Emergency Committee For American Trade - Publications

ECAT's Role in the Promotion of International Trade and Investment

ECAT and its member companies recognize that trade and investment are critical components of a healthy world economy. ECAT's mission, since its formation in 1967, has been therefore to promote economic growth through the expansion of international trade and investment. This section provides an overview of the importance of trade and investment to the U.S. and global economies and of the role that ECAT and its member companies play in the promotion of liberalized trade and investment.

Why International Trade and Investment Are Important

Trade and investment liberalization are essential components in the economic growth and high standard of living enjoyed in the United States. In the United States, the share of gross domestic product (GDP) attributable to trade has more than quadrupled since World War II. According to the 2002 Economic Report of the President, trade (exports and imports) as a percentage of GDP increased from less than 16 percent in 1975 to over 26 percent in 2000. It further found that approximately 8 percent of the U.S. labor force is made up of people producing goods and services for foreign markets. Global flows of foreign direct investment are also an increasingly important source of worldwide economic growth and integration. The International Monetary Fund estimates that since 1970 global capital flows as a percentage of GDP have increased almost tenfold for advanced economies and more than fivefold for developing economies. The annual flows of U.S. foreign direct investment have grown too, increasing from just under $5 billion annually in the 1960s to nearly $140 billion in 2000.

Jobs directly supported by exports equal over 12 million, 2.9 million more than in 1990. These jobs pay between 13 and 18 percent more on average than other jobs. Imports help support another 10 million domestic jobs.

Nor have increasing trade deficits cost U.S. jobs. U.S. unemployment has fallen significantly from 7.5 percent in 1992, while trade deficits over the same period grew by nearly 300 percent. As the United States undertook significant trade liberalization through the NAFTA and the Uruguay Round, total U.S. employment grew by 22 million jobs between 1990 and 2000, and U.S. average per capita real income rose by 26 percent over the same period. Nor has trade reduced wages. The Congressional Research Service recently concluded "there is likely little causality running from a rising level of trade to poor domestic wage performance. Slow average wage growth is fully and credibly linked to poor productivity growth. A small share of rising wage inequality can be linked to trade, but the great bulk of this trend is probably more soundly rooted in a rising relative demand for skill, growing out of a changed pattern of technological change." Craig K. Elwell, Is Globalization the Force Behind Poor U.S. Wage Performance?: An Analysis, Congressional Research Service Short Report for Congress, Updated January 12, 2001.

Imports have improved the variety, quality and availability of products throughout the United States, have increased the competitiveness of U.S. companies, and have been a significant factor in dampening inflationary pressures.

According to economic analyses by the Office of the United States Trade Representative, NAFTA and the WTO combined have increased U.S. national income by $40 billion to $60 billion a year. Combined with the lower prices that the reduction in import barriers provides, the income gain for American families equals $1,000 to $1,300 a year from these two agreements.

It is also critical to recognize that:

96 percent of the world's consumers live outside the United States.
One in three acres is planted for export.
Approximately 43 percent of all U.S. manufactured products are exported abroad.

As further documented in ECAT's Global Investments, American Returns (GIAR), global integration has strengthened the U.S. economy by generating new U.S. economic activity here at home for American companies and their workers in the form of expanded research and development, capital investments, purchases of inputs and services, exports, and better, higher-paying U.S. jobs. The fact is that American companies with global operations are generally able to make greater contributions to U.S. economic growth than purely domestic firms because of the opportunities provided by world economic growth.

ECAT's GIAR study and the 1999 Update also demonstrate that the foreign direct investment of American companies has complemented, rather than substituted for, economic activity in the United States in areas determinative of productivity, such as research and development and capital investments. In addition, over 70 percent of the total income earned by the foreign affiliates of U.S. firms is repatriated. This in turn has promoted economic growth and a higher standard of living in the United States.

