FROM THE OFFICE OF PUBLIC AFFAIRS

I would like to talk today about what may be the most important issue affecting the lives of our children in the next half-century: the approach that the United States takes toward the global economy in general, and toward the world trading system in particular.

We meet at a time of remarkable economic strength for our country, when our economic power is at a high point and when the power of our example has never been greater. At such a time it becomes especially important to make the right international economic policy choices. And yet, as we consider the difficult debates we have been having about these issues in recent months and years, it is fair to say the fundamental choice for the United States to be a force for the right kind of global integration is under challenge in a way that it has not been since World War II.

In the earliest days of President Clinton's Administration he said that "America must compete, not retreat." Today's National Dialogue on Jobs and Trade is about the importance of staying on the course that has served us so well in the past as we approach the World Trade Organization ministerial that begins in Seattle at the end of the month. That is why President Clinton and Secretary Daley are right now at a factory in York, Pennsylvania today talking with Harley Davidson workers about America's stake in global integration. That is why nearly 250 companies around the nation are hosting events to discuss with their employees the importance of trade. And of course, that is what brings me here today.

I would like to make four points in my remarks:

• First, there is an overwhelming political and national security case for an American open markets policy.
• Second, there is a compelling direct economic case, in terms of the standards of living of the American people, for an open market policy.
• Third, the right kind of open market policy - the kind that the Administration will be urging at Seattle - is a policy that can work very directly for the American people.
• Fourth, there is a compelling political challenge, in the kind of economy we have today, to maintain political support for American leadership in global integration.

I. The Political and Strategic Case for Support for Open Markets

The crucial link between closer economic integration and our national security is this: we are much less likely as a nation to be drawn into conflict if nations of the world are strong, confident, and forging ever-closer connections than if they are financially unstable and disconnected. In short, trade promotes prosperity, and by promoting prosperity, promotes peace.

Fifty years ago, in the wake of the Second World War, the challenge the world faced was the economic reconstruction of war - ravaged Europe and Japan, and ensuring that the tragic errors of the first half of the century were not repeated, not least the cycle of protectionism of the 1930s and the failure to respond to major changes in the global economic balance of power.

A generation of visionary leaders - in the United States and in Europe - responded by supporting a successful strategy of rapid economic rebuilding as essential to normalization and prosperity and increased economic integration. So people stood more to gain from shared peace than from divisive conflict.

Today's challenge is to integrate the five billion people of the developing world, hundreds of millions of whom are now glimpsing the benefits that a global economy can offer, into a strong and truly global market system. And our answer to that challenge should be the same as it has been since 1945.

I would dare to suggest that there has never been so radical a change in the balance of global economic strength as there has been in the emerging market economies and in Asia in particular over the past 25 years. The fact that this has taken place without major conflict is in no small part a tribute to the integration of nations and peoples through trade and the global institutions that have helped to cement that integration.

By supporting liberalization in these countries, we invest in our future security and we invest in the spread of our core values. Examples such as Korea, Taiwan and Argentina illustrate that economic development and openness bring democratization in its wake, and there's no better way to spur this process than by integrating them into the global marketplace.

But even if there were no security case, no political case, no foreign policy case for open markets and interchange between nations, I believe there would be a compelling economic case, rooted in our standard of living. Perhaps you will pardon me a slightly academic approach of making this point through an analogy - not an original one, I might add.

Imagine a country all of whose harbors were filled with rocks so that ships and goods could not come in, though some could go out. And imagine that it was proposed to remove the rocks from the harbors. Would that be a good thing for that country?

Many people would say that it would be a good thing:

• It would provide citizens with a wider choice of consumer goods, at lower prices.
• It would provide producers with a wider choice of inputs, and lower costs, making them more competitive and able to hire more workers and raise their wages.
• It would provide more competition as a spur to productivity and new ideas - and as a result, lower inflation and lower costs of capital.

To be sure, the removal of those rocks would bring about change in the economy. But looking around, we can see that every day and in every way our market economy - by bringing about improvements in technology, communications and transportation - is bringing down natural barriers and making communication and trade much easier. And this, too, brings enormous and sometime difficult changes as well as great benefits in its wake.

