Emergency Committee For American Trade - Publications

Section 1: 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 and throughout the global economy. In the United States, the share of gross domestic product (GDP) attributable to trade has more than quadrupled since World War II. Trade (exports and imports) as a percentage of GDP increased from less than 16 percent in 1975 to over 26 percent in 2000.

Global flows of foreign direct investment have also been 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.

The 2003 Economic Report of the President notes that current U.S. proposals in the WTO on trade liberalization of nonagricultural goods could alone save Americans about $18 billion a year in import taxes, equal to approximately $1,600 for the average family of four.

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 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.

In assessing the importance of trade and investment, it is also important to consider 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.

Discussed in more depth below is ECAT's new study - Technology, Trade and Investment: The Public Opinion Disconnect - that documents the critical role that trade and investment liberalization play in promotion of industries that produce and use technology - industries that are responsible for the significant acceleration in productivity over the last half-decade, which has contributed to a significant increase in U.S. living standards.

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 20^th 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 and Investment

Since its formation in October 1967, ECAT has played a leading role in promoting trade and investment liberalization, promoting strong protections for international investment and opposing protectionist efforts to restrict trade. Throughout 2002, ECAT has been active on the full spectrum of trade and investment issues, including the following:

Trade Promotion Authority. On Trade Promotion Authority (TPA or so-called "fast track"), ECAT and its member companies continued to play a critical role in the business community's support of this legislation, which was ultimately included as an integral part of the Trade Act of 2002 and approved by the House (by a vote of 215-to-212) and the Senate (by a vote of 64-to-34) last summer. TPA has been one of ECAT's top priorities because it will enhance the ability of the United States to negotiate and implement global, regional, and bilateral trade agreements that support economic growth and provide concrete opportunities for U.S. companies, workers and their families.

Throughout 2002, ECAT staff and member companies were heavily involved in many aspects of this legislation, including:

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.
Educating and lobbying House and Senate members and their staffs on the importance of timely passage of TPA.
Educating and lobbying Senate members and their staffs regarding all key issues and amendments raised during the Senate floor debate, including through the issuance of daily ECAT TPA bulletins.
Spearheading the business community's lobbying efforts against the Kerry amendment that would have undermined protections for U.S. investment abroad; that amendment was defeated by a vote of 55-to-41.
Raising the profile of and lobbying against other key amendments and provisions that would have severely weakened the final legislation, including the so-called Dayton-Craig amendment that would have allowed amendments to a trade agreement implementing bill contrary to the essence of TPA; the Dayton-Craig amendment was dropped during the House-Senate conference.
Working with Conferees and their staffs on the final development of the House-Senate conference report on TPA, including the explanatory language further defining key aspects of the legislation.
Sending letters to House and Senate members and leadership promoting timely passage of this important legislation.
Providing substantive and political advice to non-ECAT companies and associations as part of the broader business community's efforts to support TPA, including as a founding member of the steering group of the USTrade coalition.

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 four major studies 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. In short, U.S. foreign investment supports higher paying jobs, greater productivity, a higher standard of living and economic growth in the United States. In a like manner, foreign investment by U.S. companies serves as a way to accelerate growth, raising living standards, increase customers in foreign countries, 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 2002, 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 2003 and beyond.

Throughout the year, ECAT has also played a leading role in key investment issues being considered by the Administration and Congress. In addition to leading the broader business community's successful efforts to defeat the Kerry amendment to TPA (discussed above), ECAT, along with other interested companies and associations, worked extensively with the Administration during and after the Congressional debate on TPA to provide input into the actual Administration negotiating positions 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. Bilateral Investment Treaties (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 2002, ECAT played a leading role in seeking to prevent these modifications from being adopted. ECAT, along with other interested organizations, met with key officials at the National Economic Council, Commerce, Treasury, State, USTR, Justice, the Council of Environmental Quality, and the Environmental Protection Agency 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 our position. In part due to our efforts, the Administration rejected several anti-investment proposals that surfaced inter-agency.

ECAT has also helped lead business community efforts to ensure that the new agreements with Chile and Singapore do not allow for the use of capital controls, which these countries had sought the ability to impose without adequate compensation. In mid-December, the Treasury Department negotiated provisions on the free transfer of capital in the Chile Free Trade Agreement to lock-in protections for U.S. companies operating in Chile.

Trade and Investment Liberalization. ECAT continued its extensive activities to promote a positive trade agenda throughout 2003.

ECAT continued to support the negotiation of commercially-strong agreements that will create new opportunities and raise living standards through its work with the Administration, Congress, and other governments and groups.

