Dr. LESLIE GELB: Good evening. Welcome to another in a series of Council on Foreign Relations great debates, which have been put together, advised, supported by a group of folks that I’d like to mention because they’ve worked with us so hard over the last couple of years doing these great debate programs, trying to bring more of the issues to you in the debating format and doing these policy impact hearings, these old-style congressional hearings where we try to prepare very carefully, to lay out a complicated set of facts and some policy alternatives.
We’ve been helped enormously in this process by HBO; the chairman and president of HBO, Jeff Bewkes, who isn’t here with us tonight, but the executive vice president, Richard Plepler, is. Richard, just stick up your hand so the folks can see you there.
And some of our other Council members in New York—Vincent Mai, Steve Robert, Tom Hill and Steve Friedman—have spent a lot of time with us the last couple of years with ideas and talking about people to come and debate with you all, and we do thank you.
Since there are so many of you here tonight, new faces, I want to take a moment to introduce you—or reintroduce you to some of the people here in the Council offices. Let me start with—and I’m sure almost all of you know him—Alton Frye, our mainstay for the last 25 years. Alton, where are you sitting? And let me urge you to talk to Alton over the coming weeks about what he is doing. His main enterprise here at the Council for the next three to five years are congressional foreign policy roundtable series, which I think is the most exciting and most important thing we’re doing: trying to bring congressional staffers together in different fields to re-create a sense of real professional community among them.
My deputy and chief operating officer of the Council, Mike Peters—Mike. Mike is sensational. He is the manager of the Council operation and just does a tremendous job with every aspect of the Council programming, from policy to management. And if you ever have any complaints, Mike is the guy to talk to.
Paula Dobrianski, our new director of our Washington program. Paula, would you stand? And very lucky we are to have Paula. She really will bring tremendous vitality to this effort. You can see it already in the first month’s programs—vitality and a lot of intelligence and imagination.
Let me also introduce our military fellows. George, is Frank here as well? George Flynn, Marine colonel, be with us this year as one of our military fellows. Terrific program at the Council. And get to know George.
Anyway, to tonight’s business—I couldn’t resist the introductions. There are so many of you here and new faces as well. We’re going to be talking about what is probably the single-most important policy issue facing our country, the decision on fast track, because we’re not only talking about trade; I think we’re talking about the heart of the matter in terms of how we think about future security at home and abroad. And we have two people who really know how to talk about this subject, I think, in ways that are both clear and profound.
On my right is Stuart Eizenstat, who is the Undersecretary of State for economics, business and, believe it or not, agriculture. He was before then the undersecretary of commerce for international trade. Can you hear all this? He was in commerce before then in the Carter White House as a domestic adviser, and a person very accomplished in all the parts of diplomacy and now commerce as well; an accomplished speaker and writer, in addition.
Pat Choate—some of us knew him from his very provocative and imaginative and solid-thinking books on trade, management and other subjects. Others of you saw Pat for the first time when he entered the political fray as Ross Perot’s running mate—or Ross Perot was Pat’s running mate. Pat is now an adjunct professor at George Washington graduate school, and he is a lecturer and writer very much in demand for his talents.
So format for tonight is topic: Lady Di and fast track. If C-SPAN had only been here to hear that, they would have covered the event. We’ll have opening presentations, first by Stu Eizenstat, then by Pat Choate; eight minutes. We really will hold them to the line. Then they’ll have four minutes to talk to each other directly—rebuttal. And then I’ll ask them questions for a few minutes and then throw the floor open to you.
Stu, would you begin?
Ambassador STUART EIZENSTAT: Thank you, Les. I want to thank you and the Council for organizing this debate, and although Pat and I have differed over the years, we’ve remained friends. This evening—tonight is not the first time we’ve exchanged views in public, but debating a former candidate for vice president of the United States is a clear promotion for me, and if only my mother knew. The last debate I participated in, in a different role, however, between President Ford and Jimmy Carter, the electricity went off, so we’re already ahead of the game.
Before the end of the year Congress is going to make a decision that will help shape America’s economic future and define our leadership role in the world: whether to renew the president’s traditional negotiating authority known as fast track. The administration is requesting the same authority that, for more than two decades, every president, Republican and Democrat alike, has had and successfully used to lower foreign tariff and non-tariff barriers around the world and, in the process, to create opportunities for American workers and companies.
Maintaining this traditional negotiating tool is in our highest national interest. We need this tool so that we can lower these barriers still further and fight hard for the right of American companies and workers to compete on a level playing field. Since the U.S. already has lower tariffs and a far more open market than those with whom we’ll be negotiating, new market opening agreements will require far more from our partners than from us. At stake is fairness. At stake are jobs. At stake is American self-confidence. And at stake is America’s global leadership in the post-Cold War era, which would be imperiled were Congress to deny President Clinton this traditional authority.
Our economy, now enjoying the lowest combined rates of unemployment and inflation since the 1960s, is the most competitive in the world. Employment has grown by nearly 13 million new jobs in the past 4 1/2 years, compared to less than 1/2 million by all the G-7 countries together. U.S. industrial production is up 20 percent since 1992, and manufacturing employment up by just under 1/2 million. We have more blue-collar jobs today—33 million—than ever before.
Trade expansion is absolutely essential to our continued prosperity, and exports are more important than ever before to our economy. We’re the number-one exporting nation in the world, and since 1993 fully one-third—fully one-third of our entire economic growth has been powered directly by exports.
Now there’s no denying that open trade may cost some jobs and lower some wages in those parts of the economy which are less competitive. These losses are more than offset by the gains to workers in skill-intensive industries of the future in which we, the United States, are the unquestioned world leaders. The number of export-related jobs has increased by 1.7 million in the past four years, and 11 million U.S. jobs depend directly on exports. They’re higher-paying, on average, by 15 percent than those not related to exports. And what’s more, as we open more markets to U.S. trade and investment, more middle-class consumers around the world will be created in developing countries hungry for American products and services.
