Regaining the Initiative: A Blueprint for U.S. Trade and Investment April 23, 2009

“Globalization can be an enormous force for good… countries in this *financial+ crisis cannot start turning inward and

try to erect protectionist barriers. We should encourage trade.” – President Barack Obama, March 3, 2009

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Table of Contents

INTRODUCTION .................................................................................................................................5

THE CHALLENGES AHEAD ................................................................................................................. 11

International Challenges ......................................................................................................................... 12

Domestic Challenges ............................................................................................................................... 14

RESISTING PROTECTIONIST AND ISOLATIONIST POLICIES ................................................................... 16

MAKING TRADE AGREEMENTS WORK BETTER FOR THE UNITED STATES ............................................ 17

Create Networks of Open Trade and Investment ................................................................................... 17

Free Trade Agreements With Our Major Markets .................................................................................. 22

Move Forward Pending FTAs .................................................................................................................. 24

Reinforcing American Rights – Improved Enforcement ......................................................................... 24

Re-establishing Confidence in the Trade Adjustment Process ............................................................... 25

A Constructive Role for the Global Adjustment Process ........................................................................ 25

Identify Disincentives and Incentives to Trade and Investment ............................................................. 26

PATHS TO EXPAND GLOBAL TRADE AND INVESTMENT MAXIMIZING THE EFFECTIVENESS OF

INTERNATIONAL NEGOTIATIONS ...................................................................................................... 28

Maximizing the WTO’s Effectiveness ...................................................................................................... 28

Other Means To Facilitate Global Trade and Investment Liberalization ................................................ 31

Preserving Competitive Options to the WTO ......................................................................................... 31

A PROACTIVE APPROACH TO DISCRIMINATORY FOREIGN REGULATORY BARRIERS ............................ 33

Actively Promote U.S. or International Regulatory Approaches ............................................................ 34

Aggressively Negotiate Mutual Recognition Agreements ...................................................................... 35

Integrate Regulatory Issues Into the Core of U.S. International Economic Policy .................................. 36

CLOSING THE GAPS ON INVESTMENT PROTECTIONS ......................................................................... 37

Closing the BIT Gap: The U.S. Has Fallen Behind .................................................................................... 37

Negotiating Tax Treaties with Key Economies ........................................................................................ 39

NARROWING THE CURRENT ACCOUNT DEFICIT ................................................................................. 40

Promote Growth and Consumer Demand Abroad ................................................................................. 40

Energize Multilateral Efforts to Facilitate Global Currency Adjustments ............................................... 41

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Address Low Savings and Investment in the U.S. and the Federal Budget Deficit ................................. 41

Encourage Foreign Investment in the United States .............................................................................. 42

BRINGING THE BENEFITS OF TRADE AND INVESTMENT TO THE WORLD’S POOR ................................ 44

Addressing Resource Gaps Through Capacity Building and Technical Assistance .................................. 45

Better Integrating Trade Objectives Into Development Assistance ....................................................... 47

Re-examining the Preference Programs ................................................................................................. 48

LAYING THE FOUNDATION FOR AMERICA’S COMPETITIVENESS ......................................................... 51

REVITALIZING THE CONGRESSIONAL-EXECUTIVE RELATIONSHIP ON INTERNATIONAL TRADE AND

INVESTMENT POLICY ........................................................................................................................ 52

Negotiating Criteria and Objectives ........................................................................................................ 52

Taking Heed of Old Advice ...................................................................................................................... 53

Promoting Collaboration and Cooperation ............................................................................................ 54

A Tailored Grant of Fast Track/Trade Promotion Authority ................................................................... 55

CONCLUSION: THERE IS NO TIME TO LOSE ........................................................................................ 57

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INTRODUCTION

The United States cannot afford to sit on the sidelines of the international economy

American International Economic Engagement is Essential. This is the time to reassert U.S.

leadership on international economic issues. Once an engine of domestic and international

growth, international trade is set to decline by 9 percent in 2009 – far faster than the projected

decline in global economic growth. And international trade could collapse altogether – turning

a very bad recession into a second Great Depression – if growing protectionist and isolationist

initiatives here and abroad are not decisively challenged and rejected.

Domestic and International Economic Initiatives are Linked. America needs to move forward

forcefully on all economic fronts. We need to move forward with our new domestic stimulus

and financial stability programs and new domestic competitiveness initiatives. Additionally, we

must recognize that our domestic economic recovery and competitiveness initiatives will not

deliver their full potential if the United States does not have international trade and investment

policies that help our companies and workers compete in the global marketplace.

Our companies and workers can succeed domestically and internationally with the right policies

and priorities in place and energetic U.S. leadership – policies and leadership that restore our

domestic competitiveness and also address the real challenges American workers and

businesses face in the international marketplace – providing a level playing field for

international competition, and preventing discrimination against U.S. goods and services, and

businesses and workers.

Isolationism and Protectionism are Destructive. The path out of our domestic and global

recession cannot embrace closing borders or taking a break from the international economy. If

we do not lead with strong international engagement initiatives, our competitors will shape the

future global economy without us, and to America’s detriment. As a matter of history, the

Great Depression taught us that closing borders will exacerbate an economic crisis, not grow us

out of it. As a matter of reality, the U.S. economy is more deeply internationalized than it has

ever been, and exports and foreign investment earnings are important drivers of U.S. economic

growth and job creation.

If America abandons international economic engagement or, worse, drifts into its own

economic isolation, or lets other countries’ protectionist, isolationist and unfair trade policies

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go unchallenged, we run a high risk of undermining domestic and international initiatives to

stabilize financial markets and rebuild the foundation for new economic growth necessary to

create jobs and wealth at home and abroad.

New Ideas for International Economic Engagement. Comprehensive domestic growth

initiatives deployed in concert with a renewed commitment to international engagement and

enforcement of U.S. international trade agreements and laws that embrace fair trade and

investment values, is our best hope for new American economic growth and the creation of

jobs.

Business Roundtable believes that the fundamental policy of American international economic

engagement set in place by President Roosevelt in the Reciprocal Trade Act of 1934 and

pursued by all his Democratic and Republican successors – opening markets through bilateral,

regional and multilateral negotiations – is as sound today as it was 75 years ago. Over the last

year there has been a great deal of discussion about the need to take time to review U.S.

international trade and investment policies to make sure they will promote sustained economic

growth in the 21st century. Business Roundtable believes this is an important challenge for the

Obama Administration, Congress and the private sector.

This paper is part of Business Roundtable’s ongoing efforts to meet that challenge, to engage

with the Obama Administration and Congress in a constructive dialogue on how to pursue

international trade and investment issues in the future. In this paper, Business Roundtable

outlines a blueprint for a 21st century policy of international engagement and leadership based

on the fair trade and investment values of leveling the playing field for American companies

and workers and preventing discrimination against our goods, services and investments. The

following are highlights of the paper’s wide-range of recommendations.

1. Move Forward Unfinished Business.

- Free Trade Agreements (FTAs). Move the pending FTAs with Colombia, Korea

and Panama forward.

- WTO Doha Round. Re-energize the WTO Doha Round negotiations with a goal of

completing them within the next 12 months.

- Bilateral Investment Treaties (BITs). Complete the BIT negotiations with China

and India to make sure American companies are getting the same investment

protection as their foreign competitors in these key markets.

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2. New Approaches to Make U.S. Trade Agreements and Negotiations Work Better

- Improve Enforcement. Reinforce American rights with more effective

enforcement of international trade and investment agreements and U.S. trade

laws. It is also essential to recognize that a successful enforcement strategy is

dependent on the United States having strong agreements to enforce. This

underscores the importance of moving forward with pending and new

international trade and investment agreements.

- Promote U.S. Exports. Catalogue U.S. export incentives and disincentives (such as

outdated and ineffective export financing and export controls) and move

forward with comprehensive proposals to make sure government policies

support rather than hinder American exports.

- FTA Integration, Expansion and Modernization.

Integration to harmonize different rules that have developed, making it

easier for companies and workers to use the FTA system.

Expansion to help the United States pursue strategic economic, foreign

policy and national security on a more comprehensive basis in key

regions. Developing FTA negotiating strategies for our most commercially

important bilateral markets like Japan and the European Union and

regional markets like Asia should be a priority.

Modernization of agreements to make sure they reflect new economic

developments and incorporate new understandings on important issues,

such as labor and the environment.

- Consider New Flexible Negotiating Strategies.

Negotiating services-only FTAs with commercially important markets may

be necessary to overcome obstacles in negotiating comprehensive FTAs

with commercially important markets like Japan and the European Union.

New WTO negotiations should consider alternatives to the “single

undertaking” approach used in the Uruguay and Doha Rounds, such as

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“rolling negotiations,” plurilateral negotiations, including on a non-most-

favored-nation (MFN) basis, and non-binding “best practices”

negotiations to provide building blocks for enforceable agreements in the

future.

- Prevent Foreign Regulatory Discrimination. Countries are replacing more

traditional border restrictions like tariffs with regulatory barriers to give their

own companies and workers a competitive advantage. U.S. negotiators, in

cooperation with the private sector, should devise and execute a more

aggressive strategy to promote fair and non-discriminatory regulatory systems,

including:

The adoption of U.S. or international product standards, and

harmonization of standards wherever possible.

The negotiation of strong and enforceable transparency rules.

The negotiation of mutual recognitions agreements.

Comprehensive high-level bilateral regulatory dialogues for commercially

important regions and countries such as NAFTA, China and India, for

example.

- Establish Confidence in the Adjustment Process.

In the short term, make sure the new trade adjustment assistance

program works, and give the President more authority to provide for

adjustment assistance in “safeguard” cases in which the U.S.

International Trade Commission has ruled in favor of the domestic

industry.

In the long term, develop a comprehensive adjustment program along

the lines of Business Roundtable’s America 21 proposal to help workers

adjust to dislocations regardless of the cause and to provide them with

21st century skills.

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- Trade and Development. Open trade and investment have helped countries as

diverse as South Korea, Mexico, Brazil, India and China to grow their economies

and become advanced developing countries. The United States should continue

to play a leading role in helping the least developed countries successfully

integrate into the global economy through a mix of policies.

Capacity building and technical assistance programs for trade facilitation,

infrastructure construction and customs and regulatory modernization

should be strengthened bilaterally and multilaterally through the IMF,

World Bank and regional development banks.

Trade preference programs should be reviewed to ensure they are

delivering benefits to the countries that need them the most and to

evaluate whether they could be more effective if they were consolidated.

3. Rebuild Bipartisan Support for Negotiations

- Bipartisanship is Essential. Rebuilding bipartisan support for international trade

and investment initiatives and for closer collaboration and cooperation between

Congress and the executive branch is essential for developing and implementing

strong international trade and investment policies to help American industries

and workers compete in international markets.

- New Approaches and Resources. Rebuilding bipartisan support for international

trade and investment initiatives and revitalizing the congressional-executive

branch relationship will require new approaches and resources from both

branches of government to ensure there is close cooperation in launching

negotiations, during the negotiations and in implementing the agreements.

- New Fast Track/Trade Promotion Authority. Fast track/trade promotion

authority is an essential tool for fair trade and economic growth. Fair trade and

economic growth are not achievable without the negotiation and

implementation of strong bilateral, regional and multilateral trade and

investment agreements. New trade negotiating authority is needed and it should

be tailored to reflect differences in multilateral and bilateral negotiations.

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Permanent authority for multilateral negotiations should be considered

because WTO negotiations have proven to take much longer to complete

given the size of the WTO and its consensus-based negotiating structure.

Permanent authority for defensive bilateral and regional negotiations is

essential to protect American companies and workers from our foreign

competitors when they are moving forward aggressively to complete

their own preferential bilateral and regional FTAs, as evidenced by the

recent announcement that Korea and the EU are close to finalizing their

FTA.

As American business leaders, the members of Business Roundtable stand ready to work with

the new Congress, Administration and all American stakeholders to help develop and

implement the international trade and investment policies that American workers,

communities and companies need to succeed in the world economy.

