USTR - European Leadership Forum Interview with U.S. Trade Representative Robert B. Zoellick
Office of the United States Trade Representative

 

European Leadership Forum Interview with U.S. Trade Representative Robert B. Zoellick
George V Hotel Paris, France 12/07/2004

Introduction:
[in progress…] now, Ambassador Robert Zoellick, the United States Special Trade Representative, he’s had a long and distinguished career in government.  He’s of course, as USTR, he’s a member of President Bush’s cabinet.  He worked for President Bush’s father, first at the States Department and at Treasury.  He helped negotiate the NAFTA agreement.   As I said, a very, very distinguished career in government.  As I think, as many of you know, over the last few years, since becoming US Trade Representative in February 2001 he’s struck an extraordinary relationship with his European counterpart, Pascal Lamy, over the years and together they have really helped -- they’ve tried to revive the Doha Round of multilateral trade negotiations.  This is a kind of a discussion format, and here to talk with Ambassador Zoellick is Lee Walczak who is our Washington bureau chief, our chief political correspondent at Business Week.  He’s covered Ambassador Zoellick throughout his career.  I think it’s a chat among friends, and I hope they’ll shed some light on some of the interesting issues of trade and the economy.  Of course, Ambassador Zoellick will be leaving immediately to travel to West Africa.  He has a plane to catch.  It is all part of this agreement to try and revive the negotiations.  So, a big hand to both of them.  [Applause.]

Lee Walczak:  Thank you very much, John and Ambassador, thank you for joining us here today.  It’s really great to be with you at this forum.  We’re going to have a conversation, as John said, among friends.  The Ambassador and I go way back to some of the political wars.  Hopefully, we’ll have a frank exchange of views, and shed some light on where trade policy is going.  And then, toward the end of our discussion, we’d like to bring you into the process and take some questions from the audience.  My colleague, John Defterios, is the man with the microphone.  We actually cannot see you very well.  So John will get to you with your questions, and we only ask that you please identify yourself before you ask the question. 

Bob, welcome.  Let’s talk about the Doha Round.  It’s a big issue here.  People on both sides of the Atlantic are very concerned about this process.  It has been difficult.  I believe we are almost a year away from the next major meeting to try and get the Round jumpstarted.  What do you think the realistic prospects are for getting Doha revived?

USTR Zoellick:  Well, I would question a little bit the word “revive” because we actually did a revival during the course of 2004 with a meeting in Geneva in July that put together a pretty good agricultural framework.  Where I think the negotiations now stand is we have – for everyone to recall this – we launched these in 2001 in Doha, and the way that one puts together a negotiation with now 148 members is a bit challenging because it’s like – for those of you in the business context – trying to negotiate a business contract in the UN General Assembly.  You have to get unanimity for action.  So, you have to take it in steps.  I think the step we had in Geneva now has a sharper focus on what will be the core of the negotiations: agriculture, manufactured goods, services, a category called trade facilitation which could be somewhat of a sleeper in that it’s a question of updating fifty-year old customs rules for bringing goods in and out more quickly which could be of importance to countries and companies, and then the whole category of the rules that sort of underpin this.  So, what, frankly, I’ve been trying to do since our election, is to start consultation with players to talk about how to get momentum started early in 2005.  So a couple of weeks ago I was in a meeting in Chile, of the Asia Pacific countries -- where you have about 30 some countries that represent 60% of the world’s GDP, trying to get this on people’s agenda.  And then yesterday, Peter Mandelson and I spent a considerable time trying to compare notes.  So, in terms of the prospects, these are never easy.  I think the goal would be to try to get this done in a 2005-2006 timeframe, but a lot of things have to come together to make that successful.

Lee Walczak:  Now, you had an extraordinary relationship with Pascal Lamy, and tell us about your impressions of Mr. Mandelson.

USTR Zoellick:  Well, I’ve known Peter, not quite as long as I’ve known Pascal, but for a considerable amount of time.  I’ve known him since 1997.  I met him at a small dinner that a mutual friend put together about a week before New Labor took power, and we’ve stayed in touch over time.  Obviously, I think he’ll be a very good counterpart.  He’s very talented.  He’s accomplished.  There’s a lot to take on board in this field.  Obviously, it’s a very technical subject matter, but to make the Round work, it is very important that the U.S. and E.U. represent their own positions -- in our case, a national position; in the case of the European Union, a position representing the Union as a whole -- but also look towards the systemic good.  And, so, part of the challenge, whether with Pascal or with Peter, is kind of how you deal with that inbuilt tension that you’re going to have differences at the same time you have points of cooperation and how do you recognize those without letting it paralyze the process.