Most studies agree that technology, far more than trade, has changed the labor market, but we wouldn’t think of taking a baseball bat to technology or our computers and nor should we to trade. It’s both defeatist and wrong to think that we can’t compete against lower-wage countries. Low wages, indeed, are indicative of low productivity. The U.S. has the most productive work force in the world, and in the past 10 years our exports to low-wage countries have increased nearly twice as much—240 percent—as they have to higher-wage industrial countries, now accounting for more than 40 percent of total U.S. exports.
Fast track will help us create more of these good jobs by expanding trade. The president will use this authority in three critical areas: first, to conclude the WTO’s built-in agenda—negotiations on intellectual property, agriculture and trade and services—all of which are areas of great American strength; second, to eliminate barriers in individual sectors, like environmental technologies and medical equipment, energy and telecommunications, in which our workers and companies are already the most competitive in the world, but where we need to open up markets; and third, regional free-trade agreements with our partners in the Asia Pacific and in the Western Hemisphere, which are the fastest-growing economies in the world, beginning with an agreement with Chile as the first step toward the goal of a free-trade area for the Americas by 2005.
There are clear, positive opportunities for America, but let me be frank: Further delay in granting fast track authority will cost us severely in our leadership abroad, and sooner rather than later we’ll pay that price at home.
As we stand here debating, our competitors are already sharpening their knives and want to eat our lunch while we’re still arguing over the menu. Already trading pacts are being concluded without our involvement. Since 1992, for example, more than 20 agreements have been signed in Asia and in the Western Hemisphere that do not include us. The European Union has included and concluded more than 15 in Europe and North Africa without the United States.
As we stand here debating, every major economy in the hemisphere is enjoying the benefits of a free-trade agreement with Chile. The European Union is working to negotiate trade agreements with the largest economies in Latin America.
Let me assure you that this is not simply an academic or philosophical debate. A senior European official just said, ‘We can sum it up simply: We’re stomping all over their back yard, just as they’ve done over ours for the last 50 years.’
Congress’ failure to grant fast track authority will leave the U.S. on the sidelines, as trade agreements are negotiated by others around the world without us. Our place is not on the sidelines. It’s in the front line, fighting to open markets so our companies and workers can compete everywhere. Our workers and businesspeople will miss out on the most promising business opportunities if we don’t have the tools to open markets abroad. Ninety-five percent of the world’s consumers live outside this country, and the overwhelming majority in emerging economies whose purchasing power is growing. They represent the future of growth in key fields where we excel.
Without fast track we can’t lead on trade, but this is a vote more than about trade. It’s about our unique role in the world. If we don’t continue to lead on trade issues, especially with developing countries, our influence will be diminished across the board: in political and diplomatic arenas, in supporting emerging democracies and expediting free market reforms in countries with heavy statist systems. Our claim to be the world’s only superpower will begin to sound hollow.
The trade agreements of the post-Cold War era are the equivalent of the security pacts of the Cold War period. They’re the best weapon to advance stability, prosperity and democracy in the world. From my recent travels in Central America and the ASEAN countries, I remain convinced that if we don’t obtain this authority, we’ll send a signal of retreat and disengagement, a dangerous signal, to the very countries we, for decades, encouraged to deregulate, privatize, liberalize and integrate fully. We would be doing precisely the opposite of what we’ve preached to them for so long.
The presidents of four Latin American countries that I’ve just met with said, ‘You know, you’ve told us for years, “Trade, not aid.” Well, we know we’re not getting the aid. Now we’re ready to trade. We hope you are.’
We can best improve our environmental and labor standards by engaging with other countries through stronger trade and investment ties and by lifting living standards. And to conclude, as the world’s leading trading nation, we’re in a unique position to push for further reform of rules-based trade and investment practices. And the best way to protect the interests of workers is to take a part in shaping those rules.
So restoring fast track authority is a foreign-policy imperative, not just a trade imperative. We’re at a crossroads, and the world awaits our leadership. We can retreat or we can seize the opportunities before us. This is no time to say, ‘Stop the world. I wanna get off.’ The choice is clear to regain the use of a crucial tool that is in America’s highest security interests.
Dr. GELB: Pat, you get nine minutes.
Mr. PAT CHOATE: Very good. Les, Mr. Secretary, I must say it’s a pleasure to once again be with you. I’ve always enjoyed our conversations. And I particularly thank the Council for inviting me here today.
When Ross Perot invited me to be his vice presidential candidate, I went out and bought a brand-new suit for the debates, and I’m glad to finally get a chance to use it.
I think this debate really boils into three parts. One is economic and two are political. On the economic side, it is the efficacy of our current trade policies, the second is the future role of fast track, and the third is why fast track is particularly inappropriate today.
Our current trade policies are an artifact of the 1930s, modified for the Cold War. What we have done is modified them but, by and large, to simply put them on automatic pilot. And they have worked well for the objectives that they had: to assist in ending the Depression, to support ourselves and our position during World War II and to help build a bulwark against Soviet expansion in the Cold War era. But all of that is over. We’re in a very different era today.
Our trade policies, as they’re currently constructed and as the administration proposes to extend them into the future, are doing great harm to the American economy. The numbers tell the story. I brought with me today and put out front some tables and statistics. And if you don’t have copies, there are additional copies outside. And if you don’t have that—of course, the basic requirement of the late 1990s is everyone has a Web site, and so you can go to patchoate.com and find these numbers there, or you can find them in federal stats.
But, basically, the numbers tell the story. Our trade policy has been a drag on the economy for 35 of the past 37 years. Last year what we had was a negative trade account of $114 billion. That was 1.6 percent of GDP. Losses do not create growth. Yes, trade is a growing part of the GDP, but, yes, the deficit in trade costs the economy 1.6 percent. We would have had a 4.1 percent real growth rate instead of 2.5 percent, and this year we’re scheduled to have a 1.8 percent negative net export position.