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THE CHALLENGES AHEAD

The United States – and the world – faces a deep and widespread financial and economic crisis.

The United States will not generate economic recovery and create jobs at home by sitting on

the sidelines of the international economy.

To succeed in today’s economy, American companies and workers need to be able to (1) export

their goods and services to foreign markets, (2) market their goods and services in these

markets through their foreign subsidiaries and joint ventures, and (3) import goods and services

to offer the best prices and quality to American consumers. There is no “either/or” in the

struggle for success in the international marketplace. American international economic policies

should empower American companies and their workers to compete successfully at all levels of

the international economy.

While many of the current challenges facing the world are unprecedented, history

demonstrates clearly that global engagement can help an economy recover. The United States

decision to erect new trade barriers in 1930 (Smoot-Hawley Act) caused a chain reaction of

protectionism throughout the world, which exacerbated the Great Depression. To overcome

these devastating effects, the United States looked to create new trade opportunities for

American companies and workers. The Reciprocal Trade Act of 1934 relied on launching the

negotiations of new trade agreements to open markets for American companies and workers.

This model of reciprocal trade agreements has been a guiding principle for every President and

Congress – Democrat and Republican alike – for 75 years.

Even before the current economic crisis, American workers and companies faced a challenging

international landscape. Economic development around the world – something to be

applauded – and aggressive policies by foreign governments have resulted in fiercer

competition for U.S. workers and companies. These challenges are even more acute today

given the state of the U.S. and global economy, but nevertheless offer new opportunities for

American economic growth and jobs.

The new Administration and Congress need to face up to the new global competitive realities

and align U.S. international trade and investment policies accordingly. They need to move

forward quickly, on multiple tracks, to address these challenges and best position U.S.

companies and workers for success. This means aggressive international economic policies

based on basic fair trade values of opening closed markets, preventing discrimination against

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American companies and workers, and enforcing international agreements and American trade

laws, complemented by an ambitious domestic competitiveness program.

International Challenges

Open, rules-based trade and investment has been a cornerstone of U.S. strength and rising

standards of living, and the new Administration and Congress should continue to make it a

defining objective of U.S. international economic policy. How we further that objective requires

a comprehensive rethinking and restructuring to account for the new realities and challenges

confronting the United States in the 21st century. The new international realities and challenges

include the following:

- Resurgent Protectionism and Isolationism. As in the 1930s, governments are again

resorting to protectionist and isolationist policies to promote their own domestic

growth. These policies did not work in the 1930s and the retaliatory spiral they created

transformed a bad recession into the Great Depression.

- Most New Customers Live Outside the United States. While the domestic economy is

still a critical market for U.S. companies, international markets are growing faster and

have billions of new potential customers for American products and services. For a

growing number of American companies, including many of our largest employers, more

than half of their revenues come from selling American goods and services to

consumers abroad through both exports and sales through their foreign affiliates. This is

not surprising: 95 percent of the world’s population – with 75 percent of the world’s

purchasing power – is outside the United States.

- Major New Trading Nations. Global economic expansion over the last decades has

created new and strong competitors for American companies, farmers and workers. The

U.S. share of world trade is still large, but it has steadily declined as international

competition has grown fiercer. While these new competitors present challenges, their

success creates new potential markets for our products and services.

- Cumbersome Negotiating Vehicles. The success of trade liberalization has led to a

rapidly expanding and engaged membership of the world trading system, which,

ironically, makes opening markets through multilateral negotiations more difficult to

achieve. The World Trade Organization (WTO) now comprises more than 150

governments representing 4.5 billion people. A group this size with so many divergent

interests will almost inevitably move slowly, complicating the development of

multilateral responses to a rapidly changing global economy.

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- Economic Integration without the United States. With the global spread of economic

power – and the increased difficulty of making progress in the expanded global system –

other countries have aggressively pursued their own trade and investment negotiations

through bilateral and regional preferential trade agreement initiatives. Our major trade

competitors are negotiating their own bilateral and regional trade agreements to give

their companies and workers a strong competitive advantage. East Asian nations, for

instance, have taken steps toward regional economic integration that could leave the

U.S. on the sidelines, subject to discrimination and without a leadership mantle in the

region.

- FTAs That Aren’t Integrated. As one reaction to this surge of activity, the U.S. has

negotiated a series of FTAs. Each FTA offers significant benefits to the U.S. economy and

often has a unique foreign policy and national security rationale. However, U.S. FTAs are

not being forged into a coherent system. This lack of integration has led to unnecessary

transaction costs that deny commercial benefits as well as broader strategic benefits to

the United States.

- Lack of Competitive Tools in Key Markets. In some key emerging markets, such as

China, India and Brazil, U.S. businesses lack competitive tools that Europe and other

competitors enjoy, such as bilateral investment treaties and tax treaties. At the same

time, we lack FTAs or similar agreements with some of our very largest trading partners.

- New Regulatory Challenges. U.S. companies face no greater set of challenges

internationally than in discriminatory regulatory rules that inhibit and prevent U.S.

businesses from competing in foreign markets. Yet, regulatory issues are not treated as

a key component of U.S. international economic policy.

- Unmet Expectations of the Poorest Countries. Least-developed countries (LDCs), with

raised expectations for receiving the benefits of the world trading system, are

disappointed with the limited results they have seen, as they continue to experience

extreme poverty and political instability.

- Advanced Economies Taking Without Giving. Advanced developing countries are not

fully reciprocating in opening their markets, despite having benefited from global trade

and investment liberalization.

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These developments present a fundamental challenge to U.S. economic competitiveness,

growth, foreign policy and national security in the 21st century and to continued global

economic growth and development. They demand a new vision and plan of action in the

coming years and the realization that the need for action is urgent.

Domestic Challenges

The United States’ success in overcoming its international challenges will also depend on

meeting our domestic challenges, which include:

- Worker Readiness and Assistance/Intellectual Capital. U.S. workers displaced due to

technological innovation and adjustments in the international economy are frustrated

by inadequate job retraining and need new and innovative assistance to prepare for

new jobs and to help find those jobs. More broadly, the United States cannot succeed in

the international economy without a well-educated, well-trained workforce.

- Energy and Environment. Along with health care, energy represents one of the two

greatest cost drivers for U.S. companies today, and energy and environmental

challenges represent potentially serious obstacles to our nation’s long-term economic

growth and well-being. A dynamic, comprehensive public and private approach that

addresses all aspects of the energy challenge is needed.

- Tax Policy. American workers and companies must be able to compete on a level

playing field in the international economy. This means the United States needs

international and domestic tax policies that achieve closer parity in effective tax rates

with our international competitors, do not disadvantage U.S. companies’ international

operations in terms of the taxes they pay compared to non-U.S. competitors and

provide appropriate incentives for research and development.

- Health Care. The rising costs of health care and growing ranks of the uninsured

undermine the competitiveness of the U.S. economy and constrain the productivity of

U.S. workers. The United States must break through gridlock regarding health care

reform to secure our long-term financial security.

- Policy Gridlock. The bipartisan cooperation that shaped U.S international economic

policies for almost four decades has eroded to the point of gridlock over the last decade.

The lack of consensus prevents the United States from adequately responding to our

international competitors, who continue to negotiate trade and investment agreements

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and pursue domestic policies to gain competitive advantages for their workers, farmers

and businesses at the expense of American interests.

* * * * *

To meet its international and domestic challenges, restore economic growth and create new

jobs, the United States must move forward internationally and domestically. America’s labor,

business, political and civil society leaders have a joint responsibility to find a path to rebuild

bipartisan cooperation in shaping U.S. domestic and international competitiveness policies.

Success means Americans will be prepared to compete domestically and internationally,

creating new growth and jobs. Failure increases the risk that the United States will become

isolated and weak – that we will lose our leadership position and leave Americans

disadvantaged as they try to compete in the 21st century economy.

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RESISTING PROTECTIONIST AND ISOLATIONIST POLICIES

In the 1930s, countries – beginning with the United States – raised their tariffs in a misguided

effort to gain what they thought would be an effective tool to promote their own domestic

growth. It is critical for governments around the world to remember that the protectionist and

isolationist policies of the 1930s transformed a bad recession into a Great Depression.

In response to the current global economic crisis, many countries are starting to ignore the

lessons of the past. They are once again considering protectionist and isolationist policies in an

effort to promote their own economic growth. In some instances, countries are raising tariffs

and providing new export subsidies. Others are exploring new non-tariff barriers to favor their

own industries. “Financial protectionism” has joined with more traditional forms of trade and

investment protection to create the specter of a new round of retaliatory practices that could

ultimately play out in a Depression-era style. What is especially frightening is that unlike tariffs,

which are at least transparent and covered by existing international rules, regulatory and

investment barriers are far more difficult to remove. Generally, they are not transparent and

are not covered by international rules.

These developments call for strong political leadership. In its November 2008 and April 2009

declarations, the G-20 condemned protectionist and isolationist policies and pledged to reject

protectionism and turning inward. Unfortunately, the political leadership of the G-20 to

implement this critically important commitment has been lethargic. A recent World Bank study

revealed that 17 G-20 members have not fulfilled their pledge to refrain from implementing

protectionist and trade distorting policies.

The G-20 must strongly reaffirm its November 2008 and April 2009 “standstill” and support the

WTO and the IMF, working in cooperation with the World Bank and the regional development

banks, in their ongoing efforts to identify and make public the imposition of new trade,

investment and financial restrictions, and to use their authority and influence to roll-back those

restrictions.

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MAKING TRADE AGREEMENTS WORK BETTER FOR THE UNITED STATES

The excitement and promise inherent in new international trade and investment negotiations

often overshadow the more tedious and complicated process of ensuring the benefits from

existing agreements are maximized. The new Administration and Congress must overcome this

dynamic and ensure that existing trade and investment agreements continue to deliver

maximum benefits, while identifying new negotiations that will do the same.

With respect to existing agreements, the Obama Administration and Congress should consider

six fundamental principles to ensure that agreements work better for U.S. companies and

workers:

1. Effective enforcement of existing agreements is critical.

2. Trade agreements are not static; they should be reviewed on a regular basis to

evaluate how they might be improved to provide greater benefits to American

companies and workers.

3. Reviews should not be used to roll back progress in opening trade and investment.

4. Unilateral modifications will not work.

5. Other parties to an agreement may have their own agenda for change that might

not be acceptable to the United States, leading to a stalemate.

6. Reviews of trade agreements and their enforcement should not become an excuse

for avoiding new negotiations to open markets and ensuring fair trade for American

companies, workers and farmers.

Create Networks of Open Trade and Investment

The new Congress and President should consider how to integrate, expand and modernize our

existing FTAs.

The United States has negotiated 14 FTAs with 20 countries. This is an impressive record of

activity with real benefits for the United States, but integrating these agreements would

magnify and enhance their benefits. The picture of our current arrangements looks like the first

column in the chart below; ideally, it should look more like the second column.

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As the chart demonstrates, a critical mass of U.S. agreements exists in three key regions of the

world – the Americas, Asia Pacific and the Greater Middle East. The critical mass offers

economic and strategic benefits that are not being fully utilized.

Our FTA partners have agreed to common principles of open trade and investment and to

reciprocal market access with the United States. Despite this commonality of principles, we

have no mechanism to integrate the separate bilateral relationships into more cohesive

regional arrangements, and no concrete plan for doing so. There are several reasons why we

should.

U.S. Free Trade Agreements Today Proposed Integrated System NAFTA

DR-CAFTA

Chile

Peru Americas

Colombia (pending Congressional approval)

Panama (pending Congressional approval)

Australia

Singapore

Korea (pending Congressional approval) Asia-Pacific

Malaysia (negotiations pending)

Thailand (negotiations pending) Trans-Pacific Partnership (negotiations pending)

Bahrain

Israel

Jordan Greater Middle East

Morocco

Oman

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Integration can help strengthen U.S. leadership in various regions of the world and counter the creation of closed regional blocs that would exclude the United States to our economic detriment.

