TEXT: BARSHEFSKY ON CHALLENGES TO GLOBAL TRADING SYSTEM

(Building support among citizens crucial, she says)

Washington -- U.S. Trade Representative Charlene Barshefsky says the global trading system faces a number of challenges, with the most important being to assure that it retains the support of ordinary citizens.

"The pace of change in today's economy causes apprehension and anxiety even among workers and consumers who reap the benefits of global trade," Barshefsky said.

Responding to this challenge requires commitment to education for students and training for workers, more public access to the operation of the trading system and a sustained effort to improve public understanding of the benefits of trade, she said.

Barshefsky made the remarks April 15 at an Institute for International Economics (IIE) conference a few weeks ahead of the 50th anniversary of the General Agreement on Tariffs and Trade (GATT) system, which has now been subsumed in the World Trade Organization (WTO).

Another challenge is to make markets more open and competitive, she said, promoting international cooperation to fight anticompetitive business practices and bribery. Another is to give the trading system the flexibility required to adapt to rapid changes in the global economy. Another challenge is to deal with labor and environmental issues as they relate to trade, she said.

Barshefsky said a number of other challenges relate to unfinished business in the existing global trading system, including lowering of trade barriers in agriculture, services and procurement; protecting patents and copyrights; and integrating many economies including China and Russia into the system. Similarly in the category of unfinished business is opening markets that remain closed in spite of WTO obligations because of informal rules and contracts as in Japan.

Following is the text of Barshefsky's speech as prepared for delivery:

(Note: In the text "billion" equals 1,000 million and "trillion" equals 1,000,000 million.)

(begin text)

Prepared for Delivery Ambassador Charlene Barshefsky The Institute for International Economics April 15, 1998

Good morning. Thank you all, and thank you, Fred, for that kind introduction.

I am very happy to be with you this morning. I have always enjoyed and benefited from working with the Institute for International Economics and with many of you here for the conference today. And it is a particular pleasure to address this forum, as we mark the 50th anniversary of the GATT system and look ahead to its prospects in the 21st century.

INTRODUCTION

We don't stop to think about it often enough, but we should be grateful that we are alive at this very unusual time in history. Looking out at our country, we see a prosperous age. More of our citizens at work than ever before.

Science, technology and medicine surging ahead. The government's budget in balance; crime and welfare rates failing; the air and water much cleaner than they were a generation ago. And, if we stay on the right path, we should expect the economy to continue to grow; productivity to advance, inflation to stay down, and living standards to rise.

Looking out at the world, we see an era of peace. For the first time in decades, our country faces no global threat to our way of life. Fewer people are hungry than ever before. Infant mortality drops every year. Literacy rates rise; science advances; trade flourishes.

And looking to the future, we see a chance to build a world in the 21st century that reflects our most cherished values. A world of open and accountable government. Fairness. A clean, healthy environment. Rewards for creativity and entrepreneurialism. Decent treatment for working people. The rule of law. And peace among nations.

This morning I would like to talk about the place international trade, and specifically the multilateral system, has in the Administration's plans to help make this future a reality. The issues it must address, from traditional trade barriers, to bringing in new members and making sure today's members live up to the spirit as well as the letter of their commitments. The fields it must cover, from promoting transparency and fighting bribery and corruption; to the social questions of labor standards and environmental protection; to the new world of electronic commerce. And perhaps most important, the growing concerns and anxieties of ordinary people it must answer, that trade agreements or trade itself may be the enemy of jobs and high living standards.

THE LAST FIFTY YEARS

But let me begin by looking back at the people, ideas and institutions that brought us to this point. And the establishment of the multilateral system is a good place to start.

The founders of the GATT system began their discussions just a few months after the Second World War. They had learned two lessons. First, in the political field, that tolerance of human rights abuses and international aggression had brought disaster upon the world. And second, in economics, that the economic detachment of countries from one another after the trade wars of the early 1930s had deepened the Depression and made it easier for dictators and demagogues to come to power. To quote President Roosevelt:

"(A) basic essential to peace, permanent peace, is a decent standard of living for all individual men and women and children in all nations. Freedom from fear is eternally linked with freedom from want .... (And) it has been shown time and time again that if the standard of living in any country goes up, so does its purchasing power -- and that such a rise encourages a better standard of living in neighboring countries with whom it trades."