I would hasten to add, though, to have a successful Round there are other key players.  You are going to have the mid-level developing countries that are going to be fundamental to making this work: China, Brazil, South Africa, India, some of the southeast Asian countries.  Then, you have a lot of poorer countries that are starting to be brought into the global trade system but have a lot of anxieties, particularly sub-Saharan Africa and the Caribbean.  That’s one reason that I’m leaving this session, to go first to West Africa and then southern Africa, because the nature of “negotiation” in the Doha context or the WTO requires an awful lot of networking.  So, the E.U. is a key player in that, and I look forward to the Commissioner being a strong component of that. 

One other point that I think might be useful for the audience: since agriculture is so important, one of the other elements that helped us move along was that Pascal Lamy had a very good working relationship with Franz Fischler.  Fischler pushed the European system towards reform and was effective in getting his own council to do that.  So, one of the issues, frankly, will be whether the new Commissioner of Agriculture, Fischer Boel, what her approach will be.  So that is another issue to look towards.

Lee Walczak:  Bob, I want to read you a quote from a gentleman who I’ll identify after I read it.  US sugar quotas are “one of the worst examples of protectionism.”  This gentleman, Carlos Gutierrez, was just been hired as Commerce Secretary by the President of the United States.  The U.S. still protects its sugar industry and has a quota system, and our trading partners protect sugar as well.  If agriculture is to be a key break through for Doha, how are we going to overcome this problem?

USTR Zoellick:  Well, it’s interesting.  The U.S. sugar industry has joined with other agricultural commodity groups to support global negotiations.  At least their argument has been that some of the distortions that we have as a national policy reflect global distortions.  One of the achievements we were able to nail down in Geneva this July was to finally get the European Union to agree to end export subsidies.  Some of those export subsidies were very significant for sugar.  So, the U.S. producers would emphasize that as a point of distortion. There are also tariffs.  Our tariffs are very high in this area, as they are in Europe and elsewhere.  So, the sugar industry has actually been more cooperative about a global negotiation; they’ve been much more adamant in their opposition, frankly, to some of the bilateral deals that we’ve done.  So, you know, while anytime you are dealing with a big negotiation, you’re going to have sensitive parties, at least in the global negotiation, they’ve been willing to work with the other commodity groups. 

The U.S. position on agriculture is somewhat different from the European position.  We believe we have a lot of very competitive groups.  So, for me to cut subsidies which we have agreed and are willing to do, I need to get market access.  I need to get open markets.  The European position has been a little bit more defensive on the market access.  So, one of the issues, that we’ll have to get resolved, I hope making substantial headway over the next year, would be - I think we’ve got a framework now to show how you could cut subsidies in the United States and Europe and Canada and others, Japan, but we’re going to have to get commitments to open markets because after all a trading round is not just about subsidies, it’s about reducing barriers.  And that’s true in goods and services as well as agriculture.

Lee Walczak:  There is a constant undercurrent, at this conference, of the dollar.  It comes up in very many discussions, and China comes up.   So, I’m going to deal with these two issues, and I think we’re going to go beyond your portfolio a little bit.  On China, the U.S. is extremely dependent on China now to finance its deficit, and American manufacturers are using the country as a platform for low priced goods.  To some, we have ceded an enormous amount of economic power to Beijing, and we are now asking Beijing, the Americans that is, for political concessions.   What people have trouble understanding is how do we have any leverage left?

USTR Zoellick:  One of the benefits of having done this for a number of years is I remember a very similar argument in the ‘80s. I didn’t agree with it then and I don’t agree with it now.  In that, if you actually look at who is dependent on whom, China’s growth has been very export driven and a lot of the companies that have come in have used that as their base for production but you’re also starting to get a domestic market.  The United States is running a very large trade deficit with China, on the order of  $125, $150 billion a year.  A lot of people who are selling into China, it’s part of an overall sourcing system where in a sense their exports to China depend on China’s ability to export to the United States.  So, China certainly has a very strong interest in maintaining a process of mutual growth and open markets.  That leads to the first point which the President has talked about with President Hu and Premier Wen Jiabao and that I’ve talked about with my counterparts and that is we have to make sure that it’s an open, sort of two-way street. 

