Remarks by Under Secretary Grant Aldonas
"Fair Trade and the Fight Against Poverty"
Tuesday, July 2, 2002
Carnegie Endowment for International Peace
As Prepared for Delivery

Thank you, John [Audley, Sr. Associate at Carnegie]. It is a pleasure to be here. It is a pleasure to see John here, given that he and his wife just welcomed a newborn to their family this past week. I had opportunity to work with John previously during his tenure with the National Wildlife Federation. I appreciate his commitment to encouraging new voices in the debate on trade.

I also welcome the opportunity to appear with Ambassador Ssempala. I had the opportunity to work closely with the Ambassador while I was with the Senate Finance Committee. Ambassador Ssempala led the African diplomatic corps' efforts to secure passage of African Growth and Opportunity Act.

Political Logic of Trade is Broken

I would like to use the African Growth and Opportunity Act as a point of departure for my comments on Kevin's talk and on Oxfam's report. We have seen an interesting phenomena on trade in the United States: broader support for a bill that unilaterally granted preferential access to our market than for support for further trade negotiations.

Why is that? One significant reason, in my view, is that the political logic that has driven trade negotiations for the last 70 years is broken. Trade, as practiced in the GATT and WTO is driven by a mercantilist political logic of trading market access. Politically, we sell trade deals on the basis that our exporters are getting an equal or better opportunity than we are giving up to foreign exporters who want access to our market.

The problem now is that the cupboard is bare, except for those tariff peaks that Kevin's work has identified. They happen to fall in the most politically sensitive categories for the United States and for the rest of the developed world.

President Bush has said that there is nothing that is off the table in the next round of WTO talks, and that includes agriculture subsidies and our tariff peaks. So, he has made it clear that he will be prepared to deal if our trading partners are willing to go as far as we are in eliminating agriculture subsidies, industrial tariffs, and other trade-distorting practices.

But, in some respects, that still begs the question -- how do you build a stronger base of support for the benefits that trade liberalization can undoubtedly offer the developing and developed world alike?

Relevance of the Oxfam Report to Rebuilding a Consensus on Trade

That is where Oxfam's is acutely relevant to the trade debate. While I do not agree with all of the reports particulars and affirmatively oppose some, the report's great strength in my view is that it points the way to a new, and I would argue, more politically sustainable basis for the conduct of trade.One reason is the report's starting point -- which honors the fact that trade has helped lift more than 400 million people out of poverty since the mid-1970s. The report also underscores the impact that even a small increase in the developing world's share of world exports could have on their economic prospects, vastly outstripping, but not replacing, all forms of bilateral and multilateral assistance.

The other is the report's critique of the current trading system, its rules and its biases. Here, I find myself agreeing with the doctor's prescription in many respects, even though I don't agree completely with the diagnosis.

End of the Cold War and the Economic Consequences of the Peace

In that regard, I would draw a different analogy to Lord Keynes than did Kevin in the Oxfam report. It is to his earlier work, "The Economic Consequences of the Peace," where Keynes criticized the Carthaginian peace the Allied nations imposed on Germany after World War I as unworkable and ultimately destabilizing.

Events, of course, proved Keynes right. I worry for what Keynes would have said about our collective response to the post-Cold War world. While Kevin rightly points out our error in thinking of globalization as a recent phenomena, that may overlook some of the fundamental and systemic changes that accelerated the pace of change over the last decade.

The first place everyone looks is technology, which has drawn our world closer together and made tighter economic integration possible. The next place everyone looks is to the rules-based trading system, which together with the active encouragement of the policies of the Bretton Woods organizations, has reduced the barriers to trade.

What is often over-looked may be the most fundamental fact, that the political divisions that persisted in the world at least since the onset of World War I largely came to an end with the demise of the Soviet Union.

What we may not have realized was that the end of the Cold War required a political and economic strategy that would rival the end of either the first or second World Wars. That we did not do -- we did not act to ensure that the seeds of global integration found fertile soil and that the benefits of globalization were broadly shared.