The question is whether we should respond differently to man-made barriers to trade than we do to those natural barriers that new technologies are now eroding - and whether our response should be any different if other countries have bigger rocks in their harbors than we do.

Our economic success in the 1990s is a testament to the benefits that openness can bring:

• Exports have created millions of new jobs - jobs that on average pay 13 to 16 percent above the average wage.
• And our openness to imports has fueled competition and innovation and helped to sustain our growth with almost no inflation and long-term interest rates that even now, after 8.5 years of expansion, are around 2 percentage points lower than they were at its start.

Let me be clear. No one is suggesting that the United States unilaterally lower our trade barriers on a broad scale without reciprocal steps by others. What is at issue - in the debates we have had about ratifying the Uruguay Round or passing Fast Track, or the debates we will have about the WTO meeting in Seattle - is whether we should be involved in a broad project of removing the rocks from our harbors and from other countries' harbors.

It bears emphasis that this is not even a symmetrical debate - since we already have by far the lowest trade barriers in the world. If we look at the trade agreements we have negotiated in recent years, the reductions in our own trade barriers are a fraction of the reductions that other signatories have undertaken. To take just one example, the tariff reductions achieved in NAFTA with Mexico were five times as large in Mexico as in the US. Estimates suggest that that factor would be in the range of three or more for further trade agreements with Latin America and Asia.

To put it yet another way, an open markets approach is not just good economic policy; it's good even from a mercantilist standpoint. And it is especially good policy for the United States because of our strategic position, because of the diversity of our population, and because of the size and strength of our economy.

We have closer relations with Europe than any other region has with Europe, closer relations with Latin America than any other region has with Latin America, closer relations with Asia than any other region has with Asia. We stand at the hub of a world trading system. And the bigger that system is, the more open it is - the more we will benefit from our position at its hub.

Whatever our broader trade policy might dictate, it cannot be right that the richest country in the world is unable to provide preferential access to its markets to countries in Africa where 500 million people live, nearly half on incomes of less than one dollar a day. That is why we so pleased that the African Growth and Opportunity Act has now passed in both houses of Congress with strong bipartisan support.

Closer to home, the trade preferences contained in the strengthened Caribbean Basin Initiative - which has also now passed in both the House and the Senate - will help make these economies much stronger and our own economy safer. What we very much hope now is that remaining differences between the Senate and the House on both the African and the Caribbean measures can be resolved, and legislation that the President can sign reaches him as soon as possible.

So I believe there is a compelling economic case and a compelling foreign policy and security case for American support for economic openness. But trade cannot be taken in isolation.

If you think about the history of our country in the late 1800s and the early 1900s, I think most historians would agree that you saw a coming together of the national economy, driven by improvements in transportation and communications. Political leaders in both parties came to recognize that a greater degree of interconnection between states necessitated a greater need for common rule-setting at the national level - because otherwise we would risk a race to the bottom, a bottom in which state governments could not promote fair taxes, uphold fair labor standards, regulate product safety, protect the environment, or promote other key values.

Global integration poses the same kind of challenge for the world's policy makers today. At a time when the world is coming together and man-made and natural barriers to trade are coming down - it becomes vital to prevent a race to bottom. We must not and will not build a global economy in which capital races from jurisdiction to jurisdiction, playing off its greater mobility to the detriment of workers and consumers.

As the President has said: "a legal framework of mutual responsibility and social safety is not destructive to the market; it is essential to its success." To be sustainable - our approach to integration needs to be a balanced approach, which paces the opening of markets to the development of tools to respond to these concerns and to support our deepest values. And that is the approach we will be taking to Seattle.

We want this round to be about greatly expanding the frontiers of global trade and reducing barriers to American goods and services. But we also want this round to be:

• A round about jobs and development - that creates a WTO Working Group on Trade and Labor and gives the International Labor Organization observer status at the WTO.
• A round about ensuring that global integration and environmental protection go and hand in hand, with a thorough review of the environmental impact of the round and pressure for "win-win" measures such as abolishing fishery subsidies that have encouraged over-fishing.
• A round that furthers our democratic values - by making the WTO itself more open and accessible, for example, by opening its dispute resolution procedures to the public.

