USTR SCHWAB: Scott, thank you very much. Special thanks to Scott Miller, a tireless, informed, enthusiastic supporter, champion of free trade, and thanks to the ABC-Doha Coalition and Business Roundtable in particular for all the work over the last five years in helping to organize and keep ABC-Doha up and running.
I see a lot of friends here today. A lot of old friends who have helped make our successes in trade possible over the years, and I look forward to working with you as we go forward to enjoy victories and in providing items in our very ambitious current trade agenda including congressional enactment of Free Trade Agreements with Oman, Peru, and a PNTR vote for Vietnam, all in the near future we hope. We look forward to working with you on those.
Today I’m here to talk about the most important multilateral trade negotiation before us in over a decade and likely the most important multilateral trade negotiation before us in at least another decade to come. The importance of the Doha round to commodity groups, manufacturers, service providers, is its potential to boost global growth and global trade, and let’s face it, from a US-centric perspective, the potential to reach the other 95 percent of the world’s population.
As Scott said, I just returned from Geneva. What did we learn in Geneva? [Laughter]. What we learned in Geneva last week:
First, those of you who were there will attest to the fact that there was never a sense of energy, the sense of energy or the buzz that comes with knowing there’s an imminent breakthrough, a potential for a breakthrough. Why? We all showed up, presumably ready to deal. Certainly the United States showed up ready to deal, but there was no deal made. Why?
Perhaps the rest of the world expected the United States to show up to give more in domestic support and agriculture and to get less in terms of market opening. There’s no balance in that equation. If the US needs to adjust its offer from last October downward, we risk generating a downward spiral. That’s also not the answer.
But neither is the answer a lowest common denominator deal, because quite frankly that is not what the mandate of Doha is all about.
What else did we learn? We learned that unless and until we’re able to pin down the definition and scope and treatment of sensitive products and special products and special safeguard mechanisms and all of these wonderful do-dads and add-ons that are built into negotiating approach, we really don’t know what the tariff reductions in agriculture mean.
In WTO speak when we’re talking about domestic support and cuts in domestic support, we understand how that’s structured. We have the Amber Box and we have the Blue Box and we have the Green Box. It turns out in market access all we have is the Black Box. That is a Black Box with loopholes. Unless and until we are able to pin those down and figure out what is behind the curtain, we don’t know what is there, we can’t evaluate what’s on the table.
For example, last week the EU claimed it was ready to improve its fall offer in agriculture and market access, but we discovered that the offer was both too vague and too full of loopholes to really get a sense of whether it was better than what was offered in the fall or not.
There was an Australian analysis that was put forward noting that if you took the 54 percent average tariff cut which is a nominal cut for developed countries in the G-20 proposal, and you combined those with the treatment of sensitive products in the EU’s proposal from last fall, that was the equivalent to a 40 percent tariff cut. And oh by the way, you still don’t know whether those products, those commodities that you really care about, are on the table at all.
Finally, we also learned, much to my chagrin as a long term development economist, that there are some advanced developing countries like India that are questioning the benefits of open market development.
Now, let me be very very clear on this. This is not a North/South debate. There are developing countries that were over in Geneva that have been as vocal if not more vocal than the United States when it comes to the question of market opening. So we’re in very very good company. But there are some developing countries, advanced developing countries, arguably emerging or existing powerhouses, that would like to hide behind the least developed and poorest among us that clearly should be given a [pass] in these negotiations. The Brazil’s, the China’s, the India’s of this world can and should be expected to participate in this negotiation, including opening their markets to benefit other developing countries because the sad fact is that developing countries, 70 percent of the tariffs, of the duties paid by developing countries, are paid to other developing countries.
So if you really want to meet the promise of the Doha round, we need to be generating not just more North/South trade, as we clearly want to do; not just more North/North trade which we want to do; but also more South/South trade.
The United States used the Geneva meeting last week to try to bolster our allies into seeking a more ambitious outcome, setting their sights higher, and convince those who maybe hadn’t listened to my predecessor Rob Portman explain that the US is simply not going to negotiate with itself over cuts in domestic support in agriculture.
Last week the United States signaled a willingness to modify our domestic support proposal in agriculture. On more than one occasion. Did our trading partners not hear it, or did they not want to hear that this willingness is attached to a prerequisite for more and [inaudible] market access.