Now, on to, sort of, the exchange rate side, if you’re going to be propping up your currency, obviously you’re going to have to be buying dollars.  So, the other side of it is, both have a kind of mutual interest in kind of handling the potential downsides of that mix in a sensitive way.  Now, I think, in our system, to try and have clarity about this, it’s the job of the President and the Treasury Secretary to talk about the dollar, so I won’t be commenting on that.  But I have been making the point to my European counterparts for well over a year that if people are concerned about adjustments in current accounts and its effects on exchange rates, we would certainly have a mutual interest in making sure that everybody has flexible exchange rates, because otherwise the adjustment is going to be greatest for those who have the flexible exchange rate.  The euro and the dollar, obviously, have a free-floating rate.  China has a fixed rate, and it’s one reason we believe it’s important for China to move away from that system.  We know that it can’t move to an open, capital account immediately but, in its own interest, perhaps to stop overheating, it might want to make adjustments.  I think it is increasingly important for Europe and others to also make that point, because it’s not only a case of China, but others in East Asia, who are then relating their currencies to China, follow that pattern.  So, I think this is actually a point of some common interest between the United States and Europe.

Lee Walczak:  Now, on the dollar specifically, a number of participants here have told me that they feel the dollar is really a slow motion crisis and that there is a strong sentiment for some kind of Plaza agreement or Bretton Woods type process to bring some order to the decline of the currency.  I’m not committing you to anything, but do you understand why that sentiment is so strong? 

USTR Zoellick:  I’ve said what I’m going to say on exchange rates.  I’m not the President.  I’m not the Secretary of the Treasury, and I’ve made my point on the flexibility of exchange rates.  Now, I would say this.  Look, everybody in this audience recognizes that you have a combination of factors here.  One is differential growth rates.  So, you know this happened during the ‘90s, and remember, for people who talk about the twin deficits, the United States had a big budget surplus for about three years just at the time our current account deficit was increasing as well.  So, it’s a combination, frankly, of growth rates.  So, the better growth you get in other points of the world, that’s an adjustment factor.  It’s obviously a question of savings rate in the United States, both sort of private and public, and it’s a question of exchange rate.  So, those are the three variables you have to adjust in this process.

Lee Walczak: Specifically, without going into too much negotiating detail, do you see any light at the end of the tunnel in the dispute involving Airbus and Boeing?

USTR Zoellick:  I’m not sure I’d use the tunnel metaphor for airplanes…. Look, yesterday was my first chance to have an official discussion of this with Peter.  He and I had sort of met unofficially before he took office just to have a little bit of a review of the issues we faced.  As you know, we could have taken the action to the WTO yesterday, but out of a courtesy, we decided not to do that.  I think that the differences are still significant on this.  As I said yesterday at the press conference, you know, we’re serious about the litigation option, and we’re not going to wait long if we don’t see progress in a result.  Now for people, because I’ve seen some of the press about this wondering what’s driving this.  Since this is a business audience, let me be very clear about this.  Earlier in 2004, you had two business strategies that were out from Airbus and Boeing.  Airbus was emphasizing the A380 as a concept of going from hub to hub and they thought that was the future of air travel.  And Boeing was saying, no we think it’s going to go more point to point travel, so they wanted to develop a smaller but longer-legged efficient airplane, the 7E7.  The Boeing people were increasingly concerned that as the 7E7 business model gathered more support, that Airbus would say “Oh, we need to have one of these, too, and we need to have the launch aid as a form of subsidy.” 

That, frankly, is what drove this to the point where we got it, which is that the United States frankly feels that Airbus is long past the time when it needs subsidies.  But our point has been what’s past is past.  If people want the subsidies for the A380 go, fine, whatever people claim for the 7E7, but no more.  Our point has been quite clear and not complicated about where we’d like to go.  For those in the European audience who are concerned about this, look, I don’t like either U.S. subsidies, European subsidies, or anybody’s subsidies.  We believe that we should stop the subsidies, and to avoid prolonging this, it was our recommendation that we use the agreed definition of subsidies, which we all have in the WTO -- it’s called the SEM agreement -- and let’s move quickly.  The reason why timeliness is important is that I read in the papers that Airbus is now saying “Yes, we not only want to develop a new plane,” – that’s fine – “but, yes, we want launch aid.”  And some national governments are already starting to put money forward, and that’s an unacceptable position.