Job growth: We take a look at the job numbers put out by the Department of Labor, and there are two things that are particularly startling. The first is that in the traded sectors of our economy, between 1985 and 1997, those subject to trade agreements, we lost 1 million jobs. We gained jobs, but they’re in the non-service sectors of the economy. Now let me tell you specifically what those are. Those are in government, retail, health, social services, amusement and recreation, eating and drinking places.
Secondly, the report of the Commission on United States-Pacific Trade and Investment, which was sponsored by the USTR and can be found on the USTR’s Web page—that’s ustr.com—reports that our experience has been for every export job that we gain, we lose two jobs to imports. That is the natural consequence of running large, continuing and rising trade deficits.
Our trade deficits and losses are soaring again this year. We’re probably going to run a net trade deficit of $137 billion to $140 billion and a merchandise trade deficit of over $200 billion. And what is significant is these losses are occurring even though that the value of the dollar is half that of what it was a decade ago, though we’re coming to the point where the federal budget deficit is in balance and will probably soon be in surplus, and despite the fact that our trading partners where we’re experiencing these deficits have a higher growth rate than we do, which sort of blows away the argument, ‘They’re slow-growth and we’re fast-growth, and thus we’re seeking it in.’
Interestingly, these deficits increasingly are structural. Entire industries are disappearing, which means that we will be dependent upon others for certain items for the long-term future. And our trade policies, the way they’re structured as a theoretical free-trade model, do not recognize some of the realities that now exist around the world: that Mexico is becoming literally a major exporter of drugs; 70 percent of the drugs that come into the United States come in from Mexico—$120 billion a year. What you’re going to—what we’re looking at is the prospect of a narco economy south of the border.
We’re taking a look in Russia and we’re taking a look in China today. As Thomas Friedman suggests in his writings, increasingly, what we’re seeing is a breakdown into criminal economies, economies that do not have the institutions, do not have the history, do not have the culture that is required to support a free-trade arrangement.
The moment has come for a national discussion on a post-Cold War trade strategy. Yes, the United States must lead in the world, but first we must know where we’re going.
The second point, politically, is that the current trade policies lack public support. The current trade policies, if there were to be a vote on NAFTA, would be a referendum on NAFTA. And NAFTA is, by and large, a failed agreement. Promises were made by both the government and businesses; promises were broken. Instead of a surplus, we have a massive trade deficit and we see jobs shifting to Mexico. We do not see the environment clean and, increasingly, we see that the food and other stuff coming out is dangerous to the American people, and I quote The New York Times’ story this morning. We’ve had a doubling in the past seven years of the imports of food, and what we’ve found is a cutting in half of the inspections.
And then, finally, we’re at a point, unlike the Depression, where we are no longer in an emergency panic. The time has come to go back to the normal procedures. A good deal can be sold. The Congress will not reject something that is in the best interest of the American people. The people’s representatives should not be blocked from major discussions that are going to determine their future and the future of the country.
And then, finally, this particular administration, I believe, has squandered its right to a fast track. It made promises on NAFTA that it did not keep. Secondly, when we take a look at the investigations going on in Congress, what we find is trade-related issues are a central element of the political corruption hearings before Congress. And I’ll be happy later on to identify which of those I think fit that bill.
We know that the CIA, the DNC and senior White House officials worked in combination to secure access, and we have seen it happen time and time again. Very simply, there should be no fast track granted until enforceable campaign-finance legislation has been put in place.
My final word is this on trade policy: We should commit the nation to a global leadership on trade, but only after we’ve convinced the people what that is.
Thank you very much.
Dr. GELB: Thank you very much, Pat.
(Recording stops and restarts)
Amb. EIZENSTAT: (Joined in progress) ...earlier in the Roosevelt administration that foreign governments will not negotiate complex agreements without knowing that the final deals put down by the negotiator will not be second-guessed by 535 people. And Congress itself has given this authority, and in the new legislation that we’ve submitted there are even greater consultative mechanisms before, during and after negotiations than ever before to assure that Congress is fully and completely involved.
Second, I have to dispute Pat’s figures substantially. U.S. manufacturing jobs have increased by some 440,000 since 1992. Industrial production is 20 percent higher than it was in ‘92. And jobs related to exports are good-paying jobs.
Third, the notion that the trade deficit quantifies itself into lost jobs is just fallacious. For one thing, you tend to have a higher deficit at the very time you have higher U.S. growth. You want to go back to the time we had the least deficit in the last several years? It’s when we had about 7 1/2 percent to 8 percent unemployment because our economy was growing so little we weren’t sucking in imports. Look at Japan. They had an 11 percent decline in GDP with a big surplus in their last quarter.
We are the envy of the world in terms of our capacity to create jobs. We’re growing faster than our allies. Our unemployment rate is half that of our allies, and we have cut our trade deficit as a percentage of our gross domestic product, as our budget deficit reduction is beginning to work and we’re saving more, from 3.3 percent of GDP in 1987 to only 1.5 percent now and declining.
Also, it’s important to recognize what imports do and what they don’t. Seventy percent of our deficit comes from importing items that we either don’t produce at all, like coffee or tea or a particular wood pulp we need for paper or, most important, products we don’t make enough of and can’t, like oil, which is a huge component of our trade deficit.
Next, the key is to open up closed markets abroad, and what Pat fails to indicate is how, without having this authority, we can open the very markets and barriers we have the most difficulty with. We need fast track authority to reduce this. In Latin America, for example, their industrial tariffs to our products are 18 percent, on average. Ours are 4 percent, on average, to theirs. It’s a win-win situation for us.
I got you. It’ll take me a minute to read your signs. So...
Dr. GELB: I know it’s only three seconds, but who’s counting?