The result of these lessons was the network of international institutions familiar to us today. The United Nations. The IMF and World Bank. The International Labor Organization. And the General Agreement on Trade and Tariffs, or GATT. All of these had in common a commitment, on the one hand, to the rule of law, and on the other hand, a faith in human freedom as the best guarantor of peace and a better life.

The GATT system began with border measures such as tariffs and quotas, moved in the Tokyo Round to nontariff barriers; and in the Uruguay Round to agricultural trade, services, investment, intellectual property rights, and, increasingly, the trade impact of domestic regulations. The result has been more liberal trade in goods, services, and investment. More choice and more freedom for consumers. Human, financial, and natural resources used more efficiently, more productively and to the benefit of all rather than to a few. Trade has grown sixteen-fold, and economic output fourfold; and, at least in the economic sphere, the rule of law is honored more each year.

THE QUESTION OF THE 20TH CENTURY ANSWERED

At the same time, another great part of humanity was, mostly unwillingly, enlisted in a different experiment. On the other side of the Iron Curtain, rulers saw human planners as preferable to the less ordered and predictable forces of the market.

The American socialist Edward Bellamy, writing much earlier, forecast the development of the Soviet system very well and with approval in Looking Backward: a nineteenth-century Bostonian awakes in the year 2000 to find a comprehensive plan for all economic output directed by a few people in the nation's capital; citizens enrolled in an "industrial army" directed to carry out that plan each year and held in their jobs by "captains," "colonels" and "generals"; at the top, a "president" who got his job without a popular vote. In essence, as the metaphor of the industrial army indicates, a system based on coercion rather than freedom.

One of the great questions of the 20th century was which of these systems -- ours, based on freedom, markets and the rule of law; or the Soviet system, based on coercion, central planning and force -- would succeed. As late as the 1950s, Nikita Khrushchev could threaten to bury the U.S. because of the superiority of the Soviet economy, and we took the threat seriously. And the Soviet model continued to win adherents in developing countries until the mid-1980s.

But history's judgment is now clear. One must neither idealize free markets -- competition can be painful and divisive, market failures in areas such as environmental protection are real -- nor believe government has no useful role, to understand that there is simply no substitute for the market. When judged by economic productivity; by scientific and technological progress; as well as by the basic values of freedom and the rule of law, free markets will always win hands down.

The GATT system deserves much of the credit for this. It catalyzed the greatest expansion of global growth and opportunity ever in human history. And the world, now almost unanimously, agrees that its principles offer the best hope for the future. The best proof is that China and Russia -- for decades the great enemies of the free market -- now hope to join the system. And as it develops in the next century, we have every reason to expect that freer, more open global markets can continue their contribution to a world prosperous and at peace, lifting hundreds of millions out of poverty and better meeting the economic aspirations of Americans.

But our ability to create such a future depends on our willingness to confront four great challenges. First, to continue the work of the past fifty years and finish the work which remains undone in today's GATT system. Second, to update the system to address new products, services, and methods of trade, in particular those created by new technologies. Third, to find a consensus on addressing the social questions posed by trade. Finally, and most important, to ensure that the system continues to reflect the values of and thus win the support of citizens.

COMPLETING TODAY'S SYSTEM

And let me begin with the first of these challenges: the unfinished work of today's system.

1. Traditional Trade Barriers Too High

Traditional trade barriers remain too high. And they are highest of all in some of the areas where the United States is most competitive. Agriculture, where we will begin a new set of talks next year, is the obvious example. Eliminating these barriers will mean new economic opportunities and higher living standards; as, in the areas where the Uruguay Round eliminated or harmonized tariffs, U.S. exports are up nearly 34 percent, far above the overall rise of our exports. Beginning in 1999, negotiations commence on the "built-in agenda" of the Uruguay Round, including new negotiations to expand the liberalization of trade in agriculture and in services; negotiations to improve and extend WTO rules concerning government procurement; negotiation on intellectual property rights and others.

2. New Countries

The system also does not include some of the world's biggest countries, fastest-growing economies and largest traders. China, Russia, and the rest of the former Soviet Union come to mind, Taiwan and Saudi Arabia as well; soon Vietnam. As long as they are outside, the system will be incomplete, imperfect and subject to distortion from those who are not bound by its rules.

Integrating many of these economies, which are in transition or take alternative form, is a complex task. To strengthen rather than undermine the world's market-based rules, they should be brought in, but only on the right terms. The result must be enforceable commitments to open markets; transparent, non-discriminatory regulatory systems; and effective national treatment both at the border and within the domestic economy. The task is difficult, but I believe attainable.