Lee Walczak:  I want to ask you about the American Congress and the WTO.  There’s a feeling that the American political system has never quite understood its new obligations under the WTO and that this could be a reason why so many cases go against us.  We still have problems with this Byrd Amendment situation, which seems to be in blatant violation of WTO rules.  And I’m told that next year, WTO participation will be debated by the Congress.  In light of some general concerns about ceding of sovereignty to global bodies, do you think this process could be difficult?

USTR Zoellick:  Well, look, it’s difficult in any political system.  The United States won a case against Europe on beef hormones that is now six, seven years and Europe has not come into compliance.  As you know, Lee, as you covered it, we had a very, very difficult matter with the FSC-ETI issue, and Congress, in great agony over five years, finally changed the legislation.  We were able to work with the chairmen of the key committees to fix another one called the 1916 Act.  It was a long, leftover, sort of unusual triple damages, anti-dumping...  So, Congress does work to try and overcome these, but obviously, there are some, the Byrd Amendment is clearly one, where there is great sensitivity in trying to do this.  Now, we don’t have a parliamentary system.  While we have an executive branch, Congress has its own independent power over these issues.  In fact, one of our greatest challenges under the U.S. Constitution is that Congress has the authority over trade.  That’s one reason why President Bush made such a strong effort in 2001-02 to get the basic negotiating authority, which is the foundation for all the agreements we do, whether WTO or Free Trade Agreements, because absent that trade promotion authority Congress could amend agreements.  And who is going to do a deal with you if, basically, Congress can take it apart?

That’s why trade promotion authority allows the President to bring back an agreement for an up or down vote.  As most people know, in one of the votes in that process, we won by one vote.  So, yes, it’s always difficult, in that authorizing legislation is one of the toughest because, frankly, you have all the people, who are against trade with all the scare stories, and the people who are for trade don’t really have a particular agreement to argue for.  But, frankly, we are very proud of the fact that we got that done because it had lapsed for eight years under our predecessors. 

Now, heading into 2005, there are two issues that relate to yours.  One, trade promotion authority has to be extended another two years.  So, the President has to request that authority by the end of March.  I have no doubt that he will do so, but there is an unusual procedure.  He gets the authority for another two years unless either house of Congress blocks it, OK?  That will be, no doubt, a challenge, but one that I believe that we will succeed in.  What you referred to is when the United States joined the WTO in ’94 and ‘95, there was a clause that said every five years the Congress can have a resolution on whether it stays with it.  There was a vote in 2000 on this, and it didn’t get very far.  It was only in the House.  I think it had like 50 votes of support.  But what it relates to my work is that each of these become points of leverage.  As we’re trying to negotiate agreements, whether they be bilateral agreements, global agreements, these are points were Congress can express its displeasure.  So, I think at least in the U.S. political system, it’s a never-ending challenge to build constituency support, and one other element that we’ve been trying to do for the past four years is to broaden the constituencies that support.  For example, when I took office, we had this effort for trade promotion authority.  It was pretty striking.  The two Congresswomen from Silicon Valley did not vote for trade promotion authority.  Now, somebody has to explain to me the economic logic of that.  Well, the political logic was that the high-tech community wasn’t organized in its own interest.  So, we have tried to work not only with the agriculture community and the manufacturing community but with the retailers, with the high-tech community, with the entertainment industry.  Jack Valenti and I put together a coalition to try and get entertainment to be supportive.  We’re trying to broaden the base of support for this effort. 

Frankly, for those in the audience who have U.S. business partners, if you want to have an open, global trading system, we need the help.  We can’t do it on our own. The good news is, frankly, over the past four years, I think we’ve gotten some momentum.  We’ve launched the Doha negotiations.  We have it at a point where people can see a pathway.  We’ve done free trade agreements with twelve countries and have twelve more under negotiation and all these create leverage to solve problems.  You have to run on a record, and, fundamentally, I think, as we go into 2005 on our trade record.  We have a record of success and agreements and also the enforcement efforts.

Lee Walczak:  OK, Bob, thanks.  We’ve used up our allotted time.  What we’re going to do now is take this dialogue to you.  John has the mike.  We encourage you to step up and ask the Ambassador some questions.