While job dislocations have occurred in the process of global integration, they have not weakened the U.S. economy. Over the past two decades, as American firms have sought opportunities in global markets, they have maintained some three-quarters of their total employment in the United States. At the same time, the foreign affiliates of American firms are an important market for American companies with global operations, accounting for over 40 percent of U.S. exports. Furthermore, the output of the foreign affiliates of American companies is not flooding U.S. markets; over 90 percent of their exports are sold outside of the United States.

It is also important to note that the global integration of the U.S. and other economies is not a new phenomenon. Indeed, the world achieved a relatively high degree of global integration during the period from the late 1800s to World War I. That integration was reversed, however, as a result of political conflicts and the enactment of shortsighted protectionist trade policies, such as the prohibitively high Smoot-Hawley tariffs in the Tariff Act of 1930 that presaged the great U.S. depression. Much of the last half of the 20th century, then, was an effort to regain the level of integration that had been achieved by World War I. It was only in the early 1980s that the world was able to exceed the level of economic integration achieved in that earlier period.

ECAT's Activities to Promote Greater Trade Liberalization

Since its formation in October 1967, ECAT has played a leading role in promoting trade liberalization and in opposing protectionist efforts to restrict trade. Throughout 2001, ECAT has been active on the full spectrum of trade issues, including the following:

Trade Promotion Authority. On Trade Promotion Authority (TPA or so-called fast track), ECAT and its member companies have played a critical role in the business community's efforts to develop a bipartisan consensus for and promote passage of this important legislation, which was approved by the House of Representatives in a very close 215-to-214 vote on Thursday, December 6th. TPA remains one of ECAT's top priorities because it will enhance the ability of the United States to negotiate trade agreements that support economic growth and provide concrete opportunities for U.S. companies, workers and their families.

In 2001, ECAT Chairman Harold McGraw III testified before both the House Ways and Means Trade Subcommittee and the Senate Finance Committee on behalf of ECAT and the American business community on the importance of renewing TPA in a bipartisan manner.

Throughout the year, ECAT staff and companies have been heavily involved in providing substantive advice on the development of this legislation to members and staff from both sides of the aisle and in both Houses, as well as to key Administration officials working on this legislation. ECAT was also a founding member of the steering group of the USTrade coalition supporting passage of TPA and has provided substantial advice and expertise on the messaging used by USTrade in its lobbying efforts. ECAT also led business community efforts to ensure that the substance of the TPA legislation provides sufficient flexibility to negotiators and does not mandate or proscribe particular outcomes. ECAT staff and companies have, of course, engaged in our own TPA lobbying campaign in coordination with the broader business community efforts. In addition to frequent meetings with Members of Congress and their staff, ECAT has sent several letters to the Ways and Means Committee, the Senate Finance Committee and all Members of the House on behalf of ECAT with regards to TPA. ECAT has also sent regular faxes to all House Members as part of its "Ten Reasons to Vote for TPA" campaign.

Working together, The McGraw-Hill Companies and ECAT have placed pro-TPA advertisements in Roll Call and Business Week. During the Congressional recess in August and again in December before the House floor vote, The McGraw-Hill Companies' television stations covering 21 key congressional districts aired informational spots about TPA.

China. On China, ECAT and its member companies have played a critical role over the past 10 years in leading the U.S. business community's effort through the Business Coalition for U.S.-China Trade to secure China's membership in the World Trade Organization (WTO) and achieve final enactment of Permanent Normal Trade Relations (PNTR) status for China. ECAT was central in building the Business Coalition and, more importantly, in ensuring that it encompassed the whole spectrum of the U.S. economy -- from agriculture and manufacturing to the high technology and service sectors. The broad-based, bipartisan support for China's WTO membership and PNTR legislation that exists today is in large part due to the efforts of U.S. agriculture and the high technology and business communities that were united and amplified through the Business Coalition's 2000 campaign for China PNTR.