If we are there at the table, working with developing countries to achieve strong agreements that open global markets to them and to us, we can simultaneously promote labor and environmental priorities and other issues that are important to us. What is more, we can offer their workers the most reliable route to higher wages; namely, access to global markets and expertise. Without our leadership - neither outcome can be guaranteed.

I have tried to reflect on why - as compelling as these national strategic, political and economic arguments for integration seem to be - the debate about trade in our country is such a divisive one, and the case for open markets seems less than compelling to so many Americans.

There are probably three main reasons.

The first is a natural tendency that we all have to internalize good news and externalize bad news. Think about how many people working at a not so successful company with out-dated technology who lose their job blame it on international trade. Now ask yourself how many people you have ever met who said, "You know, I was doing an OK job for my company, but labor was short and there was a surge of export demand, and so I got a promotion."

Let me note that we tend to see the same dynamic operating higher up the corporate ladder. Think how often it is that CEOs talk about the bad things that are happening to their industry because of trade. Now think about how often they cause a splash talking about the revenue growth that has come from more open markets overseas or lower cost inputs from abroad. It is the nature of the trading process that when there are costs, those costs are apparent and attributed to trade, often much more than is actually the case.

It is equally true that the benefits of trade are rarely perceived as such. How many people, returning from their Christmas shopping this year, will be remarking on the fact that they can buy twice as many toys for their kids than they used to, because of our increased trade links with very poor countries who can make these things more cheaply? How many people think about the fact that their children have not had to fight a major war in this generation, and say "that is why it is so important for us to give strong support for a new global trade round at Seattle?"

The second reason why we have had a hard time making a compelling case for trade is that the compelling geopolitical rationale that the Cold War provided is no more. Historians have written at length about the oscillations of the United States between isolationism and global engagement. It over-simplifies but does not distort that work to say that our global engagement has typically been in response to a dire threat.

The threats of the current time - of rising disorder and increasing impoverishment overseas - do not have the emergency character that the threats of an earlier time have had. And yet we have seen in the aftermath of the 1920s, a time that was also a time of great American confidence and economic strength, we saw then what could happen when America was reluctant to engage fully with other nations and respond to new global economic challenges. That is the danger we must work to avoid today.

The third reason why it has been so hard to build a strong consensus around open markets so far is that trade - and integration more generally - tend to become the lens through which all kinds of concerns about a changing world are projected. Whether the root concern is new technology, or deregulation, all of the economic insecurities that this new economy can produce tend to come together when the subject is trade. And that is why it is so essential that we work to equip workers with the education and skills to manage the transition process and to seize the opportunities that come with it.

It is instructive to compare today to that period after the Second World War, of remarkable American internationalism. The lack of a communist threat is one important difference. A different kind of political process is another. I doubt anyone ever focus-grouped the Marshall Plan - and I am not sure how well it would have done if they have. But also it was a period when opportunity and protection was being given to the American middle class. I suspect the G.I. Bill of Rights was a much larger component, not just of America's domestic economic strategy, but of America's international economic strategy, than many think of today.

As the President has said: "working people will only assume the risks of a free international market if they have the confidence that the system will work for them." That is a large part of what his New Markets agenda is about. It is a large part of what empowerment zones - that have already done so much to support renewal and re-investment in our inner cities - were about. And of course it is very much at the core of the specific trade-related initiatives that we have supported, such as the Community Adjustment and Investment Program to support new jobs and regeneration in areas where increased trade has hurt jobs and communities.

The President has called it "the challenge of the millennial generation...to create a world trading system, attuned both to the pace and scope of a new global economy and to the enduring values which give direction and meaning to our lives." Whether we succeed will partly depend on the energy that we in government invest in ensuring that people feel they have a stake in the outcome. But it will also depend a great deal on the approach of the kind of people represented here - on whether the people in leadership roles in America's companies invest themselves in the kind of balanced approach to global integration that I have described today. Thank you