Moderator:  I think the best way, because of the quality of this microphone, is for you to have your hands up and I can come around and pepper the questions.  One of the things I wanted to ask the Ambassador, if I can start this, Ambassador Zoellick, we’ve had a trend over the last two to three years where trade blocks were happy to sign bilateral agreements at a very aggressive rate.  We’ve seen it in Asia, in the European Union doing so in North Africa, the United States signing bilateral agreements, also, with Egypt, for example, and Morocco.  Does this help or hinder the ability to get an overall WTO agreement because there are some who would argue in fact you’re taking some products and taking them off the table in these bilateral agreements which makes people reluctant to go to the bigger table to get a more comprehensive deal?

USTR Zoellick:  I think it helps as long as the key players remain committed to the global negotiation.  The best evidence I can give is both historical and present.  I mean, there was a point made by a number of European commentators in the early ‘90s that the completion of NAFTA and the first APEC summit helped jog those in Europe who wanted to complete the Uruguay Round to give them some leverage to say “Look, if we don’t, others will pursue competitive alternatives.”   The recent evidence is, frankly, the United States, working with Europe, is in the acknowledged forefront of getting Doha launched, getting it back on track, at the same time, we’ve had a more active bilateral agenda.  I would also urge people to recognize is there are many aspects of the bilateral or smaller regional agreements that have benefits that are useful in and of themselves.  Frankly, people who live in Europe, who live in a customs union, should, if anybody, recognize this.  Because a lot of the bilateral agreements can get into greater detail and depth about microeconomic reforms.  There was one Central American minister who said to me that the type of reforms they did in their economy as we negotiated the free trade agreement probably would have taken them three presidential administrations to accomplish because we’re opening up service industries, telecom, finance, distribution, things that are critical for the development process.  And, while we have to deal with sensitivities and everybody’s markets, it can be a way of supporting reformers. 

In some countries, the economic reform is connected to a sort of political reform.  And, frankly, in smaller agreements, you can also be more state of the art.  I don’t know if you have some people here from the entertainment or software or other industries but let me give you a good example.  The intellectual property rules in the WTO system reflect the era that they were created, sort of late ‘80s, early ‘90s.  Just think what has happened in the world of digital technology since then.  Those international rules have no protection for if you download software, music, videos, because it wasn’t a hard copy.  So, in all our bilateral agreements, we create what is called a “temporary copyright” as you download something into your hard drive because otherwise, frankly, you would never have to have any paper form and you could distribute it out to all the networks.  So people in the publishing industry should have a particularly keen interest in this.  Now, these are the sort of areas, where, be it environment and labor, which we have also put in free trade agreements.  I know there is an interest in Europe.  The United States is the one country which has enforceable environment and labor provisions.  These help develop a state of the art.  In some of these ideas, I don’t know, it depends on countries and their acceptance, it can also be eventually gravitated into the global talks.  So, there are many aspects of this that are developmental, political, as well as kind of state of the art in addition to the concept of competition in liberalization.

Moderator:  So there is a balance?

USTR Zoellick:  Yeah, one other point because there was a recent World Bank study on this which is worth looking at.  The danger is that sometimes people, frankly, do agreements that are not very comprehensive.  A lot of the “agreements” that people see reported in some parts of the world, particularly in the developing countries, run a risk of being trade diverting because they’re not opening up many sectors.  And the real question, which the World Bank report noted also, was that what sort of outside barriers you have.  The United States is not a customs union.  So, when we do a free trade agreement, we’re not increasing our barriers to the outside.  That’s a question if you have a MERCOSUR agreement or a EU agreement, for example.

Moderator:  OK, good.  We have a lot of hands.  We can keep the questions extremely direct so we can get the Ambassador’s response.  If you could stand up for me that would help as well, and identify yourself.

Audience questioner:  Yes, my name is Olivier Giscard d’Estaing.  I’m chairman of the INSEAD Foundation.  Well, you know one of the leitmotifs was “more trade, less aid.”  I would like to make a relation between the poorest countries and sustainable development.  Do you think more trade is enough to help to get the world out of misery?