Amb. EIZENSTAT: ...even though I’m a speed reader. So in all of these respects, we are creating jobs. We’re the envy of the world. And if we were to send a signal—and this is what the signal would be, make no mistake about it; you can cloak it in all sorts of rhetoric—a signal of retreating from the world, a signal of not continuing the leadership role we’ve played in creating a multilateral system whose trade arteries were open—we would suffer not only in that respect, our leadership role would suffer.
We go to these countries like Central America and ASEAN. They’re doing what we’ve been asking them to do for the last 20 years. They are now privatizing. They’re deregulating. They’re opening their systems. If we show that we ourselves don’t have confidence in our own capacity to compete—and remember, again, our exports have grown almost twice as fast to these so-called low-wage countries as they have to the high-wage countries—we’ll be sending a signal to these countries to slow down their own process of liberalization, and we will have lost across the board in terms of political leadership as well.
One out of every seven new jobs and a third of all of our growth has come from exports. Pat, you can’t export unless you’re willing to import. And we do have safeguards and anti-dumping measures. Most of the complaints I get—does that say a half a minute or time’s up?
Dr. GELB: It says you have three minutes left.
Amb. EIZENSTAT: Most of the complaints that I get, Pat, from foreign officials, including today from an ambassador, are ‘Your anti-dumping laws, all your safeguard actions—we can’t get our products in here.’ So let’s not retreat from the road that has built this whole world system. And remember again that in the post-Cold War era these trade pacts will be the equivalent of the security pacts of the Cold War. They will bind this world together and increase prosperity and stability for all.
Dr. GELB: Thank you, Stu. You got five minutes, Pat.
Mr. CHOATE: Hopefully I can do this quicker. I stand by the job numbers; these are the Department of Labor job numbers. Between 1985 and June of this year we lost 746,000 manufacturing jobs. The numbers are the numbers. They’re the official numbers. As to the trade deficit and its effect on GDP and pulling down GDP, that’s the way the GDP is put together and counted. It’s pulling 1.6 percent to 1.8 percent.
Now as to the more subjective question of whether or not we require fast track to negotiate, again, if one will go to the Web page of the United States Trade Representative, what you will find is that between January of 1993 and September of this year this government has negotiated 219 trade deals. Only 19 of those were under the auspices of a fast track authority: NAFTA, GATT and parts of GATT that were left residual. There’s absolutely nothing to suggest that this government can’t negotiate with Chile on a different trade agreement. Canada and Mexico can do it, and certainly we can do it. Nothing has kept this administration, from 1995 to the present, from negotiating a very complex arrangement called The Multilateral Agreement on Investment with the OACD countries; 95 percent complete.
No, fast track is not about getting other countries to negotiate. We can do that. The world’s largest market? We take more goods than any other country in, and we can’t negotiate? No, that is not true. Fast track is about the executive branch wanting a shortcut legislative process.
Now if trade is as important as I think we all believe it is, then it is as important as any other treaty arrangement that we make, and it should have the full debate, I would argue, of the U.S. Senate and require a two-thirds ratification. And if trade is going to affect people’s income and dislocate them on jobs, as we know it is going to do, then it must have the consent of the governed. And a process that shortcuts the legislative process, that only gives 20 hours of debate, that does not permit amendment, that is negotiated even if you double the number of congressional participants is a deal done behind closed doors.
And moreover, we should also talk about the fact that the fast track implementing legislation, when it is put forward, is inevitably a Christmas tree. We saw it in the GATT bill, where we changed the insurance actuarial system. What did that have to do with trade? But it was there, and it was put there because it would be an up or down vote. We saw cellular phone licenses given to three companies worth an enormous amount of money. What did that have to do with trade? It was advertised it would offer a legislative shortcut.
So what I’m saying is that what we need, as Wilson said, is open agreements openly negotiated and openly considered. If we want the American people to support these trade agreements and the adjustment, we can do nothing less than convince them and do the public business in public.
Dr. GELB: Thank you very much.
Let me ask a couple of questions; start with the factual question because let’s take, let’s say, the average brilliant Council member, Arnie Campion. He’s listening to all this, and he hears Pat Choate say the Labor Department has a piece of paper that says, ‘We’ve lost net 740,000 manufacturing jobs,’ and you say that isn’t so, Stu. How does the average brilliant Council member, who is, you know, slightly better informed than the average citizen—how does he make his or her way through this factual land mine? Could you help us out with that?
Amb. EIZENSTAT: First of all, we obviously will stand behind our own government figures, which indicate that, since 1992, manufacturing jobs have increased by 439,000. But I think that it’s also important, Les, to look at the overall numbers. What we all know and we all agree on is we have an unemployment rate of under 5 percent; that we have created 13 million jobs at a time when all the other G-7 industrial countries together have created under 500,000; that we are, in fact, a job machine; and that, over the last two years, we’ve now finally begun to get real wage increases. Real weekly earnings are up 1.7 percent in the last 12 months, real hourly earnings up 1 1/2 percent. So we’re beginning now to catch up.
Also, I think it’s important to recognize what the patterns of trade do and not to exaggerate either trade losses or trade gains. Trade does create jobs. It creates higher-paying jobs in those areas in which we’re most competitive. As I indicated, there is a job loss in those areas in which we’re less competitive, which tend to be almost exclusively lower-paying jobs, and that puts an obligation on us, as the president has recognized, to retrain, to educate workers in those industries. But on any net basis, as indicated by the fact that our unemployment rate has dropped so dramatically, we are the net gainers by this trade.
Also, there is a certain quality, if I may say so, to past argument that ignores reality. With or without fast track there are certain globalized forces which are occurring, significantly driven by technology. What fast track does is gives us the capacity to begin at least shaping the rules of this fast-moving economy in ways that are more conducive to our interests, and that’s why we need it.