There is an inherent balance between give’s and get’s in any trade negotiation and that is true of this negotiation as well as any other. There is also an implicit balance of ratio and exchange rate in agriculture and the agriculture part of our proposal last year with market access and domestic support. Recognizing, of course, that it is the desire of the United States for our own purposes to do both. So not to pretend that this is just give’s and get’s, but there is a sense, there is an inherent balance there. That balance is not sacrosanct and it can be modified, but only with good reason.
Ultimately we left Geneva last week asking Director General Pascal Lamy to engage in shuttle diplomacy, to be a catalyst, a bilateral confessor, a conciliator, and we hope he seeks and finds a landing zone on a flat plateau.
The US has no intention of giving up, but we also expect others to step up to the plate. The goal we have in the next three weeks is to raise everybody’s [game]. Not to define success downward. Not to be playing the blame game as a smokescreen for inaction. We need to keep our eyes on the prize – the power of open markets to spur development and economic growth. And all the WTO members need to stretch and all need to focus on eliminating the Black Box so we can get on with the rest of the negotiations. If that means new proposals, so be it, but they should be real proposals.
WTO members have a clear choice. Deliver the promises made at Doha in 2001, or in the Doha Framework, Doha Declaration in 2004, to reduce barriers, to spur growth and to spur economic development.
Is the United States too ambitious? The happy irony here is that what works for the United States politically also happens to be the right thing to do. What do I mean?
In any democracy when you’re negotiating a trade agreement and you’re serious about making concessions, there is again a fundamental [inaudible]. We know that no matter how dramatic or how mediocre or how pathetic your market access offer is, you know who’s going to oppose it. You know that almost by definition there are going to be import-sensitive industries and there are going to be, in this case, agriculture commodity groups that are unhappy about losing their domestic support. That is by definition going to happen. And that’s okay, that’s part of the equation.
However, the only way that you can address that in a political sense is by having the rest of the package, the market access, the potential for new export sales by US farmers, ranchers, businesses, service providers be deep enough and broad enough and ambitious enough to create a coalition that offsets the negatives. That can only happen with a big package. That can’t happen with a small one. We need enthusiasm, not acquiescence favoring a pro-trade bill and a pro-trade agreement.
But happily, that also happens to be the right thing to do. It’s the right thing on the merits. All you have to do is look at any World Bank study, any OECD study, any economic study that I can think of to make it clear that if you’re serious about using trade as a tool for development you need to first look at market access and you need to have a big, robust, ambitious outcome.
I would not here sort of as a caveat this discussion about what developing countries should or should not do. We’ve made it clear that there needs to be a lot of flexibility for the least developed countries, the poorest developing countries. But we also have in this agreement elements of trade capacity building, many of which were determined in Hong Kong, when we were in Hong Kong in December, that would help developing countries take more advantage of potential benefits to market opening.
In the case of the United States we have already pledged that over the next five years we will be doubling our aid to trade, our contributions to trade capacity building from 1.3 to 2.7 billion dollars. I would note at the time this offer was made, the then US Trade Representative is now the Director of the Office of Management and Budget, so I feel pretty good about our being able to -- [Laughter].
Where does Doha go from here? Above all we need to avoid defeatist thinking. That’s not going to help us. I made the case in agriculture, and for those of you here, and there are many of you, who are far more interested in non-agriculture market access and access for manufactured goods and access for services, those are very much front and center in our thinking and I don’t wish to imply otherwise. Fortunately or unfortunately, agriculture is still the key to unlock the door to the rest of this equation.
In the case of industrial goods, remember that our mandate and our expectation is that the highest tariffs will be cut the most, and that is the nature of the Swiss formula that we’re looking at. That again is very very important not just for developed countries but for developing countries, and in particular we need to see advanced developing countries be full participants in this exercise with a very ambitious Swiss coefficient.
Advanced developing countries, by the way, stand the most to gain when it comes to market opening in NAMA – non-agricultural market access, industrial goods, and we expect them to be there are participants in this effort.
In services, services account for 80 percent of US jobs and over 50 percent of jobs [inaudible], and we need to see more market access from developed and developing countries alike. And here again you have this happy circumstance where whether you are a developed country or a developing country, the smartest thing you can do is unilaterally open your doors to services building.
