U.S. Economic Diplomacy: Priorities and Concerns

U.S. Economic Diplomacy: Priorities and Concerns

E. Anthony Wayne, Assistant Secretary for Economic and Business Affairs
Remarks at the Bank of San Francisco
Washington, DC
February 17, 2006

As Prepared for Delivery

INTRODUCTION

Good afternoon. First of all, I would like to thank the Bank of San Francisco for hosting this event. I appreciate your interest in U.S. foreign economic policy.

As I'm sure many of you know, California is playing a major role in the global economy. With 2004 merchandise exports of nearly $110 billion, California is the second-largest exporting state in the country, second only to Texas. Indeed, about 1 in 4 manufacturing jobs here in the Golden State depends on exports. California also benefits greatly from international capital flows. California boasts the largest stock of foreign investment by U.S. affiliates of foreign firms -- valued at $115 billion in 2003. It is estimated that these companies support 561,000 jobs in the state, the largest concentration of such employment in the nation. California is also home to one of the largest networks of international banks, foreign consulates, and bi-national chambers of commerce in the U.S.

ACCOMPLISHMENTS IN 2005

Since we are still early in the New Year, I thought it appropriate to mention first some of our key accomplishments in economic diplomacy during 2005, to provide you a sampling of the range of issues we work on at the State Department -- many of which have important implications for you here in California.

At the World Summit on the Information Society in Tunisia, we led the successful efforts to preserve private sector leadership of the Internet and the free flow of information, despite a concerted effort by a powerful array of states to turn it over to an international governing body.

In 2005, U.S. delegations-chaired by the State Department reached an Open Skies aviation agreement with Canada and liberalized our existing agreement with Mexico to enable expanded bilateral passenger and cargo service. Together with the quite generous 2004 air agreements which we concluded with China and Vietnam, the benefits are significant -- especially for cities with major airports such as San Francisco and Los Angeles, because more liberal air transport promotes international trade, investment, tourism, and local development for the communities served by such airports.

We helped protect innovation through stronger protection and enforcement of intellectual property rights around the world, for instance through the U.S.-EU Summit Declaration and G8 Leaders' Statement in 2005 to strengthen IP enforcement as well as our work to improve enforcement in China, Ukraine, Russia, Pakistan, and Latin America.

In July, we helped to achieve progress on many fronts at the G8 Summit in Gleneagles, Scotland. The Summit produced significant policy initiatives including the Gleneagles Plan of Action on energy and climate change, development initiatives for Africa, new intellectual property rights enforcement efforts, and strong statements in support of the WTO Doha trade round and of our counterterrorism work.

We helped negotiate a deal at the "Paris Club" of major countries holding debt which will eliminate $30 billion of Nigerian debt at no cost to U.S. taxpayers.

The State Department was at the front lines of U.S. Government and international efforts during times of natural disasters at home and abroad.

In the first half of 2005, we focused on helping mobilize and coordinate relief and rebuilding after the Asian Tsunami.

Following Hurricane Katrina, we were actively involved in tracking offers of foreign assistance. Our early planning made possible close and speedy coordination with the International Energy Agency and its member countries to arrange the release of emergency petroleum stockpiles, which helped relieve tight energy markets.

When a major earthquake struck Kashmir in October, we coordinated U.S. relief and reconstruction assistance and ensured that the Islamabad Donors' Conference was a major success, with over $6.2 billion in pledges.

More recently, at the January 2006 London Conference on aiding Afghanistan, the United States continued to show its leadership as the largest donor. In addition to the nearly $6 billion the U.S. has already provided since the Berlin Conference on Afghanistan in March 2004, the President is seeking an additional $1.1 billion in Fiscal Year 2007 to sustain long-term assistance for that country. The Conference was a success and its "Afghanistan Compact" represents a new chapter in cooperation with the Afghan government. Leading up to the Conference, we also succeeded in convincing Russia and Germany to join the United States in offering to provide 100% debt reduction to Afghanistan through the Paris Club.

TRANSFORMATIONAL DIPLOMACY

These accomplishments don't merely show how many different international economic issues we follow; they show how the United States is shaping events to bring about reform and development. Further, the range of topics covered is evidence that we are living through a time of unprecedented change in human history. Increasing economic interdependence among countries and across borders is perhaps the defining characteristic of this new era.

I am sure many of you have heard Secretary Rice compare this period after the end of the Cold War and the attacks of September 11 with the early years following World War II. As a result, Secretary Rice has emphasized the importance of transformational diplomacy - using the full range of U.S. diplomatic tools to shape change that is good for all countries, including the United States.

