kinds of negotiations and relationships, the threatened use of economic sanctions is, unfortunately, part of the process. The closer we can move toward a rules-based system, the better off we will be.
In terms of sanctions for non-economic reasons, you're saying we got the cost part of the equation wrong That may very well be. But I think it's important for the business community to mobilize its own evidence and present it to Congress.
Albert R. Gamper Jr. (CIT Group): You indicated a linkage between a strong U.S. economy and an effective trade policy. Are you satisfied with the levels of economic growth we are seeing today?
Tyson: The first half of this year, the economy has been growing at a rate of more than 3 percent. Our prediction for the year is 2.6 percent. On a measured growth rate, given the projected rate of growth of the labor force and projected rates of growth of productivity for the foreseeable future, we are saying the economy will grow around 2.3 percent or 2.4 percent on a sustained basis. However, the private-sector growth rate is much higher--3.2 percent. The reason the overall growth rate is slightly lower is because the government is contracting. I think we have a strongly growing economy, though I would like to see us do better, and I think we are on that path.
J.P. Donlon (CE): Some economists differ on your growth statistics. Studies by the National Association of Manufacturers and the American Enterprise Institute, for example, say that current average annual growth for the last four years is around 1.9 percent to 2.1 percent and below the historical average of 3.2 percent.
Thomas C. Wajnert (AT&T Capital): I'm a little confused about the convergence of international tax policy with trade policy, particularly regarding some new proposals for taxing foreign source income and inventories manufactured outside the U.S. I have some concerns in my own business about the passive income rules for financial-services companies operating outside the U.S.
Tyson: After a great deal of analysis, we decided that adjustments in our tax policy in the area of foreign source income would not have a significant effect on the competitiveness of U.S. producers or their locational decisions. In the short term, we just want to make adjustments to the existing code that won't harm U.S. competitiveness. Longer term, we may look at some crosscountry standardization in major tax areas.
A MATTER OF ETHICS
Lealie G. McCraw (Fluod: From an ethical standpoint, American companies are often at a disadvantage because other countries don't have regulations prohibiting bribery and corruption as the U.S. does. How is the administration dealing with this, and what can the business community do?
Tyson: An interagency effort is under way to make some decisions on this issue. We also have been encouraging the international community, through the Organization of Economic Development, to make a more active effort.
Thomas "Mack" F. McLarty (Counselor to the President of the U.S.): Latin American leaders, amid a strengthening of democracy, are beginning to take a much more engaged and proactive role in this matter, particularly those in Brazil and Mexico.
DEVIL'S IN THE DETAILS
John D. Correnti (Nucor): Our disadvantage is dealing with an overwhelming number of U.S. government regulations. Russia, the Ukraine, and Third-World countries don't have to deal with agencies such as the EEOC, OSHA, and the EPA. And it isn't so much the regulations that bother me, it's the accompanying paperwork. God forbid you don't cross every "t" and dot every "i." The legal profession is doing very well. In the meantime, I can't even get the head of the EEOC to return my phone call.
Tyson: When he first took office, President Clinton signed an executive order requiring agencies to conduct cost-benefit analyses and risk assessments, to be actively involved with companies in terms of assessing regulations, and to reduce paperwork. That's happening now. In fact, 55 regulations have been eliminated, along with 16,000 pages of paperwork.
Arthur Levitt (Securities and Exchange Commission Chairman): The paperwork problem will never end unless business keeps the pressure on and maintains a dialogue with the agencies themselves. It's just the nature of the process.
W. Keith Smith (Boston Co. and Dreyfus): Hopefully, technology will help alleviate some of that burden. But it also brings its own share of problems. As technology continues to evolve, it will change the world and the way we compete. This can be seen in the Internet and how it is changing the way we sell and distribute goods and services. How can the government help the business community both protect itself and take advantage of these evolving trends?
Tyson: The administration actively has sought to reduce the controls on our technology exports, particularly in computers and telecommunications. On the Internet, we've assembled a group to examine what kinds of adjustments should be made in commercial policy as more and more transactions are conducted electronically.
