FROM THE OFFICE OF PUBLIC AFFAIRS

Good evening. This conference comes at an auspicious time. As you have heard this afternoon, Latin American nations are not waiting on the United States. They have already moved to reject the protectionism which cost them so dearly in the past, and build closer ties with each other and with the rest of the world. Latin America's trade with the rest of the world has grown by more than 12 percent a year since 1989, one third faster than world trade. Trade within the region itself has grown by more than 16 percent a year. And we in Washington are facing a choice about whether to play a central role in this integration -- or instead stand aside, and let an historic opportunity pass us by.

Yesterday's Fast Track vote -- and those to come -- are about just that decision. Of course, restoring the President's traditional trading authority is about more than our role in this hemisphere -- it is about our continued leadership in efforts worldwide to bring trade barriers down and nations together. But our capacity to play this broader role will stand or fall by what we achieve in our relations with the countries closest to home. Nowhere are the potential gains to integration larger than on our own doorstep. And nowhere will our abdication from that process be more visible, and costly to our economy and to our global position than in Latin America.

Realizing the ambition the President set forward in 1994 for a Free Trade Area for the Americas will be an important symbol of our commitment to a new shared agenda for closer integration and cooperation with her neighbors Failure to achieve Fast Track would be a serious blow to our efforts to carry that vision forward.

Others have spoken today about the positive impact of closer integration in Latin America itself. If you will forgive me, I would like to focus my remarks on what a more open regional and global economy would mean for the United States. Our unique role in the world trading system implies that our actions tend to be viewed through a global prism -- and rightly so. But I worry that this has an unfortunate side effect: the domestic benefits of more open markets can be lost on some of the people who have most to gain.

I. The domestic rewards of increased trade

The disastrous downward spiral into protectionism which occurred after the first World War was partly driven by fear of the consequences of closer integration -- and a mercantilist assumption that one country's trade gains were another's losses. We hear some of the same sentiments in America today, as many draw a link between economic dislocations at home and increased trade abroad.

This argument is harder to make now than it was a few years back. The fact is that, amid rising opportunities for cooperation and trade with low wage economies, US unemployment is at a 24 year low, and average real incomes are at last starting to make up the ground they lost in the 1970s and 1980s.

And yet, as in Latin America, the structural changes that have put the economy on the right track have brought difficult dislocations in their wake. Let me be clear: none of us who are entering this new global economy can afford to leave people behind. It is vital that we put in place policies to provide vulnerable workers with the education and skills to manage the transition process and seize the opportunities that come with it. But nor can we in the US afford to believe that our vulnerable workers will be helped by voting down Fast Track.

Undermining our ability to open markets abroad would be worse than counterproductive, for three reasons.

1. The wrong target: trade with low wage countries accounts for only a small share of rising inequality

For all the dramatic rise in integration we have seen in the past decade, the share accounted for by imports from low-wage countries has increased by only one and a half percentage points. In the last 30 years, it has risen by only about three percent of GDP.

In that same period, the share of national defense has fallen by more than four and a half percent of GDP; health care's share has risen by nearly eight percentage points; and the female share of the workforce has increased from 35 percent to 46 percent. These and other changes dwarf the rise in trade which has occurred -- and will continue to do so for the foreseeable future. Remember, fully two-thirds of all American workers are employed in nontraded goods and services.

Of course it is true, as a basic proposition of international economics, that trade and imports could exert forces leading to convergence. But the very large number of academic studies into the possible domestic impact of international trade have concluded that this factor accounts for only 10 -- or perhaps 20 -- percent of the increase in income inequality we have seen in the US in the past two decades. Rather, the bulk of the evidence suggests that changes in technology, especially information technology, have played the major role in increasing inequality. These have pushed up the relative return to skills and education worldwide, not merely in the United States.

2. The growth in this kind of trade has had very little to do with new trade agreements

The second reason Fast Track is the wrong target is that, while trade with low wage economies has risen dramatically from the low base of 20 years ago, it is difficult to pin that growth on any of the new trade agreements we have negotiated in that time. If we consider China, or India, or any number of the countries that feature heavily in these debates, we can see that the vast majority of any increase in imports must have been driven by other factors.

We had very few trade barriers against less-developed countries fifteen years ago, on the order of five to fifteen percent. If we had not had the Uruguay Rounds, if we had not had NAFTA, if we had simply maintained the same trade regime that was in place in 1980, we would almost certainly still have seen a large increase in imports from developing countries since then. At bottom, those imports stem from countries' capacity to produce goods and services -- capacity that has increased sharply, as the cost of transporting these things elsewhere has tumbled.

To repeat, this is not to minimize what I think is our most important national economic challenge today: to raise the real wages of average and below-average Americans and create conditions in which they can once again look forward to rapid increases in wages of the kind that were enjoyed a generation or two ago.

It is to suggest that there is very little evidence that the trade agreements that we have reached are responsible for the pressure on these people's real wages. Turning our back on new trade agreements would not help the problem, any more than it would help for us to turn our back on new technologies.

