U.S. Trade Negotiations Aim to Raise Labor and Environmental Standards
A Conversation on the President's Trade Agenda with Michael Froman
United States Trade Representative
Senior International Partner, WilmerHale; Former United States Trade Representative
U.S. Trade Representative Michael B.G. Froman sits down with Charlene Barshefsky of WilmerHale to give an update on the status of the United States' current international trade negotiations. Though talks are still ongoing, Froman is optimistic that negotiations for both the Trans Pacific Partnership (TPP) and the Transatlantic Trade and Investment Partnership will ultimately be successful. Froman says that the TPP will commit members to upholding high standards in the areas of labor rights, intellectual property, and environmental protection.
This meeting is part of the C. Peter McColough Series on International Economics, presented by the Corporate Program and the Maurice R. Greenberg Center for Geoeconomic Studies.
BARSHEFSKY: Thank you very much. My name is Charlene Barshefsky, and it's my great pleasure to introduce to you Ambassador Michael Froman today. Let me first, however, say that this meeting is part of the C. Peter McColough Series on International Economics of the Council on Foreign Relations.
So let me just very briefly introduce Ambassador Froman. Mike Froman was sworn in as the 11th U.S. Trade Rep in June of last year. As USTR, he's President Obama's principal trade policy advisor, negotiator, and spokesperson on international trade and investment issues.
Prior to becoming USTR, Ambassador Froman served at the White House as assistant to the president, and deputy national security advisor for International Economic Affairs. In that position, he was responsible for coordinating policy on international trade and finance, energy security and climate change, and development and democracy issues.
He served as the U.S. sherpa for the G20 and G8 summits, and staffed the president for the APEC Leaders Meeting. In addition, he chaired or co-chaired a variety of major economic forums.
Prior to joining the Obama Administration, Ambassador Froman served in a number of roles at Citigroup, and as a senior fellow here at the Council on Foreign Relations, and a resident fellow at the German Marshall Fund. In the late 1990s, Ambassador Froman served in the Clinton Administration as chief of staff, and deputy assistant secretary for Eurasia and the Middle East at the Treasury Department. He also worked at the White House.
He received his bachelor's degree in public and international affairs from Princeton, a doctorate in international relations from Oxford, and law degree from Harvard. And he is every bit as distinguished as his resume. So with that, let me introduce Ambassador Michael Froman.
FROMAN: Well, thanks very much, Charlene. And with that, lenghty introduction, I think we're out of time. So thanks for coming. It's good to be back at the council, which was gracious enough to take me in from the cold 15 years ago when I left government the first time.
Last week marked the 80th anniversary of the Reciprocal Trade Agreement Act of 1934. And this legislation that was passed by the New Deal Congress, and signed into law by Franklin Roosevelt, was a revolution in trade policy, and a precursor to what we call a "trade promotion authority" today. It was also an important component in the rise of American leadership in global economic affairs.
The Reciprocal Trade Agreements program was the brainchild of FDR's secretary of state, Cordell Hull, who having watched high tariffs strangle U.S. commerce during the 1930s, knew that economic recovery at home depended on expanding trade abroad. And as a former senator, Hull also understood that the United States should negotiate trade agreements with a single voice.
With Congress's approval, the Roosevelt Administration concluded 19 trade agreements during the first five years of the program. And doing so, they established the fundamental strategic logic of trade. By expanding trade, the United States built its own economy, expanded prosperity, and created the preconditions for maintaining a strong military and protecting power and influence abroad.
Trade liberalization stalled with the outbreak of World War II, but after the war gave way to peace, Presidents Truman and Eisenhower wasted no time picking up where FDR left off. By 1962, the Reciprocal Trade program had been renewed 11 times, compelling President Kennedy to call it an "expression of America's free-world leadership," a symbol of America's aim to encourage free nations to grow together.
FDR's Reciprocal Trade program planted the seeds for today's global trading system. As the principal architect and guardian of that system, America has been among its major beneficiaries, even as it provided asymmetric market access to help its partners reconstruct and develop their economies.
We made significant concessions in the short run because we had the confidence that in the medium and long run, we would be significant beneficiaries of the system. The system has brought jobs to our shores, partners to our defense, and peace and prosperity to those around the world who've embraced openness, fairness, and freedom.
In recent years, though, tectonic shifts, such as globalization, technological change, and the rise of the emerging economies, have reshaped the international landscape, raising questions about whether the inherited rules of the road and institutional frameworks are in need of updating, and whether others are prepared to live by the same calculations we were, as stewards of the international system.
As President Obama said last month in West Point, "Just as the world has changed, this architecture must change as well."
We're now engaged in a major architectural effort, revitalizing the rules, relationships and institutions that have underpinned the global trading system. We're developing plurilateral agreements to advance the opening of markets, and the adoption of high standards.
We're reforming key preference programs, and we're reinvigorating the multilateral system to take into account the changing landscape of the global economy. We might not occupy the same position we held at the end of World War II, but as a country with the largest market in the world, and a rich network of alliances and partnerships, we continue to drive reform and innovation in international fora.
The strategic logic of this agenda is as compelling as the economic one. But what does that mean in practice?
American leadership, exercised through trade, can bolster the foundation of our power, the strength of the U.S. economy. It can establish rules of the road that reflect both our interests and our values. It can support reforms that promote openness. It can strengthen our alliances and partnerships, and it can spur global development.
I'd like to touch briefly upon those five strategic objectives. For much of the 20th century, the strategic importance of trade and international economic policy generally was seen through the lens of military strength.
To the degree that economic policy was relevant to foreign policy, and national security policy, it was treated as an enabler. A strong economy would allow the United States to support a strong military, and that strong military in turn would lay the foundation for the projection of American power and influence.