NOTHING IS PERFECT
William E. Mayer (CE): Has your thinking on the various international trade issues we've talked about changed in the past four years?
Tyson: Not in a fundamental way. I believe that there's no such thing as total free trade and no such thing as perfect protection. It's going to take a concerted, sectorial effort to figure out what the barriers are. It was easy in the days when the barrier was simply a tariff. Then, the solution was to reduce the tariff 50 percent. Today, the structural barriers of intellectual property protection also carry cultural or systemic differences in how businesses are organized. That's why we are in trade negotiations today.
We have to actively try to eliminate these barriers and try every track. If we can't get it multilaterally, we have to try it bilaterally. If we can't get it bilaterally, we might have to try a sanction. If we let the perfect be the enemy of the good, we'll never get anywhere.
RELATED ARTICLE: A Who's Who Of Roundtable Participants
Michael Baly III is president and chief executive of Arlington, VA-based American Gas Association, a national trade association comprising 275-plus natural gas utilities and pipeline companies in the U.S., Canada, and Mexico.
Frederick C. Copeland Jr. is president and CEO of Hartford, CT-based Aetna International, an insurance subsidiary of $7.4 billion Aetna Life & Casualty.
John D. Correnti is president and CEO of Charlotte, NC-based Nucor, a $3.4 billion manufacturer of steel products.
Albert R. Gamper Jr. is president and CEO of Livingston, NJ-based CIT Group, a commercial and consumer lending firm with $17.8 billion in assets.
Philip H. Geier Jr. is chairman and CEO of New York-based Interpublic Group of Cos., a $2.2 billion group of advertising agencies.
Michael S. Graff is president of Canada-based Bombardier Aircraft Division, a division of $5.2 billion transportation company Bombardier.
Mark W. Grohmyer is chairman of Little Rock, AR-based Commerce International, a consulting company. He is also The Center for the Study of the Presidency Liaison to the White House.
Dean LeBaron is chairman of Boston, MA-based Batterymarch Financial Management, one of the investment management subsidiaries of Legg, Mason, which manages $35 billion through several independently operated firms.
Arthur Levitt is chairman of the SEC.
William E. Mayer is dean of the University of Maryland's School of Business, former president of CS First Boston, and chairman of Chief Executive Group L.P.
Leslie G. McCraw is chairman and CEO of Irvine, CA-based Fluor, a $9.3 billion construction and engineering company.
Thomas "Mack" F. McLarty is Counselor to the President of the U.S.
Ernest S. Micek is chairman, president, and CEO of Minneapolis, MN-based Cargill, a $51 billion marketer and processor of agricultural, financial, and industrial commodities.
Donald E. Moffltt is chairman, president, and CEO of Palo Alto, CA-based Consolidated Freightways, a $5.7 billion transportation company.
Bryan T. Moss is vice chairman and CEO of Savannah, GA-based Gulfstream Aircraft, a business aircraft company with revenues of around $1 billion.
Maurice L. Relssman is the former CEO of Crossland Federal Savings Bank in New York and current president of Bennis and Reissman.
John J. Roberta is vice chairman of New Yorkbased American International Group, a $25.8 billion insurance company.
Stephen M. Smith is managing partner, Federal Government Practice in Washington, DC, a division of Andersen Consulting, a $3.45 billion management consulting firm.
W. Keith Smith is chairman and CEO of Pittsburgh, PA-based Boston Co. and Dreyfus, units of Mellon Bank, which has $40.6 billion in assets.
Laura D'Andrea Tyson is the U.S. National Economic Advisor.
Thomas C. Wajnert is chairman and CEO of Morristown, NJ-based AT&T Capital, a $1.5 billion machinery and equipment leasing company that owns and manages more than $11 billion in assets.
Stephen M. Wolf is chairman and CEO of Arlington, VA-based USAir Group, a $7.5 billion commercial airline carrier.
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|Title Annotation:||US trade policy|
|Publication:||Chief Executive (U.S.)|
|Article Type:||Panel Discussion|
|Date:||Oct 1, 1996|
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