3. In fact, Fast Track-related trade agreements are likely to benefit American workers

The trade agreements we would negotiate with the backing of Fast Track are in a very real sense our passports to the markets of tomorrow. Consider: ninety-six percent of the world's consumers live elsewhere; and all of the world's population growth over the next 25 years will take place in developing countries. Developing countries will also have much more rapid productivity growth, which means much more rapid income growth -- which means larger and faster growing markets for US business.

The benefits of the trade agreements we would be able to negotiate with that authority would be felt across the country:

• by US businesses, in increased exports. The global trade agreements now on the agenda would open up vast sectors where the United States has a comparative advantage, such as agriculture, services and medical equipment. In these sectors -- as is true generally -- US average tariff rates are significantly below the average, so these agreements would be a net improvement on the status quo for American firms;

• by the workers who make those new exports. Already exports support more than 11 million American jobs, including one in five manufacturing jobs. They have created 1.7 million new jobs in the last four years alone. On average, these jobs pay 15 percent more than the average ;

• by US consumers, in access to a wider variety of goods and services, at lower prices;

• by the US firms who are estimated to pay nearly $20 billion a year in trade taxes to governments in Latin America and the Asian members of APEC;

• and by American families, in higher incomes and faster growth, both because of higher exports, and the greater dynamism created by competing in more open global markets.

II. The costs of inaction -- future opportunities forgone, and existing ones threatened

Governments around the world are recognizing the benefits which increased openness can bring -- and they are acting on that recognition. The implication for the United States is simple: we no longer have the luxury of deciding whether to encourage closer international integration, or live with the world as it is. With or without us, the world is changing. The choice we face now is between helping to lead that process, and guide it in directions that are in our -- and the global economy's -- long term interest; or being left behind.

Nowhere is the new situation more apparent than in Latin America. Mercosur and other new trade arrangements within the region have developed apace in recent years. These efforts are welcome in so far as they contribute to closer integration of the entire global economy, and create trade rather than simply divert it. But, you might say, we have to be in it to win it. Without US involvement this outcome cannot be guaranteed. And make no mistake: US businesses and consumers will suffer.

Already we have clear evidence of the costs to US companies of being locked out of these new arrangements:

• while our overall share of Mercosur market has remained steady, there has been a clear weakening in our performance in some of our most globally competitive sectors, such as metal manufactures, road vehicles and cosmetics. Our exports to the rest of the world in these goods grew by almost 6% last year and our exports to Mexico grew even faster. By contrast, our exports to Mercosur in these goods fell by more than 10% in 1996.

• both the European Union and Japan are moving to take advantage of the region's increasing market potential. Two-way trade between Mercosur and the EU was $43 billion in 1995, as against a total of $29 billion with the United States. The EU is negotiating a preferential trade deal with Mercosur, while Chile has begun formal talks with the European on a separate trade deal.

• US apple producers are at risk in their Latin American markets due to Chile's preferential tariff free, or near-tariff free, access to Mercosur and the countries with which it has recently negotiated trade agreements. The Chile-Venezuela FTA means that Chilean fresh fruit pays a 2 percent duty when entering Venezuela, while US producers pay 15 percent. Our telecoms firms are at a similar disadvantage in the Chilean market now that Chile and Canada have negotiated a comprehensive new trade agreement.

• on a more micro level, Quaker Fabric Company, a Massachusetts corporation employing 1,750 workers, recently discovered that it had lost a bid for a $1.8 million a year account in Chile, to a competitor from Canada, solely because of a 11 percent additional tariff -- a tariff which its Canadian rival did not have to pay.

III. The prize: a free and fair global economy

I have said that our abdication from the regional and global trade agreement arena would deprive American workers of the benefits which more open markets have been proven to bring. I have said, further, that the costs would come not merely in opportunities forgone, but present markets lost, as other countries continue to integrate without us. But there would be other, broader casualties.

One is crystal clear. The US is the major force pushing for labor and environmental rights to be increasingly reflected in international trade agreements. If we are there working with developing countries, to achieve strong agreements which open their markets up to trade, we can press for the most aggressive possible approach to the promotion of labor and environmental issues. What is more, we can offer their workers the most reliable route to higher wages, namely access to global markets and expertise. Without our involvement, neither outcome can be guaranteed.

As is true in the US, most manufacturing exports from developing countries are made by workers who are in the upper half of the income distribution. Enduringly, the best way to higher wages has been to increase labor productivity. And, just as reliably, productivity has tended to be higher than average in industries that compete in a global, rather than domestic, market.

It would be the greatest mistake for us to endanger this potential for faster growth in living standards in developing countries just as it is finally being glimpsed -- by endangering our role in fostering the emergence of a truly global trading system. And it would be a mistake that would affect us directly, for the benefits to these countries of increased trade and openness to foreign investments will ultimately translate into larger, faster growing consumer markets for American products.

Our efforts to promote trade in the coming years will be a key test of our ability to show our people and the rest of the world that we can all gain from integrating the global economy and broadening it to more fully include the countries of the developing world. The challenge facing the United States is to become the first continental, outward-looking, non-imperialist power in history. Without Fast Track, it would be many times more difficult for us to rise to that challenge. The countries of this hemisphere have a greater stake than most in our succeeding.