Today, trade still bolsters the most fundamental source of our power, the U.S. economy. But what's changed is that the economic clout, in many respects, is now the principal yardstick by which power itself is measured.
In a world where market forces displace as much weight as military might, trade is a force multiplier, an investment in American power, both hard and soft. America is the birthplace of new ideas, tomorrow's inventions, and the driver of innovation worldwide. It's the center of research and development, and the digital economy.
Economic power is not simply measured by GDP, though trade's contribution to economic growth is significant. Trade also enhances the competitiveness of the U.S. economy, and its capacity to take what it creates here, and make it the driver of economic activity worldwide. That's why President Obama has made trade a central part of his economic strategy for creating jobs, promoting growth, and strengthening the middle class.
A few statistics: Under President Obama's leadership, U.S. exports have hit record highs, $2.3 trillion last year. The increase in exports is responsible for a full third of America's total economic growth over the last five years.
Each additional $1 billion in exports supports somewhere between 5,400 and 5,900 U.S. jobs. Over the past five years, expanded exports have supported 1.6 million new jobs, jobs that pay 13 to 18 percent more on average than non-export-related jobs.
But beyond its impacts on jobs, growth, and the strength of the U.S. economy, trade negotiations are strategic, because they're the mechanism by which we define the rules of the road, the standards countries should adhere to, the norms which create a sense of fairness among economies, and the mechanisms by which disagreements, as they inevitably arise, get peacefully resolved.
This is particularly important in a time of rapid change. We welcome the rise of emerging markets. But we have concerns that they have yet to be willing to take on responsibilities, commensurate with their increasing role in the global economy. And that has posed a challenge to the completion of a multilateral Doha Development Round as originally envisaged.
It also underscores the value of pressing forward plurilateral initiatives, and working with similarly-focused countries to set high standards in terms of opening markets and addressing new challenges facing global trade. By pressing forward, we can incentivize others to adopt new, high-standard rules, and give momentum to multilateral talks.
That's is the driving force behind the Transpacific Partnership, or TPP, a comprehensive, high-standard, ambitious negotiation between the United States and 11 other Asia-Pacific countries. TPP is as important strategically as it is economically.
Economically, TPP would bind together a group that represents 40 percent of global GDP, and about a third of world trade. Strategically, TPP is the avenue through which the United States, working with nearly a dozen other countries, and another half dozen waiting in the wings, is playing a leading role in writing the rules of the road for a critical region in flux.
With TPP, we can level the playing field for American workers and American firms. By building strong, binding labor and environmental standards, we can promote competition that is fair and sustainable. By creating the first disciplines on state-owned enterprises in any trade agreement, we can make sure that when SOEs compete against private firms, they do so on a commercial basis, not on the basis of unfair subsidies that they might receive by virtue of the government ownership.
By bringing traditional trade principles into the digital era, we can make sure that the global trading system reflects new developments in technology to bolster a free and open Internet, the free flow of data, and the capacity of small- and medium-sized businesses to integrate themselves efficiently into the global economy.
These efforts all speak to updating the rules of the road for the 21st century global trading system, and doing so in a manner that is not just consistent with our interests, but also with our values. Doing so is central to strengthening the U.S. economy, and hence, our security. But very importantly, doing so also underlies a broader reform agenda.
Labor and environmental standards promote sustainable and inclusive growth. SOE disciplines support competitive market reforms. A free and open Internet supports the free flow of ideas. In these ways, our trade agenda promotes a liberal order among countries.
U.S. trade policy is also strategic because it strengthens our partnerships abroad. Since their invention, U.S. free-trade agreements have helped solidify our relationships with key partners and allies. Our first free-trade agreement with Israel in 1985 was a clear signal to the world that the bond between the United States and Israel runs deeper than security matters.
But this is more—this is about more than just sending a signal. It's about creating patterns of engagement, habits of cooperation, that spill over into broader relationships.
Given recent developments in Asia and Europe, the strategic implications of TPP and TTIP have never been greater. Today, the centrality of TPP to our Asia rebalancing strategy is key. The United States has Pacific power, and TPP is a concrete manifestation of our commitment to the region that further institutionalizes our engagement.
Similarly, the rationale for forging deeper ties with Europe through the Transatlantic Trade and Investment Partnership, or TTIP, could not be stronger. Our economic bonds with Europe already run deep; a trillion dollars of trade each year, $4 trillion of investment, 13 million workers on both sides of the Atlantic who owe their jobs to the Transatlantic Trade and Investment relationship.
TTIP presents an enormous economic opportunity to increase U.S. exports to our largest market, and promote international competitiveness, particularly if we can bridge the divergences in our regulatory and standards regimes without lowering the overall level of health, safety, and environmental protection.
But beyond the economic rationale, TTIP presents a historic opportunity to put our economic partnership on par with our security and diplomatic relationship. In addition, many in Europe have focused on TTIP being a mechanism for supporting their efforts to reform their energy policies, and diversify their sources of energy.
Finally, U.S. trade policy is strategic because it spurs global development. By fueling economic growth, trade offers opportunities to those who might not otherwise have hope. By promoting good governance, trade is a stabilizing force that prevents state failure.
Due in no small part to expanding global trade, hundreds of millions, if not a billion people, have been lifted out of poverty over the last several decades. And that, in turn, creates opportunities to address regional and transnational issues of concern.
The challenges facing some of the poorest-developing countries are significant. But it is substantially easier to address them in the context of economic growth and integration that trade can help drive.