In 2001, ECAT again led the successful efforts of the Business Coalition for U.S.-China Trade to support the annual renewal of China's normal trade relations (NTR) status, lobbying individual members, coordinating business-wide letters to the House and testifying on Capitol Hill. The House rejected the disapproval resolution that would have denied China NTR status in July by a vote of 169-to-259. ECAT also worked with Members from both the House and Senate to avoid a controversial and counterproductive vote on Congressional resolutions urging the International Olympic Committee to not choose China as the venue for the 2008 Olympics.

ECAT and its companies were, therefore, very pleased with the consensus decisions of the World Trade Organization to approve the accessions of both China and Taiwan at the Doha Ministerial in November. ECAT staff and companies are currently working with the General Accounting Office and the Administration to promote efforts to monitor effectively China's implementation of its WTO commitments.

Other Trade Issues. ECAT has also been active in promoting a positive trade agenda, including negotiations towards the U.S.-Chile and U.S.-Singapore Free Trade Agreements and the Free Trade Area of the Americas and the launch of new negotiations in the WTO.

ECAT is also leading a coalition of U.S. companies, including steel users and export companies, that are concerned about the potential impact of the recent section 201 safeguard investigation on steel imports not only on domestic steel prices, but on our broader trade liberalization agenda as well. In particular, ECAT urged the President to resist pressures to impose protectionist steel quotas and tariffs following the International Trade Commission's (ITC) affirmative votes in many of the steel 201 cases on October 22nd. ECAT President Calman Cohen testified before the ITC during its remedy hearings and ECAT made submissions before both the ITC and the Administration expressing our views. ECAT staff and interested companies met with key Administration officials and commissioned major studies on the impact of a protectionist response. ECAT also testified at a Finance Committee steel hearing.

Trade Legislation. In addition to the activities described above, ECAT has also been active in supporting passage of several pieces of important trade legislation, including the reauthorization of and adequate appropriations for the Export Import Bank, the reauthorization and remodeling of the Export Administration Act, the extension and expansion of the Andean Trade Preference Act, the extension of the Generalized System of Preferences Program, approval of the U.S.-Vietnam Bilateral Trade Agreement, and the extension and expansion of Trade Adjustment Assistance. Each of these pieces of legislation is important to promote trade and investment liberalization in a manner that benefits ECAT companies and the broader U.S. economy.

ECAT's Activities to Promote Greater Protection for Overseas Investment

Since its formation, ECAT has voiced strong support for policy and legislation that promote U.S. investment abroad, including strong investment protections in international agreements. ECAT has published three major studies - and will publish a fourth this year - documenting what ECAT companies already know from their own operations: Foreign investment by U.S. companies plays a vital role in promoting the health and dynamism of the U.S. economy and generally complements companies' activities in the United States; it does not substitute for them. As documented in ECAT's 1998 study, Mainstay III: Global Investments, American Returns, and the 1999 Update, U.S. companies that invest abroad export more, pay their U.S. workers more, and spend more on research and development and physical capital improvements in the United States than companies that do not invest abroad. For at least the last 25 years, these companies have accounted for 50 to 75 percent of all U.S. exports. In short, U.S. foreign investment supports higher paying jobs, greater productivity, a higher standard of living and economic growth in the United States. Investment is vital to U.S. companies who seek markets abroad, both as a way to accelerate growth, raise living standards and increase customers in foreign countries and to create efficiencies of scale and complement business activity at home.

As foreign investment and investment protections have come under increasing criticism, ECAT has expanded its efforts. As discussed below, throughout 2001, ECAT played a leading role both with the Administration and with Congress to combat efforts to scale back the investment protections sought by U.S. negotiators. ECAT will continue that role in 2002 and beyond.

Administration Review of U.S. Negotiating Position on Investment

As part of its Trade Policy Review Group (TPRG) to determine the U.S. negotiating position in the Chile and Singapore Free Trade Agreement negotiations, the Administration has been engaged in a lengthy and intensive review of the U.S. negotiating position on investment. Several agencies, most prominently the Justice Department and the Environmental Protection Agency (EPA), have sought to scale back the type of investment protections contained in NAFTA Chapter 11 and U.S. BITs. In particular, proposals have been made to require exhaustion of local judicial remedies before resort to arbitration, to exclude measures taken for environmental, health or safety reasons from the investor-state protections, and to limit the ability of companies to seek compensation for expropriation or unfair treatment. Such modifications would undermine investment protections and the investment that follows, to the detriment of U.S. companies, workers and their families, and the U.S. economy.