For instance, Asian nations have been moving toward a closed

regional integration that excludes the United States with important economic and security implications. This includes establishment of a free trade zone by the Association of Southeast Asian Nations (ASEAN); China’s ambitious FTA diplomacy, including negotiation of an ASEAN-China FTA; and preparations for an East Asia Free Trade Area, comprising Southeast Asian nations, China, Korea and Japan.

Integration of individual bilateral FTAs into larger regional groupings can help the United States develop common regulatory approaches, and pursue their adoption internationally in a way that would be much more difficult than working from a bilateral basis.

Integration can facilitate the development of coalitions on issues in the WTO and other international negotiations. Integration can also help promote economic growth and U.S. values in troubled regions of the world.

For instance, in the Middle East and North Africa, integration of our FTAs offers the possibility of facilitating intra-regional trade, thereby promoting development and economic bonds across the region.

1. Solving the Hodgepodge Problem. On a more operational level, integration of the agreements will better serve U.S. trade and commercial interests, as well as those of our

free trade partners. The proliferation of inconsistent bilateral arrangements creates a problem of transaction costs because each FTA has its own rules to determine whether goods qualify for duty-free treatment under the agreement. Known as “rules of origin,” they are not uniform across agreements, creating serious practical problems for U.S. businesses – at times making it difficult to take advantage of the agreed-to market liberalization.

Diverse and conflicting rules of origin also create compliance costs and transactional burdens that can outweigh the benefits of the tariff reductions themselves. The burden of complying with rules of origin increases with the complexity

of the rules and the number of different sets of rules that companies must navigate.

● ● ●

A comprehensive East

Asia Free Trade Area

that excludes the

United States would

immediately cost the

United States about

$25 billion annually in

lost exports [IIE 5/04].

● ● ●

● ● ●

“Rules [of origin] that

vary by trade

agreement only create

operational disruption,

administrative

burdens and trade

impediments.” –American Electronics Assoc.

● ● ●

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For example, to comply with value-content thresholds, a company may need to install costly origin-tracking systems that can be prohibitively expensive. Likewise, a producer facing varying rules of origin under FTAs may have to use different production inputs for the same product to gain preferential access in each FTA partner. Faced with these burdens, companies at times choose to forgo the benefits of some FTAs altogether, rather than hack their way through the growing thicket of rules of origin.i

A solution to this problem is to integrate U.S. FTAs by harmonizing the rules of origin in the various agreements into a uniform set of rules, and combining them into a single system. In particular, all U.S. FTAs would have uniform rules of origin, and an exporter could satisfy those rules through economic activity in any of our FTA partners.

The EU has taken this path, with positive results. In 1997, it established the Pan-European Cumulation System (PECS), providing for cumulation among the EU and its FTA partners, a group that constitutes two-fifths of world trade.ii Cumulation can be structured in various ways, but it essentially allows for goods to enjoy FTA benefits when the required level of processing or value-add occurs in the territory of any combination of the various FTA partners, and not only in the territories of the two parties to the bilateral FTA.

The EU and its partners amended their FTAs to substitute a common set of rules of origin in place of their original individual rules.iii The PECS system increased trade between the EU and its trading partners on the order of 22 percent by mitigating the trade-depressing effects of divergent rules of origin and allowing for cumulation.iv Moreover, the impact of the PECS system continues to grow as participating countries use the system for most of their other trade agreements.v

Cumulation is especially important because it better reflects 21st century commercial reality, in

which goods are often made with inputs from multiple countries. Supply chains that go into final products have become much more complex and integrated, so that it is no longer unusual for products to have components from 20 countries or more.

Cumulation also helps convert bilateral arrangements into economically more significant regional arrangements. It encourages intraregional trade and investment, which can support economic development and even political rapprochement in traditionally closed parts of the world like the Middle East.

Indeed, the United States has used rules of origin toward positive ends, such as the creation of the Qualified Industrial Zones to promote economic interaction between Jordan and Israel, both U.S. free trade partners. U.S. FTAs with Morocco and Bahrain already refer to the

● ● ●

When the EU

harmonized rules of

origin among its

various FTAs and

allowed for

cumulation, its trade

with its FTA partners

increased by 22

percent.

● ● ●

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possibility of negotiating future regional cumulation arrangements, but this has not yet been acted upon.

2. Achieving Integration A Staged Approach. Administration officials should begin now to map out a path toward integration, and agree on plans of action with our free trade agreement partners. Completely achieving integration among U.S. FTAs is a long term project and will need to proceed in stages. Also, in ongoing and future bilateral and sub-regional negotiations, where regional FTAs are not feasible, integration should be discussed upfront with agreed, concrete plans of action.

A staged approach could proceed this way:

- STAGE 1 – Establish institutional mechanisms for pursuing integration in each region. For each region, the parties might establish a working group to agree on a blueprint for integration and to oversee subsequent negotiations. It may make sense to begin the process in each region as a corollary to an ongoing or new bilateral FTA negotiation in that region.

- STAGE 2 – Harmonize rules of origin and allow for cumulation among FTA partners on a regional or global basis. Rules ideally would be harmonized into one global set of rules, but if that is not feasible, rules should at least be harmonized regionally.

- STAGE 3 – Integrate agreements in other respects, such as services market access or institutional arrangements, on a regional basis.

3. Completing the Regions. While working to integrate existing agreements, the United States should define a strategic framework and vision for commercial relations in each region, and then on that basis, complete negotiations in the regions. Where feasible, the United States should negotiate with remaining economies on a group basis. Where not, the United States should target the significant trading partners in each region, such as Indonesia in Southeast Asia, and engage in bilateral negotiations. At the same time, in the context of implementing integration plans discussed above, the Administration should devise docking mechanisms to permit others to accede in the future. The Trans Pacific Partnership (TPP) is a constructive model for achieving these objectives and an essential building block to avoid U.S. isolation in a critically important region that is moving forward on its own to form regional free trade areas.

4. Modernizing FTAs. FTAs should be reviewed, especially as they age, to ensure they are keeping pace with rapidly changing economic and regulatory conditions. In intervening years, FTA parties may have engaged in autonomous liberalizations that should be incorporated into the agreement. There may also be international and domestic economic developments that would support acceleration of transition

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periods in the agreements. In addition, as has been the case with GATT and WTO negotiations, there may be an obvious need to update rules. For example, recent U.S. FTAs have more comprehensive labor and environment provisions than earlier U.S. FTAs, and the older FTAs would benefit from the more modern approach to these two important issues.

Free Trade Agreements With Our Major Markets

The United States needs to move forward with FTA negotiations with our major markets. Recent U.S. FTA activity has opened important new markets and created building blocks for further liberalization to open markets for American companies and workers, including the integration of agreements as discussed above. But since the conclusion of NAFTA in 1994, the U.S. government has not launched FTAs or similar agreements with our largest markets (with the recent exception of FTA negotiations with Korea, our seventh largest market).

One important reason for not moving forward with our largest markets – including our second largest market (EU) and our third biggest single-country market (Japan) – has been the difficult issue of agriculture. The U.S. government has taken the view that FTAs must be truly comprehensive – with tariffs going to zero on all products including agricultural products.

With respect to our largest markets, the time has come to reconsider our approach to comprehensiveness to ensure that our policy is best serving U.S. interests and promoting international economic growth.

Our trade and investment relationships with the EU and Japan are enormous. U.S.-EU trade totals more than $1.5 trillion annually. One-third of all U.S. exports go to Europe, and one-quarter of all European exports go to the United States. Although tariffs are relatively low, businesses face many nuisance tariffs – for which processing costs to companies can exceed the revenues collected – on both sides of the Atlantic, while U.S. service suppliers and manufacturers face a wide array of regulatory challenges in Europe.

All cannot be solved by an FTA. But where regulatory issues are undermining U.S. market access or U.S. trade and investment interests, an FTA may be an effective tool to address these issues. Studies suggest that dismantling the remaining tariff and non-tariff barriers between the U.S. and the EU would add about 0.5 percent to U.S. GDP.vi Likewise, total U.S.-Japan trade is $258 billion annually. As with Europe, nuisance tariffs affect many sectors, and U.S. businesses across a wide spectrum of goods and services sectors face significant regulatory challenges.

Included in these extensive and complex trade relationships, agriculture occupies a small proportion. In the case of U.S.-EU trade, agriculture’s share is 2.8 percent; in the case of U.S.-Japan trade, it is 2.4 percent.

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U.S. Trade with the European Union

Ag. Trade

2.8%

Other Goods

Trade

78.8%

Services Trade

18.4%

U.S. Trade with Japan

Ag. Trade

2.4%

Other Goods

Trade

71.6%

Services Trade

26.0%

Business Roundtable strongly supports opening the European and Japanese agriculture markets, and the U.S. government should be using every tool it can to do so. But there appears to be little prospect for establishing free trade in these agriculture markets in the foreseeable future. Therefore, U.S. policymakers and negotiators face the following choice: maintain a rigid approach to comprehensiveness and do not move ahead, or proceed more pragmatically.

As a matter of WTO practice, most governments have taken a more flexible approach to the issue of comprehensiveness

than the U.S including the EU with respect to agriculture. And the WTO agreement itself does not mandate that “all trade” be covered.vii

One option the United States should consider is an agreement for full liberalization in all areas but agriculture, in the event a truly comprehensive FTA covering agriculture is not achievable with the EU and Japan.

Another option that the United States should consider with key markets is an agreement for free trade in services, where progress on goods trade is too difficult or on a different track.

Indeed, the WTO contemplates such agreements, although few, if any, WTO members have explored this path.viii Services trade is a core area of U.S. comparative advantage. As the U.S. International Trade Commission put it, “U.S…firms are pre-eminent in global services trade,”ix and services comprise approximately 30 percent of total U.S. exports.

A services FTA provides an alternative way to move forward with economies such as Japan or the EU, where the United States has large services trade – $66 billion and $248 billion,

● ● ●

“The [EU] FTAs with

other countries …

generally exclude trade

in most agricultural

products from

complete

liberalization.” – USDA Economic Research Service,

1998

● ● ●

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respectively – but faces a variety of regulatory and market access barriers. A services FTA may also present opportunities to tackle barriers in key emerging markets, such asIndia, or even China. In those cases, the prospect of an FTA with the United States could help overcome entrenched interests that have held back services liberalization in those countries.

Move Forward Pending FTAs

The new Congress and Administration should complete the work of U.S. trade negotiators and implement the three FTAs pending from the last Congress – FTAs with Colombia, Korea and Panama. These agreements will help strengthen the competitive position of U.S. businesses, farmers and workers in key parts of the world where our economic, foreign policy and national security interests are under threat. Despite their well-acknowledged economic benefits and strategic importance, these agreements have languished due to the breakdown in the bipartisan consensus on trade. The new Administration and Congress should focus again on the fundamentals and work together to rebuild a new consensus on trade and find a way forward to pass these agreements. Reinforcing American Rights – Improved Enforcement

Effective enforcement of existing agreements and U.S. trade laws is critical to ensure that U.S. workers, farmers, businesses and consumers obtain maximum benefits from our trade and investment agreements. The new Congress and Administration, in consultation with the private sector, should consider legislation to set up a process for establishing enforcement priorities and strategies. To be effective, enforcement must proceed based on close cooperation between the executive branch, Congress and the private sector. This means a collaborative process for setting priorities and determining appropriate actions. At the same time, the process must be organized in such a way as not to undermine U.S. enforcement efforts by, for example, requiring USTR to publish reports explaining U.S. enforcement strategies for foreign target countries. Enforcement efforts can include a variety of actions – dispute settlement under WTO or FTA rules, negotiations, action under U.S. trade laws, and diplomatic initiatives, among others. The full range of actions should be considered in pursuing enforcement, with a recognition that what may be effective for one enforcement challenge may not be for another.