Although it starts from a different premise, the Oxfam report makes much the same point. And, until we begin to address that problem from the right perspective, we will ultimately fail as did the drafters of the Treaty of Versailles.

Building a New Consensus on Trade

Does that mean we should be discouraged? No, for the answer is close at hand. One of my heroes, Amartya Sen, happens to be both a Nobel Laureate in economics and the Honorary President of Oxfam. In his most recent work, "Development as Freedom," Sen capped a long career in studying the basis for economic development. He concluded that the basis for all economic development was human freedom.

Sen's definition of freedom is broader than we tend to think about it in Western democracies. It includes the freedom from any limitation that undermines human potential.

Trade is ultimately consistent with that definition. At its root, it is about human freedom -- the freedom to interact and exchange goods and services for one's own purposes, and to do so without the interference of the state.

And, that to me is the real contribution of the Oxfam report. What it points to is a way of talking about what trade is that is far more compelling a vision for a just human society, than the mercantilist political logic that informs the approach of the current trading system and its members, developed and developing alike.

What that logic ignores is what the Oxfam report values -- the contribution which trade could make to raising living standards throughout the world if we could break free of the logic that currently pervades the trading system.

You can build a far more compelling case for the benefits of a global trading system intent upon reducing barriers to trade if you focused on those areas that are most likely to lead to rapid improvement in the prospects not only for the developing world, but for the poor in the developed world as well.

Thus, for example, consider what you would achieve for the poor of the world if we profoundly shift our approach from that of trading market access -- which many see as a "zero sum game" -- to liberalizing trade in the sectors that will have the greatest benefit to humankind. As a practical matter, that is a large part of Oxfam's agenda:

• Agriculture -- Consider what liberalizing trade in agriculture products would do for the 7 million children who, according to UNICEF, die each year of malnutrition.

• Energy -- Or consider what liberalizing trade in energy might do for the billion people in urban and rural areas who, according to the World Bank, lack access to modern forms of energy, such as electricity and oil.

• Health/Sanitation -- Or consider what liberalizing trade in pharmaceuticals, medical equipment and healthcare services might do for the 2.2 million people who, according to the World Health Organization, die of dysentery due to bad water, or the 40 million people worldwide who have HIV/AIDs, which is now the leading cause of death in Sub-Saharan Africa, and a scourge that continues to expand worldwide.

Private Sector as Allies

Now, having said that, I should confront what I think is one of the weaknesses of the Oxfam report and that is the extent to which the report lays much of the blame for what exists in the way of inequities in the world trading system at the feet of the poorly lablelled Trans-National or Multinational Corporations.

I would argue that those same companies are likely to be our strongest allies to advance the cause of a just world economically and a just world in terms of the rules of the game in trade.

Here is the irony. While it is common, as the report does, to criticize corporations for their statelessness (which I take to mean the notion that they are somehow free of all control by states), the truth is that they have a stronger stake in a rules-based system than virtually all governments. The reason is that, in an era of global trade and financial flows, what becomes important is not so much that the rules afford them some advantage (again, the mercantilist perspective), but that the same rules apply to all.

That is not to say that the content of the rules don't matter, intellectual property is a case in point. But, companies engaged in global commerce are a powerful force for ensuring that the playing field is level.

Equally important, the largest players in the private sector recognize that developing countries make up over two-thirds of WTO membership and are therefore central to achieving what the private sector wants. That provides enormous leverage to refocus the terms of trade.

Conclusion

I would like to conclude by returning to the words of Amartya Sen, Oxfam's Honorary President and Nobel Laureate.

In the foreward to the Oxfam report, Sen wrote that "the broader object of the report is to promote discussion of the kind of institutional architecture that may best serve the interests of the poor and the deprived. The basic objective is to combine the great benefits of trade to which many defenders of globalisation point, with the overarching need of fairness and equality which motivates a major part of the anti-globalisation protests."

There is no more difficult, impractical goal. And, yet that is what must be done. Kevin's work and that of Oxfam has begun moving us that direction, and I want to thank you for that.

I welcome your questions.