Economic diplomacy is a crucial part of this effort. A powerful and vital way to support political freedoms and social opportunities is by generating economic opportunities that help people build better futures for themselves.

Speaking only a few miles from Silicon Valley, I'm pleased to note the important role informational and communication technologies play in our economic diplomacy. Both President Bush and Secretary Rice have spoken out about the unique transformational power of the Internet and the promise it offers to promote freedom. We must not let the Internet become a tool of repression. As we have focused more energy on this set of issues, including through the work I mentioned earlier related to the World Summit on the Information Society, Secretary Rice decided it would be appropriate to form a Global Internet Freedom Task Force at the State Department, announced on Tuesday, February 14. Comprised of experts in the Department on international communications policy, human rights, democratization, business advocacy, corporate social responsibility, and relevant countries and regions, the Task Force will focus on those countries that restrict access to political content as well as the impact of such policies on U.S. companies.

For instance, the State Department intensified its dialogue with American companies doing business in China following the sentencing of Chinese journalist Shi Tao. We are expressing our concerns about the human rights issues at stake and encouraging the companies to leverage their global leadership by developing and implementing a set of meaningful global best practices. We want to continue to work with companies, NGOs, other private sector groups as well as other governments and international organizations in developing strategies to advance the goals we share.

We seek to promote the significant economic, social, and political benefits of the Internet that should flow to people in all countries, especially those in the developing world. We recognize that the Internet's dynamic success is due in large part to the private sector's leading role in driving a decentralized and flexible process. To ensure that the Internet remains an engine of innovation and investment, we support continued private sector leadership rather than a top-down, intergovernmental regulation of the Internet.

We are also extremely supportive of private initiatives to spread the benefits of information and communications technologies in 10 the developing world, such as the $100 computer and the $30 cell phone. Likewise, we are proud to be engaged in public­private partnerships, such as the Digital Freedom Initiative, that enable the U.S. Government and private sector to work together in this field.

Turning now to the U.S. international economic agenda, I would like to highlight several of our priorities and concerns.

ENGAGEMENT WITH STRATEGIC COUNTRIES

Working in partnership with other government agencies involved in economic issues such as Treasury, Commerce, and USTR, as well as with the private sector, the State Department is focusing on key countries and regions to support their transformation to strong, market-oriented, prosperous and democratic states, including Iraq, Afghanistan, Ukraine, Indonesia, Lebanon, and Haiti, just to name several.

For example, the State Department and our Embassy in Baghdad are working hard to assist Iraqis with economic reforms and reconstruction. For example, when the Saddam tyranny ended, Iraq's external public debt stood at over $120 billion dollars, or about 600% of GDP. We have worked closely with our allies and friends to write off nearly all that debt.

We are also working to support economic and political transformation in Central Asia, the Broader Middle East, and the Balkans.

We want these countries and regions to succeed as they emerge from conflict and throw away the outdated, statistic political and economic models of the past.

We also devote much attention to managing relations with countries that have a particularly large economic relationship with the United States, including the emerging markets in Asia.

For example, we are working with the Chinese leadership to ensure that China acts as a "responsible stakeholder" in the evolving international system. China benefits from the world trading system and needs to support that system with tangible action.

Plans for a March visit to India and Pakistan by the President signal a growing and improving relationship with the South Asia region.

Turning towards transatlantic relations, it is difficult to overstate the importance of our partnership with the European Union, the world's largest economic area. Total trade and investment flows between the U.S. and the EU amount to nearly $2 billion every day. We work with our European friends and allies to open markets, to protect intellectual property rights, to shut down financial flows to terrorists, and to alleviate poverty in developing countries, just to name a few areas of cooperation. We also pursue dialogue with the EU on countries of strategic importance to the world economy.

Now let me highlight our strategy in pursuing this agenda as well as some concerns which lie ahead.

The State Department promotes prosperity at home and abroad by focusing on three priority areas:

1. Open Markets,

2. Economic growth and development, and

3. Economic security.

OPEN MARKETS

Much of our work focuses on building open trade and investment regimes because the facts show that such policies promote sustained economic growth in the countries which pursue them. Since I know you are especially interested in our efforts in the banking and financial services sector, let me start there.

We know that the United States has a competitive advantage in service exports, particularly in financial services sectors like banking, insurance, and securities. In our trade agreements and bilateral investment treaties, we seek to open markets and secure meaningful protections for U.S. financial services investors. These agreements, such as the bilateral investment treaty we negotiated and signed with Uruguay last year, protect against nationality-based restrictions on the establishment of branches or subsidiaries. We also work to reduce or eliminate limitations on what financial services U.S. firms may offer in a given country. We consistently raise these issues with major trading partners such as China, India, Russia, and other countries.