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Re-establishing Confidence in the Trade Adjustment Process

A successful trade agreement program requires a new degree of confidence in the mechanisms to promote adjustment by American companies and workers in the event a bilateral, regional or multilateral agreement causes an injurious surge in fairly traded imports. Since 1934, when the United States first began to negotiate trade agreements to promote international trade, U.S. trade policy and laws recognized that some American workers, communities and businesses might encounter economic adjustment problems from increased foreign competition and might need a period of temporary import relief to allow them to adjust to new conditions of trade. As a result, the United States – pursuant to the GATT/WTO (Article XIX), the 1999 United States-China Bilateral Trade Agreement and China’s WTO Accession Agreement – maintains several important trade remedies. Section 201 (general safeguard against imports) and Section 421 (market disruption caused by imports from China) are designed to provide temporary import relief to U.S. workers and businesses injured by an increase in fairly traded imports. (Unfairly traded – dumped or subsidized – imports are addressed by other provisions in U.S. law based on GATT/WTO agreements.) Under both Section 201 and 421, the President has the discretion to reject recommendations for relief by the United States International Trade Commission (ITC). The impact of a negative decision, after U.S. industries and their workers have proven their case under the law, has been to create a lack of confidence in these two important elements of U.S. trade law and policy. This discourages industries from taking steps to promote positive adjustment and encourages negative views toward the overall benefits of trade and trade agreements. To promote more effective adjustment and training programs, the new Congress and President should review Section 201 and Section 421 and consider requiring the President to provide, in those cases where the ITC finds in favor of the U.S. industry, temporary import relief and/or an appropriate package of trade adjustment assistance, depending on the industry’s circumstances. The President would retain the discretion to determine whether to impose import relief, including its type, scope and duration, and to formulate an adjustment assistance package. A Constructive Role for the Global Adjustment Process

There is an ongoing debate globally – not just in the United States – about how to help workers and communities adjust to the rapid economic and social changes inherent in the global economy.

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1. Trade Adjustment Assistance. The recent renewal and reform of Trade Adjustment

Assistance is an important first step in creating a 21st century national retraining and

adjustment system. In the longer term, the United States needs a more comprehensive

program to help workers adjust to dislocations regardless of the cause and to provide

them with 21st century skills. Many existing programs were designed to help

manufacturing workers adjust to cyclical downturns in the economy or provide help

because of trade-related problems, but the changes today are essentially structural.

Workers lose their jobs for many reasons – domestic or international competition, new

technology or increased productivity or changing consumer demand. Moreover, the

current patchwork system of programs currently in place for educating and training

American workers is not functioning effectively.

2. America 21 – A 21st Century Approach to Adjustment Assistance. America 21 is a

Business Roundtable initiative for lifelong learning for workers, as well as for assistance

for job dislocation when livelihoods are threatened for whatever reason. The America

21 approach is explained in Business Roundtable’s 2008 report Prospering Together:

America’s Citizens, Communities and Companies.

Identify Disincentives and Incentives to Trade and Investment

The new Congress and President need to ensure that American companies and workers have the necessary government support to take full advantage of international trade and investment agreements, and that U.S. laws and regulations do not undermine their ability to do so. The Congress and Administration have a responsibility to ensure that domestic policies are not inadvertently creating disincentives to trade and investment, and that appropriate incentives are being provided.

1. Identifying Disincentives and Incentives. In the Trade Agreements Act of 1979, Congress recognized that a wide range of government regulation and programs can serve to either discourage or promote exports, and required the President to review all such regulations and programs.x This prompted the most comprehensive review of its kind undertaken and served as a basis for action.xi Given the daunting competitive challenges facing American workers, communities and companies, an update of this report is long overdue. For example, with respect to export incentives, the current global financial crisis and the precipitous drop in world trade highlight the need for a comprehensive review of U.S. export financing programs to ensure they are competitive. In the case of export disincentives, the January 2009 study by the National Academies, Beyond Fortress America: National Security Controls on Science and Technology in a Globalized World, concluded that national security controls are broken and should be restructured.

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The new Congress and Administration should work together in organizing a similar study to catalogue current disincentives and incentives to U.S. exports as a basis for corrective administrative and legislative action. The study should also look at disincentives to inward trade that undercut the competitiveness of U.S. consuming industries, as well as disincentives to inward investment, such as inappropriate regulatory burdens that may lead foreign companies to invest elsewhere.

2. Integrating Tariff and Competitiveness Policies. Maintaining tariffs on goods that are not produced in the United States penalizes American consumers and undermines the competitiveness of American companies and workers who rely on imported production inputs. Historically, Congress enacts a Miscellaneous Tariff Bill (MTB) that either temporarily reduces or eliminates those tariffs. In recent years, MTBs have become tangled in the legislative process and the uncertainty as to whether they will be enacted or not has had a negative impact.

The new Congress should move an MTB forward quickly and, in cooperation with the new Administration, consider how to provide more certainty and speed in dealing with this important competitiveness issue.

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PATHS TO EXPAND GLOBAL TRADE AND INVESTMENT:

MAXIMIZING THE EFFECTIVENESS OF INTERNATIONAL NEGOTIATIONS

International trade and investment negotiations at all levels – bilateral, regional and multilateral – have become increasingly complex. As a result, there is a growing risk that negotiations could stall. The new Congress and Administration should consider innovative alternatives to the more traditional negotiating formats and, if necessary, fora.

Maximizing the WTO’s Effectiveness

U.S. participation in the WTO should, if possible, continue to play a central role in advancing U.S. competitiveness, alongside the other important mechanisms discussed in this paper. However, to fill this role effectively, the WTO needs reform. WTO negotiations are proving that they cannot match the substantial reforms and market opening commitments achievable through FTAs. WTO negotiations are also demonstrating they cannot keep pace with the rapidly changing world economy. The United States and other major trading powers need to look creatively at how to improve the WTO negotiating system – to ensure that the WTO remains an effective and timely negotiating forum and that it can reclaim its position as first among equals. The GATT and its successor, the WTO, have been effective in helping U.S. businesses and workers compete successfully around the world, as well as facilitating U.S. and global economic growth. More broadly, the GATT and WTO have been the foundations of an international economic system that has served U.S. economic, security and foreign policy interests remarkably well over the past seven decades. A testament to the past success of the system is the growing number of WTO members – now more than 150 countries, representing 95 percent of world trade – and their increased level of engagement in the system.

But the system’s large size – more than 150 members with widely diverse economic and political interests and substantially different levels of commitment to international trade and investment – presents new challenges to moving ahead with global trade and investment liberalization, as well as our success in negotiating improved multilateral trade and investment agreements needed by American businesses and workers. Since the GATT was expanded into the WTO in 1994, it has had only limited success in negotiating increased global trade and trade

liberalization. It has been more successful in its other key role administering the current system of WTO rules, including providing an agreed enforcement avenue for existing agreements and providing for the entry of emerging economies into the system.

The current Doha Round of trade negotiations has highlighted the difficulty of using the WTO as a negotiating forum. Indeed, the imperative for re-examining the system’s structure has also been recognized by the WTO itself. In 2003, the outgoing WTO Director-General appointed a Consultative Board to advise on the future of the WTO and recommend improvements.

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The difficulty of moving forward is of particular concern given the rapidly changing nature of the global economy. As the nature of global trade changes and new sectors develop, we need tools and actions that can help U.S. companies and their workers keep pace.

1. Successfully Conclude the WTO Doha Round. The WTO Doha Round presents a rare opportunity to foster global economic growth by ambitiously and comprehensively lowering trade barriers around the world. The United States set forth ambitious goals to reduce agriculture tariffs and domestic support, to increase market access for industrial and other non-agricultural goods, to reduce the costs and time in cross-border clearance of goods and to liberalize services. However, the lack of political commitment by our trading partners to fulfill the promise of a comprehensive and ambitious outcome has been disappointing.

Having missed every major deadline since January 2005, the negotiations have to be quickly assessed by the new Congress and Administration as to whether they can be successfully concluded within a reasonable period of time and with substantially improved agriculture, non-agricultural market access (NAMA) negotiations and services commitments by our trading partners. If the negotiations can be revitalized on a Doha “Plus” basis, a plan of action to successfully conclude the WTO Doha Round needs to be developed and implemented quickly. If the negotiations cannot be revitalized, the United States needs to develop a strategy (a) to salvage those parts of the negotiations where a consensus has already emerged, (b) to develop proposals on how to restore the WTO’s effectiveness as a negotiating forum through reform, and (c) to rely on other international trade and investment initiatives to achieve U.S. objectives.

2. Rolling Negotiations at the WTO. For WTO negotiations in the future, the United States and other governments should seriously consider alternatives to the “single undertaking” approach, such as “rolling negotiations” that allow progress to build by solving one problem at a time. When there is a sufficient level of interest and possibility of movement in a particular sector or area, WTO members could move ahead.

Recent WTO negotiations, organized as “single undertakings,” have required negotiating in concert such issues as far-ranging as tariffs on manufactured goods, agricultural subsidies, services market access and dumping rules. Members must thus accept a grand package as an all-or-nothing matter. This can yield meaningful results and create positive negotiating dynamics, but it can also create great difficulties in moving forward effectively where the negotiating dynamics in one area differ significantly from those in other areas.

When structuring future negotiations following the Doha Round, policymakers must ask whether single undertakings, and the broad consensus they require, are so important that discord over a single negotiation should prevent reaping benefits of agreement elsewhere. With our global trade totaling $3.3 trillion, the United States has critical

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interests at stake in multiple areas, but they may not all enjoy the same dynamics for success.

All U.S. trade sectors deserve the central attention of U.S. trade negotiators. However, where there is possibility of reducing barriers to U.S. exports in certain critical areas, we should be cautious about holding those reductions up for sectors where progress will be on a significantly slower timetable.

3. Moving Ahead in Smaller Like-Minded Groups in the WTO. When structuring new WTO negotiations, WTO members should seriously consider launching plurilateral negotiations for goods and services open to all members.

In the 1970s, the United States and other GATT signatories addressed the reluctance of primarily developing countries to move forward on a broad front by launching negotiations on a plurilateral (conditional-MFN) basis, in the form of the Tokyo Round Codes. These negotiations were open to all governments that participated in the GATT, but it was each country’s option whether to sign up to the final deal on each topic area. This structure allowed the willing to move ahead, while the reluctant could observe with the option of joining later.

The Tokyo Round resulted in agreements among like-minded countries in important functional and sectoral areas of commercial interest to the United States. For instance, the United States obtained access to important foreign government procurement markets, safeguards against discriminatory product standards and protections against arbitrary customs valuation methods. The initial benefits of those agreements to the U.S. were multiplied as other governments chose to commit as well. In fact, by 1994, with the exception of government procurement, all of the Tokyo Round Codes functional agreements were accepted by the entire membership.

Today, the world trading system faces a similar challenge. There is a large membership with differing levels of interest in moving forward in different areas. And the challenge to the multilateral system from these differing levels of interest is more critical today than it was in the 1970s, as major traders have been exploring other mechanisms, such as bilateral and regional free trade agreements, to pursue trade liberalization in the absence of results from the WTO.

4. In structuring plurilateral negotiations, a range of MFN options should be considered. In some areas of interest, plurilateral negotiations might reach commitments on an MFN basis. In other areas, it might be more effective, and politically necessary, to move

● ● ●

“[T]he plurilateral

approach would enable

sets of WTO Members

wishing to negotiate

more ambitious

commitments to do

so.” – WTO Consultative Board, 2004

● ● ●

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forward on a non-MFN basis among like-minded countries so that deeper tariff cuts or other steps would apply only to goods or services that originate in WTO members that have themselves agreed to the stepped-up commitments. Under either approach, non-participants would have the option of joining later.

5. Increasing WTO Transparency. The United States has taken the lead in pushing for increased openness and transparency at the WTO. Indeed, compared to the GATT system, the WTO process is much more transparent. However, WTO members need to take further steps – such as enhancing the legitimacy of the system by mandating that dispute settlement proceedings are open to the public (with appropriate protections for business confidentiality).

Other Means to Facilitate Global Trade and Investment Liberalization

In addition to rolling negotiations and plurilateral agreements in the WTO, the United States should consider other innovative means to improve the effectiveness of the WTO and to facilitate bilateral and regional negotiations. Here are some of them:

1. Alternative Paths to Liberalization: Non-Binding Commitments. While legally binding and enforceable rules are the ideal path to liberalization, other paths can be effective in achieving this goal and should be considered. Such steps may also serve as building blocks for binding and legally enforceable rules in the future.