USTR Zoellick:  I really don’t think it’s one or the other.  I think the two have to be integrated.  Let me give you a concrete example.  From Paris, I’m flying on to Senegal, Benin and Mali, some countries that are very poor, developing countries.  Senegal is a little bit ahead of the other two, but all three are participants in a new aid program that the President initiated called the Millennium Challenge Account which is trying to learn some lessons from failures in aid by focusing resources on countries that meet objective criteria that have been associated with successful development: governing justly, investing in your people, some basic economic reforms.  It is interesting that Congress put the Trade Representative on the board of that new corporation along with the Secretary of State, Secretary of Treasury and some outsiders and our director of AID.

My visit to these countries is partly to talk about cotton issues in the context of Doha, their participation under a preferential trade relationship we have called the African Growth and Opportunity Act, but also how we connect the aid with it.  I think to an increasing degree, something we have to do better, is integrate the aid in terms of people’s capacity to trade.  For example, some of this is even helping people be able to implement their agreements or connecting their access to whether it be their road structure, ports and other aspects.  Now, where they intersect is telecommunications and financial services.  We believe -- or distribution services -- if you open up those services markets, you’re not only relying on public capital but also possible private capital.  So, I think it’s not either-or.  It’s a question of how we connect those more effectively together.

Audience questioner:  My name is Arangu Wahler.  I am from ICC.  I would just like to know one thing.  What is the USTR’s definition of market disruption?  And, also, I would like to know if it is possible for you to comment on the fact that the open regime might lead to a lot more credit extension in your market and how will you deal with that?

USTR Zoellick:  I’m afraid I don’t….there’s obviously a point to this question which I’m going to miss.  Market disruption and what’s our context? Textiles?

Audience questioner:  What would lead to a dispute in terms of an open regime that is being offered after 2005 in some areas of trade.  What would happen if you have what we call USTR takes countervailing action against countries which are supplying to your country and then there are disputes which result because of extended credit or lower prices?  Basically, this is called market disruption, and then you make countervailing duties like you have done in Brazil’s case, other people like that.

USTR Zoellick:  I think you are referring to anti-dumping and countervailing duty actions, which are actually done by the Commerce Department, not my office.  And there are, it is a private action which can be brought, and you have to meet various standards that are a combination of national rules, but subject to WTO disciplines about whether there is a subsidy and whether there is an injury and whether items are sold below cost.  All our countries have these procedures, and when you ask what creates market disruption, the best thing I can say, there are hordes of lawyers that make large sums of money arguing and debating over this, so it’s not subject to an easy answer.  I would say that it’s an issue that affects Europe and the United States with the developing world, as well as in the reverse, because many developing countries are putting these systems into place without the transparency and openness and sort of analytic dimensions that the U.S. and Europe have.  That’s one reason it’s one of the aspects of the WTO negotiations as well.

Audience questioner:  My name is Christian Anna.  I just want to continue on the first two questions you got, Mr. Ambassador.  You know some of the issues that are really hurting African agriculture are U.S. subsidies, and you know there is a very strong debate on that.  And the African governments are saying it’s extremely difficult to negotiate with the U.S. because they don’t want to give it up.  So, what is your answer to that?  For example, in cotton and textiles and things like that?

USTR Zoellick:  Yeah.  In the WTO, in agriculture, subsidies are divided into two basic categories.  One is called export subsidies where you actually pay people to buy the goods.  The United States has had very small amounts of that.  That’s been primarily a European issue although the numbers have come down, there may be now $2 or $3 or $4 billion and Europe is authorized to have abut $5-6 billion.  One of the very big, potential gains, if we are successful with this global round, is the elimination of all those global export subsidies.  The United States has agreed that as part of that, we would reduce any export credits for any agricultural commodities to no longer than six months and, even within six months, to make sure that they have a market interest rate.  So, that could be a very big gain coming out of the Doha agenda, one that we have focused on in past years and that can be reaped only as part of a big agreement. 

