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 the world’s largest trading nation, accounting for approximately 14 percent of world goods trade and 17 percent of world services trade. In 2004, U.S. trade and investment, including imports and exports and payments and receipts on foreign investment, increased by 16 percent to $3.7 trillion. As a share of the U.S. economy, U.S. trade and investment has grown from 13 percent of GPD in 1970 to 31.5 percent in 2004.

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 $283 billion in 2003. Such flows are critically important drivers as well of exports, as the largest market for U.S. exports is foreign based subsidiaries of U.S. companies as discussed in greater depth in section 4.

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.

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.

Trade Deficits and Jobs.

Contrary to much speculation, increasing trade deficits do not 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. As explained in the 2005 Economic Report of the President:

According to standard economic theory, the degree to which an economy is open to trade affects the mix of jobs within an economy and may cause dislocations in certain areas or industries, but has little impact on the overall level of employment. . . . . Trade tends to lead a country to specialize in producing goods and services at which it excels. Trade affects the mix of jobs because workers and capital would be expected to shift away from sectors in which they are less productive compared to foreign producers and toward existing and new sectors.

Trade and Wages
Nor has trade reduced wages. A Congressional Research Service report concluded:

[T]here 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.

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 2004 and into 2005, ECAT has been active on the full spectrum of trade and investment issues, including the following:

Trade and Investment Negotiations. Building upon its work in 2003, ECAT has actively continued its efforts to promote 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:

U.S.-Central American-Dominican Republic Free Trade Agreement (CAFTA-DR): As Secretariat to the U.S. Business Coalition for U.S.-Central America Trade, ECAT led efforts in 2003 to promote the negotiation of a comprehensive and commercially meaningful free trade agreement (FTA) with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and later the Dominican Republic. In 2004, ECAT worked actively to lay the groundwork for Congressional support of the CAFTA-DR, which is expected to become the seminal vote on trade this year.

In addition to the coordination of key aspects of the Business Coalition’s activities, ECAT has played a leadership role in developing the messaging and developing and implementing the business community strategy to seek Congressional approval of the CAFTA-DR as soon as possible. Key ECAT activities in 2004 included the following

Development and distribution of 50 state profiles on the importance of the CAFTA-DR.
Preparation and distribution of numerous one-pagers, including multiple messages of the week, used in Congressional visits identifying the benefits of the CAFTA, from general overviews to specifics on national and state economic impact, labor, environment, and investment.
Development of key arguments and documents to rebut opponents’ claims on labor and the environment, including comparisons of the CAFTA labor chapter and all recent FTAs, including the Jordan FTA, and a summary of the very strong labor law provisions of the CAFTA-DR countries.
Development and coordination of Business Coalition’s website – www.uscafta.org – the most extensive business community website for any recent FTA that includes numerous ECAT and non-ECAT documents.
Coordination and participation in numerous meetings with the Administration, House and Senate leadership, and Members of Congress.
Testimony and briefs prepared by ECAT on its own behalf and on behalf of the Business Coalition on the commercial benefits of the CAFTA-DR before the U.S. International Trade Commission
Coordination and participation in numerous meetings with Ambassadors, Central American and Dominican Republic trade ministers and other officials on strategies to achieve Congressional implementation of the CAFTA-DR.
Organization and hosting of Business Coalition reception at the Organization for American States following the signing of the initial CAFTA agreement in May 2004.

Doha Development Agenda: ECAT actively worked with the Administration, Congressional leaders and the broader business community in support of efforts to restart the stalled WTO Doha Development Agenda negotiations. With the Administration’s successful efforts that culminated in the WTO Framework Agreement reached this summer, ECAT has now begun its work in identifying and promoting the key concrete objectives of its member companies in each area of the negotiations, from market access for goods, services and agricultural products, to trade facilitation and rules. ECAT remains disappointed by the failure of the WTO to include government procurement in its final package of negotiations, but will continue to work with its member companies to increase country coverage of the WTO Government Procurement Agreement and on other complementary activities. ECAT is also preparing Members of Congress for a possible vote in 2005 disapproving U.S. participation in the WTO and is working with Congressional leadership on appropriate strategies for that possible vote.

Australia, Morocco, Bahrain and Other FTAs: ECAT and ECAT companies continue to work extensively to ensure that each FTA represents the highest standards possible with strong market access provisions and key standards on investment, intellectual property and government procurement. ECAT worked extensively with regard to these issues with respect to each of the FTAs, particularly on investment in Australia and Morocco and continues to work on these issues in the context of the Andean negotiations with Colombia, Ecuador and Peru, and with Panama. ECAT has begun its work to promote a strong agreement with Thailand and continues to monitor the Southern African FTA negotiations for progress.

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 2004, ECAT has played a leading role in key investment issues being considered by the Administration, including with respect to the development of a model bilateral investment treaty, the U.S.-Uruguay Bilateral Investment Treaty, the development of a potential investor-state appellate mechanism and investment chapters in FTA negotiations, including with the Andean Pact countries and Panama.

China. ECAT continued to work on China trade and investment issues, including through advocating for China’s full implementation of its WTO commitments and swifter negotiation of its accession to the WTO Agreement on Government Procurement and the adoption of non-discriminatory government procurement practices. At the same time, ECAT also continued working 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 it accorded China permanent normal trade relations when it entered the WTO. These efforts including advocating restraint by the Administration with respect to two section 301 petitions to impose WTO-violative sanctions on China for labor and currency practices.

Russia. ECAT continued efforts with ECAT companies and key Administration officials to promote concrete progress on WTO accession negotiations, supporting efforts to promote improved commitments in agriculture, goods and, particularly, key service sectors. ECAT also reviewed prospects for negotiating investor protections with Russia and emphasized to the Administration and Congress the strong business community support for such protections, which many European competitors already enjoy through bilateral investment treaties.

Export Controls and Unilateral Sanctions. ECAT continued to work to ensure that export controls fully reflect the commercial issues faced by our companies and that unilateral sanctions are eliminated. In particular, ECAT worked with its member companies to prepare comments on the proposed change in export control standards on knowledge. As well, ECAT, along with others in the business community, continued to urge the elimination of various unilateral sanctions issues, particularly those with Cuba.

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.