U.S. Economic Diplomacy: Priorities and Concerns

As prepared for delivery

INTRODUCTION

Good morning. First of all, I would like to thank Linda Wuest of the Houston World Affairs Council and Fulbright & Jaworski for hosting this luncheon today. I appreciate your interest in U.S. foreign policy and your support for important institutions such as the World Affairs Council, which promotes greater understanding of international relations and gives Texas a stronger voice in foreign policy debates - not that Texas isn't already playing a major role in the global economy.

Texas has seen a dramatic increase in its exposure to world markets. With 2004 merchandise exports of $117 billion, Texas is the leading exporter in the country. In fact, your state's exports to the world grew more than 40% between 1999 and 2004, more than double the rate at which U.S. exports increased in that time. Texas also benefits greatly from international capital flows. In 2003, foreign investment in Texas by U.S. affiliates of foreign firms was valued at $101 billion. It is estimated that these companies support more than 370,000 jobs here, the third-largest concentration of such employment in the nation.

Houston and other Texas cities are also hosting several major international meetings the State Department plans to support, such as the World Congress on Information Technology in May in Austin, which will bring together the leading industry players, governmental policy makers, and academic thinkers in the information and communications technology sector. Shortly thereafter, in June, Houston will host the U.S.-Arab Economic Forum, a major economic and commercial dialogue event between the U.S. and the Middle East. We are working closely with foreign governments to ensure that there is substantial international participation in both these events.

ACCOMPLISHMENTS IN 2005

At the start of the New Year, I thought it appropriate to mention some of our key accomplishments in economic diplomacy during 2005, to provide you a sampling of the range of issues we work on at the State Department - many of which have important implications for you here in Houston.

In July, we helped to achieve progress on many fronts at the G8 Summit in Gleneagles, Scotland. Many of you working in the energy sector are aware of the Gleneagles Plan of Action on energy and climate change. Additional results of the G8 Summit include development initiatives for Africa; a new intellectual property rights enforcement initiative; and strong statements in support of the WTO Doha trade round and of our counterterrorism efforts.

In 2005, we reached a comprehensive Open Skies aviation agreement with Canada and liberalized our existing agreement with Mexico to enable expanded bilateral passenger and cargo service. These agreements are significant - especially for cities with major airports such as Houston - because more liberal air transport promotes international trade, investment, tourism, and local development for the communities served by such an airport.

At the World Summit on the Information Society in Tunisia, we led the successful efforts to preserve private sector leadership of the Internet and the free flow of information, despite a concerted effort by a powerful array of states to turn it over to an international governing body.

We helped negotiated a deal at the "Paris Club" of major countries holding debt which will eliminate $30 billion of Nigerian debt at no cost to U.S. taxpayers.

We helped protect innovation through stronger protection and enforcement of intellectual property rights around the world, for instance through the U.S.­EU and G8 leaders' agreements to strengthen IP enforcement as well as our work to improve enforcement in China, Ukraine, Russia, Pakistan, and Latin America.

The State Department was at the front lines of U.S. Government and international efforts during times of natural disasters at home and abroad.

In the first half of the year, we focused on helping mobilize and coordinate relief and rebuilding after the Asian Tsunami. Following Hurricane Katrina, we were actively involved in tracking offers of foreign assistance. Our early planning made possible close and speedy coordination with the International Energy Agency and its member countries to arrange the release of emergency petroleum stockpiles, which helped relieve tight energy markets.

When a major earthquake struck Kashmir in October, we coordinated U.S. relief and reconstruction assistance and ensured that the Islamabad Donors' Conference was a major success, with over $6.2 billion in pledges.

TRANSFORMATIONAL DIPLOMACY

These accomplishments don't merely show how many different international economic issues we follow; the range of topics covered is further evidence that we are living through a time of unprecedented change in human history. Increasing economic interdependence among countries and across borders is perhaps the defining characteristic of this new era.

I am sure many of you have heard Secretary Rice compare this period after the end of the Cold War and the attacks of September 11 with the early years following World War II. As a result, Secretary Rice has emphasized the importance of transformational diplomacy - using the full range of U.S. diplomatic tools to shape change that is good for all countries, including the United States.

Economic diplomacy is a crucial part of this effort. A powerful and vital way to support political and social freedoms is by generating economic opportunities that help people build better futures for themselves.

Please allow me to brief you on our priorities and concerns in the U.S. international economic agenda.

ENGAGEMENT WITH STRATEGIC COUNTRIES

Working in partnership with other government agencies involved in economic issues such as Treasury, Commerce, and USTR, as well as with the private sector, the State Department is focusing on key countries and regions to support their transformation to strong, market-oriented, prosperous and democratic states, including Iraq, Afghanistan, Ukraine, Indonesia, Lebanon, Haiti, just to name several.

For example, the State Department and our Embassy in Baghdad are working hard to assist Iraqis with economic reforms and reconstruction. For example, when the Saddam era ended, Iraq's external public debt stood at over $120 billion dollars, or about 600% of GDP. We have worked closely with our allies and friends to write off nearly all that debt.