For example, regulatory issues are complicated, and on some issues regulators may be justified in wanting to preserve flexibility. However, they may be willing to experiment with new models, provided they are not committing to an enforceable obligation. In those circumstances, the U.S. should consider pursuing endorsement of best practices or model regulatory principles.

2. Capacity Building and Technical Assistance. Members should consider incorporating provisions for trade adjustment assistance and capacity building for least-developed countries within agreements, particularly in areas where those countries lack adequate regulatory regimes. This would help ensure that developing countries could both implement new commitments and enhance their willingness to undertake new commitments.

Preserving Competitive Options to the WTO

One way to push the WTO system forward is to continue to negotiate bilateral and regional FTAs, which both support the multilateral system – by providing experience with, and building

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greater confidence in, open trade and investment – and prods the system, by offering additional paths toward global trade and investment liberalization. The United States should continue to negotiate FTAs and integrate existing FTAs into more formidable regional arrangements and, where necessary and appropriate, seek to harmonize and modernize existing FTAs, as discussed later in this paper.

Another way to push the WTO system forward is to explore other organizational options to achieve multilateral trade and investment liberalization, in case the WTO ceases to be a viable negotiating forum. For instance, groupings of industrialized and rapidly industrializing countries might be willing to commit to zero tariffs on non-agriculture trade. If the WTO cannot accommodate plurilateral agreements, including the possibility of such arrangements on a non-MFN basis, interested nations should begin to consider the feasibility of working together on an ad hoc basis or through an existing organization like the OECD or through regional structures.

The WTO will always have a key role as administrator of the existing WTO agreements. But if the WTO’s effectiveness as a negotiating forum wanes, despite our best efforts to strengthen it, the United States and other major trading nations should explore other options.

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A PROACTIVE APPROACH TO DISCRIMINATORY

FOREIGN REGULATORY BARRIERS

Discriminatory regulatory barriers inhibit all sectors. As tariffs and other border measures are reduced and eliminated, key developed and emerging markets are replacing them with regulatory barriers to give their own companies and workers a competitive advantage. These are issues of fairness rather than deregulation. For instance, the American Chambers of Commerce in China, Japan and the EU all have rated regulatory issues as the number one or number two challenge in their markets.

Trade agreements and traditional trade policy can be used to address some regulatory issues, but not all of them, and not always with the greatest effectiveness. Other tools need to be used and other players need to be brought to bear. In particular, international success requires an increased and more proactive role for U.S. departments and regulatory agencies with special expertise on a bilateral, regional and multilateral basis.

U.S. businesses face a wide range of regulatory barriers overseas – including government policies that purport to further a legitimate regulatory aim, but have the purpose or effect of inhibiting U.S. trade and investment. They include:

- Mandatory product standards that differ from U.S. or international standards and duplicative local testing requirements.

- Lack of transparency in the regulatory process.

- Discriminatory enforcement of regulations.

- Regulatory bodies that are not independent and have close ties to (and in some cases may formally delegate authority to) local industries.

- Overly burdensome approval procedures.

- Restrictions on new products or services to give domestic competitors time to match more competitive U.S. companies.

- Regulatory regimes that impose different requirements for foreign businesses, or equity caps on foreign businesses in key sectors.

- Regulatory approaches, standards and decisions that are not based on science or objective evidence or differ substantially from international agreements.

● ● ●

“Standards and related

technical regulations

affect approximately

80 percent of world

trade.” –Department of Commerce, 2004

● ● ●

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Elimination of these barriers are central to U.S. economic success globally, but regulatory issues are too often treated as a corollary to – rather than as a key component of – U.S. international economic policy. When a particular regulatory development occurs that seriously affects U.S. businesses, past Administrations have been responsive and reacted aggressively in some cases. But the U.S. government needs to adopt a forward-looking strategy and plan of action that is integrated with U.S. international economic policy.

To facilitate U.S. exports and trade leadership, the United States needs a more aggressive, activist approach to international regulatory issues. Business Roundtable suggests three ways to do that:

Actively Promote U.S. or International Regulatory Approaches

The U.S. government, with substantial private sector input, should devise and execute a comprehensive strategy to promote sound regulation abroad, including the adoption of U.S. or international product standards and harmonization of standards. This is necessary to counter the spread of an inconsistent patchwork of local or EU-inspired regulatory approaches that will increasingly disadvantage U.S. exports.

For instance, the EU recently approved a massive overhaul of its chemicals regulation that, when fully implemented, will impose stringent new standards and require changes in product composition, design, and testing that will add potentially billions in costs to businesses. Also, the EU has taken a non-scientific approach to regulation of biotechnology products, keeping out U.S. products. And the EU has sought to regulate cosmetics in an aggressive manner that

exceeds approaches of any other major economy, banning the marketing or sale of any product tested on animals, regardless of where that testing occurred.

These different regulatory approaches impose unreasonable and serious requirements on U.S. businesses exporting to, or investing in Europe. Even more ominous, the EU has an aggressive and well-funded plan to spread its regulatory approaches throughout the world, particularly in developing countries. It spent at least $44 million in 2004 on technical assistance programs outside the EU just on standards-related issues, with total spending since 1989 of more than $313 million.

● ● ●

“Increasingly our

trading partners utilize

[technical assistance]

programs to influence

the selection of

standards by

[emerging] economies

and create favorable

trade alliances.” –American National Standards

Institute, Dec. 2005

● ● ●

● ● ●

“Standardization is not

only a technical tool; it

is becoming a political

instrument of the EU

economic and

industrial policy.” –EU Director of Regulatory Policy,

Oct. 2005

● ● ●

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When the EU succeeds in spreading its regulatory approaches to foreign markets, and those approaches diverge from ours (as they often do), U.S. exporters are disadvantaged in parts of the world far from Europe. The EU plan thus poses a serious threat to U.S. economic interests.

The U.S. government lacks a comparable strategy. The Secretary of Commerce did launch a Standards Initiative in 2003, to ensure that the federal government works to eliminate standards-related market barriers to U.S. commerce. But U.S. engagement on technical assistance and other cooperative programs, on either standards or broader regulatory issues, are limited, and funding is paltry.

If both the EU and U.S. continue on these two paths, we will see increasing numbers of countries opting for EU or hybrid regulatory approaches, to the detriment of U.S. businesses and workers. For instance, China recently adopted unreasonably burdensome environmental regulations on electrical appliances and information products modeled largely on the EU’s Directive on Waste Electrical and Electronic Equipment (WEEE) and Directive on the Restriction of the Use of Certain Hazardous Substances in Electrical and Electronic Equipment (RoHS).

More broadly, the United States should work actively to harmonize the development of new standards internationally.

Aggressively Negotiate Mutual Recognition Agreements

Another way to ensure that the United States can compete successfully around the world without unfair regulatory barriers is by negotiating mutual recognition agreements (MRAs). The U.S. should aggressively negotiate agreements that obligate our trading partners to recognize our product standards and conformity assessment procedures.

Under these agreements, trading partners would commit to accept U.S. product or services standards, as well as the procedures to ensure that products conform to those standards. Where an MRA has been negotiated, U.S. firms can sell to that market without having to adjust product design, production process, or labeling for the local market, or prove that a product adheres to the foreign standards.

● ● ●

The U.S.-Japan

Regulatory Reform and

Competition Policy

Initiative has helped

Japan move towards

privatizing Japan Post,

one of the world’s

largest holders of

private savings and a

significant holder of

Japanese debt. The

reform should help

open Japan’s banking,

insurance, and express

delivery sectors to

more foreign

competition.

● ● ●

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MRAs provide significant benefits to U.S. companies trying to export their goods abroad, yet we have very few such agreements. The United States has concluded MRAs with only three trading partners, as well as a narrower agreement with Japan on agriculture products.

Absence of MRAs hurts U.S. businesses, particularly if a competitor from the EU or elsewhere can rely on its own standards and conformity assessment procedures to enter the market.

Integrate Regulatory Issues Into the Core of U.S. International Economic Policy

The U.S. government should integrate regulatory issues more effectively into international economic policymaking and implementation. For instance, while U.S. regulatory agencies have a voice in the trade policy and implementation process, most lack a senior official solely responsible for international regulatory issues, and do not address divergent regulatory approaches abroad as a central part of their missions.

An exception has been the U.S.-Japan Regulatory Reform and Competition Policy Initiative (successor to the U.S.-Japan Deregulation Dialogue); an effort led on both sides at the Presidential level. This has resulted in improvements to the regulatory environment in Japan in areas ranging from telecommunications to competition policy, facilitating Japanese growth and U.S. trade and investment. Newer initiatives like the Transatlantic Economic Council also show promise.

But the United States lacks a comparable structure and process for other critical trading partners. For instance, China’s regulatory environment is notoriously opaque and unpredictable, to the disadvantage of U.S. exporters and investors. At the same time, China is working to build a new regulatory infrastructure to manage its rapidly developing economy. The United States needs focused, high-level attention to help accelerate Chinese regulatory reform and ensure that China adopts non-discriminatory regimes, preferably based on harmonized U.S.-China or international approaches.

Where the United States has FTAs, consideration should be given to building greater regulatory cooperation and harmonization. In the 2008 Annual Report of the President of the United States on the Trade Agreements Program, President Obama recognized the need to work more closely with Canada and Mexico, saying, “We will also work with Canada and Mexico to identify ways in which NAFTA could be improved without having an adverse effect on trade.” Launching formal discussions on regulatory cooperation and harmonization would be an excellent place to begin this important initiative.

Finally, in developing international regulatory initiatives, it is essential to recognize that while some trade partners have adopted non-discriminatory regulatory standards, their implementation may be carried out in a discriminatory manner.

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CLOSING THE GAPS ON INVESTMENT PROTECTIONS

Closing the BIT Gap: The U.S. Has Fallen Behind

To succeed in a global economy, U.S. companies must be able to conduct business around the world in an open and equitable environment. This means conducting business without unfair foreign regulatory barriers or state intervention. It also means being free from unfair government action, which bilateral investment treaties (BITs) provide protection against. For example, BITs can prohibit discrimination, prohibit expropriation without just compensation, provide a shield against forced transfers of technology and production, guarantee the transferability of funds and provide a neutral international arbitration mechanism for resolving investment disputes, which is especially important in countries that do not yet have well-developed rules-based legal systems. Thus a BIT can facilitate, protect and increase foreign direct investment and trade.

Yet in many of the most important developing markets, the United States does not have in place this critical tool for protecting and promoting U.S. investment and, in turn, U.S. exports to those markets. A local commercial presence makes it far easier for a U.S. company to understand and develop the market, establish sales outlets, and provide after-sales services.

Despite the obvious major stakes involved, U.S. businesses often lack the protections that their European or other counterparts enjoy around the world. The United States has negotiated only 47 BITs. Germany alone has negotiated nearly three times that number.

The U.S. shortfall includes some key emerging markets:

- In China, the world’s fourth largest and fastest growing economy, U.S. investors do not have the protection of a BIT – unlike investors from 76 other countries, including nearly all European countries.

- In India, with a population of more than one billion and GDP growth of more than $2 trillion since 2000, U.S. investors do not have the protection of a BIT. Investors from 26 other countries, including nearly all European countries, do.

- In Indonesia, Southeast Asia’s largest country, U.S. investors do not have the protection of a BIT. Investors from 45 other countries, including nearly all European countries, do.xii

While the details of these BITs certainly vary, and most are far less detailed than the 2004 U.S. Model BIT, some of these agreements provide the core ingredients of a high-quality investment agreement: national treatment, most-favored nation treatment, fair and equitable treatment, prohibition on direct and indirect expropriation without just compensation and an investor-state arbitration mechanism utilizing the International Center for Settlement of Investment

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Disputes (ICSID), the ICSID Additional Facility, United Nations Commission on International Trade Law (UNCITRAL), and/or ad hoc arbitration.