And the last point: Pat’s notion that this is somehow anti-democratic, Congress itself is making the decision, through a full markup with amendments, with full debate, to provide this authority, as they’ve done for the last 20 years. It’s only after that that we submit agreements and even then with extraordinary degrees of consultation. I mean, it’s like going to your car salesman and, you know, you make your last offer for your car only to be told, ‘I have to go to the manager to check and see if the price is right.’ No country’s going to do that on any complex negotiation, surely on some of these micronegotiations that can be done.
But we used our residual authority, Pat, for the information technology agreement, for basic telecom services, for the financial services. And without that kind of authority, we really are defenseless to be able to knock barriers down to our exports.
Dr. GELB: Pat, you want to respond to that, please?
Mr. CHOATE: I have no...
Dr. GELB: Still staying on the question of what are the facts about what manufacturing jobs have gained or lost.
Mr. CHOATE: Well, basically, the numbers are the numbers put out by the Department of Labor. I guess I have more confidence than Stu in their negotiating ability. I mean, they have four aces in their hands in these negotiations. We’re taking more products than other countries take.
It seems also a prerequisite for us to determine how are we going to deal with the major issues of the 21st century. What are we going to do on intellectual property? We were talking about negotiating an intellectual-property agreement. But we haven’t had a debate here in this country what our own intellectual property laws should be. Should we reduce our standards to those of Japan? We’ve done it. We’re now trying—there’s now legislation moving through to put that into law. Should we say to other countries, ‘It doesn’t matter—we don’t want our children to work, but it doesn’t matter to us if your children work. We don’t want our environment spoiled, but it really doesn’t matter to us. You decide whether your envir...’
Dr. GELB: Pat, can I hold you on those points a second? Because I’d like to stick to the question of how the public is going to think about the facts, how Congress is going to think about the facts. Here we have two very different sets of contentions about what has been the result of expanding U.S. trade, of globalization and particularly the effect on the better-paying jobs. How do we make our way through this confusing land mine of facts? What are the facts? I mean, Stu, are you saying, ‘Well, we may have lost the net amount of jobs in manufacturing, but overall employment has...’
Amb. EIZENSTAT: No, I didn’t say that. I said quite the contrary. We’ve gained—what I’m saying, Les, is that it is true that trade has winners and losers. The winners tend to be those in industries in which we’re most competitive and which are the higher-paying jobs, and that’s powering the increase in wages. Those who lose tend to be in less well-paying jobs where we’re less competitive, and we need absolutely to retrain those kinds of workers.
But the best demonstration is what has demonstrably happened in the economy. We have the best economy we’ve had in the last 20 years, by anyone’s estimation: low inflation, low unemployment, high growth, the creation of 13 million jobs, an unemployment rate half that of our European allies. We are literally the envy of the world. And it is so ironic that at a time when we’re the model—we are the model that the rest of the world is following; I mean, you see it all over—that we’re about to take that model and suggest that somehow we need to throw it away.
Dr. GELB: But isn’t the issue what kind of employment we’ve gained? Are we gaining more better jobs than we’re losing? It’s clear that the disparity in wealth between those at the top of the ladder and those at the middle and bottom is greater now than at any time in the last 50 years or so. How much of that is attributable to globalization, to expanding trade? How much of it is—are we saved from this problem because of the globalization and expanding trade? Again, how does an intelligent person trying to follow this make his way through the land mine of what have been the consequences of this?
Amb. EIZENSTAT: Almost ev...
Dr. GELB: Focus on that.
Amb. EIZENSTAT: Almost everyone who has looked at this issue of labor market changes—and they are profound—believes that it is technology far more than trade which has resulted in these kinds of labor market changes, and that indeed trade, by pushing up the wages of those who can export in export-oriented industries where we’re the most competitive, are what is responsible, in significant part at least, for the real wage increases that we’re now seeing.
Technology undoubtedly has a very profound effect because a technology-driven economy demands higher skills. And those workers who don’t have those skills are almost, by definition, going to have lower wages and more difficulty, quite apart from trade. And what we need to do, therefore, is be cognizant and sensitive to their concerns, have retraining programs, have adjustment programs, have better education intervention, have the kind of programs that the president has suggested—the HOPE program and other programs to give college education to more young people—so that we elevate skills.
Mr. CHOATE: Well, to counter that, we have a trade deficit of $200 billion with no end in sight. We have the largest consumer debt in our history. We’re having record numbers of bankruptcies. Credit-card debt is at the highest level in American history. People are borrowing. They’re going out on a limb to deal with the adjustments that are occurring. If one wants to look at the numbers, whether a short period of time—five years, as Stu talks about—in a recovery from a recession, or one wants to talk about long-term secular changes, go to the Internet. It’s called fedstats.com. And you can find all of the federal statistics and dig out the information and make up your own mind.
Now as to the structural changes that are under way inside this economy, in 1970, this economy literally manufactured 90 percent of all the manufactured goods that we consumed. Today we manufacture roughly 49 percent of the manufactured goods that we consume. Manufacturing jobs are the highest-wage jobs in our economy because, generally, they have benefit. Those are the jobs that are leaving.
Why are they leaving? In part, it is because of imports taking market, but increasingly it is because domestic corporations find it more profitable to shift their operation where they don’t have to deal with the IRS, where they don’t have to deal with OSHA, where they don’t have to deal with $16.72-an-hour wages, where they can have no unions and they can find labor at $1 per. And quite literally, what we’re seeing is these corporations, therefore, are shipping these goods back into the United States, to this market, to take advantage of that market.
It is for that reason that real wages and compensation today are at about 99 percent of what they were in 1992, and this is at the end of a very, very long recovery.
Dr. GELB: Stu, do you want to come back to that?
Amb. EIZENSTAT: Yes, absolutely. Over the last two years real wages, as reported in official statistics, are in fact picking up. And as I indicated, real weekly earnings are now up almost 2 percent over the last 12 months. It has taken and we have gone through a very profound period for 20 years of generally flat wages. That is now, in fact, beginning to pick up. And, again, I would argue that the profound globalization of the world, which can’t be stopped, is really a significant factor. The question is: Are we going to shape that globalization in ways that help us?