We are also working to support economic and political transformation in Central Asia, the Broader Middle East, and the Balkans.

We want these countries and regions to succeed as they emerge from conflict and throw away the outdated, statist political and economic models of the past.

Economic policy matters to developed and developing countries alike. Our economic diplomacy promotes policies that spread the benefits of economic development to all sectors of society. We also devote much attention to managing relations with countries that have a particularly large economic relationship with the United States.

For example, we are working with the Chinese leadership to ensure that China acts as a "responsible stakeholder" in the evolving international system. China benefits from the world trading system and needs to support that system with tangible action.

Plans for a visit to India by the President in the coming months, which follows a visit by the Indian Prime Minister to Washington last July, underscores the growing importance of India as a strategic and economic partner of the US.

As the world's largest economic area, the European Union is also of great importance to our economic diplomacy. Europe is a key partner for our work to advance the global economic agenda.

Now let me highlight our strategy in pursuing this agenda as well as some concerns which lie ahead.

The State Department promotes prosperity at home and abroad by focusing on three priority areas:

1. Open Markets,
2. Economic growth and development, and
3. Economic security.
   

OPEN MARKETS

We know that only with sustained growth can countries reduce the number of their citizens living in poverty. Open trade and investment regimes promote sustained economic growth.

The World Trade Organization (WTO) remains the best framework to advance global trade and economic growth in developing countries. In his speech to the UN General Assembly last September, President Bush laid out a bold vision for free trade - a world with zero subsidies and zero tariffs - to encourage renewed economic growth, and prosperity to the developing world.

Despite low expectations, the WTO Ministerial in Hong Kong kept the Doha Round alive.

WTO members were able to set 2013 as the date to end agricultural export subsides. Members also agreed to a number of important development initiatives, including:

• A breakthrough in rules governing IPR that balances the need to protect patent rights with delivering life-saving medicines to disease-stricken countries. 
• A reinforced commitment to "aid for trade" to help developing countries take better advantage of the global trading system through improvements in legal, administrative, and physical infrastructure. 
• A commitment by developed countries to duty-free/quota-free treatment of goods from the world's poorest countries.
  

Most importantly, trade ministers agreed that no one can afford to miss this once-in-a-generation opportunity to re-energize the global trading system, create economic growth, and lift millions out of poverty.

There is lots of hard work ahead of us. Expanded market access, particularly in agriculture, is key to a final agreement. A substantial move by the EU on agriculture would pave the way for advanced developing countries, such as Brazil and India, to make comparable tariff cuts on industrial goods and deliver new market openings in services.

Unless this can happen early in 2006 - and Hong Kong set a deadline of April 30 for modalities in agriculture and non-agricultural market access (NAMA) to be concluded - we risk losing a unique opportunity, since the President's current authority to negotiate trade agreements expires in 2007.

Along with efforts to conclude a multilateral trade agreement in the WTO, we continue to pursue an active trade agenda with regional, sub-regional and bilateral free trade agreements. In Latin America, we are working toward concluding negotiations with 13 countries. Such agreements are a special vehicle to promote rule of law, transparency, and open trade regimes.

The U.S.-Chile Free Trade Agreement is an excellent case in point. We have seen a 30% increase in trade and investment in the first year since it entered into force in 2004.

We are advancing toward full implementation of the Central America Free Trade Agreement (CAFTA), and we expect the agreement to enter into force on a rolling basis early this year. In late December we initialed a free trade agreement with Peru.

Protecting innovation is another pillar of our economic diplomacy. Roughly 7% of annual global trade involves trade in illegitimate goods. Counterfeiting alone costing U.S. businesses as much as $250 billion annually. We also recognize that the nations in which intellectual property crime takes place are also suffering great economic consequences. Indeed, 71% of Latin American businesses polled in 2005 listed IP theft as one of the most pressing problems they face.

To win this battle, we need to build stronger teams - across borders, across industries, across governments, and between the public and private sectors. And we need you to help us build them.

Without this protection, the stimulus to innovate - to create value - is gone. In Peru, where piracy levels reached 98%, the once-thriving legitimate record industry has nearly disappeared. In Mexico, an industry association estimates that 28,000 jobs have been lost due to music piracy.

SUPPORT FOR U.S. BUSINESS

Helping U.S. companies to compete overseas is one of the State Department’s primary missions. Indeed, the President instructs each new Ambassador to become personally involved in advocating on behalf of American companies to other governments for fair treatment, transparency, and maximum opportunity for U.S. firms in competitive global markets.

The State Department, in partnership with the Commerce Department, provides direct support and advocacy to U.S. companies doing business abroad and exporting to foreign markets. We assist companies pursuing foreign government procurement opportunities and champion U.S. businesses requiring intervention on commercial and investment disputes.

We provided advocacy assistance to over 150 companies in Fiscal Year 2004. According to a major U.S. long distance carrier, our advocacy with foreign telecom operators and governments saved U.S. firms at least $80 million this year, while ensuring continued connection and open circuits in several overseas markets. We continue to expand trade promotion activities and support to U.S. business throughout the Department and at posts, with particular attention to the 110 posts where the Commerce Department has no overseas presence.