Then, there are domestic subsidies.  Domestic subsidies come in different forms and they are put in what are called different boxes: green, yellow, blue, depending on whether they are distorting.  The United States has agreed to make very substantial reductions in those if, if, we can get Europe, which has a much higher authorized level, much closer to the U.S. level, not necessarily the same, but much closer, and we can get additional market access.  So that the key package, as I mentioned to Lee here, is - we’re already talking about subsidy cuts in the second category which far exceed what we got in the Uruguay round. In fact, we agreed for the principle that we would do in the first year than we did in all of the Uruguay Round.  But to make it work, we’re going to have to get some balance from the developing countries to reduce the kind of the differential between the European, the Japanese and the United States, and we have to get markets open elsewhere.  So, part of my message, say on cotton, is to say to reduce cotton subsidies we also need to work with African cotton producers to lower tariffs.  You have some very big likely textile producers, such as India, who are going to be very successful -- India and China -- as part of the removal of quotas.  But India has extremely high tariffs on cotton.  So there is appoint of cooperation and interest.  So one of the reasons I’m going to West Africa is because I spent a lot of time with the ministers from those countries about the cotton issue.  I pledged to them that I would come and visit and see things directly myself and listen to them.  Frankly to discuss how we can move this forward together.

Audience questioner:  My name is Andrea Rothman, Bloomberg News.  A question on the aircraft subsides issues.  You said the U.S. wants to stop all subsidies.  What would be the U.S. position on Boeing’s getting tax breaks from Washington State as well as help from the governments of Japan and Italy?  And, secondly, you have said, in your view the 1992 agreement is dead.  If Airbus were to get additional funding from European governments for the A350, might you impose tariffs on that plane in the United States?

USTR Zoellick:  Sounds like a prepared question.  [Laughter].  Let’s take the second one first.  Keep in mind, the ‘92 agreement never superseded the WTO rules, how could it, the WTO rules were put in rules after the ’92 agreement.  They came in 1994 and 1995.  So, the case that we’ve started to bring is to do exactly what your second question asks, which is unless the subsidies are removed, we believe we have a very good case that we will find the subsidies, and that we hope that would lead to the removal of the subsidies, not tariffs.  The nature of our goal here is to reduce everybody’s subsidies.  Now, as part of that, Europe is bringing a case against the United States.  We believe that case is much weaker.  If you, without getting too legalistic about this, unless it meets a definition of prohibited subsidy, you have to demonstrate that the subsidy causes an injury.  It’s a little harder to do that, given that the alleged subsidies with Washington State because (a) they haven’t been given yet and (b) Boeing has lost a lot of market share, so we think that’s a harder hill to climb.  At the same time, as I’ve said to both Commissioner Lamy and Commissioner Mandelson, our goal is to eliminate everybody’s subsidies.  I don’t, frankly, whether they’re U.S., whether their European, Japanese, I don’t believe we should have subsidies.  Now, I don’t want to delay the process.  You mentioned the Japanese point.  Frankly if Europe wants to bring a case against Japan, frankly, that’s its business.  Here’s the problem, as I mentioned to Lee.  Meanwhile, while we’re discussing this Airbus is going ahead and getting new launch aid.  And that is a problem, and that’s why I can’t delay for endless discussions.

Moderator:  Some would have called that move quite arrogant.  That was the headline I read on it when they decided to do it.  It’s pretty bold to say, “We’re sitting down at the table negotiating with you, but by the way we’re going to go ahead and pursue a new product.”  How would you classify it?

USTR Zoellick:  Is that a question to me? 

Moderator:  It is.

USTR Zoellick:  Well, I don’t call people names.  I’m just stating the policy we’re trying to pursue.

Moderator:  Well, I covered the final GATT round you were referring to before, and you couldn’t get an agreement on Airbus, it was extremely difficult and they just walked away from the table on a number of issues, but the most important was most probably we just have to agree to disagree.  It sounds almost like 12 years later, in fact it’s 12 years later to the week, we’re at the same loggerheads on this one.  It’s just a definition of what is a subsidy, is it not?

USTR Zoellick:  Well, here’s one of the differences.  The United States brought cases against Airbus subsidies in the late ‘80s but that was before you had the WTO created.  And, keep in mind, under the old system, you could win a case, as we did, and you couldn’t force it through the system because the party could block implementation.  We actually won an early case and Germany actually reduced some subsidies.  We were proceeding with the second case, but it was very clear that even if we won it, that there wasn’t necessarily going to be follow-through and that’s what led to the ‘92 agreement, trying at least to sort of limit this.  Subsequent to that, you have a WTO created that for the first time doesn’t allow countries to block implementation of a report.  Now, there was a discussion about this in the late ‘90s in the U.S. and one of the differences at that point, was that Boeing was also concerned about whether a case would affect its business in Europe since a lot of its business in Europe is dried up and you have this question of the future of airplane development, it was a decision that we agreed with, that you shouldn’t have new subsidies going for the 350.  Frankly, one of the issues, if we go through litigation, is that we were willing to say “what was done with the 380 or done with the 7E7, fine” but if we bring a case, people have to recognize, we believe there’s an ability to go after the 380 subsidies, too.  So, that’s why a negotiation would be preferable, but I think we’ll have to see whether that’s possible.