Now Pat’s argument, when you really listen to it and peel it away, is not the question of fast track or no fast track. It is a profound belief that somehow trade agreements themselves and the world, as it is developing, is developing in ways we don’t like. Well, I would like to know one country in the world, one country, that would trade their economy for ours. There are virtually none. We are, again, the envy of the world, and yes, there are problems that we have to deal with.
Dr. GELB: It seems fair, Pat, that you respond directly to that, because Stu seems to be making a very commonsensical argument. Now our economy is much more open than virtually any other.
Mr. CHOATE: Yes.
Dr. GELB: And we’ve used these past fast track agreements as an instrument to pry open other economies, and the overall result seems pretty close to what Stu is describing. Our economy is the envy of other industrialized democracies, and we have opened up their economies to our trade far more than before. It hasn’t been everything, but it has been a lot more than it was 10 years ago or 25 years ago.
Mr. CHOATE: If we were the envy, they would emulate us with their trade policies. I mean, the proof...
Dr. GELB: Not necessarily.
Mr. CHOATE: The proof is in the pudding. If they were—if Japan wanted our free-trade policies, they would adopt them. They don’t want them. They’re not going to adopt them. The truth is the net effect of our policies is a massive transfer of wealth and jobs outside—and capacity—outside of this country. And this is not technology-driven, incidentally. Our technology is among the very best in the world. And it is not our workers. We have the finest higher-education system and the best vocational-technical system in the world. Our workers are superb and they can have the capacity to change.
The problem is who wants a $16.17-an-hour worker when you can go to Mexico, who can do the same job—and they are good people who will do the same job for $3 an hour? It is simple arithmetic.
Amb. EIZENSTAT: Can I just respond in two ways? First of all, let’s take the situation in Japan. Pat and I would certainly agree that they have massive barriers to our exports and that it is frustrating and difficult to deal with. And yet if you look at Japan, they’re beginning to realize that their own problem with their protected market is one of the bases for the fact that for the last five years they’ve essentially had no growth. If you look at Europe, where I spent 2 1/2 years as our ambassador to the European Union, it is their lack of flexibility in the labor market, it is their lack of general competition and energy and transportation which is at least significantly responsible for their lack of ability to create jobs.
And last, let’s again look at the facts. This notion that we can’t somehow compete with low-wage countries—if you look at Europe, Pat, Europe’s wages and benefits are much greater than ours. Germany’s about $31 an hour, compared to about $18. And yet our exports have grown infinitely faster to the low-wage countries, which are growing so much faster—6 percent, 8 percent, 10 percent—than they are to Europe. Forty-two percent of all of our exports now go to the developing countries with lower wages. So the notion that American workers can’t compete is a defeatist notion. We can compete. We’re out competing.
Dr. GELB: OK. Let me open it up now to you all to pursue this.
Question from the audience: What?—I mean, we’ve got ...(unintelligible) procedures, you include a lot of other trade agreements. Will the world come to an end at that point?
Dr. GELB: Short answers, please, because we have a lot of questions to be asked.
Amb. EIZENSTAT: I’ve never been hyperbolic in my public career, but I can say this and I can say it with, I think, frankness and without being hyperbolic. It would be a very severe blow to our leadership in the world. It would show us naked to the world in terms of encouraging developing countries to continue to open up, to deregulate and privatize. It would diminish our influence in the world politically as well as economically because the coin of the realm now is trade and commercial issues. It would show us not to live up to our own commitments.
For example, we’ve committed in 1994 to begin negotiating in 1998 for a free-trade area of the Americas in 2005. How will the president look representing the United States of America if the other 34 countries in this hemisphere who are now ready, following what we’ve asked them to do for 20 years, come ready to negotiate a free-trade area, and we say, ‘We’re sorry. We’re not ready’? It would be a very severe blow to this country’s prestige, to its influence and, yes, ultimately to its prosperity because you cannot pretend that you can stop the world from moving and somehow plug your finger in the hole, build a wall around this country and isolate yourself when the currents are going along. We want to shape the world, not retreat from it.
Dr. GELB: Not being hyperbolic is one of your great virtues and one of the main reasons people place a great deal of trust in you, Stu. But when the administration describes the effects of NAFTA as ‘a modest, positive effect,’ it’s like our talking about SALT II as ‘a modest but useful restraint on nuclear arms.’ It doesn’t exactly turn on the electorate or give them cause to think that you’re doing something exciting and important.
Amb. EIZENSTAT: This was not a referendum on NAFTA. This is talking about sectoral agreements. It’s talking about the built-in agenda. But those who think that NAFTA is a failure are wrong. NAFTA, at the worst of times for Mexico, has led to a 37 percent increase in our exports over pre-NAFTA levels. And, Les, permit me to just make a comparison.
During NAFTA, as even with the worst crisis in this century in Mexico’s economy, we’ve increased our market share to 75 percent. Our exports, again, are up over 33 percent. We have reached and exceeded pre-NAFTA exports. Let’s look at what happened in ‘81, ‘82 at a far less severe recession without NAFTA. Mexico raised its tariffs to us by 100 percent. They’ve lowered them during NAFTA, as they were required. When they lifted by 100 percent their tariffs in ‘81, ‘82, it took six years for us to get to pre-NAF—prerecession levels of export. Here we’ve already far exceeded it.
So NAFTA has proven its worth at the worst of times. The deficit with Mexico is beginning to fade away as their growth increases. But, again, this is not a debate about NAFTA. It is a debate about our ability to pry open markets around the world and particularly in key sectors, like chemicals and others, where we’re very competitive.
Dr. GELB: Question?
Mr. CHOATE: May I respond?