For example, consider that in Venezuela, where the government threatens nationalization in the oil, gas and other sectors, U.S. companies lack protections and assurances of just compensation because the United States has no BIT with Venezuela. In contrast, when Argentina imposed capital export restrictions, levied significant export duties, and revalued the peso in response to the economic crisis of 2002, U.S. investors were able to protect their legal

interests by recourse to the dispute settlement provisions of the U.S.-Argentina BIT.xiii

Similarly, when a foreign government entered into a commercial contract with a U.S. company and failed to make dividend payments, that company was able to use the investor-state dispute settlement mechanism under a BIT to resolve the matter – where host country courts might not have provided an expeditious, neutral and fair process.

Thus, without a BIT, U.S. investors are subject to the whims of host country governments, often in the developing world, without any check. The United States should be working aggressively to close the gap in BIT protection where possible, catching up with the advantage that our European and other competitors enjoy today. At the same time, an agreement should provide meaningful and effective protection, and Business Roundtable does not endorse entering into a hollow BIT for the sake of an agreement.

The United States should also pursue other policies – such as those recommended in Section V

(regulatory barriers) to improve the investment climate in foreign markets and ensure that our companies can compete on a level and fair playing field.

The United States lags behind its peer economies in signing BITs

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40

60

80

100

120

140

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Negotiating Tax Treaties with Key Economies

With substantial private sector input, the U.S. government should continue to identify the key markets where U.S. businesses lack tax treaty protection and agree on a plan to negotiate those protections. U.S. companies competing in the global economy need the protection, certainty and fair treatment provided by tax treaties.

The United States has an extensive array of tax treaties; but some key markets are missing, and the United States should continue to press for tax treaties with those markets.xiv For instance, the United States lacks tax treaties with Brazil, Malaysia and Vietnam, despite their large economies and the extent of actual and potential U.S. trade and investment.

Tax treaties provide clear ground rules that govern tax matters relating to trade and investment. They protect traders and investors from double taxation of the same income, and they ensure that U.S. investors do not suffer discrimination in the application of foreign tax laws.xv As the U.S. Treasury has said, “An income tax treaty removes impediments to international trade and investment by reducing the threat of double taxation that can occur when both countries impose tax on the same income.”xvi

The absence of a tax treaty can thus increase costs and create uncertainty for U.S. businesses, leading to lost business opportunities and diminished potential returns on international transactions.

● ● ●

“As the United States

considers how to

create jobs and

maintain export

growth, it is important

that we try to

eliminate impediments

that prevent our

companies from fully

accessing international

markets…. In the case

of taxes, we should

work to ensure that

companies pay their

fair share, while not

being unfairly taxed

twice on the same

revenue.” –Sen. Richard Lugar,

Feb. 2, 2006

● ● ●

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NARROWING THE CURRENT ACCOUNT DEFICIT

Most economists agree that a current account deficit is neither a sign of economic weakness nor a harbinger of immediate economic problems for the U.S. economy. Perhaps more importantly, the trade deficit is not an indicator that the U.S. policy of trade liberalization is flawed.

Over the last 37 years, the United States has run a trade deficit 34 times. Nevertheless, until the current economic and financial crisis – which was not caused by international trade and investment agreements – the United States generated tremendous economic growth, doubling GDP since 1986. Between 1986 and 2005, during which the United States negotiated the WTO Uruguay Round, NAFTA and numerous bilateral and regional FTAs, the United States had a 3.1 percent growth rate. This surpassed other major economies like the EU, which grew by only 2.4 percent, and Japan, which had a 2.1 percent growth rate.

However, persistent imbalances do raise serious warning flags for the future of American competitiveness and global economic stability. The current financial and economic crises create new opportunities to respond to these warnings.

Promote Growth and Consumer Demand Abroad

To help narrow the trade deficit, we must encourage economic growth and increased consumer demand abroad. In no small part, the U.S. trade deficit is a result of lack of consumption in important markets. The excess savings in these countries have had the beneficial result of providing investment capital for the safer U.S. economy, but they also underscore that the United States cannot be the sole engine of growth in the global economy.

The U.S. government must continue to develop and implement policies to promote international economic cooperation, including policies that convince other countries to adopt trade, fiscal, monetary and regulatory policies that will stimulate their own economic growth. These include:

1. Encourage Economic Growth Abroad. The commitment of the leaders of the G-20 to work together to restore global economic growth creates new opportunities for the United States to encourage its trading partners to adopt economic policies that increase their own economic growth and consumption.

2. Encourage Our Trading Partners to Open Their Markets for U.S. Goods and Services. Improving markets for overseas U.S. sales of goods and services will help shrink the deficit by growing U.S. exports. This requires convincing our trading partners to reduce trade barriers and open their markets. The U.S. should continue on the path of

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negotiating bilateral and multilateral agreements that achieve meaningful market opening for U.S. exports.

Energize Multilateral Efforts to Facilitate Global Currency Adjustments

The U.S. current account deficit is exacerbated by policies of numerous trading partners that keep the value of their currencies artificially low in relation to the U.S. dollar and an IMF that cannot effectively address the challenges. Currency market intervention by a number of countries helps keep their currencies undervalued in relation to the U.S. dollar. Such policies make U.S. goods artificially expensive in those countries and make goods from those countries artificially cheap for American consumers. For instance, in the auto sector, an artificially weak yen results in thousands of dollars of price advantage for Japanese exports.

As part of a package of policies that includes our trading partners expanding their domestic consumption, increased U.S. savings and strengthening the international trading system, the United States should continue to work with these countries and the IMF to ensure that they stop intervening in currency markets to manipulate trade flows.

A positive development is the April 2006 decision of the IMF Board of Governors empowering the IMF to address global current account imbalances in a comprehensive manner. These multilateral consultations will need strong, high-level support in Washington and other major capitals to be successful, as well as increased reform efforts to improve the IMF’s effectiveness.

In connection with this initiative, the WTO should also review the scope and operation of GATT Article XV generally, and especially paragraph 4 of Article XV, which provides that “*c+ontracting parties shall not, by exchange action, frustrate the intent of the provisions of the [GATT], nor by trade action, the intent of the provisions of the Articles of Agreement of the International Monetary Fund.” Article XV is more than 60 years old and there have been numerous changes to the multilateral exchange rate system to deal with both monetary and trade issues over those years. Under these circumstances, a “comprehensive” WTO and IMF review of needed reforms to prevent artificially undervalued currencies and destabilizing global imbalances should move in tandem.

Address Low Savings and Investment in the U.S. and the Federal Budget Deficit

The current account deficit is a result of an historic domestic savings shortfall in the United States and the unsustainable federal budget deficit, while demand for investment capital continued to rise.

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Long-term policies to encourage private savings by American citizens and to reduce the federal budget deficit can help to finance new domestic investments and reduce the long-term risk of financial distress. Such policies should include:

1. Encourage individual savings. Americans should be encouraged to save for education and retirement. Tax-free savings accounts, such as IRAs and college tuition programs, should be expanded, streamlined and made more widely available to all Americans.

2. Facilitate workplace retirement plans. The employment-based retirement system is a proven and effective means of increasing savings. Policies that encourage the growth of retirement plans are essential; the enactment of the Pension Protection Act of 2006 was an important step in the right direction.

3. Enhance financial literacy. One of the most basic elements of savings is understanding the need to save. Yet financial literacy is deficient across all generations and socio-economic levels. Savings would be materially enhanced if Americans across all socio-economic classes were more financially literate.

4. Reduce the Federal budget deficit. In order to avoid a prolonged and potentially deeper recession, a short-term increase in the budget deficit is necessary. However, reducing the federal budget deficit over the long term is essential to creating an economic environment for sustained growth and for reducing the current account deficit.

Encourage Foreign Investment in the United States

The new Administration and Congress need to maintain an open environment for foreign investment. The current turmoil in U.S. financial markets highlights the critical importance of this policy.

There is already a strong bipartisan political consensus and an equally strong recognition in the private sector that the United States needs substantial financial resources to begin to rebuild its infrastructure and improve the competitiveness of its communities, workers and businesses. Foreign investment plays – as it has in the past and today – an important role in helping America grow. In the 1800s and early 1900s, foreign capital played a central role in financing America’s railroad infrastructure and its industrialization.

Foreign investment continues to play an equally positive role in the U.S. economy today. Foreign investment in the United States now amounts to almost $3 trillion. Foreign investment in the America totaled a record $325.3 billion in 2008 – a 37 percent increase over 2007.

Foreign companies’ U.S. subsidiaries employ approximately 5.3 million Americans with 30 percent of these jobs in the manufacturing sector. Foreign companies in the United States now

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also account for nearly 19 percent of U.S. exports. In today’s intensely competitive world economy, innovation is one the most important keys to success. U.S. affiliates of foreign companies spend $34 billion on research and development and more than $160 billion on plant construction and equipment.

It is equally important to recognize that foreign investment is not limited to buying American companies. Every year, foreign companies and their U.S. subsidiaries pursue hundreds of new projects in the United States. In 2007, nearly 760 “greenfield” projects were announced or opened, and U.S. subsidiaries of companies headquartered abroad reinvested more than $68 billion in their U.S. operations.

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BRINGING THE BENEFITS OF TRADE AND INVESTMENT TO THE

WORLD’S POOR

Despite worldwide economic growth in past decades, many citizens of the world’s least developed countries (LDCs) have realized no tangible economic benefits from being part of the global economy. Hundreds of millions of people in those countries still live in abject poverty and are not reaping the benefits of the global economic system. It is a collective moral imperative to successfully integrate LDCs into the global economy.

Open trade and investment policies of the 20th century have helped countries as diverse as South Korea, Mexico, Brazil, India and China to grow their economies, increase trade, and improve standards of living for their citizens. International trade and investment is just as central today in helping LDCs create a more productive and safer life for their citizens. Investment is especially important because LDCs need capital to build the energy, transportation, health and education infrastructures without which they cannot achieve these objectives. Expanding trade and investment also helps improve labor standards, environmental protection, rule of law and democratic principles in those countries that join the global economic system.

As noted earlier in this paper, liberalized trade and investment go hand-in-hand with improved labor rights, as countries improve enforcement and international firms bring higher wages, better working conditions, and more job choices. Similar benefits include better environmental protection, the spread of the rule of law and expanded political openness.

As two Business Roundtable reports described in detail, multinational companies that invest in developing countries already strive to ensure that those operations are seamlessly integrated into worldwide operations. In doing so, these companies expose workers, suppliers, customers and governments to ethical and responsible business behavior. xvii For example:

- U.S. companies strive to uphold strict corporate codes of business conduct and ethics in developing countries where they do business.

- Companies bring improved environmental technologies, energy efficiency and health and safety standards to their facilities in developing countries. Many U.S. companies apply global standards for environment and health and safety at all of their worldwide facilities, meaning that facilities often exceed local environmental standards and set important examples for domestic firms.

U.S. businesses’ investments abroad provide workers with higher wages, improved training opportunities and working conditions that exceed those in locally owned factories.

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Open trade and investment helps improve civil society by introducing and disseminating ideas and information technology and giving citizens more opportunities to communicate with other citizens both inside and outside their countries.

This is a moral good, which alone is enough reason to proceed. But it is important for at least two other reasons, as well.

First, poverty and absence from the global economy go hand-in-hand with violence and instability, particularly in Africa and the Middle East. Bringing LDCs into the world trading system is thus critical to U.S. interests of supporting peace, stability and democracy in those parts of the world. This would reassert U.S. geopolitical leadership.

Second, the inability to address LDCs’ economic challenges also impairs efforts to further liberalize global trade and investment. Countries that have not participated in global economic growth are likely to resist further liberalization from fear of being left further behind. Providing effective leadership for a global trading system that lifts LDCs out of poverty, then, must be a key part of U.S. trade and investment policy.

Here are some strategies that can help accomplish this goal:

Addressing Resource Gaps Through Capacity Building and Technical Assistance

The United States should continue to strengthen its trade capacity building and technical assistance programs for LDCs and address the real problems those economies face in participating in the global trading system.