If you are a developing country, how would you lose from having an improved financial infrastructure, telecommunications, express package delivery? All of these elements that come together, that make you viable. Not just in terms of inward investment but also, let’s face it, in terms of your export potential and in terms of growing your own indigenous entrepreneurs.
What does the United States do from here? Obviously, as you can tell, we’re still committed to getting this Doha round done and done this year. We also have, I might mention just in closing, a very ambitious bilateral and regional agenda under existing Trade Promotion Authority to open markets for our farmers, our ranchers, manufacturers, service providers, and consumers. US Free Trade Agreements continue to be the gold standard of Free Trade Agreements worldwide. We seek cooperation in development. Some of our strongest allies in Geneva in the Doha round favoring enhanced market access are countries that have been or are FTA partners.
Creating opportunities for the United States and for these trading partners is very important, and these bilateral and regional deals also offer important contributions in terms of contributing to democracy and stability.
Yes, we’re going to press ahead with our WTO accession negotiations as well. And we believe that we’re capable of running and chewing gum at the same time, which is basically the pace that we’re on now.
Yes, we have our work cut out for us, but I look forward to your continued support, your hard work, your dedication, your probing, your questioning, to enable us to achieve these noble goals of raising standards, promoting peace and democracy, and opening opportunities for the free and fair flow of commerce.
I think I will stop here. I apologize to the folks who worked on the speech for having skipped large sections of it. [Laughter]. But I’d rather spend a little more time in questions and answers.
REPORTER: Is the near term fate of the Doha round in the hands of Minister Lamy, or do you plan on bilaterals either G-6 or broader? And should the G-8 [inaudible]?
SCHWAB: The future of the Doha round is in the hands of all of us. It is in the hands of Pascal Lamy in the form of a confessor, catalyst, facilitator. The members of the WTO did not ask Pascal Lamy to come up with a proposal. They asked him to probe each one of us to see are we ready, willing and able to play the what-if game with him when we weren’t willing to play it with each other in larger groups in Geneva.
There are no time plans for a gathering of the G-6 or a Green Room or a full WTO membership, but certainly those could be pulled together fairly quickly and all of us would not be surprised if we end up in Geneva at the end of July. Nothing has been planned.
As you know, the G-8 meeting of leaders will take place, continue the week after next and next week, in St. Petersburg. There is a session where the G-8 leaders will probably be talking about trade and there is an outreach session where we will have some other leaders including President [Lula], Prime Minister [Saing], and others who will be joining them and presumably they will also be talking about trade and the Doha round.
REPORTER: I wanted to ask you about the Russian [inaudible]. Do you feel specifically there is an important reason [inaudible], can assume that the Russian [inaudible].
SCHWAB: I have not seen that particular quote. I think both President Putin and President Bush are on record hoping that we’re able to work out the bilateral WTO accession agreement between Russia and the United States as soon as possible. Ideally, before the G-8, but if not, as soon thereafter as we can. I think that [Russia] is absolutely right in seeking WTO accession for its own sake. Russia is not seeking to become a member of the WTO as a gift to other countries, but rather because it’s the right thing to do for Russia.
SCHWAB: I’m a trade negotiator. That’s not a conversation to have here. [Laughter].
REPORTER: What do you expect from the [inaudible]? What kind of message do you expect from them? And also, you talked about India. Can you talk a little bit about [inaudible] associated with regards to the [inaudible] and the CAFTA?
SCHWAB: I am certainly not in a position to predict what the leaders are going to be talking about, so I will not imply otherwise. I happened to mention the EU and India in an illustrative capacity. Japan is a very good example where market access, particularly agricultural market access, is a real sticking point. Japan has rice tariffs in excess of 750 percent. So if anybody tells you that agricultural market access is not a problem, all you have to do is point to tariffs like that.
The average, I believe, global tariffs in agriculture are 62 percent. That is real and that can block trade. In the United States, by the way, our comparable number is 12 percent. It so happens the EU’s number is twice as high as that in terms of agricultural tariffs.
Clearly Japan benefits as much as any country in the world from an open global international trading system, and Japan needs to make contributions and participate in a manner commensurate with the benefits they gain from the international system. That means making significant contributions in agriculture.
REPORTER: You make it sound like it’s so obvious that everyone would benefit from trade [inaudible], but there seems to be such a disconnect. If everyone should see it that way, why isn’t that the case and who is seeing it differently?