And that's why, as we prepare for the first U.S.-Africa Leaders Summit, which President Obama has called for this August, we look forward to proposing mechanisms to further strengthen our economic ties with this important region, including through the seamless renewal of AGOA, and to do so in a manner that reflects the changes in Africa, and its relations with other trading partners.
By this point, the strategic logic for trade should be obvious. And if it isn't, just imagine the 20th century without trade as a tool for achieving strategic objectives. Imagine America's recovery from the Great Depression without Congress giving FDR the authority to slash the Smoot-Hawley Tariff, and expand trade.
Imagine the Marshall Plan, which pulled Western Europe out of the ashes of World War II without the measures that catalyzed European integration. Imagine nearly 1 billion people being lifted out of poverty between 1990 and 2010 without global trade expanding by leaps and bounds.
The strategic logic of trade runs through almost every important chapter of U.S. foreign policy. And yet today, there is skepticism about the promise of trade. The forces of globalization and technological development have created great insecurity about the economic futures for many Americans.
These concerns are very real. But a problem arises when these broader concerns are conflated with trade agreements. The reality is this: Trade agreements are how we deal with globalization, by leveling the playing field for American workers and American firms. It's how we deal with technology, by taking advantage of its development to promote openness, innovation, and competitiveness.
Trade done right is part of the solution, not the problem. The choice today is whether we should surrender the tools of American economic leadership and watch our future be shaped by globalization, rather than proactively shape it to our benefit.
The costs of that approach are substantial economically and strategically. And those costs will be further magnified in the future by the fact that if we do not act, others will. As FDR observed when requesting trade-negotiating authority from Congress over 80 years ago, the world does not stand still.
If we don't lead, someone else will. They'll fill the vacuum, or worse yet, the vacuum will remain unfilled. Influence follows trade.
If the U.S. leads on trade, its influence will expand. And if we don't, others will fill the gap. And I can assure you, their vision will be at variance with American values and American interests.
Yet, at a time of increased tension in Asia, and on the periphery of Europe, at a time when the strategic logic of TPP and TTIP has never been more clear, trade policy has become more difficult than in the past. In TPP, for example, the group dynamics of negotiating at 12 countries is different than either a bilateral or a multilateral deal.
And because our market is largely open to most of our trading partners, this isn't simply a matter of trading market access for stronger rules. Instead, we must find common ground across issues.
There's another reason that this is harder now than ever before. The broad, bipartisan consensus that has historically supported trade, has frayed. We need to rebuild that consensus by ensuring that trade is done right; that it creates opportunities for American workers and families by raising labor and environmental standards around the world, by ensuring that through intellectual property rights rules, we both incentivize innovation and promote access to affordable medicines; by making sure that we level the playing field for businesses of all sizes, most importantly, small- and medium-sized businesses; and by preserving an open Internet that promotes the free flow of ideas and the development of a digital economy.
We face an enormous choice in this country, whether to lead or be left on the sidelines. Economically and strategically, there's just one right answer. The council certainly appreciates that. And I look forward to hearing your perspective about it. Thank you.
BARSHEFSKY: Thank you, Mike. That was I think a really wonderful exposition of the importance of trade strategically. I think we're all familiar with the economic importance of trade. But the strategic importance is often overlooked, and that's become increasingly critical.
What we would like to do now is invite members to join our conversation once I've asked—hello—once I've asked Mike a few questions. So I'll open it to the floor at 1:30. As you know, we end promptly at 2:00.
When you raise your hand, and you take the mike, please identify yourself and your affiliation, and please keep questions short. And again, I remind you this is all on the record.
Ambassador Froman, I thought that I would start with a question that I think is on the minds of many people that follow trade, and that follow some of the challenges that you face, and that is Fast Track, or Trade Promotion Authority, as it became subsequently to be known.
The question I have is this: Do you need it? And I ask the question because TPP, the Transpacific Partnership negotiation is quite far along. The administration would be forcing two trade votes in rapid succession potentially, which is difficult for the Democratic Caucus, as you know, and difficult for some Republicans.
And in any event, I think as you know, most major deals—NAFTA is one, but more recently, Korea's another—are reopened even after they're done, even though there is Fast Track, to cure what members of Congress believe are deficiencies in the underlying agreement.
So the question is, do you need Fast Track? And can you talk to us about the political costs, either pro or con?
FROMAN: Well, first of all, what Trade Promotion Authority is, it's really three things: One it's the way the Congress gives us our marching orders about what to negotiate, defines the negotiating objectives.
Two, it establishes a series of procedures for how we work with Congress before and during the negotiation. And then lastly, it establishes the procedures by which Congress votes for an agreement, or votes against an agreement, approves it or disapproves it at the end of the day.
We'd like to get Trade Promotion Authority that's got broad bipartisan support. And we're working with members of Congress, and both Houses, and both parties, as they think through what that's going to take.
But as the president said in February at a press conference, I think it was in Mexico, the only guarantee that an agreement gets through Congress is that we bring back a good agreement. And that's why our focus is on making sure—and TPP or in TTIP—that we're bringing back the agreement.
We think we know what that involves, because we spent an enormous amount of time and effort working with stakeholders, and with Congress, to get feedback throughout. We've had more than 1,300 briefings on TPP alone in Congress over the last few years.
"The only guarantee that an agreement gets through Congress is that we bring back a good agreement."
Every proposal we put on the table is previewed with our committees of jurisdiction, or other relevant committees. We've got lots of feedback from members of Congress individually, in groups, by committee. We think that's a critical part of making sure that the two branches of government are working closely together in this area.
But at the end of the day, we're continuing to negotiate. We're continuing to negotiate towards that high-quality agreement that will be necessary to earn the votes of Congress.