Throughout 2001, ECAT played a leading role in seeking to prevent these modifications from being adopted by the Bush Administration. ECAT, along with other interested organizations, has met with key officials from all agencies involved in the TPRG to emphasize the importance of maintaining the traditional U.S. negotiating position on investment. ECAT has also taken a principal role in drafting letters, talking points and background papers for Administration officials emphasizing the need to maintain strong investment protections in U.S. trade and investment agreements.

At present, we understand that the Administration is close to reaching an agreement on the negotiating position on investment for purposes of the Chile FTA negotiations. Nevertheless, the Justice Department and EPA continue to press for changes in the protections for U.S. investment abroad and we expect to be heavily engaged in this process as debate on this issue continues within the Administration in 2002 in the context of other negotiations, including negotiations for a Free Trade Area of the Americas.

Trade Promotion Authority

At the same time, there have been several Congressional efforts to limit investment protections as part of the Trade Promotion Authority (TPA) legislation that the House passed late last year and that the Senate will consider in the near future. Indeed, investment, along with labor, environment and Congressional authority, were the primary substantive issues in the House debate on TPA.

In the House, Representative Levin's TPA bill (H.R. 3019) would have required significant limits on the protections that U.S. negotiators could seek in new investment agreements, including limiting the right to seek compensation for indirect expropriations and exempting health, safely and environmental provisions from investment protections. ECAT worked extensively in the House to promote a positive investment agenda as is contained in the Bipartisan Trade Promotion Act (H.R. 3005), which passed the House in November. In particular, ECAT provided ongoing counsel on appropriate investment language and prepared background papers, talking points and other material for use by Members and staff on the importance of strong investment protections.

In the Senate, ECAT and other organizations provided counsel to Finance Committee Chairman Baucus on various investment proposals presented throughout the year. The Chairman's TPA mark included a few, generally non-problematic modifications to the House-passed H.R. 3005.

In 2002, ECAT and ECAT companies are continuing their efforts with the Administration and Members of Congress to promote policies and legislation that promote, and do not inhibit, foreign investment. ECAT will be using its new study, in particular, to promote greater understanding of the positive role that foreign investment has on the American economy and American companies, workers and their families.

New ECAT Study on U.S. Trade and Investment Policy and the Growth of the U.S. Economy in the 21st Century

ECAT will also be releasing its latest study this year, tentatively entitled, Mainstay IV: U.S. Trade and Investment Policy and the Growth of Information Technology in the 21st Century. This study by noted Dartmouth Economist Matthew Slaughter will document that trade and investment are critical components supporting the growth in productivity and the increase in U.S. living standards that the United States has enjoyed over the last decade. This study examines in particular the relationship between trade and investment and the growth in the production and in the use of information and communication technology (ICT) products - products that have together accounted for the majority of the acceleration in U.S. labor productivity over the last half-decade. This acceleration has been much celebrated, as labor productivity is the single best measure of a country's overall standard of living.

The key conclusion of Mainstay IV is that trade and investment play a critical role in fostering the growth of and the demand for ICT in ways that support increased productivity and economic growth. ECAT plans to use this study to further bolster its arguments with the Administration and Congress in favor of trade and investment liberalization.

The study will include a full-scale economic analysis and case studies from ECAT member companies that explore in more detail the synergies between trade and investment and the expansion of new technologies. This study will also detail several specific trade and investment policy recommendations based on the underlying economic analysis. We are hopeful that this study, due to be released later this spring, will further contribute to a greater understanding of why liberalized trade and investment policies are essential to U.S. economic growth.

