Trade, Development, and International Understanding

I am extremely pleased to be here this afternoon. Rotarians throughout the world represent the best of business and professional leadership. You commit yourselves to transparency and ethical conduct--ideals we strive to promote in our international commercial and trade relations.

Moreover, Rotarians embody a strong humanitarian spirit, encouraging international understanding and mutual respect among cultures.

Today, I'd like to talk to you about the importance of trade, specifically the Doha Round and other important initiatives on the Broader Middle East, the Millennium Challenge Corporation and the eradication of polio.

WHY LIBERALIZE TRADE?

Trade remains one of the more effective ways to build international understanding, cooperation, and mutual respect. A strong and dynamic international economic system based on free trade and investment is the fastest way to move from poverty to prosperity.

Strengthening world trade is key to America's broader objectives. Fighting terrorism, reducing poverty, improving prosperity -- all of these goals are advanced by expanding world trade.

Unemployment is a ticking time bomb in developing parts of the world. It contributes to a litany of problems -- from poverty, to lack of economic development, to disaffected youth who start to look for meaning in directions harmful to U.S. interests.

But, unemployment is overcome by creating jobs, and jobs are created by fostering economic climates that attract trade and investment.
We know that:

A RISING TIDE . . .

Countries that aggressively enter the global open market system prosper. Their political systems and societies become more open, offering new opportunities for their current citizens and for future generations.

President Bush has repeatedly said: "Free trade is the only proven path out of poverty for developing nations. When nations are shut off from the world, their people pay a steep price . . . . . Those who condemn free trade condemn the poor to permanent poverty."

Free trade creates growth by allowing resources to flow where they are put to productive uses, raising standards of living. Free trade helps build open investment climates, discourages corruption, and welcomes new ideas, allowing democracy to take root and grow. Free trade lowers the cost of basic necessities like food and clothing, leading to a better quality of life -- especially for the poor.

Free trade's contributions to growth go beyond a country's balance sheet. Open trade increases the competitiveness of domestic economies by introducing improved technologies and management techniques and increasing links to global markets. Perhaps most importantly, vigorous participation in the world trading system, including following global trading rules, heightens the transparency and predictability of economic transactions. These effects often reinforce the attractiveness of developing country economic environments as destinations for direct investment.

Multilateral trade liberalization is more important than ever for developing countries because of the burgeoning trade relationships among them. These relationships now account for 40 percent of total developing country trade. However, these trade flows often face the highest trade barriers. Despite important reforms, developing country trade protection remains high and may have even increased in the 1990s. Average developed country tariffs on manufactured goods, including textiles and clothing, now stand at 8 percent, while average developing country tariffs on the same items are 21 percent. We continue to work to lower these rates even further.

PUTTING DOHA BACK ON TRACK

As you know, the Doha Round is a massive negotiation, covering everything from cars and corn to communications services and customs rules. It will have a resounding effect on the world for years to come.

The July negotiations in Geneva put the World Trade Organization (WTO) on track to open markets for agriculture, goods, and services. The framework provides structure and direction to the ongoing trade talks. The negotiations are designed to promote global economic growth and development in developed and developing countries.

Specifically, the key elements of the package included:

Salvaging the Doha round was a crucial step for global trade. U.S. Trade Representative Ambassador Zoellick reached out in Geneva to a broad group of trading partners in intensive consultations. Following those tough deliberations and a successful conclusion, he summed it up nicely: "After the detour in Cancun, the WTO negotiations are back on track. We have laid out a map for the road ahead. Next, we will negotiate the speed limits for how far and how fast we will lower trade barriers."

Negotiations in the technical groups have already begun in earnest in September. My State Department negotiators and their USTR counterparts are already in Geneva, moving our agenda forward.

AGRICULTURE

The United States has agreed to make historic reforms in global agricultural trade. Progress on agriculture was key to securing closure on the framework agreement and became the focus of intense scrutiny in Geneva. The formula and timeline for reducing domestic support subject to commitments will be negotiated in the next phase. But, the framework guarantees that real cuts will have to be made, and the largest subsidizers will make greater cuts.

Developing countries received significant exemptions from cuts in domestic support programs, as well as broad exemptions from commitments in other areas. Export subsidies (used primarily and extensively by the EU) are to be eliminated by a date to be agreed by the members.