BARSHEFSKY: So that was a maybe.
FROMAN: That is that we'd like to get Trade Promotion Authority. It's also—we're also going to keep focused on negotiating a good agreement. And we have our colleagues in Congress who are thinking through, and working through what it would take to get bipartisan support for Trade Promotion Authority. At the same time, we're consulting with them about what it's going to take to bring back a good agreement for TPP and TTIP.
BARSHEFSKY: You mentioned, with respect to TPP, that there's some countries waiting in the wings. Certainly, there are three that have been on my mind. One is Indonesia, of course, the largest of the Southeast Asian nations, one is Korea, one is China. And there are countries waiting in the wings.
Can you talk to us a little bit about who might be waiting in the wings, either because they are, or because you would hope they would be?
FROMAN: Well, I don't want to speak for all of them. I'd say the ones who, for example, have said publically that they would like to consider joining, begin to go through the process of consultations, that leads to a decision of whether or not they join TPP, include Korea, one of the three that you mentioned. But there've also been indications from the Philippines recently, from Thailand, from before all the recent political upheaval there, also from Taiwan as an economy. And so those are four examples.
I think with regard to the other countries that you mentioned, Indonesia is a critically-important country, as you mentioned, in Southeast Asia. It's a country with whom we have a strong trading relationship. But we think we could be doing much more, and much better. And we've very much looking forward to working with the government of Indonesia—they're in the midst of an election season, as you know—to see what we could do to build on the existing relationship.
With regard to China, we have an enormous agenda with China at the moment, bilaterally, as well as through other negotiations at the WTO and elsewhere. And China is going through its own internal debate about a reform process, and where that reform process may lead.
It's in our interest that they reform their economy, make it more market-oriented, create greater openness. And we're encouraging them to do that through all the mechanisms—all the mechanisms that we have.
And we were gratified to have—to see their decision last year, last July, their decision to negotiate a bilateral investment treaty with the U.S. on the basis of something we call a "negative list," and national treatment for the pre-establishment. Those were two conditions of our bids (ph) that had previously been resisted.
What "negative list" means is that they agree in principle that their economy is going to be open unless there are specific and transparent exclusions. And that's a big difference from where they are now, where you need permission to do something in every sector.
So that'll be a good test case to see where China's reform efforts are heading, and whether they're able to deliver a negative list that really opens up their economy.
BARSHEFSKY: How do countries join TPP?
FROMAN: They express interest. It's done by consensus. There's an extensive consultation process with each of the existing TPP members. And, as in the case of Canada, Mexico, Japan, ultimately the existing members get together and collectively decide whether they're ready to have the countries join.
It's a process that includes dealing with some outstanding issues, usually, with those countries, and ensuring—doing the due diligence to ensure that they are able to live up to the high standards, the ambition, the comprehensiveness that's intended by TPP.
BARSHEFSKY: I think we all know that you're negotiating with Japan on TPP. They were a little bit late. And so the negotiations perhaps are somewhat more intense. Would you go forward with TPP without Japan?
FROMAN: Well, look, our goal is to complete this round of TPP with the 12 countries that are at the table. And that means that we're going to have to reach an agreement that meets the overall objectives of TPP; ambitious, comprehensive, high standard.
There are two tracks to this negotiation. One is about a set of rules, intellectual property rights, labor, environment, SOEs, things of that sort. And the other are about market access. And we're making good progress on both tracks.
But we're not there on either. There are outstanding-rules issues. There are outstanding market-access issues that we're going to continue to press on both of these until we get a high-quality agreement.
BARSHEFSKY: And your timeline?
FROMAN: We will complete the agreement the moment we reach an ambitious, comprehensive, and high-standard outcome.
"There are outstanding rules issues. There are outstanding market-access issues that we're going to continue to press on both of these until we get a high-quality agreement."
BARSHEFSKY: Possible before the lame duck?
FROMAN: The substance of the negotiations will drive the timetable I think—it was interesting. The leaders back in, I guess it was 2012, sent a message that it'd be good—we should have the objective to finish it by the end of 2013. And that was intended to create momentum in the negotiations. And it succeeded in creating momentum.
We got to the end of 2013, and the 12 of us looked at each other around the table and said, "We're not there yet. We're not satisfied. This is an ambitious, comprehensive, high-standard agreement. And we're going to keep at it."
And I think that's what's interesting about this negotiation, it's that the 12 countries—some of whom are developed, some of whom are developing, some of whom we already have FTAs with, some of whom we don't—they're all fully committed to trying to achieve the objective that our leaders set out to achieve, and are willing to put in the hard work to get there.
BARSHEFSKY: Do you see a mechanism by which TPP, once it's done, would be either folding into, or others—other agreements in the region, in the Asia-Pacific region, would be folded into TPP, so that you don't have competing trade blocks in Asia; for example, ASEAN—ASEAN Plus Three, ASEAN Plus One, ASEAN Plus Six, RCEP?
There are a lot of competing agreements either in process, or that actually do exist. TPP is another. And these are all different groups of countries. Do you worry at all about competing trade blocks in Asia? Do you think about the possibility of merging all of these agreements together into what had been originally envisioned as an open Asia-Pacific region?
FROMAN: Well, the APEC leaders back in, I think it was 2006, set out the goal of achieving a free trade area for the Asia-Pacific. In 2010, they recognized that there are going to be a lot of different ways of getting there. There are—as you mentioned, there are bilateral, there are trilateral, there are ASEAN Plus, there are regional.
And I think all of it is good. I think all of it, in terms of opening markets, liberalizing trade, all contributes to that vision of Asia-Pacific that has free and fair trade.