The Continued Need for Trade Outreach

Despite the importance of trade and investment liberalization in supporting economic growth and a high standard of living in the United States, there remains much skepticism in Congress and the broader public on whether the United States should continue to pursue liberalized trade and investment. In their 2001 book, Globalization and the Perceptions of American Workers, Drs. Kenneth Scheve and Matthew Slaughter review public opinion surveys dating back to the 1930s documenting this uncertainly. Their review indicates that while a large majority of Americans acknowledge the gains from globalization, a plurality to a majority are worried about the impact of trade and globalization on labor issues, particularly lower wages and the loss of jobs.

In Congress as well, there remains uncertainty over the value of liberalized trade and investment policies. Trade-negotiating authority legislation (so-called fast track or trade promotion authority) expired in 1994 and the road to its renewal has been difficult. Last year, the House approved Trade Promotion Authority by a one-vote margin and the Senate is poised to take it up this year. As the Congressional debate on Trade Promotion Authority makes clear, there remain deep divides on the role, objectives, and value of U.S. trade and investment policy.

Given the gap between public perception and most economic studies that demonstrate the value of trade and investment liberalization to the growth of the U.S. economy, it is clear that trade outreach efforts must continue and be reinvigorated. ECAT is committed to continuing and heightening its efforts in this area. In addition to ECAT's new study discussed above, ECAT also plans to continue the use and further develop trade outreach messages to communicate the benefits of trade to Congress, as well as to American workers and their families.

ECAT's Trade Outreach Messages

ECAT's trade outreach messages are based on focus group research on public attitudes and sentiments about trade carried out with ECAT member company employees and the general public in different parts of the country. The findings of the research indicate that pro-trade supporters need to talk about trade in ways that not only inform, but also respond to public anxiety about the impact of trade and economic expansion. The research also revealed that positive trade messages must be: (1) credible, and not "oversell" the benefits of trade; (2) centered around how trade and investment support a better home and family life; (3) focused on the ways in which employees personally benefit from their company's role in trade, and (4) organized around the theme of trade as a road to life and growth.

The research also found that certain words and phrases are more effective than others when talking about trade. Words such as higher standards of living, unlimited possibilities, choice, pioneer, opportunity, growth and explore are all positive terms to use when describing the benefits of trade. In contrast, words such as open trade, free trade, open markets, competition, more jobs, or global economy are likely to raise public anxiety about trade and should be avoided in communicating the benefits of trade.

ECAT has shared its message research with the broader U.S. business community, to help to shape communications on key issues on the U.S. trade agenda. In 1999, ECAT's message research formed the basis of the communications developed by the U.S. Alliance for Trade Expansion for the Seattle WTO ministerial. ECAT also used the message research in developing its "food chain" proposal intended to put the spotlight on the human aspects of trade liberalization by focusing on the elimination of barriers to food trade. In 2000, ECAT's message was used as the basis for the advertising and development of materials to promote PNTR with China. In 2001, ECAT's message help formed the basis of the communications developed by USTrade in support of Trade Promotion Authority and of pro-trade advertising developed by ECAT and The McGraw-Hill Companies.

ECAT's Trade: Discover the Opportunity (TDO)^TM Employee Outreach Program

In October 1999, then ECAT Chairman Ernest Micek and Congresswoman Jo Ann Emerson (R-8 MO) inaugurated ECAT's innovative, website-based employee trade education program at a full-day trade education training session for ECAT member companies in St. Louis, Missouri. The TDO program is based on ECAT's message research and is constructed around the themes of opportunity, growth, and success for individual employees. The program messages focus on how trade is helping employees achieve a better life and offers real life examples of ordinary Americans who are achieving their dreams because of expanding trade opportunities.

Under the TDO program, each subscribing ECAT member company is supplied with a set of trade education materials, such as posters and a newsletter template, which can be downloaded from the TDO portion of ECAT's website. The TDO website also includes a "best practices" bulletin board, where we encourage ECAT member companies to share their experiences in implementing trade education programs. The materials are designed to be easily modified to fit individual company communications styles.