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 elements in the economic growth and high standard of living enjoyed in the United States and throughout the global economy. The United States is both the largest exporter and the largest importer of goods and services around the world. In the United States, the share of gross domestic product (GDP) attributable to exports alone has almost tripled since World War II. U.S. exports as a percentage of GDP increased from 7 percent in 1950 to 18 percent in 2002. Services trade increasingly makes up an important share of such flows. In 2002, the United States exported services equal to $30 billion, accounting for 30 percent of total exports of goods and services.

Global flows of foreign direct investment have also been 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. Flows of U.S. foreign direct investment have grown too, increasing from just under $5 billion annually in the 1960s to approximately $200 billion in 2002. Notably, foreign investment in the United States dwarfs our investment overseas.

The 2004 Economic Report of the President notes that current U.S. proposals in the WTO on trade liberalization of nonagricultural goods could raise the level of U.S. GDP by $144 billion a year, equal to an additional $2,000 or more 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 last decade 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, and exports, as well as 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 their participation in world markets.

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.

In January 2003, ECAT released Mainstay IV: Technology, Trade and Investment: The Public Opinion Disconnect. This study 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 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 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.

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 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 2003, ECAT has been active on the full spectrum of trade and investment issues, including the following:

Trade and Investment Liberalization. Following Congressional passage of Trade Promotion Authority as part of the Trade Act of 2002, ECAT renewed its focus in 2003 on the promotion of concrete trade and investment liberalization through the negotiation and implementation of regional, sub-regional and bilateral free trade agreements, as well as the global negotiations undertaken as part of the Doha Development Agenda of the World Trade Organization (WTO). ECAT has been active on several different fronts in promoting this agenda:

Doha Development Agenda: ECAT actively worked with the Administration, Congressional leaders and foreign governments and businesses on a commercially meaningful framework in the lead-up to the Fifth WTO Ministerial in Cancun, Mexico, in September 2003. In Cancun, ECAT participated in the Ministerial and worked with the Administration and the U.S. business community in support of a positive outcome. Despite the failure of the Ministerial to reach a consensus in Cancun, ECAT will continue to work actively for progress in these very important negotiations.
Free Trade Area of the Americas: ECAT organized and led joint business community efforts to seek a negotiating framework for a comprehensive, high-standard and commercially meaningful Free Trade Area of the Americas (FTAA). ECAT drafted and gained support for a strong business community letter advocating an ambitious FTAA. ECAT also organized meetings with key Administration officials and Congressional champions in support of that outcome. ECAT also organized the joint business community communication issued the week of the FTAA Ministerial renewing the call for a comprehensive and high standard approach. While ECAT is disappointed that the Western Hemisphere ministers were not able to reach a more ambitious outcome at the Miami Ministerial, ECAT recognizes that the result would likely have been much worse but for the active role played by the U.S. business community. ECAT has reiterated its call to the United States and other countries to renew their efforts to press vigorously for an ambitious outcome.
Central American and Dominican Republic Free Trade Agreement: As Secretariat to the U.S. Business Coalition for U.S.-Central America Trade, ECAT led efforts to promote the negotiation and future implementation of a comprehensive and commercially meaningful U.S.-Central American Free Trade Agreement (FTA) with Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua and the more recently concluded agreement bringing the Dominican Republic into this FTA. On behalf of the Coalition, ECAT organized meetings with negotiators, Members of Congress and their staff, U.S. and Central American business representatives and non-governmental organizations on the full gamut of issues involved in the negotiations. ECAT also prepared letters and background materials on private sector negotiating objectives and the importance of these negotiations. In May 2003, ECAT organized a weeklong Congressional staff delegation to Costa Rica and Honduras with eight Congressional staff from the House and Senate. Following the conclusion of the negotiations in 2003 and 2004, ECAT has stepped up its efforts to build Congressional support for the final agreement.
Chile and Singapore FTAs: ECAT strongly supported the conclusion of negotiations and Congressional approval and implementation of the Chile and Singapore FTAs. In particular, ECAT worked with the Administration to ensure that key investor protections, particularly those related to the transfer of capital, were retained as the negotiations drew to a close. ECAT also actively worked with Members of Congress and their staff in support of the FTAs, which were approved in 2003 by significant bipartisan majorities in both the House and Senate.
Australia, Morocco, Southern Africa and Other FTAs: ECAT also supported the negotiation of the recently concluded FTAs with Australia and Morocco. With respect to Australia, in particular, ECAT worked extensively with ECAT member companies and other parts of the business community to promote strong rules with respect to investment, including guaranteed access to arbitration with respect to investment agreements, an investor-state dispute settlement mechanism, and reform and potential elimination of Australia’s investment screening mechanism. As discussed in more detail in Section 2, the ultimate FTA concluded with Australia does not include protections for investment agreements or an investor-state mechanism, although it does make progress in reforming Australia’s investment screening mechanism. ECAT will also continue to support negotiations with Southern Africa, Panama, Bahrain, Colombia and potentially other Andean Pact countries, and Thailand in 2004 and 2005.