Our focus, our approach, obviously, is on TPP, that we think is a high-standard approach to achieving free trade, and integrate the region. It's intended to be an open platform to which other countries, if and when they're ready to meet the high standard, could accede, could join.
We're not interested in growing it just for the sake of growing it, and lowering the standards. I don't think any of the 12 are interested in doing that. But to agree that there are other countries down the road, whether they're members of ASEAN, or there are other members in the region who want to join and meet those standards, that's what this objective is.
And so that's our—I think that is our approach to this, which is an open platform that maintains its high standards, and attracts members, and incentivizes countries to meet those high standards accordingly.
BARSHEFSKY: Let me switch gears very quickly. TTIP, so the agreement you're negotiating with Europe, is this a regulatory harmonization agreement? Is this something more than that? Where do you see the greatest benefits emerging from this agreement?
FROMAN: Well, it's got—it will have all the traditional elements of a free-trade agreement, in terms of eliminating tariffs, and dealing with traditional, non-tariff barriers. And there are a number of non-tariff barriers between ourselves and Europe that have got in the way of doing something like this earlier. But we think that the stars may be aligned to address some of these issues.
But the real opportunity, and the biggest challenge, is whether we can bring two well-regulated markets closer together, and eliminate barriers that are caused by divergences in our approaches to regulation and standards, and do so in a way that doesn't lower the level. Because it's not a race to the bottom by any means.
We each are very proud of the level of regulation that we have in our markets. Our people expect it. Our regulators expect it. And we want to make sure that we maintain that level of regulation if it's health or safety, or environmental protection.
But sometimes we get to the same level of protection through slightly different means. And if at the end of the day, we've achieved the—and recognize that we've achieved the same level of safety, or the same level of protection, are there ways of bringing those regimes closer together?
Some of this has to do with process. And our view, the more transparent, participatory and accountable a regulatory process is, the more likely we are to avoid unnecessary divergences going forward.
"But the real opportunity, and the biggest challenge, is whether we can bring two well-regulated markets closer together, and eliminate barriers that are caused by divergences in our approaches to regulation and standards, and do so in a way that doesn't lower the level."
We have a lot of faith in the fact that we open up our regulatory process to public comment. We tell our public what it is we're going to regulate. We put it out there for comment.
We take comment from anybody and everybody; Americans, non-Americans, businesses, labor, civil society groups, academics, individuals. And we take all that input into account, and then be accountable for coming up with a rule that's based on the evidence, based on science.
We think that will help reduce these barriers going forward. And that's part of the dialogue that we're having.
BARSHEFSKY: Let me open this now to the audience, I should say to our members. And please raise your hand, wait for the microphone, stand. These are the instructions I'm given. State your name and your affiliation. And if you can keep questions as succinct as possible, please, no speeches. Please, yes?
QUESTION: I'm Susan Levine from Ramius. You mentioned in your comments about getting support from the American people, and thinking about labor and environmental standards. I wonder if you could talk a bit about the evolution of those standards in addressing those issues?
FROMAN: Sure. Twenty years ago when Charlene and her colleagues did NAFTA, labor and environment were literally side issues. They were in side agreements, not subject to the same dispute-settlement mechanism as the rest of the agreements. It was a first step. It was a first step that the Clinton Administration took to bring labor and environment into the trading system.
Over the course of the last 20 years, that has evolved greatly. And in some of our recent FTAs—Peru, Panama, Columbia, Korea—labor and environment are now central to the agreement, and subject to binding dispute settlement.
In TPP, we're building on that. And so we'll have—it'll be at the end of the day—strong, and binding, enforceable labor and environmental provisions.
But I'll take the environment as an example. In addition to having that—and it's sort of obligations that are included in these trade agreements are to adopt and maintain certain laws, make sure that you fully enforce them, you're implementing them, that you're not derogating them in order to get a trade advantage. And all those obligations become subject to dispute settlement.
And TPP, we're going further, because the Asia-Pacific region has a series of environmental issues that are particularly troubling; illegal wildlife trafficking, illegal logging, illegal fishing, fish subsidies that lead to illegal fishing. So we have a whole conservation approach as well, which in addition to the traditional parts of the environmental regulations, also take on these issues.
This morning, I started the day at Kennedy Airport with the Customs and Border Protection, and Fish and Wildlife. And there were all of these illegally-traded wildlife that had been interceded at Kennedy Airport by those institutions.
Coming together, if TPP could help—this has become a major national-security issue. In Sub-Saharan Africa, we've got terrorist groups, organized crime, high degree of corruption being supported by illegal wildlife trafficking. And it's very much on the rise; 30,000 elephants killed last year, 1,000 rhinos killed last year.
If the TPP countries can take that on as part of—as part of the trade agreement, and agree to take action to address that, that will help advance that agenda. And I could say the same thing about fishing, about illegal logging.
On the labor side, equally importantly, we key off of the ILO principles, but also have some standards about acceptable conditions of work, taking action against forced—forced labor, child labor. And these are all provisions that are good in and of themselves. They're important. They're consistent with our values.
But they're also about leveling the playing field between American workers, and American firms on the one hand, and our competitors abroad. We know our firms are living by high labor and environmental standards. It's important we raise standards around the world as well.
BARSHEFSKY: Please, yes?
QUESTION: I'm (inaudible). In your talk, you did not talk about the exchange-rate regime. And yet, as we know, currency manipulation has been a major factor in some of the problems in the U.S. manufacturing industry.
Chinese currency manipulation has wiped out swathes of American manufacturing. It hasn't affected the firms so much, because they've gone abroad to take advantage of these currency practices. But labor has been badly affected.