To that end, ECAT actively supported global negotiations as part of the Doha Development Agenda and regional negotiations to create a Free Trade Area of the Americas (FTAA).
ECAT has also been involved in promoting the conclusion of commercially-strong free trade agreements (FTAs) with Singapore and Chile and will support the implementation of commercially-strong agreements in Congress.
ECAT began serving as the secretariat to the Business Coalition for U.S.-Central America Trade to promote the negotiation of a comprehensive and strong agreement with the five Central American governments of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua; these negotiations can both provide greater access for U.S. countries and serve as an important model and impetus for FTAA negotiations.
ECAT is also supportive of other negotiations that the United States is undertaking with Morocco, Southern Africa and Australia.
During the last year, ECAT provided detailed testimony and comments to the Administration on ECAT's objectives in the various negotiations.

As well, ECAT has led a group of U.S. companies, including steel users and export companies, in opposition to the imposition of safeguard tariffs on steel imports. These companies are concerned about the impact not only on domestic steel prices, but on the broader U.S. trade liberalization agenda. ECAT organized meetings with senior officials in all relevant parts of the Administration and with Members of Congress to provide input on this issue. ECAT also developed a media campaign to educate policymakers and the broader public on the impact of protectionist tariffs. Following the imposition of such tariffs, ECAT has continued to work with key Administration officials and Members of Congress to focus on the impact of such tariffs. The imposition of steel tariffs is currently under review in the World Trade Organization, with a decision expected in the first half of 2003.

Trade Legislation. In addition to the activities described above, ECAT also played an important role in the support of other pieces of key trade legislation, including the expansion and extension of the Andean Trade Preference Act, the reauthorization of the Export Import Bank, the remodeling of the Export Administration Act, and the extension of the Generalized System of Preferences Act. ECAT was also in the forefront since 2001 in identifying the reform of the Trade Adjustment Assistance (TAA) programs as an important ingredient to ensure bipartisan passage of TPA. ECAT worked with House and Senate members and their staffs and key Administration officials on the development of appropriate and relevant reforms to the TAA programs that address the concerns of today's workers, without undermining employment opportunities. The final package includes several temporary pilot programs that will allow all sides to better gauge how best to address the need for trade adjustment in the future. 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.

New ECAT Study: Technology, Trade and Investment: The Public Opinion Disconnect

In January 2003, ECAT released its latest study entitled, Mainstay IV: Technology, Trade and Investment: The Public Opinion Disconnect. This study by noted Dartmouth economist Matthew Slaughter documents 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 about two-thirds 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 faster growth rate of recent years implies that U.S. living standards now double in only 28 years - a generation faster than the previous growth rate.

The study examines the role of both ICT-producing and ICT-consuming industries in supporting the acceleration in U.S. productivity. ICT-producing industries¹ have high levels of exports, imports and foreign investment and are much more trade intensive than is the overall U.S. economy. Much of their output entails multiple production stages across multiple countries all linked via trade and investment. Exports are important not just for the U.S. parents, but also for their foreign affiliates. The acceleration in quality improvements and price declines in many ICT products is related to key liberalizations in the WTO and elsewhere, including the 1995 Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPs), the 1997 Information Technology Agreement and the 1997 Basic Telecommunications Agreement.

ICT-consuming industries² -- those industries that use ICT more heavily - are also industries that export more as a share of total output and, for decades, have had higher exports, imports and total trade as a share of total sales. Global production networks have deepened and widened in key ICT-consuming industries. Two of the most intensive ICT-using industries - telecommunications and financial services - have benefited from trade and investment liberalization in the WTO and elsewhere, including the 1997 Basic Telecommunications Agreement and the 1997 Financial Services Agreement.

In addition, in a series of case studies included in Mainstay IV, international trade and investment were found to be instrumental in the growth of ICT-producing and ICT-using industries. The study also examined the deep divides in public perceptions about technological progress and trade and investment liberalization.

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. Yet there is a disconnect in public opinion that needs to be addressed. Americans strongly embrace technological progress, even if it results in job loss while, at the same time, they are apprehensive over the trade and investment liberalization that helps make such technological progress possible. The study recommends:

Action by policy makers and business leaders to articulate the essential role of trade and investment in the production and use of new technologies.
The promotion of expansionary trade and investment policies, including new trade- and investment-liberalizing agreements and policies that promote and protect U.S. investment abroad.
The promotion of further trade and investment liberalization in the technology sector.
Bipartisan reform and modernization of the adjustment assistance programs.

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, 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 wages and jobs.

In Congress as well, there remains uncertainty over the value of liberalized trade and investment policies, although Congress was finally able to pass Trade Promotion Authority, as part of the Trade Act of 2002. Yet 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 of 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 to 2002, 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.

¹ ICT-producing industries produce the hardware, software and services - computers, semiconductors, electronics, and information services to name just a few - involved in collecting, processing and sharing information.
² These industries, such as telecommunications and financial services, invest heavily in ICT products and services.