Cotton specifically posed challenges for our U.S. negotiating team. The African "Cotton-4," namely Benin, Burkina Faso, Chad, and Mali, received agreement on special attention to negotiations on cotton within the context of overall agriculture negotiations. Future work on cotton is to address trade-distorting policies in all three areas of the negotiations--tariffs, export subsidies used by other nations, and domestic support policies of the U.S., EU, and others.

NON-AGRICULTURAL MARKET ACCESS

The July agreement has also identified a plan to open markets for manufactured goods. WTO members agreed to negotiate a tariff-cutting formula for industrial products under which higher tariffs will be cut more than low tariffs. This will help U.S. manufacturers, because foreign tariffs on industrial goods currently average 40 percent, whereas U.S. tariffs average less than 4 percent. In cutting tariffs, developing countries will have longer implementation periods and flexibility on a certain percentage of tariff lines.

SERVICES

With trade in services accounting for more than half of the economies of most countries, we will intensify negotiations to open services markets. In July in Geneva, the United States coordinated extremely closely with India on services market access, convincing other countries to come on board and conclude a framework agreement. At the WTO General Council, WTO members reaffirmed that services are on par with agriculture and manufacturing as a “core” market access area. The United States aimed to ensure that the momentum of the services market access negotiations did not falter, agreeing with other members that revised market access offers should be tabled by May 2005.

TRADE FACILITATION

The WTO negotiations also look to facilitate trade. To this end, the WTO will launch negotiations on customs procedures that will cut red tape and reduce the cost of exporting to some countries by as much as 15 percent. Clarifying and improving WTO rules governing customs procedures should improve the transparency and efficiency with which goods cross borders, as well as advance anti-corruption reforms.

However, we agreed that no work on any of the other Singapore or new issues, such as investment, competition, and transparency in government procurement, will take place during the Doha round. We will continue to pursue our interests in these areas, as appropriate, in our bilateral FTA's.

TRADE PREFERENCE PROGRAMS AND FTA'S

We also are working to liberalize trade bilaterally and regionally, as well as in the WTO. In 2000, the United States initiated the African Growth and Opportunity Act, a program that was reauthorized this year. We also enhanced our Caribbean Basin Initiative in 2000. In 2002, we renewed and expanded the Andean Trade Preference and Drug Eradication Act (ATPDEA). These preference programs, combined with improvements in our Generalized System of Preferences (GSP) and market opening measures, have eliminated most tariffs and quotas on goods from least developed countries. The percentage of U.S. trade that is duty free is about 66%. The other third is dutiable at an average rate of about 4.9%.

As I'm sure you've noticed, we have had a steady stream of FTA negotiations over the past several years. Beginning with Jordan's FTA, which went into force in December 2001, the United States has successfully concluded FTA's with Singapore, Chile, Morocco, Australia, Dominican Republic, Nicaragua, Honduras, Guatemala, El Salvador, Costa Rica, and Bahrain. The Chile and Singapore agreements are in force, and our Congress passed the Australia and Morocco FTA's by substantial margins. Negotiations with Thailand, Panama, and the South Africa Customs Union (comprising South Africa, Botswana, Namibia, Swaziland, and Lesotho) are ongoing, as are negotiations with Columbia, Peru, and Ecuador, for a sub-regional FTA.

These agreements break down trade barriers for U.S. businesses and farmers. Not only have we leveled the international playing field, we have increased domestic competition, providing a wealth of more competitively priced goods and services for U.S. consumers.

I would also like to say a word about another important initiative to promote reform and opportunity. The Broader Middle East and North Africa (BMENA) initiative of the President aims at supporting regional efforts for reform and modernization and responds to these countries' efforts to make education, democracy, and economic reforms.

We see the Forum for the Future, in particular, as a promising opportunity for the G-8 partners and countries of the region to work together on political, economic, and social reform. These efforts have great potential to improve the lives of people throughout the region, which is good for all of us throughout the world.

United in their commitment to increase opportunities for every young person--every woman and every man--we agreed to collaborate with the business sector--where vitally important new jobs are created--and civil society, the open laboratory of ideas. Business and civil society leaders will be the governments' partners in the Forum for the Future.