Wouldn't you benefit from more support from—on the part of labor, if there were an effective way of dealing with this problem? And this new architecture that you speak of, shouldn't currency manipulation, restrictions on such practices, be part of this new architecture?
FROMAN: Well, thank you. I mean, the misalignment of currency is, I think, a very serious and significant issue. And it's one reason why this administration, the president, the Treasury secretary on down, have used every occasion, literally at every meeting, with senior-level Chinese officials, to press them to move towards greater market-determined exchange rates, and to deal with the issue of misalignment.
And we've done that bilaterally. We do it through the G20, through the IMF, through whatever mechanisms we have. And we've achieved some progress.
So in June 2010, as you know, they moved off their peg, and started allowing the currency to move. And it's moved, I think it's 15 or 16 percent in real terms since that time, which is not fast enough. It's not far enough. But it is something we need to continue to press on.
This is an issue that's come up a great deal in our consultations, particularly with Capitol Hill. There's a great deal of interest in members of Congress, both bipartisan interest in both houses. And it's something we take very seriously, and it's something that, obviously, the Treasury Department has the lead on.
But we're working very closely with Secretary Lew, as we did with Secretary Geithner before him. And we're consulting to see what is the most effective way of having an impact on the issue. And those consultations are ongoing.
QUESTION: Thank you very much. (Inaudible). Ambassador, you mentioned that influence follows trade, and investment of course. If you look at trade and investment towards Africa, between Africa and the U.S., it's fairly low compared to other regions around the world.
China is coming in a big—big ways to invest. You mentioned the initiative with the African Leadership Meetings, and the renewal of AGOA seamless renewal, is what you said. And other steps have been taken by the Obama Administration; Power Africa, et cetera.
But how would you—how does the administration see really the opportunity to work more effectively with Africa to work not only on economic issues, but there are also security and political issues. If you would address that, be very interesting. Thank you.
FROMAN: Well, I think as the president made out when he was in Africa last year, we look at Africa across all those issues; not just security issues, but very importantly, economic issues. And AGOA, on one hand, has been in many ways successful.
Trade has doubled or tripled over the course of it. Non-mineral, non-oil trade has gone up fivefold. When I say it's gone up fivefold, it's gone from $1 billion to $5 billion. And there's much, much more that we could be doing.
And that's exactly why we launched a review last year of AGOA, to learn the lessons from it, to see what could be fixed, what could be—how we could take it forward. It's one reason why the president also launched Power Africa and Trade Africa when he was there last year.
Power Africa, we're working very closely with the multilateral development banks, as well as the private sector, to double access to electricity in Africa. And the stories are terrific with new plants being rolled out, new distribution, investments in transmission, working with more and more countries in Sub-Saharan Africa. And there's a great deal of excitement about what this—what this means.
Trade Africa as well, we started working with the East African community, as one of the regional economic communities, to focus on how do you eliminate barriers at the borders? And where you get to a border, and a truck waits for four days, and crosses through Customs, then waits for another four days to cross the Customs into the next country.
How can you move towards single-Customs crossing? Introduce computer systems that talk to each other from one Customs service to another? Work on the trade facilitation, which we did at WTO in Bali in December, called it the "Trade Facilitation Agreement," that will help reduce barriers across—across borders.
So these are all ways of making sure not only do we have the tariff preferences that AGOA suggests in place, but that we're also taking steps to build capacity to facilitate trade, and to make sure that Africa could take full advantage of the benefits that it has in both our and other preference programs.
QUESTION: Thank you for joining us today. Frankie Menez (ph), Bunge Limited, a global ag-and-food company. Could you please comment on the current challenges and prospects for resolution of agriculture issues in both TPP and TTIP?
FROMAN: Well, I guess I would maybe divide them up into different categories. There are the market-access issues of tariffs, and those are always hard-fought, difficult negotiations.
We're engaged right now with Japan, as well as the other TPP countries, on how to open what's been a traditionally closed market for the last 60 years in agriculture. And we see significant opportunities for our exporters across a range of products there.
But perhaps even more difficult are the SPS issues, sanitary- and phytosanitary-standards issues. These are the non-tariff areas, the regulations that some countries put in place to keep out your product, regardless of what the tariff is.
And that really goes to, in some ways, the question we had about TTIP, which is encouraging good, regulatory practice based on science. We have—we have a great belief in science, whether it's European scientists, or American scientists. We think that if science will rule, people make decisions about whether to allow a product into their market or not, based on science, that we can live by the result of that.
We're not trying to tell anybody what to eat. We're not trying to tell the Europeans, "You've got to eat chlorine-treated chicken," or, "You've got to eat a GMO product."
But we do think that the decisions about what is safe and legal ought to be based on science and evidence. And so that's the kind of dialogue that we're having with them. These are tough discussions, but I think we're making progress in both TPP and TTIP.
And we're going to continue, because this is a fast-growing area of our exports. And last year, a record $148 billion of agriculture exports, adds about 20 percent to rural incomes in America. It's awfully important to the United States we get this right.
BARSHEFSKY: May I, if you would indulge me, could I ask you just a question on that? Of course, your passive precautionary principle with respect to SPS and agriculture, that is to say unless one can prove the negative, which is unless one can prove that a particular food item would not be harmful, the EU will not accept it, even if sound science indicates that there is no harm to be found.
So how do you reconcile regulatory harmonization with the notion that the E.U., as least as publicly stated, will not move away from its precautionary principle?
FROMAN: You know, I think the traditional dichotomy is set up that we do cost-benefit analysis, risk assessment, and they do precautionary principle, my sense is, is that there's actually been some movement towards the center on both. We had—they do precautionary principle, but then you see elements of cost-benefit analysis and risk assessment in their work.