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.

As foreign investment and so-called offshore outsourcing have come under increasing criticism, ECAT has expanded its efforts. Throughout 2003 and into 2004, ECAT has played a leading role in key investment issues being considered by the Administration. In addition to working with the Administration to ensure strong free transfer of capital protections in the Chile and Singapore FTAs, ECAT, along with other interested companies and associations, worked extensively with the Administration on retaining other key investment protections in future agreements. In particular, ECAT has played a leadership role in the business community’s efforts to keep investor-to-state dispute settlement for certain investment agreements (agreements an investor has with a foreign government related to natural resources or other assets controlled by the foreign government) in the Central American and Morocco FTAs, although this coverage is prospective only. With respect to the U.S.-Australia FTA, ECAT again worked extensively in support of full investment agreements protection, as well as the inclusion of an investor-state mechanism. The Administration decided not to seek investment agreement protection and was later unsuccessful in negotiating the inclusion of an investor-state provision in the U.S.-Australia FTA. Since mid-2003, ECAT has also been playing a leadership role in ensuring that new bilateral investment treaties include adequate protections, including access to a neutral international arbitration forum, not only for investment agreements, but with respect to financial services measures, including with respect to financial institutions, that a foreign government may take. Finally, ECAT played leading roles in both the WTO and FTAA negotiations advocating that negotiations do not include a lowest-common-denominator investment framework.

China. ECAT has also reenergized its decades long efforts in support of maintaining the policy of commercial engagement with China, including promoting China’s implementation of its WTO commitments. ECAT is continuing work with the Administration and Members of Congress to ensure that the United States stays the course in the policy that Congress most recently reaffirmed when its accorded China permanent normal trade relations when it entered the WTO.

Steel Safeguard Tariffs. Throughout 2003, ECAT led a coalition of U.S. companies, including steel users and export companies, seeking the immediate lifting of the steel safeguard tariffs imposed in March 2002. These companies have been concerned about the impact not only on domestic steel prices, but on the broader U.S. trade liberalization agenda, particularly following the threatened retaliation on billions of dollars of U.S. exports by the European Union, Japan, Norway, China and others after the WTO Appellate Body ruled that the U.S. tariffs were inconsistent with our WTO obligations. 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 these tariffs and the potential damage that retaliation would cause. ECAT submitted Congressional testimony and delivered Steel Facts of the Day to all Members of Congress. ECAT also testified and submitted briefs during the International Trade Commission’s review of the steel safeguard tariffs. On December 11, 2003, the Bush Administration lifted the steel tariffs, relying on many of the arguments made by ECAT and ECAT member companies.

Trade Legislation. In addition to the activities described above, ECAT also played an important role in opposing legislation that would undermine trade and investment liberalization, including:

Organizing a joint business community letter and Congressional meetings to oppose legislation that sought to impose 27.5 percent tariffs on all imports from China. This effort was in addition to ECAT’s own communications to every Senator in opposition to this measure. This legislation was ultimately not offered.
Preparing a joint business community letter and organizing several Congressional meetings to oppose legislation that sought to prevent the Administration from negotiating any provision that relates to temporary entry (even if U.S. law is not changed). This amendment was not included in the final appropriations package.
Opposing legislation that would have required core labor standards to be included in future FTA negotiations. This language was not adopted.

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 uncertainty. 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. These concerns have been accentuated in 2003 and 2004, particularly with respect to offshore outsourcing.

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.