Together with the European Union, we are aggressively pressing for liberalization of service imports and foreign investment regimes in developed and developing countries alike. Our goal is simple and consistent: seeking increased opportunity for U.S. companies to compete and provide air transportation, information and communications technology, banking, and other services in a friendly investment environment.

We are also aggressively pursuing these goals to expand trade in services through the current round of trade negotiations at the World Trade Organization (WTO) known as the "Doha Development Agenda." In fact, just this week a member of my team is in Geneva along with other U.S. trade officials actively urging other countries to join us in compiling an ambitious collective request on banking and other financial services. We hope this process will lead to a beneficial final agreement on financial services and banking by the end of the summer.

Despite low expectations, the WTO Ministerial in Hong Kong kept the Doha Round alive.

WTO members set 2013 as the date to end agricultural export subsides. Members also agreed to a number of important development initiatives.

Most importantly, trade ministers agreed that no one can afford to miss this once-in-a-generation opportunity to re­energize the global trading system, create economic growth, and lift millions out of poverty.

There is lots of hard work ahead of us. Expanded market access, particularly in agriculture, is key to a final WTO agreement. A substantial move by the EU on agriculture would pave the way for advanced developing countries, such as Brazil and India, to make comparable tariff cuts on industrial goods and deliver the new market openings in services I outlined a moment ago.

Unless this can happen early in 2006, we risk losing a unique opportunity, since the President's current authority to negotiate trade agreements expires in 2007.

Along with efforts to conclude a multilateral trade agreement in the WTO, we continue to pursue an active trade agenda with regional, sub-regional and bilateral free trade agreements.

In Latin America, we are working toward concluding negotiations with 13 countries. Such agreements are a special vehicle to promote rule of law, transparency, and open trade regimes. The U.S.-Chile Free Trade Agreement is an excellent case in point. We have seen a 30% increase in trade an investment in the first year since it entered into force in 2004.

We are advancing toward full implementation of the Central America Free Trade Agreement (CAFTA), and we expect the agreement to enter into force on a rolling basis early this year. In late December, we closed on a free trade agreement with Peru, and we are confident that a future U.S.-South Korea FTA, for which we launched negotiations on February 2, will have significant economic benefits for California as well.

Protecting innovation is another pillar of our economic diplomacy. A significant amount of annual global trade involves trade in illegitimate goods. Counterfeiting alone costs U.S. businesses as much as $250 billion annually. We also recognize that the nations in which intellectual property crime takes place are suffering great economic consequences. Indeed, 71 % of Latin American businesses polled in 2005 listed IP theft as one of the most pressing problems they face.

To win this battle, we need to build stronger teams -- across borders, across industries, across governments, and between the public and private sectors.

SUPPORT FOR U.S. BUSINESS

Helping U.S. companies doing business overseas is one of the State Department's primary missions. Indeed, the President instructs each new Ambassador to become personally involved in advocating on behalf of American companies to other governments for fair treatment, transparency, and maximum opportunity for U.S. firms in competitive global markets.

The State Department, in partnership with the Commerce Department, provides direct support and advocacy to U.S. companies doing business abroad and exporting to foreign markets. Here, we pay particular attention to the 110 posts where the Commerce Department has no overseas presence. We assist companies pursuing foreign government procurement opportunities and champion U.S. businesses requiring intervention on commercial and investment disputes.

We provided advocacy assistance to over 150 companies in Fiscal Year 2004. According to a major U.S. long distance carrier, our advocacy with foreign telecom operators and governments saved U.S. firms at least $80 million this year, while ensuring continued connection and open circuits in several overseas markets.

We know U.S. companies overseas serve as models for the kind of business practices we want others to adopt. Each year since 1999, through the Secretary of State's prestigious Award for Corporate Excellence, we publicly recognize U.S. companies that display exemplary business practices in corporate citizenship, innovation, and exemplary international business practices.

Facilitating business travel to the U.S. is another area which I'm sure is of great interest to all of you. I want you to know that we hear your concerns and that promoting legitimate international business travel, while maintaining high standards of border security, is at the top of our agenda.. We are reviewing current initiatives and means to further improve the processes for visa applications and the port of entry.

For instance, the new State Department Business Visa Center, a global expansion of a pilot project in China, is already helping hundreds of U.S. companies every month by facilitating application procedures for businesses with upcoming travel or events. More information can be found on our website at travel.state.gov or by calling 202-663-3198.