SCHWAB: A very very good question. Real trade agreements where you’re talking about achieving new trade flows, so you’re talking about meaningful outcomes, are very tough to negotiate. And I am not impugning or raising questions about the motives of any one of our trading partners because I know that what they are doing is just as tough for them politically, what they’re trying to do, as it is for us politically.
That said, the United States has concluded that we need to show leadership to get this done. If our voice is not heard and not out there promoting an ambitious outcome, we won’t achieve it.
Let me put it into a different perspective. The US launched this negotiation in 2001. We resuscitated it in 2005. It’s kind of odd that we’re sitting here in 2006 getting the blame for the fact that it isn’t done yet.
So I think each country has its own political imperatives that it has to work through. Any democracy that plans to contribute, that plans to participate, almost by definition needs to have a large package because a small package is just not politically viable. The only way you get away from small packages in a democracy is if you’re not going to put anything on the table. No pain, no gain.
REPORTER: I think you very accurately captured the energy --
SCHWAB: Or lack thereof.
REPORTER: Or lack thereof. My question is, after that experience why aren’t you convinced that nobody wants the kind of ambitious deal that you’re talking about, particularly given the time constraints of finishing the deal before [inaudible] expires next summer?
SCHWAB: Part of it is the difference between the sort of public rhetoric and the private conversations. You’d be amazed at the difference in positions that countries and trade negotiators take when they’re sitting in a large room as opposed to a smaller room as opposed to a one on one.
I believe there is enough potential there to do a good deal. Not easy, and it goes back to your question . It is not easy. There are some countries that would just like all of this to go away. And they know who they are. [Laughter].
REPORTER: [Inaudible] the G-6.
SCHWAB: And they know who they are. [Laughter].
But based on conversations, particularly I might add with developing countries and including a number of advanced developing countries that realize they not only have the most to gain from a successful Doha round, they also have the most to lose from a failed Doha round.
I will be totally up front with you. We are running out of time. There is no question, in terms of our Trade Promotion Authority. Maybe it’s possible we can get an extension of Trade Promotion Authority but as I’ve said before I wouldn’t bet the round on it at this point.
But I think I heard enough, and maybe we all kind of needed to get to the edge of the precipice and look out over the precipice and see that yes, in fact this could fail. I’m not sure when we got to Geneva that countries were convinced of that. We’ll see.
And quite frankly, if the US isn’t ambitious, nobody’s ambitious. If the US doesn’t look forward and lean forward, it would appear that nobody else is going to do it either. So it kind of comes with the territory.
REPORTER: In the sector of textiles and apparel, to what extent was textiles and apparel discussed?
SCHWAB: There were some conversations related to manufactured goods, issues. Quite frankly, we were hung up on agriculture pretty much from day one to the day we left so there were not extensive negotiations or discussions about textiles and apparel or any of the other non-agricultural products.
I should say the discussion on textiles and apparel tend to be somewhat schizophrenic. Maybe that’s a bad word and I probably just said something that we’re all going to regret later. [Laughter]. There are countries that want to see market opening in textiles and apparel because they want access and yet they’re very nervous about it because they look at the competition from China, for example, and don’t necessarily want others to have the access. So the dynamic on textiles and apparel trade, and here I’m sort of putting on my academic hat from my previous [inaudible], the dynamic on textiles and apparel trade is very different than what it was in the Uruguay round, very different from what it was in the Tokyo round, and has yet to jell in terms of a specific coherent set of positions.
REPORTER: I have a question about Russian WTO accesss I wondered if you can give us an update on the process with Russia and America. Do you expect that it will be ratified by this month? What is going on with Colombia? Also the APBBA, [inaudible]. Thank you.
SCHWAB: Thank you. As I mentioned at the front end of our conversation today, we have a lot going on in terms of our trade agenda, including on a bilateral and regional front.
In terms of Western Hemisphere activities, we were very very pleased to have the fourth out of six CAFTA countries seek entry -- [inaudible] for example Guatemala. We got entry of course for Guatemala of CAFTA on July 1. As you all know, we’ve completed our FTA negotiation with Peru and that legislation is being teed up to move on the Hill. The sooner the better. Obviously the [policing] in terms of the legislative process involves a very delicate set of conversations with the congressional leadership and ultimately it is up to the Ways and Means and Senate Finance Committees to launch the process. We had a hearing in the Senate Finance Committee. We’ve got a hearing that we anticipate in the House Ways and Means Committee, and then the question is how fast the legislation moves.