LDCs often cannot reap the benefits of participating in the global economy because they lack the resources and capacity to develop coherent national trade policies, negotiate agreements that benefit their citizens, implement those agreements, and help their businesses take advantage of new opportunities. This prevents LDCs from negotiating beneficial bilateral or multilateral trade liberalization agreements or from taking advantage of such agreements once they are negotiated. These resource gaps come in many forms:

Trade Facilitation/Customs Modernization. Developing countries will gain significant economic benefits from relatively modest investments in customs modernization and other trade facilitation measures that reduce the time and costs associated with the movement of goods across borders.

Inadequate regulatory and enforcement structures. Developing countries often lack the regulatory structures necessary to implement liberalization commitments made in trade negotiations or to modernize their laws to facilitate the investment they need for economic growth.

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- Developing countries may not be willing to make commitments – such as enforcing intellectual property rights – if they do not have the necessary resources to implement those commitments.

- In other cases, developing countries may enter agreements only to realize few benefits because of inadequate regulatory structures. Weak regulatory regimes for telecommunications or financial services may limit flows of foreign investment. Developing countries with insufficient sanitary and phytosanitary (food safety) regulatory capacity may have difficulty implementing agriculture trade commitments or taking advantage of export opportunities.

Inadequate Infrastructure. Inadequate physical and service infrastructure can undermine the benefits of trade liberalization.

- Poor port facilities, which may cause costly delays or inability to transport perishable goods, can hinder a country’s ability to increase imports and exports in response to trade liberalization.

- Lack of adequate telecommunications or financial services infrastructure may hinder domestic producers’ ability to access newly opened foreign markets, and may limit foreign investment that was anticipated from a trade agreement.

Lack of Trade Policy Coordinating and Negotiation Capacity. Trade negotiations are complicated and expensive undertakings that require significant government resources. Even unilateral trade policy decisions require significant government coordination, data gathering and forecasting tools that may not be fully developed in poorer countries.

Lack of Business Capacity. Businesses in LDCs may lack the technology and experience necessary for success in a global economy. Businesses with attractive products may forfeit global market share if they do not have access to information technology for such tasks as inventory management, shipment tracking and marketing. Inexperience with electronic commerce or technology can lock producers out of the 21st century marketplace.

Important efforts are already underway to help LDCs integrate trade and development policy. Under the auspices of the WTO, major donor countries and multilateral agencies have created the Integrated Framework for Trade-Related Technical Assistance to Least Developed Countries. This provides LDCs with funding and technical assistance to help integrate trade and development policies and implement those strategies. It also helps many LDCs, including many in Africa, to develop diagnostic studies to better integrate trade and development policy.xviii

The United States is also helping in other ways. The U.S. government is working to integrate trade into development assistance programs and to aid LDCs in integrating into the global trading system through, for example “Aid for Trade” assistance.

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Business Roundtable suggests these measures to improve capacity building and technical assistance programs:

1. Identify Capacity Building and Technical Assistance Needs Early. Trade capacity building programs should focus on helping developing countries identify and remedy capacity building and technical assistance needs early in a trade negotiation or before the negotiation begins. This can increase countries’ abilities both to make, and keep, trade commitments.

2. Integrate Technical Assistance Provisions Into Trade Agreements. Negotiators should consider incorporating technical assistance and capacity building provisions within the text of trade agreements with LDCs. Explicit provisions for capacity building will help ensure that developing countries can make and keep commitments and will help direct programs to those areas that are most critical.

3. Facilitate Public-Private Technical Assistance and Capacity Building Coordination. Governments and private businesses should explore ways to coordinate technical assistance and capacity building. Government and private sector efforts are often duplicative and sometimes conflicting. It is important that the limited resources be well-managed and used.

4. Address Gaps in Infrastructure. Trade capacity building and technical assistance programs to LDCs should identify and help remedy gaps in physical, services, and regulatory infrastructure. These gaps create significant barriers to participation in the world economy, the development of healthy markets and economic growth.

Better Integrating Trade Objectives Into Development Assistance

The U.S. should ensure that the over-arching goal of improving LDCs’ ability to participate in the global economy and grow through trade and economic openness is an integral part of all of our aid programs. The U.S. and other industrialized countries give significant aid to developing countries through bilateral and multilateral programs. In addition to support for multilateral development banks and assistance agencies, the United States provides billions of dollars in development assistance through various programs at the U.S. Agency for International Development, the Millennium Challenge Corporation and the Overseas Private Investment Corporation.

1. Expanding the Role of Development Banks. The United States and other donor countries should ensure that trade capacity building and technical assistance are better integrated into the programs carried out by the World Bank and the regional development banks. Expansion of trade is a vital component of economic development

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and poverty alleviation and must be considered when programs are developed and implemented. The World Bank and other development banks have long made liberalized trade and investment a priority.

The International Monetary Fund, International Trade Centre, United Nations Conference on Trade and Development, United Nations Development Program, World Bank, and the WTO have combined efforts in an Integrated Framework (IF) to respond to the trade development needs of LDCs. However, assessments of the IF point to significant shortcomings, including slow processes, a serious gap between diagnosis and implementation and lack of ownership by LDCs of trade and development integration strategies.xix

The IF Steering Committee recently adopted reform recommendations to help address these problems,xx but leadership from the U.S. and other major donor nations will be critical to ensure that programs for trade capacity building are expanded and better integrated into all development bank assistance programs.

2. HELP Commission. Congress recently created the “Commission on Helping to Enhance the Livelihood of People Around the Globe” (HELP Commission) to examine and make recommendations about the successes and failures of U.S. development assistance. One task of the Commission is to, “Compare the effectiveness of increased and open trade with development assistance, and analyze the advantages and disadvantages of such trade and whether such trade could be a more effective alternative to United States development assistance.”

The Commission should give full consideration to ensuring that development assistance programs complement and enhance efforts to open trade.

Re-examining the Preference Programs

The United States should review its preference programs to ensure that they are providing real benefits to LDCs in terms of trade and development. The United States maintains a number of trade preference programs that provide favorable access to our markets for goods from qualified developing countries. The Generalized System of Preferences (GSP) provides duty-free access for thousands of goods from developing countries that meet certain criteria. In addition, the United States maintains specialized regional preference programs that offer even greater duty-free access to eligible countries, including the Africa Growth and Opportunity Act (AGOA), the Caribbean Basin Initiative (CBI) and the Andean Trade Preference Act (ATPA).

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Each of these programs has facilitated increased imports and exports by beneficiary countries. For example, since it began in 2000, AGOA, for example, has helped increase U.S. two-way trade with sub-Saharan Africa.xxi The programs have helped the beneficiary countries grow and modernize their economies, move from reliance on primary product exports to increased exports of value-added manufactured goods and paved the way for deeper liberalization in the form of FTAs.

1. Preferences That Deliver Real Economic Benefits. The United States should review all of its preference programs to ensure that they provide the benefits that will help LDCs successfully access the American market. Accessing the U.S. market will help LDC industries gain the experience necessary to export regionally and, eventually, to the global marketplace. The basket of goods covered by the various programs should be examined to ensure that the LDCs have preferences that are consistent with their exports. If necessary, preference programs should be expanded to include a greater range of products that are important LDC exports.

2. Targeting the LDCs. To ensure that preference programs like GSP deliver real benefits to our neediest trading partners, preference programs should distinguish between developing countries that already have robust, growing economies and those, such as most sub-Saharan African nations, that do not. LDCs and rapidly growing developing countries are not similarly situated, and should not necessarily be treated the same.

3. Removing Barriers to South-South Trade. The United States should use GSP to help LDCs access the growing regional markets with more nearby advanced developing countries. A significant portion of the barriers to exports from developing countries come from other developing countries. Forty percent of world trade occurs between developing countries, and, according to World Bank estimates, 70 percent of the tariff burden faced by developing countries is imposed by other developing nations.

In determining GSP eligibility, the President is permitted to consider a number of relevant factors, including the country’s protection of intellectual property rights, its trade distorting investment practices, and its efforts to liberalize services trade. To leverage greater market access for LDCs, the United States should consider additional criteria for advanced developing countries that review the country’s own openness to imports from LDCs.

4. Meaningful Multilateral Commitments From Advanced Developing Countries. Advanced developing countries now need to be full players in the multilateral trading system. In determining GSP eligibility for advanced developing countries, the President should have the authority to consider the role the country has played in negotiations of multilateral trade liberalization. The advanced developing countries have benefited greatly from the open world trading system. Liberalized trade and

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investment regimes have opened significant markets to their exports and helped them grow their industries and lift their citizens from poverty.

Opening these countries’ markets more completely to services, manufactured goods, and agricultural trade will help bring the benefits of liberalized trade to their own farmers, manufacturers, and consumers (many of whom remain poor), while also bolstering and expanding global trade liberalization.

5. Merging Programs. In recent years, there has been a proliferation of programs to promote economic development through trade. In addition to GSP, the United States now has, among others, a program for Africa (AGOA), Latin American (ATPA) and the Caribbean (CBI). The new Congress and Administration should consider whether GSP, AGOA, ATPA, CBI and other trade and development programs would be more effective if they were consolidated.

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LAYING THE FOUNDATION FOR AMERICA’S COMPETITIVENESS

The new Administration and Congress need to recognize the critical importance of getting the mix of international and domestic policies right. Business Roundtable supports aggressive new domestic policy initiatives to strengthen our economy at home and to ensure our competitive edge in the world marketplace. Strengthening American competitiveness must be a priority for U.S. economic policy in the 21st century. Dealing with the urgent need to stabilize and stimulate the American economy and create new jobs is the first priority, but action to lay the foundation for long-term competitiveness and growth is also critical. Among the wide range of domestic competitiveness policies that need immediate attention are (1) building a competitive work force, (2) strengthening American leadership in research and development, (3) meeting energy and environmental challenges, (4) solving the health care challenge, (5) restoring infrastructure and (6) making U.S. international tax policies more competitive.

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REVITALIZING THE CONGRESSIONAL-EXECUTIVE RELATIONSHIP ON

INTERNATIONAL TRADE AND INVESTMENT POLICY

International economic engagement is more important to the United States than ever before and the policies and priorities of the new Administration and Congress need to reflect that. American economic growth and job creation are now fully dependent on the ability of American workers, farmers and businesses to compete successfully in both our domestic market and world markets. If the Congress and executive branch fail to provide the right mix of domestic and international policies and fail to cooperate closely in the development and pursuit of international economic trade and investment initiatives, they run a high risk of crippling the ability of American workers, farmers and businesses to compete and succeed. Fair trade will not come without the negotiation and implementation of good bilateral, regional and multilateral trade and investment agreements. If the new Congress and Administration sit on the sidelines and do not negotiate, Americans will be increasingly isolated and discriminated against in the world economy as foreign governments accelerate the negotiation of preferential trade and investment agreements for their workers, farmers and businesses. America will also lose an important tool to anchor U.S. strategic influence around the world. A failure to implement pending trade and investment agreements and to pursue new agreements will penalize American workers and businesses. Without negotiation and implementation of strong trade and investment agreements, U.S. businesses will be penalized and will be forced to look elsewhere. Trade and investment agreements guarantee fair treatment vis-à-vis foreign competitors and create new export opportunities for American businesses, workers and farmers. To succeed in today’s international economy, American businesses, workers and farmers need to be able to reach foreign customers through both exports and sales by their foreign operations – there is no viable “either/or” strategy for economic success. Rebuilding bipartisan support for international trade and investment negotiations and revitalizing the congressional-executive relationship will require new approaches, initiatives and resources from both branches of government as well as from the private sector. Negotiating Criteria and Objectives

1. Establishing Priorities. A bipartisan international economic policy must rest on shared

negotiating criteria, objectives and strategies. Building this foundation will require close collaboration and cooperation in discussing priority countries and negotiating objectives. There are a wide range of factors that should be considered, including, for example:

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(a) will the negotiation create new economic growth opportunities for American workers, farmers and businesses; (b) is the negotiation needed to defend American workers, farmers and businesses against unfair treatment by agreements negotiated by our major international competitors that discriminate in favor of their workers, farmers and businesses; (c) will the countries involved in the negotiation be committed to implementing and enforcing the domestic economic, labor and environmental reforms required by the agreement; (d) will the agreement create positive precedents for future negotiations; (e) how will the agreement promote regional integration, cooperation in the WTO and autonomous reform; and (f) what foreign policy and national security objectives will be advanced.