3. Membership in Spirit as Well as Letter

At the same time, some countries have over decades been members of the GATT system but maintained home markets hostile to competition.

Successive negotiating Rounds significantly changed the letter of the laws governing the markets of these countries, as tariffs fell, quotas relaxed and so on. But nonetheless they did not meet the spirit of their goals. Markets remain largely closed, opaque and driven more by informal cliques than by laws, rules and contracts. Japan is a classic case in point. The seeds of the Asian financial crisis in other nations are another example: excessively close ties between government, business, and banks, lack of transparency and suppression of competition and market mechanisms. As we look ahead, we must examine whether GATT or the WTO should have been more alert to these structural and systemic barriers to trade, how we can correct them, and how we can prevent similar problems in the future.

Other countries, long members of the system, have used different methods to avoid opening up to global competition. India has long maintained balance of payments restrictions on imports. Many African nations never undertook the basic tariff bindings that would open their markets and enable them to grow. Some, despite GATT membership, have increased overall protection, exacerbating their economic isolation and worsening poverty. New trade incentives, anchored in economic reform and, for example, embodied in the Administration's Africa policy, should help. But we must again ask why the system did not address these problems.

THE 21ST CENTURY ECONOMY

Second, the system must evolve to fit the economic world of the 21st century. Today, and more so tomorrow, services as well as goods cross borders. Business is done by e-mail and computer as well as in person. And human ingenuity creates new categories of goods, new forms of services and entirely new ways to conduct trade every day.

The GATT system is already changing to reflect this reality. Last year we completed three global agreements at the foundation of the 21st century economy: information technology, telecommunications, and financial services. So significant are these agreements that WTO Director General Renato Ruggiero speaks of them as the equivalent of a major trade round.

The Information Technology Agreement (ITA) will eliminate tariffs on a wide range of global information technology products over the next several years; products that even today make up about one in every thirty dollars of world GDP. And we are moving forward with negotiations for an ITA II for expanded product and country coverage.

The Agreement on Basic Telecommunications includes 70 countries and over 95 percent of world telecom revenue in a $600 billion industry. It provides U.S. and foreign companies access to local, long-distance and international service through any means of network technology and ensures that U.S. companies can acquire, establish or hold a significant stake in telecom companies around the world. In doing so, it replaces a 60-year tradition of national telecommunications monopolies and closed markets with market opening, deregulation and competition, reflecting American values of free competition, fair rules and effective enforcement.

And last December, we secured the multilateral Agreement on Global Financial Services, including banking, securities, insurance and financial data services. It covers 95 percent of the global financial services market, and 102 WTO members now have market-opening commitments in the financial services sectors. They encompass $18 trillion in global securities assets; $38 trillion in global (domestic) bank lending; and $2 trillion in worldwide insurance premiums.

These agreements recognize that we are in an era of intense technological change. When product life cycles are measured in months and information and money move around the globe in seconds. When we can no longer afford to take seven years to finish a trade round, or let decades pass between identifying and acting on a trade barrier. When the infrastructure of the 21st century economy is as much information and communications as roads and ports.

And we will have to do more. In particular, we will have to address global electronic commerce -- electronic transmissions arid especially the Internet.

As the President noted in his speech to the Technology '98 Conference, the Internet is the fastest growing social and economic community in history. A survey this month concluded that the World Wide Web has at least 320 million pages today and will have more than three billion by the turn of the century. Experts predict that by 2002, electronic commerce between businesses in the U.S. alone will exceed $300 billion.

And today, the world of electronic transmissions is, in trade terms, pristine. The GATT system, to oversimplify only slightly, represents fifty years of undoing the tariff and non-tariff barriers governments created over a century. The right vision today will spare the next generation that work in electronic commerce.

No member of the WTO now considers electronic transmissions imports subject to duties for customs purposes. There are no customs duties on cross-border telephone calls, fax messages or computer data links, and this duty-free treatment should include electronic transmissions on the Internet. We hope to keep it that way, as a first step to make sure electronic commerce remains a catalyst for growth and expansion of trade.

TRANSPARENT, OPEN AND COMPETITIVE MARKETS

The system must also address problems that have existed for many years, but which it does not now reach.