In the case of the Colombia FTA agreement, we’re still ironing out some of the technical details. We’re finalizing that, but that is moving forward as well.
The other item I mentioned, although not related to the region, the other item that I mentioned was the Vietnam WTO accession agreement that was reached where we need to move PNTR to the United States Congress.
I’m not sure what order that will all move in. Obviously from the administration’s perspective, the sooner the better.
REPORTER: And on [inaudible]?
SCHWAB: The Andean Preference Program expires the end of this year as does the Generalized System of Preferences. These are conversations that we’re having with the congressional leadership in terms of the next step.
REPORTER: I wanted to go back to Russia and the WTO. You said you [inaudible]. [inaudible] done before the G-8. And following up on that, Russia is a country that has copyright piracy, in terms of [inaudible] oil industry. Is that a country that should be in the WTO?
SCHWAB: A smart US Trade Representative does not handicap trade agreements and does not talk about exchange rates. [Laughter]. So I’m going to gloss past that question.
I think that the response I gave earlier is really the key which is Russia realizes, and President Putin realizes, that it is in Russia’s own best interest to be fully integrated into the global economy. You can’t be fully integrated into the global economy unless you are operating under a system of rules, of controls, of in this case trade agreements with transparency and due diligence and processes that are internationally accepted, internationally recognized. It is in Russia’s interest, both in terms of its own entrepreneurs, its own creative class, its own engineers and inventors, to protect intellectual property. Not just the intellectual property, international, that other foreign companies or individuals create but also Russian intellectual property. President Putin has spoken specifically about this and there have been some real improvements in terms of their treatment and protection of intellectual property. We’re not there yet, but they’re doing it and they’re doing it for their own sake. They’re doing it for the right reasons.
There are other outstanding issues. Most of these agreements end up getting hung up on agriculture. Frequently SPS, Sanitary-PhytoSanitary issues. That kind of comes with the territory. I’m hard pressed to identify any trade agreement other than with a country that doesn’t grow anything, that doesn’t at some point get hung up either on textiles and apparel or on agriculture.
WTO accession is a serious business and I think Russia wants to do it right and we’d like to have Russia do it right. That’s what we’re trying to accomplish.
REPORTER: I have a question on Brazil. It seems that the US-Brazil relations are somehow blocking the international trade agreement. [inaudible] responsible for the failure of [inaudible] Doha talks and also it is a [inaudible] for the FTAA [inaudible]. Would you tell us what is the pure objective message of [inaudible] in order to align to the US to push forward this trade agreement?
SCHWAB: Let me begin by disagreeing with the premise of your question. The premise of your question is that somehow there are serious problems within the United States and Brazil over trade issues and I think the United States and Brazil have a healthy trade relationship and a healthy relationship in the Doha negotiations, quite frankly. President [Mula] has been very interested in having more leader participation. He and President Bush have spoken about the importance of the Doha agreement. My counterpart in the negotiation [inaudible] Amarim who is their Foreign Minister is smart as a whip and great to deal with.
Brazil wants to get to yes in the Doha round. We may not always agree on how to get to yes, but that’s all right. That’s fair. And the Brazilian trade negotiators represent Brazil’s interest much as the US trade negotiators represent the US interest.
So I guess I would say it’s a healthy relationship. We may not always agree, but in many cases we do.
REPORTER: Ms. Schwab, it seems that the thrust of your remarks is that it’s essential if the round is to be concluded that there be a powerful signal from the G-8 meeting in St. Petersburg. Is that your view? And do you think that’s likely?
SCHWAB: One can never argue with a powerful signal, and one can never argue with the value of having one’s leader tell you, get back to the negotiating table and get this job done. But there is an awful lot of rolling up our sleeves at the ministerial level and at the sub-ministerial level that is required to get this done. The most daunting prospect about completing the Doha round is that if, and I hope when, we reach that political consensus, that political convergence, there is a huge amount of detail behind that. There are so many moving parts in the agricultural negotiation, for example. Also in the negotiation on industrial products. And we don’t even have a second round of offers on services on the table until the 31st of July. So there is a huge task at hand for everybody else as well as the leaders. So it isn’t an either/or, but it’s a both/and proposition.