2. Coordinating Initiatives. Initiatives need to be carefully integrated to maximize U.S.

leverage and prevent one initiative from undermining another. In the past, the United States relied almost exclusively on multilateral negotiations in the GATT/WTO. Today, U.S. negotiating tools include such diverse initiatives as bilateral, regional and multilateral trade negotiations, bilateral investment treaty negotiations, regional and bilateral regulatory dialogues and targeted trade and development programs like the Generalized System of Preferences (GSP), the African Growth and Opportunity Act (AGOA) and the Andean Trade Preference Act (ATPA).

Taking Heed of Old Advice

In explaining its decision to include special legislative (fast track/trade promotion authority) procedures in the Trade Act of 1974, the Senate Finance Committee made the following observation that is as central today to the success of congressional-executive branch cooperation as it was more than 30 years ago:

“There is no question . . . that the soundness of [fast track/trade promotion authority+ depends on how well the President’s negotiators carry out the purposes of this legislation to achieve equity and fairness for United States commerce in international trade and how closely the negotiators work with the Congress throughout the negotiations. They must not only keep a few members informed; they must work to gain the confidence and respect of all members, as well as keeping members fully informed.”

Congress, for its part, needs to recognize how complex international trade and investment negotiations have become, and that there is often a need for several different negotiations and other initiatives to be underway at the same time. As a result, the Congress has to organize itself so its oversight is more thorough, timely and effective. The executive branch, in turn, will have to make sure it is effectively consulting with the Congress. In this regard, it is essential for the executive branch to understand that notification of developments does not necessarily

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constitute consultations. It should engage in comprehensive reviews of the negotiations with the Congress, giving the Congress a real opportunity to provide advice during the course of negotiations. Promoting Collaboration and Cooperation

New efforts and procedures are needed to rebuild the foundation for more effective collaboration and cooperation between the Congress and the executive branch. This will be complicated as it involves constitutional prerogatives and political considerations between two independent branches of government, between the two Houses of Congress, and between a growing number of congressional committees with legislative responsibility for the international trade and investment negotiations. The following recommendations are intended to help start the dialogue on the rebuilding process.

1. Working Together to Get Negotiations Off to a Good Start. The pre-launch Presidential notification and consultation requirements found in previous fast track/trade promotion authority should be supplemented with improved procedures to create greater confidence in proposed negotiations before they are launched. More extensive consultations between the President and the Congress are needed before international negotiations are launched, including a focused opportunity for the Congress to provide advice in the selection of negotiating partners and negotiation scope and objectives. If the President decides to use a fast track/trade promotion type authority, this might entail Congress signaling approval in some way of the President’s decision to launch negotiations.

2. Working Together During Negotiations. A healthy executive branch-congressional

relationship on trade will require extensive substantive consultations during negotiations. In the past, problems have often not surfaced until the negotiations were completed, or their magnitude was not fully appreciated until that point. The economic, foreign policy and national security stakes are too high for the executive branch and the Congress to fail to work together effectively during negotiations.

To promote more effective collaboration and cooperation on a sustained basis and to aid the Congress in monitoring multiple negotiations, the Congress should consider the creation of a Congressional Trade Oversight Group for each negotiation with adequate staff. Members of these Congressional Trade Oversight Groups would be drawn from standing congressional committees with legislative jurisdiction over the negotiations and from members with a strong interest in the negotiations. (Congressional Trade Oversight Groups will have the beneficial effect of expanding the number of members with a deeper understanding of the negotiations.) Because the Senate Committee on Finance and the House Committee on Ways and Means have primary jurisdiction over trade negotiations, each Congressional Trade Oversight Group would be co-chaired by members of those Committees. The

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Congressional Trade Oversight Groups would be required to report on a regular basis to the standing Congressional Committees with legislative jurisdiction over the issues in the negotiations.

3. Working Together to Implement the Agreements. Improved procedures should be

considered to provide a more focused opportunity for the Congress to review the proposed agreement, advise the President of remaining concerns, if any, and to explore jointly the feasibility of adjustments to the proposed agreement, if needed, before the President formally enters into it.

In a fast track/trade promotion authority scenario, the Senate Committee on Finance and the House Committee on Ways and Means might be required to review a proposed agreement and recommend to the Congress whether the implementing bill should be eligible or not for the special legislative procedures. The review would focus on the adequacy of consultations and whether the agreement has made sufficient progress in achieving previously agreed upon negotiating objectives. To protect congressional legislative prerogatives and to ensure close collaboration between the President and the Committees of jurisdiction in both Houses of Congress in the drafting of implementing legislation and the statement of administrative action, new fast track/trade promotion authority should require the following Congressional actions before implementing legislation is formally introduced: hearings, mark-up sessions and conferences between the House and Senate Committees of jurisdiction.

A Tailored Grant of Fast Track/Trade Promotion Authority

Fast track/trade promotion authority is an essential tool for fair trade and economic growth. Without this authority, America’s ability to negotiate bilateral, regional and multilateral agreements will be seriously compromised and our ability to open world markets to our industrial goods, agricultural products and services will be severely diminished. In its wisdom, the Congress recognized the need for special legislative procedures more than 30 years ago when it first included fast track/trade promotion authority in the Trade Act of 1974. The Senate Finance Committee Report is as fresh and wise today as it was then:

“Our negotiators cannot be expected to accomplish the *U.S.+ negotiating goals if there are no reasonable assurances [to our trading partners] that the negotiated agreements would be voted up-or-down on their merits.”

Multilaterally, fast track/trade promotion authority would greatly enhance U.S. credibility in trying to bring the Doha negotiations to a successful conclusion and in future initiatives to modernize the WTO so that it can become a more effective negotiating forum.

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Equally important, without fast track/trade promotion authority, we run a high risk of losing global market share to foreign competitors who are not standing still in bilateral and regional FTA negotiations. They are moving forward aggressively to negotiate preferential FTAs and investment agreements in Latin America, Africa and Asia for their workers, farmers and businesses. The United States needs to match these negotiations to ensure fair treatment of our workers, farmers and businesses. Fast track/trade promotion authority should be tailored to reflect differences in and among multilateral WTO negotiations and various bilateral and regional FTA negotiations.

1. Permanent Authority for WTO Multilateral Negotiations. Multilateral negotiations in the WTO take far longer to complete than FTA negotiations because more than 150 countries are involved – but hold the greatest potential gains. Given this critical circumstance and the need for the President to be able to engage in effective multilateral negotiations at any time, over a long period of time, fast track/trade promotion authority for WTO multilateral negotiations should be permanent.

2. Permanent Authority for Defensive Bilateral and Regional Negotiations.

America’s major foreign competitors are moving forward aggressively to complete their own preferential bilateral and regional FTAs. These agreements give their workers, farmers and companies strong competitive advantages over ours. Given the ongoing efforts by our foreign trading partners to seek a leg up, the United States can ill-afford a major debate every few years over whether to renew fast track/trade promotion authority. With new guidelines for developing negotiating criteria, objectives and strategies for congressional-executive branch cooperation, fast track/trade promotion authority for defensive bilateral and regional negotiations should be permanent. If the new Congress and Administration fail to provide permanent fast track/trade promotion authority to offset these advantages, they run the risk of leaving American workers, farmers, and businesses undefended in international markets and subject to discrimination. We cannot afford periodic standstills.

3. Renewable Authority for Strategic FTA Negotiations. Unlike the ongoing need

for bilateral and regional negotiations to counter-act discrimination from third-party FTAs, there may be other bilateral and regional negotiations that have merit. These negotiations might be pursued to create new commercial opportunities for American workers, farmers and businesses and/or to promote important foreign policy and national security objectives. These bilateral and regional initiatives may be important, but perhaps less urgent than defensive negotiations, and fast track/trade promotion authority under these circumstances would benefit from the check and balance of renewal debates.

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CONCLUSION: THERE IS NO TIME TO LOSE

If there is one word that summarizes the need for the new Administration and Congress to act on trade and investment policy reforms it is this: Urgency.

Both the new Administration and Congress must recognize the accelerating pace of global economic changes and raise American competitiveness to a higher priority. The challenges of an integrated global economy offer great opportunities. Empowering American businesses and workers with the right mix of international and domestic competitiveness is the key to economic recovery and sustained growth. Our competitors on every continent are surging ahead without us – in many cases they are concluding agreements among themselves – building new trade relationships that exclude us – and jeopardizing our economic and geopolitical leadership. In other cases, our trading partners are developing and implementing new protectionist policies designed to isolate their economies from international competition – preventing American companies and workers from using exports to help restore growth.

The United States and its workers, farmers and companies have faced foreign competition admirably in recent years – showing agility and strength in world markets and an ability to adapt to rapid changes that remain the envy of the world. We hope to see that same ability in the Administration and Congress as they develop new U.S. trade and investment and competitiveness policies in the months ahead. As American business leaders, the members of Business Roundtable stand ready to help.

i See, e.g., Augier et al., The Impact of Rules of Origin on Trade Flows, 572 (2005) (noting an early empirical study on ROOs found that due to transactional costs of complying with ROOs, nonpreferential tariffs were paid on 21.5% of European Free Trade Association’s imports from the EU, and 27.6% of EC imports from EFTA.) ii Id.

iii Id.

iv Id. at 606.

v WTO Committee on Regional Trade Agreements, Rules of Origin in Regional Trade Agreements, 3, n.3,

WT/REG/W/45 (April 5, 2002). vi Testimony of Gary Litman, U.S. Chamber of Commerce, Oct. 16, 2003, Subcommittee on European Affairs of the

Senate Committee on Foreign Relations, http://www.uschamber.com/issues/testimony/2003/031016litman.htm. vii

See GATT 1994, Art. XXIV:8; WTO AB Report, Turkey Textiles. viii

GATS, Art. V. ix USITC, “ITC Reports Strong Trade Performance by U.S. Service Industries,” News Release 06-061, June 23, 2006.

x Trade Agreements Act of 1979, Pub. L. 96-39, § 1110.

xi Reports by the President Pursuant to Section 1110(a) and (b) of the Trade Agreements Act of 1979, U.S. Senate,

Committee Print, Sept. 1980. xii

UNCTAD, Country-specific Lists of BITs, available at http;//www.unctadxi.org/templates/DocSearch.aspx?id (last accessed April 14, 2009).

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xiii

United States Trade Representative, 2009 National Trade Estimate Report on Foreign Trade Barriers: Argentina (2009) xiv

Internal Revenue Service, Income Tax Treaties, available at http://www.irs.gov/business/international/article/0,,=96739,00.html (last accessed April 14, 2009). xv

See e.g., Testimony of Patricia A. Brown, Deputy International Tax Counsel (Treaty Affairs), United States Department of the Treasury Before the Senate Committee on Foreign Relations on Pending Income Tax Agreements (Feb. 2, 2006). xvi

Testimony of Treasury International Tax Counsel Philip R. West before the Senate Committee on Foreign Relations (Oct. 27, 1999). xvii

Corporate Social Responsibility in Latin America: Practices by U.S. Companies (BRT 2001); Corporate Social Responsibility in China: Practices by U.S. Companies (BRT 2000). xviii

Report on the 16th

Meeting of the Integrated Framework Steering Committee, 12 May 2006, WTO. xix

An Enhanced Integrated Framework: Report of the Chairman of the Task Force on an Enhanced Integrated Framework, Including Recommendations (June 29, 2006). xx

Report On The 17th

Meeting Of The Integrated Framework Steering Committee (IFSC) (July 18 2006). xxi

2009 Comprehensive Report on U.S. Trade and Investment Policy Toward Sub-Saharan Africa and Implementation of the African Growth and Opportunity Act (AGOA) (Report available at www.USTR.gov.)