Dr. GELB: Briefly, if you would, Pat.
Mr. CHOATE: Yes. Basically, I hope the administration uses the success of NAFTA as their argument for fast track. Secondly, what will happen if there is no fast track? We’re going to send a message to the world that the Cold War is over and we’re very serious about trade, that we want reciprocal concessions from others. I think what we also need to do is we need to rethink here in this town, in this government, about a full trade policy. We’re serious about foreign policy. We’re very serious about defense policy. We’re not serious about trade policy.
Basically, our trade policy is to open this market and do nothing about it. We filed eight cases last year. The USTR publishes a list of trade violations of existing agreements that’s this high. We have 148 people in the office of the USTR, and we spend only million bucks a year on our trade office. We have literally five times more admirals and generals on active duty tonight than we have in the trade office, including drivers. We’re not serious about trade.
Dr. GELB: Charlene Barshefsky will be very happy to hear this argument. Please.
Question from the audience: I’ve heard a lot of statistics put forward by the administration about why we need to have fast track. I’m interested—my question to you, Stu, is: Why’d you guys wait till now, given the importance of fast track? Why come forward with a proposal that you know is bound to be controversial? Why wait till the very end of the session to do it? My question for Pat, really, is—I’m still waiting to hear what your solution is, what the pro-active, aggressive trade policy would actually be, as opposed to simply pointing to a lot of concerns and fears about the future because, frankly, I don’t think that’s very productive.
Dr. GELB: Thank you. Very helpful.
Amb. EIZENSTAT: We’re very serious, first of all, Pat, about compliance. When I was at Commerce, the first thing I did was create a new compliance center, and USTR is now upgrading its compliance as well. And you’re absolutely right, we need to put pressure on compliance, and we’re doing so.
In terms of the timing, the timing was clearly geared to the budget debate. Our belief was that the balanced-budget effort was so critical, so important, so all-engrossing and all-encompassing, that we had to focus on that first, get that out of the way before the August recess and then clear the decks for this. We’ve got time to do this. The leadership in the House and Senate have indicated to us that we do have the time, that they hope to have votes on the floor. This will concentrate everybody’s attention. The president now can give this his complete and full attention, which he is doing so, without having it dissipated over other issues like the balanced budget.
Dr. GELB: Thank you. Pat, what’s your better idea?
Mr. CHOATE: Well, first of all, I would say that fear—another term for fear is ‘prudence.’ We’re running 200 billion bucks at what Stu calls the very best of times. What if we have a recession and that goes to $300 billion or $400 billion, and you wind up with a real political backlash inside this country? That’s a very real possibility. Secondly is, what’s a better idea? The first thing that we need to do is, we need to have a national debate. I mean, I have ideas on how it should be done. I think that we should be engaged in pluralateral negotiations with the major industrial nations, and I think that we should be saying to the major industrial nations, ‘We need to shape a set of rules for the 21st century where you take an equal responsibility, along with us, for the developing world,’ and that we’re going to put into place some standards, and those standards are going to include not only protections for capital and intellectual property but for things such as labor rights and for the environment.
And then that we go to the developing world and they do not want this, and we go to those countries and we say, ‘These are the conditions for doing business with us.’ And we will graduate this over a period of time.
Our present policies are largely exploitive policies, and I think our companies are making a major mistake. I think the European companies and I think the Japanese companies are moving their production to serve markets from within those markets, and I think that is very wise. I think our companies are moving much of their production to low-wage countries to export back into this country. If you have a change in national mood and policy, you’re going to find a lot of American companies that are going to have factories that are useless, because they will not be able to get those goods into their own market and they’re going to have trouble getting it back into this market as well. We need a debate on this, rather than extending the principles of Cardell Hall in 1934 during the emergency panic, into the 21st century.
Dr. GELB: I like the word ‘pluralateralism,’ but I’m afraid you’d explain it to me if I asked you.
Mr. CHOATE: I would.
Amb. EIZENSTAT: Les, very quickly—in terms of the deficit, one of the reasons we want the fast track authority is so that we can pry open markets and reduce the barriers. But we all know, and Pat knows as an economist, that a significant part of the deficit occurs because of different growth rates. You want a really low trade deficit? Well, throw the economy into a recession so we don’t suck in any imports. That’s what happened in ‘91, ‘92. We had a $38 billion deficit. Terrific. Seven and a half percent to 8 percent unemployment, no growth? That’s not what we want.
Dr. GELB: Somebody all the way there—I can’t see that far.
Question from the audience: I wish Pat hadn’t started too hard, leaving (unintelligible) but he’s called for a real debate as opposed to (unintelligible). The model we now have is a logistic model. If you measure GOP numbers without a reference to social repercussions, as Stuart Eizenstat said, we gain high-paying jobs and we suffer the low end of society. If you do not have a logistic model of the United States but you have a national model as if it were a county and the people, then you would discover that what we are short of in this country are low-paying jobs, not high-paying jobs. The old social problems which have, in turn, enormous economic costs, if you do not include them in your analysis—the 1.7 million people in prison, 700,000...
Dr. GELB: Just because of lack of time, let me hurry you, just because of that.
Audience member: The idea for fast track programs, for—against fast track would be that if you had a big bust-up of this issue, we might have a genuine debate. And you think that this debate would be a waste of time, that we should remain with this logistic model as opposed to considering the social consequences or...
Dr. GELB: But is the proposition on the table that we ought to have more lower-paying jobs?
Audience member: Yes.
Dr. GELB: OK.
Audience member: Because that’s what you’re short of in this particular economy.
Amb. EIZENSTAT: It is genuinely hard to believe that the way to help our economy is to defeat a tool to open markets. I mean, it’s pretending that this is the only thing that relates to what’s happening in the world economy, and you know that’s not the case. If anything, this gives us the capacity to create more of those high-paying jobs so we move people out of the low-paying-wage jobs into higher-paying jobs as they’re more trained and more skilled and as we open more markets and we have more export-oriented companies.