For example, all countries have regulatory systems in place to protect such critical interests as the health, safety, and security of their citizens. These are essential functions of government. We must be sufficiently flexible to identify further areas of needed regulation that require a global response while ensuring that regulatory systems already in place in fact result in the transparent, pro-competitive markets they are intended to foster. The Asian financial crisis serves as a stark reminder that genuine transparency is more than the mere publication of rules and regulations.

As we look to potentially new areas of needed regulation, certain basic principles should apply. The role of the WTO is not to demand a system of uniform regulation nor to detract in any respect from the absolute right of governments to establish a particular set of regulatory norms, provided they are neither discriminatory, arbitrary, nor disguised barriers to trade. Rather, the role of the WTO is to ensure that national regulatory practices are fully transparent and not politically directed. This includes the principles of genuine national treatment and due process, commitments to publish and make widely available all regulations and to ensure that it is those public regulations and not others that are actually applied. Inherent in the need for clear, enforceable rules is also the need for impartial regulators.

Let me offer two concrete examples: competition policy, and bribery and corruption.

1. Competition Policy

Many countries believe -- as we have since Teddy Roosevelt at the turn of the last century -- that sound competition law enforcement is crucial to economic health. Economic globalization has made strong competition policies even more important for national economies. And it has raised the question of whether an international regime is necessary as international cartels become more feasible and transnational mergers more frequent.

Such a regime cannot be created quickly or simply. WTO members have very different antitrust policies, both in the substance of laws and in enforcement policies. Almost half the WTO members have no competition laws of their own. What is critical, however, is that we develop an international culture of competition and sound antitrust enforcement, built on shared experience, bilateral cooperation and technical assistance. From that base we should focus on the most egregious practices. And over the long run that will provide a foundation for a more comprehensive regulatory framework for competition policy.

2. Bribery and Corruption

Global action is also needed on bribery and corruption. Governments have begun to recognize what any ordinary person dealing with a corrupt official knows immediately: Bribery subverts and can destroy political processes; stifles efficient markets; and acts as an invisible tariff on most imports and contracts. The price paid by both the developed and the developing world for the continuation of bribery and corruption is not sustainable.

Our most visible efforts to address the problem have taken place in the OECD. In 1994, the OECD adopted a recommendation on fighting bribery and in 1996 adopted a recommendation to prohibit the tax deductibility of bribes in international business transactions. In 1997, we agreed with 34 countries on a Convention requiring governments to make this conduct a criminal offense.

The WTO itself has established and begun enforcing basic rules that diminish opportunities for bribery and corruption in, for example, transparency in government procurement and customs valuation. But while these are important first steps, we must do much more to put strong rules in place, ensure their vigorous enforcement, and create a global ethic among government leaders that condemns bribery and corruption in all forms. Once the foundation has been laid through the efforts I have just mentioned, the WTO should take up the work of the OECD and begin tackling head on bribery and corruption.

THE BROADER DIMENSIONS OF TRADE

Third, the system must recognize and address the fundamental relationships between trade and the environment and trade and worker rights.

1. Trade and the Environment

With respect to the environment, we start from the obvious: Both trade and the environment are critical. The key is how to manage the two in a way that protects a rules-based trading system while addressing environmental concerns whenever necessary and working in concert with them whenever possible.

The opportunity is clear: a practical agenda for the next decade that will benefit both trade and the environment. An example is the agreement in the Asia Pacific Economic Cooperation forum, which we hope to make worldwide through the WTO, to eliminate tariffs on environmental goods and services. To protect the environment, especially in developing countries, what we need is attention to practical problems: making sure cities have waste-water treatment plants, power facilities have coal scrubbers and so forth. A global agreement to eliminate tariffs on these types of goods and services will make them cheaper for developing country governments; and thus trade will grow as air, water and public health improve. This will also help us in our efforts to slow global climate change, as developing countries find efficient power generation more affordable.

Despite this opportunity, wide gaps remain between industry and environmental groups, and among countries, on how to proceed. We made a big step forward in the Uruguay Round by establishing the Committee on Trade and Environment. But the Committee's pace of progress is slower than we would like. And the recent decision in the case of shrimp and turtles shows that the system must work harder to distinguish between sound environmental laws and disguised barriers to trade even while WTO rules clearly recognize the right of members to adopt laws to conserve natural resources. There is a way forward, and we must find it. Sustainable development is not only beneficial to world trade; it must be a basic principle of the world trade system.

