(Archived Content)
[Introduction. Chair: Peter Sutherland]
I appreciate this opportunity to speak to the members of the Trilateral Commission today, and to share the stage with such a distinguished panel.
The relationship between multilateral, regional, and bilateral trade agreements has long been a professional interest of mine. It is also an important subject for my colleagues in the Bush Administration.
Let me say, first off, that if anyone here feared that this Administration would turn its back on multilateralism and the World Trade Organization, those skeptics were clearly mistaken.
On Thursday of this past week, President Bush made a major statement calling on the United States Senate to bring Trade Promotion Authority to the Senate floor by April 22. This statement may not have gotten all the attention it deserved, with the media spotlight on his decision earlier in the same day to send Secretary Powell to the Middle East. But it was unequivocal.
The President said, I believe strongly in trade. I believe not only is trade in my nation's interests, I think trade is in the interest of those nations who struggle with poverty, and that desire a route out of poverty. He hailed our recent work to advance the Doha round, and the success of WTO countries represented here in bringing both China and Taiwan into the WTO last year.
He also noted that some 250 preferential trade agreements exists in the world today. The United States is a party to only three of these 150, considerably short of the European Union's 31 or even Mexico's 10. And he expressed our desire to reassert America's leadership on trade.
We view Trade Promotion Authority - the ability for the executive branch to negotiate the details of trade agreements and then submit them to Congress for approval in a simple up-or-down vote as an essential legislative component of our free trade strategy. TPA would allow us to elevate our trade negotiations above the din of interest groups that might otherwise render the process ineffectual.
All of us here agree, I am sure, on the importance of advancing global free trade. The debate is on the best means to achieve our goal. This administration advocates a pragmatic, multidimensional approach.
Simply put, this approach suggests that we move forward however we can, whenever we can.
I personally would concede to Director Mike Moore that the universal, multilateral approach would be best in an ideal world. The proliferation of bilateral and regional deals today sometimes makes import-export administration so complex that few entities, public or private, can manage it effectively. The complexity is a tax in itself.
I am inclined to agree with my friend, Professor Jagdish Bhagwati, that the present system has come to resemble a spaghetti bowl. Also, because of the relationship between domestic interest groups and the trade negotiation process, trade diversion all too often prevails over trade creation in regional and bilateral arrangements. We hope that Trade Promotion Authority in the United States will diminish that effect because it will make it much more difficult for domestic interest groups to carve out exceptions in their own protectionist interest.
Nonetheless, I believe regional and bilateral agreements, despite their shortcomings, are more of a building block than a stumbling block toward global agreements.
There are two main reasons for this conclusion.
First, regional agreements can create a competition toward trade liberalization that extends far beyond the individual agreements themselves. Many developing nations that are leery of diving head first into the global pool are quite eager to get their feet wet with a free trade agreement with the United States. They don't want to be left behind.
As nations open to the idea of freer trade, regionally and bilaterally, they become more amenable to the global approach as well. They warm to the idea of freer trade as they see the benefits from more limited arrangements.
Second, and perhaps most tangibly, free trade agreements induce growth stimulating changes in developing economies that may in themselves outweigh the costs of trade diversion, or even the benefits of trade creation. In particular, regional agreements encourage private investment into economies that are a party to the agreement.
This is not only because investors benefit from increased trade, but it is also because free trade agreements generally go hand-in-hand with improved macroeconomic policies. Moreover, they lock-in the policy improvements.
The Mexican economy since NAFTA is a wonderful example of this effect. Mexico is now an investment-grade country, with the growing employment and incomes that entails. NAFTA helped to make Mexico a capital-friendly place, and capital responded.
Mexico also demonstrates that global and regional trade agreements often build on each other, rather than excluding each other as some fear. Mexico did not even join GATT until 1986. It joined NAFTA and the OECD in 1994, and is now party to about ten preferential agreements. There is every reason to believe that Mexico will be more friendly toward the Doha round than it would have been if there had never been a NAFTA.
The policy environment benefits of free trade agreements parallel and amplify the Bush Administration's international aid policy, which we call the New Compact for Development. We want aid dollars to support policy improvements in developing countries that stimulate domestic private enterprise investment. We believe free trade agreements advance the same cause. Indeed, trade talks can open the doors to talks on more extensive economic reforms, as they did in NAFTA.
In particular, I personally believe that freer trade in financial services and related financial services sector reforms offer macroeconomic benefits for stability and growth in developing nations. As a Treasury Department official, I plan to place special emphasis on pursuing liberalization on this front this year.
Regardless of whether we obtain Trade Promotion Authority from the Congress later this month, this administration intends to advance free trade worldwide, through every means available. In the coming year, this may include several new bilateral agreements as well as the ongoing discussions for expanding free trade in our own hemisphere.
Certainly it will include strong support for the Doha round and close engagement with the WTO. But we will keep every option on the table.
Some will argue that it is optimistic to suggest that regional trade agreements and bilateral agreements are building blocks toward global trade advancement. But it is also realistic to suggest that they are sometimes the only means available for progress on the free trade agenda.
I look forward to discussing and perhaps debating these ideas with all of you.
Thank you.