Dr. GELB: Yes, go ahead.
Question from the audience: I have a question for Stu that I wasn’t going to ask, but since I’ve now been given this opportunity, I will. Stu, as you know, I think you make an extraordinarily good case for what should be the right policy. The question I have is, I’ve been somewhat struck by the small number of Democrats in the House that seem to share your taste and who have made a lot of commentary about the nature of the Republican Party changing in the Congress. Could you please explain to me why you think the Democratic support for the president on this issue is so low?
Dr. GELB: Thank you for that non-partisan question.
Amb. EIZENSTAT: There were so many other people you could have called on in this room. I have to say to you, first of all, that—and I’ll be quite frank—as I’m making more and more of these calls to my colleagues and friends, it is painful to see our party turn away from a tradition, or at least elements of it. I believe that we will get our share of Democrats, but we will not get as many as we should, and we certainly won’t get as many as we hope to have in Republican votes. I will leave it to others to describe why that is the case, but it is certainly a fact that in NAFTA in the implementing legislation, in GATT in the implementing legislation, we did not get majorities of our own party, and we will have difficulty doing so here.
I think that part of it is because the Democratic Party has always identified with lower-wage people, and rightly so. That’s certainly my own identification. But we don’t help lower-wage people by, in effect, clogging the arteries of trade and making exports more difficult. That will slow the economy down and make it worse for them. We have to educate. So I think the question is—in our party, the debate is, how do you help lower-wage people, not whether.
And I think the president, more importantly, believes—that the way to help them is not by stopping or pretending we can stop the world or that we don’t shape the trade rules of the world, but it is, rather, through government interventions and training and in education and increasing the minimum wage, which we’ve done, and increasing their earned income-tax credit, which we’ve done, and working in the WTO to create a trade—as we have—a trade and labor as we have a trade and environment committee, to work in the ILO to upgrade there, to have a code of business conduct—that those are the ways to do it.
So I think that the party is being true to itself in terms of its sensitivity to low-wage people, but there is an unfortunate feeling, I think, by too many that the way to do it is to, in effect, retreat from trade rather than the more traditional interventions to help low-wage people.
Dr. GELB: Thank you, Stu. Last question. Hope it’s short, short answers. Thank you.
Question from the audience: At the risk of gross oversimplification, it seems to me the argument tonight has been mostly about why more trade agreements are in the interest of the United States and U.S. economic development. The second part of the argument is that fast track is the essential negotiating tool to get these agreements, which are arguably in our interest. And the unspoken implication is that anyone who’s against fast track is really against trade agreements, and this is a way to block trade agreements.
I want to come back to that second proposition, namely, you need fast track as a negotiating tool. Pat Choate quoted some statistics. I think over 200 trade agreements were negotiated, absent fast track authority. I observe that we have a pattern of negotiating arms-control agreements which, arguably, are also in our national interest and our security; very difficult, very controversial. We do this without fast track authority. What is it about trade agreements that is so different from arms-control agreements that we need fast track authority?
Dr. GELB: In 30 words or less.
Mr. CHOATE: There is none. And the problem that we have is the administration, as we’ve heard tonight from Stu over and over and over—they think the world will collapse if you don’t have fast track. They think they can’t negotiate if you don’t have fast track. And, indeed, they think unless you do their model of a free-trade agreement, it is the only way to expand trade.
The point is is we need to expand trade for the jobs and the wealth that would be there, but it is also the point that 75 percent of the world does not have institutions that will support free trade. Free trade is a non sequitur with China. Free trade is a non sequitur with Japan. Free trade is a non sequitur with other countries and, indeed, it’s both their culture and their institutions. What we require is the flexibility to deal with countries and their cultures and the institutions as they are to expand trade, to have, in effect, a tailored trade strategy, to deal with countries as they are, not as we want to remake them to be, to expand trade. And that does not require fast track.
Dr. GELB: Pat, very good closing answer. Could you give one as well, Stu?
Amb. EIZENSTAT: Absolutely. First of all, arms-control agreements are submitted only to one house of the Congress—that is, to the Senate—for ratification, not to both, whereas here, we’re submitting any fast track agreements to both houses. We first have to get the enabling legislation to even do it, which goes through the regular process. And then you still have to go through both houses in order to get approval of any agreement, not just one.
Second, on the 200 agreements that Pat mentioned and that you repeated, most of those agreements are bilateral agreements on small, individual sectors. Anything of any complexity, bilaterally and certainly multilaterally, like the information technology agreement which reduced tariffs to zero on all high-tech equipment by the year 2000, where basic telecom services or financial services require a number of countries to be involved, and a very complex set of negotiations involving trade-offs between dozens and dozens of countries—literally dozens and dozens of countries. And those countries are all looking over their shoulder. We’re the only country, essentially, with a non-parliamentary system. If we had a parliamentary system, we wouldn’t need fast track, because countries would know they could negotiate with us and get it done. They’re not going to negotiate in a multilateral forum, again, where there are dozens of countries and many issues and many sectors with many trade-offs. They’re not going to put that last offer down unless they know that that will be the offer that, in the end, will be accepted.
Dr. GELB: Thank you, Stu. Before we thank our exquisite speakers, let me squeeze in a last bouquet introduction-announcement. Bouquet to Erika Burk and Irina Faskianos, who have really been doing all the work on these great debates, etc. They’re terrific. Raise your hands. Let these folks see you. And David Bloom, who has worked with them down here. Introductions—two fellows who you ought to get to meet; first, Bruce Stokes. Bruce, senior fellow in economics at the Council and doing some very interesting study groups, and John Hillen, who is our Olin fellow in national security and also doing some very interesting stuff. Please introduce yourself to John.
Please join us downstairs, and first, join me in thanking Stu and Pat for an excellent debate. Thank you so much.