For example, the European Commission has now introduced more and more risk assessments into their rulemaking. And similarly on our side, we do do rigorous cost-benefit analysis. But we also have what Cass Sunstein used to call "humanized cost-benefit analysis."
So I think—I think there's not as much difference there in reality as sometimes one would read into the rhetoric around this. And I think that gives us hope that we could find mechanisms. We're not going to impose our regulations on them. They're not going to impose their regulations on us. But we can find mechanisms for bridging the divergences.
BARSHEFSKY: Yes, please?
QUESTION: Hello, I'm Cassie Ianosic (ph) with McKinsey & Company. I wanted to ask you about what you feel the role of energy is in trade negotiations. You had touched on it a little bit in your remarks. And what's interesting to me is that I was in the White House about 10 years ago, and it never was on the agenda of the USTR.
And now it obviously—the environment's changed. We certainly are a leader now on production. So how do you see energy as both an economic lever and also a strategic lever that you see playing out in negotiations going forward?
FROMAN: If I could take the question even slightly more broadly, we do look at a whole series of issues around energy, clean energy, in our negotiations.
So for example, in January, we announced the launch of negotiations of the WTO on the elimination of tariffs on environmental goods—environmental goods, together with 17 other countries, representing about 85 percent of the global market in those products, coming together saying, "We need to see the dispersal, or the deployment of clean-energy technology as soon as possible to address a whole range of environmental issues. Let's not let tariffs stand in the way of doing that." So we've sort of taken that on.
With regard to energy itself, it is becoming a—there's more and more salience in the discussion because of the production that's happening in the U.S., both around natural gas and around oil. And you saw a lot of interest on the Europeans' part earlier this year, given what was going on in Ukraine and in Russia, to look at their energy policy, figure out ways of diversifying their sources of energy. And looking at the United States and our potential for production here is one key element of that.
Because the Natural Gas Act, which the Department of Energy implements, distinguishes between free-trade-agreement countries, and non-free-trade-agreement countries, there is some advantage in the process of being a free-trade-agreement country. In both cases, there's a determination it's got to be in the public interest in order to—in order to export any natural gas.
The Department of Energy, not USTR, makes those determinations. But it certainly has gotten our production, particularly of natural gas, as certainly increased people's interest in having that dialogue with us about how to ensure that as they develop a trading relationship with us, that it may also lead to a stronger relationship in the energy arena.
QUESTION: Mike Levin, Titan Steel. Periodically, Congress seems to take up the Ex-Im Bank, and that appears to be—we're in one of those periods now. Do you think it will continue to exist and be refunded?
FROMAN: I certainly hope so. You know, it plays a vital function in the promotion of our exports. It's a very competitive field out there with other countries fielding much stronger trade-finance programs than we have.
So I think Fred Hochberg, our current president of Ex-Im Bank, has done a great job of expanding its program, including to small- and medium-sized businesses, of demonstrating the linkages between the financing the Ex-Im provides, and job creation, and exports from the United States. And I do hope at the end of the day that he gets the support of Congress.
BARSHEFSKY: Further questions? Please, yes?
QUESTION: Michael, I sure am glad you're doing what you're doing, and doing it well. My compliments to your persistence. Ambitious, comprehensive, and transparent is in the eye of the beholder. How are you going to get bipartisan support built in Congress, and who are your leaders?
FROMAN: Well, I think it depends a little bit, issue—issue by issue. But we are working very hard with Congress throughout these negotiations to get their input, to explain where we are. There's a lot of misinformation out there.
I open the paper I read some articles that claims we're doing X, or doing Y. I walk into the office, and I convene a staff meeting in Charlene's old office. I say, "This says we're doing X or Y. I'm not aware of that."
And, you know, it turns out it's not really true. And we go through very specifically what it is we're doing. You know, I'm convinced at the end of the day that we're going to bring back great agreements. And by the way, we're not going to bring back an agreement unless it's great.
When I say "great," I think one that very much reflects our interests, that opens markets, that levels the playing field, but also one that we can be very proud of, and say it reflects our values. A lot of the opposition to trade agreements come from people who want to see stronger labor, environmental provisions. You want to make sure that there's not only innovation, but access to medicines.
We believe that, too. And that—we have internalized that. And that's very much part of our agenda. So we want to make sure this agreement addresses those concerns as well. I'm convinced we're going to get there.
BARSHEFSKY: Can I interpose a question? I wanted to ask you about the WTO. First of all, can you tell us what's happening at the WTO? Second of all, your view with respect to some of the agreements being negotiated essentially under its auspices, whether it's ITA2, which is on high technology product tariffs, or on trade in services?
FROMAN: Well, I think the Bali ministerial, last December, was an awfully important ministerial, because it was the first time in the WTO's 18-year history, that it reached a fully, multilateral agreement.
And it had trade facilitation, it had food security, it had a package of reforms for the least-developed countries. I think that was an important step for giving further momentum and support to the multilateral system, and to the WTO as an institution.
One of the outcomes at Bali was that we were going to spend this year under the direction of the director general, Roberto Azevedo, working on the post-Bali work plan. How do we take up the remaining issues of the Doha Development Round, and other issues affecting the global trading system?
And how do we take those up at the WTO? What's the most productive way forward? And that discussion is very intense right now. It's ongoing. There's a lot of consultations going on in Geneva, and in capitols. And we'll see where that comes out over the course of the year.
You know, I alluded to it in my remarks a bit, a lot has changed since the Doha Round was started in 2001. And there may be a challenge just trying to pick up where you left off when a lot of things have evolved since then.