We have also enhanced our dialogue with the private sector in order to integrate commercial diplomacy fully into our broader goals and strategies.

We know U.S. companies overseas serve as models for the kind of business practices we want others to adopt. Each year since 1999, through the Secretary of State's prestigious Award for Corporate Excellence, we publicly recognize U.S. companies that display exemplary business practices in corporate citizenship, innovation, and exemplary international business practices.

Facilitating business travel to the U.S. is another area which I'm sure is of great interest to all of you. I want you to know that we hear your concerns and are reviewing current initiatives and means to further improve visa facilitation.

Promoting legitimate international business travel, while maintaining high standards of border security, is at the top of our agenda.

We are enhancing the processes for visa applications and at the port of entry.

The new State Department Business Visa Center, a global expansion of a pilot project in China, is already helping hundreds of U.S. companies every month by facilitating application procedures for businesses with upcoming travel or events. More information can be found on our website at travel.state.gov or by calling 202-663-3198. Please take advantage of this new service and give us your feedback.

Our embassies and consulates have now established procedures, including partnerships with local American Chambers of Commerce, to decrease the wait time for appointments and expedite processing of business visas.

We continue outreach activities with the business community in the U.S. and abroad to make progress on this important issue. For instance, we recently worked with major business organizations on a survey of their members about how we might further facilitate business travel.

ECONOMIC GROWTH AND DEVELOPMENT

The second main priority of our economic diplomacy is economic growth and development. We are committed to helping developing countries realize the Millennium Development Goals of reducing poverty and improving living standards through development assistance and encouragement of pro-growth policies. To support trade and investment, which provide the bulk of financing needed for growth in developing countries, we promote open markets, innovation through strong intellectual property regimes, and improved investment climates that ensure regulatory transparency and rule of law.

For example, the Doha Development Agenda (DDA) has the potential to lift millions of people out of poverty and to enhance the economic well-being of developing countries. Historically, developing nations that open themselves up to trade grow at several times the rate of other developing countries. Tragically, some of the highest trade barriers exist between developing countries. Nearly 70% of the tariffs paid by developing countries are paid to each other.

We also provide development assistance and are working hard to make that assistance more effective in stimulating growth and reducing poverty. The U.S. emphasizes the so-called "Monterrey approach" of using aid to promote and amplify effects of responsible, pro-growth policies. The Administration's Millennium Challenge Account (MCA) is one of the most important and innovative development programs in decades. The program is already changing behavior in developing countries by rewarding and encouraging good governance, democracy, economic freedom, and investing in people.

We also seek to improve the global business climate by promoting transparency and fighting corruption, including through the G8.

U.S. companies can support and implement the OECD Guidelines for Multinational Enterprises, a set of voluntary principles, and can continue to highlight their firm stand against paying bribes to foreign public officials. Through effective implementation of the OECD AntiBribery Convention, we are working hard to ensure that your competitors have to live by the same tough standards you do.

In addition, U.S. investors overseas should know that the U.S. Government is concerned when disputes arise and that we take the principle of contract sanctity very seriously. We underscore that we expect our treaty partners to live up to their obligations. Sometimes, the fact that the U.S. is aware of and concerned about a dispute is enough to encourage parties to find a solution.

ECONOMIC SECURITY

The third priority in our economic diplomacy strategy is enhancing America's economic security. We provide support for states on the front lines in the War on Terror. We work with other agencies, governments, and international institutions to cut off the flow of funds to terrorist networks. And we promote policies that improve transportation and information network security.

Given the role of energy issues in Houston's economy, I suspect that you are also interested in our efforts to promote energy security.

Events in recent months, including the effects of Hurricane Katrina and uncertainty regarding the reliable supplies of energy from key producing countries, have increased public awareness of the importance of energy security as never before.

Our primary objective is to ensure that our economy has access to energy on terms and conditions that support economic growth, while at the same time protecting the environment.

We believe the best ways to achieve this are to promote a free, open and transparent marketplace for investment and trade in energy supplies. Barriers to investment and trade as well as attempts to "lock-up" energy supplies through economically unsound transactions only serve to prevent the most efficient and sustainable utilization of limited resources.

Domestically, the passage of the Energy Policy Act of 2005 should help to improve our security posture through a combination of investment in infrastructure, conservation, enhanced efficiency, and technology research.

From an economic diplomacy perspective, our fundamental strategies include:

• Promoting the diversification of energy supplies, worldwide, 
• Using strategic petroleum stocks to respond to supply disruptions, 
• Encouraging major oil producing countries to maintain responsible production policies, 
• Supporting energy efficiency initiatives worldwide; and 
• Promoting transformational energy technologies.
  

Since Houston is the home of one of the nation's largest ports, you should also know that promoting the secure use of the world's air, land, and sea transportation networks is one of the State Department's priorities. Transport security is best achieved by blending public and private security activities on a global scale into an integrated effort that addresses all threats.

CLOSING
Private sector input is critical on these and so many other issues. Only through partnership between the private sector and government can we develop workable strategies to promote prosperity and economic security.