We talked about creating new opportunities for young people through training, including vocational training, and welcomed the region's leadership in developing the two regional centers for entrepreneurial excellence announced at Sea Island. Leaders also reaffirmed their commitment to promote intra-regional trade and expand trade opportunities in global markets.

Most recently, finance ministers convened on October 1, in Washington, to discuss the future economic work of the Forum. The meeting provided an opportunity to explore in greater detail market-oriented economic reforms that might encourage donors to contribute to the new IFC Facility with the goal of raising $100 million to support private sector development in the region.

MILLENIUM CHALLENGE ACCOUNT

Also at Sea Island, the President obtained G-8 Leaders' endorsement of active steps to help eradicate poverty, improve the investment climate, and create infrastructure for growth and prosperity.

Leaders agreed to an innovative action plan to apply the power of entrepreneurship and the private sector to the challenge of poverty alleviation. Innovative U.S. development policies, such as the Millennium Challenge Account initiative, emphasize promoting economic freedom and entrepreneurship as key practical drivers of job creation and poverty reduction.

The Millenium Challenge Account supports poverty reduction by focusing our assistance efforts on those countries committed to governing justly, investing in their people, and encouraging economic freedom. The Millenium Challenge Account applies lessons learned from decades of development aid.

Secretary Powell has stated that the Millenium Challenge Account is not "more of the same" assistance. Performance matters and we have identified benchmarks, such as the degree of private sector involvement, structural reforms, and public-private partnerships, by which to gauge our success and maintain accountability.

Leaders agreed to launch pilot projects to lower the cost of remittances and expand access to microfinance programs. The U.S. will expand its already robust microfinance efforts, which are currently active in 58 countries, reaching over five million clients worldwide with total combined loans of more than $2.5 billion. G-8 leaders agreed as well to pilot efforts with willing countries to improve business climates, and to find ways to tap and create better financial support and services for enhancing water and housing services, especially for the poor.

POLIO ERADICATION INITIATIVE

Finally, the leaders agreed to take all necessary steps to conquer polio by 2005, by agreeing to cooperate to ensure that the funding gap for the global polio eradication initiative is closed, and that the political and practical will to undertake effective immunizations and follow-up is strong. I just conducted productive meetings with my G-8 counterparts the other day on the polio initiative.

I would like to thank Rotary International for its leadership in the global Polio Eradication Initiative. Rotary's financial contributions to the global eradication effort exceed $500 million, more than many countries have contributed. I also want to salute the work of the more than one million Rotarians who have volunteered their time and personal resources to protect over 2 billion children in 122 countries from polio. You have been true to your motto and guiding principle--Service above Self. Thank you for all you have done.

Rotary's involvement in polio is a model for public-private partnerships. Rotary's demonstrated leadership in the Polio Eradication Initiative stands as an example worldwide and has been of great assistance in mobilizing other organizations to support global efforts to eradicate polio.

The U.S. is committed to the goal of eradicating polio. We continue to raise the issue of polio with other countries and international organizations, such as the World Health Organization (WHO), at every opportunity and to seek their support in eradication efforts. The WHO plans an emergency immunization campaign in 22 West and Central African countries at a cost of $100 million this fall. We also have encouraged the WHO Director General to urge non-G8 donors to contribute funds to the Polio Eradication Initiative.

The suspension of immunization campaigns in Nigeria was a setback that allowed polio to reappear in African countries where it had not been seen for years. The good news is vaccinations have now resumed in Nigeria. The bad news is that the emergency immunization campaign to regain the lost ground in Africa will cost another $100 million that the Polio Eradication Initiative does not yet have.

CONCLUSION

What Rotary has committed to in the fight against polio and in the area of trade liberalization are testimony to the power of partnerships and the interrelatedness of our world.

We remain convinced that global trade liberalization would benefit all countries and we remain committed to a successful conclusion of the Doha round. A study by the University of Michigan estimates that a one-third cut in global barriers to goods and services would mean $2500 a year in increased income to the average American family of four. And, a study by the Center for Global Development indicates that a successful conclusion to the Doha negotiations could lift more than 500 million people out of poverty and add $200 billion annually to developing country economies.