I'll take agricultural subsidies, for example. That's a major issue in the Doha Development Round. It's a key ask for developing countries. And the focus has been on the U.S. and the E.U. reducing its agricultural subsidies.
What's interesting, is that in the intervening years, the E.U. and the U.S. subsidies have gone down. And the Chinese and the Indian subsidies have gone up. And by some measure, it may actually exceed the U.S. and the E.U. subsidies.
So from a developing-country's perspective, it doesn't matter where the subsidy is coming from. If it's distortive, it's distortive. And if we're going to take on agricultural subsidies, we need to take on, first of all, the array of agricultural issues, as well as industrial issues and services. But we also need to update our understanding of what's actually going on in the international trading system.
BARSHEFSKY: Other questions? Yes?
QUESTION: ... very much for the briefing. I'm James Rinal (ph) with (inaudible). A couple of months back when the Ukraine situation was red hot, you spoke about TTIP in terms of being as strong as the strongest military alliance in the world. And you spoke in relation to energy security for Europeans.
I wonder if you could bring us up to date on your thinking on this issue. And I'm asking this question now, (inaudible) the breaking news, which is that the Ukrainians have said the Russians have cut off their gas supplies.
FROMAN: Well, TTIP isn't the answer to Ukraine itself. But I think what happened in Ukraine, and with Russia, has underscored for the Europeans the importance of putting in place a comprehensive energy policy, and diversifying their sources of energy.
And that, I think, has further underscored the strategic value of TTIP in their perception. And so I think as we move forward on TTIP, we still have lots of difficult issues, whether it's market access, or other regulatory issues, rules issues that we're going to have to resolve. But underlying it, I think, is a very strong strategic rationale, in part, affected by the energy security situation in Europe.
BARSHEFSKY: Other question? Yes, Jack?
QUESTION: Very interesting. There's just one question I want to ask.
BARSHEFSKY: Let the audience know who you are.
QUESTION: I'm Jagdish Bhagwati, economist at CFR. Just one question, because you keep repeating, and obviously you believe it, that what you're going for in all these agreements, is modern, ambitious, comprehensive, and 21st century, also you're saying. Now, these are all, you know, very self-flattering descriptions of what you—these words are (inaudible) good for you to say that.
But the real problem is, can—unlike what Jim Robinson (ph) was saying. What bothers me is that these may be fine from our point of view here in the United States. But it's not necessarily shared by other countries.
You may wind up, by insisting on a variety of things like this. You may wind up eliminating open regionalism, like China, whatever it says right now, from time to time, and India. These are two big countries in Asia.
Unlikely to sign on to everything you ask for in TPP, guys have already signed on, of course, are with it. It seems to me that if you really want a lot of countries to join in, but you get the big ones, you're going to have to say, "Look, you should liberalize trade." That's the name of the game.
If you want to add on other things like excessive intellectual property protection, which we know is not optimal, the maximal one is not optimal. Most lawyers and economists are aware of it. But the lobbyists want the maximum amount.
So that is not a high standard. That's a low standard, in my view. And a lot of people, unfortunately, have been to Oxford, Harvard, Princeton, like you and I have. So they know that you're talking, you know, a bit of (inaudible). It doesn't really wash.
So I think my feeling is, what I would recommend, since we're still in the active negotiation, that we proceed to say, "Look, if India, China, et cetera, want to join TPP, they should come and provided they're willing to liberalize trade," which is the name of the game.
If they want to add on for their obligations on all these other things, fine. It's up to them. But they should not be required to do so. And I think that would mean more and more countries would come in. I just wanted to put it to you as a (inaudible).
FROMAN: Let me take that in various ways. First of all, liberalizing trade, if it means reducing tariffs, which is what you've traditionally written on, and what's been part of the tradition there, is very important, and a first step. But eliminating tariffs means nothing if you substitute a series of non-tariff measures for it.
And so the non-tariff measures can be as pernicious. And the way you get the non-tariff measures is by setting rules, and they're high-standard rules.
And so IPR, for example, just make sure there's a good fact basis here. You're right, we're promoting strong IPR rules. We're also promoting, for the first time in any trade agreement, a rule on copyright that encourages acceptance of limitations, a balanced approach.
On intellectual property rights, we're encouraging innovation --excuse me, on pharmaceuticals, we're encouraging innovation, but we're also taking steps to ensure that there is access to affordable medicines, particularly for the poor and developing countries.
So I'd say we're for a strong intellectual—a strong intellectual property chapter is, by definition, a balanced chapter; not only one way, but one that addresses the fact that there are competing requirements in this area.
Or the Internet, great new area, never been regulated before, never been included in a trade agreement before. We want to make sure that there's an open and free Internet, free flow of data, also protection for privacy rights, you know that ISPs have safe harbors for liability for particular issues.
We take our key off of certain balance principles that we've established here, as we talk to other countries about it. So there is balance in each of these areas that you mentioned.
I think just to go to the bottom of your point, though, India and China, and Indonesia, and South Africa, and Brazil, critically-important countries to the global economy. We want to find ways of further engaging and deepening our trade and investment relationship with these.
I'm not sure if the answer is to simply abandon high standards, or to lower the standards to say—to have their inclusion. Because if the price of inclusion is they may or may not reduce their tariffs, but they are effectively going to keep you out of their market, that's not going to work from our perspective.
And I think that's the big change in the global system, is that when developments in China, you know, or Brazil, or India, have an effect here, because they're playing by a different set of rules, you know, that's something, if we're going to keep our market open, and continue to take steps to open it, we're going to have to address that and make sure there's a level playing field. And that's what this is about.
BARSHEFSKY: I think we are out of time. So Ambassador Froman, thank you so much. I think we all learned a lot.
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