Our embassies and consulates have now established procedures, including partnerships with local American Chambers of Commerce, to decrease the wait time for appointments and expedite processing of business visas.

ECONOMIC GROWTH AND DEVELOPMENT

The second main priority of our economic diplomacy is economic growth and development. In his speech to the UN General Assembly last September, President Bush laid out a bold vision for free trade -- a world with zero subsidies and zero tariffs -- to encourage renewed economic growth, and prosperity to the developing world. We know that only with sustained growth can countries reduce the number of their citizens living in poverty.

We are committed to helping developing countries realize the Millennium Development Goals of reducing poverty and improving living standards through encouragement of pro-growth policies as well as development assistance. To support trade and investment, which provide the bulk of financing needed for growth in developing countries, we promote open markets, innovation through strong intellectual property regimes, and improved investment climates that ensure regulatory transparency and rule of law.

For example, the Doha Development Agenda (DDA) has the potential to lift millions of people out of poverty and to enhance the economic well-being of developing countries. For this reason, the WTO remains the best framework to advance global trade and economic growth in developing countries. Historically, developing nations that open themselves up to trade grow at several times the rate of other developing countries. Tragically, some of the highest trade barriers exist between developing countries. Nearly 70% of the tariffs paid by developing countries are paid to each other.

We also provide development assistance and are working hard to make that assistance more effective in stimulating growth and reducing poverty. The U.S. emphasizes the so-called "Monterrey approach" of using aid to promote and amplify effects of responsible, pro-growth policies. The Administration's Millennium Challenge Account (MCA) is one of the most important and innovative development programs in decades. Focused on measurable results, the program is already changing behavior in developing countries by rewarding and encouraging good governance, democracy, economic freedom, and investing in people.

We are working with our friends and trading partners to redress imbalances in the world economy. The IMF and G-8 have suggested that the United States and countries in Europe and Asian need to carry out reforms that would reduce trade and financial deficits and thus strengthen the world trading and financial system that has benefited us all. The administration has committed to reduce the U.S. budget deficit and is moving aggressively in that direction. We need to see China move more quickly to adopt a more market-oriented exchange rate, which would boost U.S. exports. For their part, Europe and Japan need to carry out internal reforms to bolster flexibility and growth. Together, our efforts can strengthen the international system and increase growth and prosperity for all countries.

We also seek to improve the global business climate by promoting transparency and fighting corruption, including through the G8. The U.S. strongly supports the Extractive Industries Transparency Initiative (EITI), which aims to ensure that revenues earned from extractive industries, like oil and diamonds, go to the owners of those resources and taxes and royalties owed the host government are paid. Through this initiative, we hope to help developing, resource-rich countries avoid the "resource curse" while encouraging development that helps the broad population.

U.S. companies help in the process of improving governance by supporting and implementing the OECD Guidelines for Multinational Enterprises, a set of voluntary principles.

Through effective implementation of the OECD AntiBribery Convention, we are working hard to ensure that your competitors have to live by the same high standards you do.

In addition, the U.S. Government takes the principle of contract sanctity very seriously and expects its treaty partners to live up to their obligations. Sometimes, the fact that the U.S. is aware of and concerned about an investment dispute is enough to encourage parties to find a solution.

ECONOMIC SECURITY

The third priority in our economic diplomacy strategy is enhancing America's economic security. We provide support for states on the front lines in the War on Terror. We work with other agencies, governments, and international institutions to cut off the flow of funds to terrorist networks. And we promote policies that improve transportation and information network security. California has a large stake in this work as well, since your three major container ports -- Long Beach, Los Angeles, and Oakland -- carry more than 40% of the nation's total container cargo volume.

Given the high price of oil and continuing uncertainty in petroleum markets, I suspect that you are also interested in our efforts to promote energy security.

Our primary objective is to ensure that our economy has access to energy on terms and conditions that support economic growth, while at the same time protecting the environment.

Domestically, the passage of the Energy Policy Act of 2005 should help to improve our security posture through a combination of investment in infrastructure, conservation, enhanced efficiency, and technology research.

Our fundamental strategies include:

* Promoting the diversification of energy supplies, worldwide,

* Using strategic petroleum stocks to respond to supply disruptions,

* Encouraging major oil producing countries to maintain responsible production policies,

* Supporting energy efficiency initiatives worldwide; and

* Promoting transformational energy technologies, including the accelerated development of biofuels as outlined in the President's State of the Union address.

CLOSING

Private sector input is critical on these and so many other issues. Only through partnership between the private sector and government can we develop workable strategies to promote prosperity and economic security. I invite your questions and your views.

Released on February 24, 2006 ENDS

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