Audience questioner:  Robert Shaw.  One question I do have.  It’s a two-part question.  One is “globalization” over the past decade has taken on a sort of pejorative connotation in the general public.  How do you -- have you seen that negativism go into your counterparts in the way you negotiate?  And secondly, what suggestions would you have in terms of improving the benefits of globalization to the general public in a very, very technical and legalistic system where it is difficult for the general public to understand?

USTR Zoellick:  That’s a very big question, an intriguing question, and they probably don’t want me to go on too long, but let me answer it in two parts.  You know, it’s interesting, when I travel around the world, where I can, I try and meet university students.  In South Africa, I was just in the Gulf where I met some, and I was in China.  And you know it’s intriguing, in the United States as well.  The students who were most interested in globalization and most positive about it were the students in China.  And these were not students in Beijing, interestingly.  They were in Chongqing and another one in Shenyang in Liaoning Province.  And I think, for them, they see globalization as an opportunity to open up China, to improve the living standards.  They’re sensitive to some of the same issues people are sensitive around the globe about managing their lifestyle and adjusting to it.  I find that somewhat intriguing that sometimes societies that have taken for granted the benefits of openness might be more suspect than those that can see first hand how openness is important for their development and their prospects.  I think, what your question suggests, is that globalization is a term that is encapsulated a whole series of changes, changes that are in part due to the rapidity of information technology, lower transportation costs, increased competition, increased information flows, and I think, I believe, openness is good for societies.  I, frankly, believe the trump card for the United States over some 225 years is our general degree of openness, to capital, to ideas, to people, to trade.  But as Lee’s question suggested with the Congress, it’s a never-ending challenge to keep the country open.  But I think it forces us to adapt and to become kind of a more prosperous and richer country, not economically, but richer as a society.  But you clearly have to help people adjust to change.  So, I think one of the challenges for governments is how do you help people manage change?  And I had a dinner discussion last night with some French business friends and we were talking about this in a European as well as a U.S. context and how things like health care policies, pension policies, education policies, have to help people manage more of their own future and do it in a cost efficient way.  Frankly, in a U.S. sense, this is part of what drives President Bush’s focus on an ownership society.  It ‘s a similar concept.  So, I think the bottom line is officials who believe in openness, first off, we have to constantly make the case and frankly, we’re helped if those in the business community and others point out some of the benefits of it.  On top of it, I do think societies have to help societies manage change.

Moderator:  I promise, final question.  We’ve just had a lot of hands up, Ambassador.  So thanks for your patience.  We have one final question here.

Audience questioner:  Thank you.  My name is Danielle de Winter.  Ambassador, do you have a view on whether U.S. administration would like to see euro-dollar exchange rates moving in the next few years?

USTR Zoellick:  Well, that’s easy. No.  [Laughter].

Audience questioner:  Then, give me your opinion, your educated opinion.

USTR Zoellick:  I’ll give you a story, which will be just as fun.

Moderator:  It’s such a wide area for you to pull.

USTR Zoellick:  No, you’ll like this story.  When I was interviewed for the job of U.S. Trade Representative, early in 2001, President Bush asked my view on exchange rate policy.  Now, I had an advantage, which is I had served in the Treasury Department under Secretary Baker from ’85 to’88.  So, I had a sense of what answer he wanted.  [laughter]. And when you’re interviewing in a job, it’s often good to give the answer that your prospective boss wants.  And I said, Mr. President, I don’t have a view on exchange rate policy.  That’s for the President and the Secretary of the Treasury.”  And that indeed was the correct answer, and I’m still on the job.  [Laughter and applause].

Lee Walczak:  Mr. Ambassador, thank you very much.  And thank you, for those terrific questions.  This brings our discussion to an end.  In a moment we will go directly into the next phase of our program.   I’d like to introduce my colleague, Andy Reinhardt, and some of his guests, and we’ll have a very interesting discussion on technology, but again, Bob, thanks for making this journey and thank you for those terrific questions.  [Applause].

 
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