2. Trade and Labor Standards

Likewise, the WTO must address trade and labor. Core labor standards -- banning slavery and exploitative child labor; freedom to associate and participate in collective bargaining; safety an the job -- are not only Western values but internationally recognized human rights. Many if not most WTO members agree to these standards in the International Labor Organization.

As the OECD has noted, trade and growth are an important way to advance these standards. More-open economics grow faster. Faster growth creates disposable income for individuals and revenue for governments. And that helps parents to keep their children in school; governments to appoint and train good law enforcement officers to enforce labor laws; businesses to improve the conditions in which people work; and countries generally to upgrade jobs.

But we know from experience that market liberalization alone is not enough. Addressing the issue in the context of trade policy is critical to maintaining support for open trade. If the trading system is not seen as part of the solution to exploitative child labor, slave labor or subhuman working conditions, many will assume it is part of the problem. The challenge for the system is to build a consensus that open trade should promote not only economic wealth but fundamental worker rights.

PUBLIC CONFIDENCE AND GLOBAL GROWTH

Finally, and perhaps most important, the WTO system must have the support of the public here and across the globe.

Increases in world trade have fueled a tremendous expansion of wealth -- in the world generally, and here in America, where in large part because of trade we are in the 7th year of economic expansion. But the pace of change in today's economy causes apprehension and anxiety even among workers and consumers who reap the benefits of global trade. Many fear growing trade and technological progress will devalue the work of those with less education and skill.

Today, the Labor Department reports that while unemployment for those with college degrees is under 2 percent, for those without high school degrees it is over 7 percent. And if these fears are not allayed, the efforts of government to advance trade will likely fail.

The answer to this final challenge falls in three parts.

One, we must recognize that trade policy cannot solve everything. Trade will continue to grow as long as the world is at peace. Technology will advance as long as people are creative. What we need to make sure our country and people keep up is education and adjustment. There is absolutely no reason that everyone should not have the skills to succeed in a new world; but at present, not all of us do.

Education, from elementary school to college, must be available to every child. That is why the President has asked Congress for the money to help schools across the country hire 100,000 new teachers; link every school to the Internet; and give all young Americans the skills they need. Why he has asked for lifelong learning programs to help older workers upgrade their skills, through Pell grants, tax credits and tax deductions to finance returns to school. And why worker training, health care, adjustment assistance and other services must be there, not only as the initiative of particular companies, but when workers change jobs. Thus we are working to reform trade adjustment assistance and to increase funding for worker training generally.

Two, the trading system itself must be more open to civil society. There is no reason the interested public should be excluded from observing dispute settlement proceedings or filing amicus briefs. Public input is very valuable to us in all our WTO litigation. Likewise, secretiveness breeds distrust. So we must make the WTO, including its dispute settlement body, more open, transparent and accessible to the public if the public is to have confidence in it.

And three, to these policies we must add a sustained effort to improve public understanding of the role of trade in the economy.

The facts are plain: one in five new American jobs depends on exports, these jobs pay 13 percent to 16 percent above the average wage; we will not prosper in the future if we cannot sell to the 96 percent of humanity that lives beyond America's borders; and the right education and training policies can help everyone take advantage of these opportunities. But the public -- at home, not just in Washington -- must get the facts. As the OECD noted last year, policy must be combined with public understanding if supporters of greater market openness are to withstand the backlash from those who are most exposed to the risks of change and from those who choose to make political hay out of protectionist arguments.

CONCLUSION

And the consequences of failure could be severe. A half-century march toward prosperity; jobs; growth; and higher living standards might be interrupted. And the ability of the United States to shape the 21st-century world shrunken or eliminated.

But if, on the contrary we, at the beginning of this new century, redouble our efforts, the rewards -- both moral and material -- will be enormous. Here in the United States we will see higher incomes. New products and services. Business made easier. More rapid spread of medicines, environmental technologies, and other things that improve the quality of life.

And beyond our borders, a world that reflects our most deeply held values.

Where new technologies help freedom of inquiry and expression blossom.

Where hard work, creativity and individual initiative find rewards.

Where the rule of law is stronger than the rule of force.

Where ordinary people have more power to shape their lives and offer their children better prospects still than at any time in human history.

In short, a world that, as the founders of the GATT system hoped and believed, will offer its people freedom from want and freedom from fear.

Thank you all very much.

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