Charlene Barshefsky

Director's Forum Lecture On Trade And Development - June 20, 2000

Charlene Barshefsky
June 20, 2000— Washington, D.C.
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Thank you very much. Let me thank Director Schneider for inviting me to speak with you this morning, and express my appreciation to all of you for coming today.

I am very pleased to be here at the Peace Corps, because we share a great deal with you. To begin with, we are a small agency -- one of the few smaller than the Peace Corps - and among our employees we have six returned Peace Corps volunteers: Christina Lund, Deputy Director of our China office and a volunteer in the Congo; Teresa Howes, our China agriculture negotiator, who served in Thailand; our telecom expert Jonathan McHale, and Mark Sloan in our agriculture office, both of whom served in Morocco; Joe Ripley in our Africa office, a veteran of South Korea; and one of our newest interns, Shawna Turner, who served in Malawi. We also of course share a Press Secretary, Brendan Daly.

And we share with the Peace Corps a common origin. The Peace Corps, the Office of the U.S. Trade Representative -- and I should add the Agency for International Development -- all date to the Administration of John F Kennedy. All three represent his vision and his confidence in the capacity of America's energy and ideals to change the world for the better; all three, in our different ways, share the mission he defined in creating the Peace Corps - to create for the world:

"That decent way of life, which is the foundation of freedom and a condition of peace."


This is the mission Peace Corps volunteers take up in the most practical and effective way, working directly with schools, families and local governments to teach young people, link villages to the Internet, and train aspiring entrepreneurs. Our task at USTR is different but inseparably related: as the Peace Corps helps to educate students, provide training in business skills and link villages to the Internet, our task is to create the framework of open markets and economic stability that enables people and nations to take advantage of these skills.

Our work rests on economic logic: exports let us serve larger markets and are generally associated with higher-paying jobs; imports increase competition and economic efficiency, dampen inflation, and raise the standard of living, especially for the poorest families. But we base policy not only on theory but on practical experience with the alternative.

Last Friday, as it happens, marked an important anniversary in American trade policy -- although it is not one we often commemorate, because it is so embarrassing. That is, seventy years ago last week was President Herbert Hoover's signature of the Smoot-Hawley Act, which was the largest single restriction on trade in American history.

President Hoover's trade policy rested on the belief that Americans could not compete effectively with developing countries. As he put it, we "cannot successfully compete against foreign producers because of lower foreign wages and a lower cost of production." These are natural, understandable fears -- present in our trade debates today as well as seventy years ago. In contrast to the present, however, Hoover persuaded Congress that he was correct. The result remains well-known today: a cycle of tariff hikes and retaliation which cut trade by 70% between 1930 and 1933, deepened the Depression, and intensified the political tensions of the era.

After this experience, Franklin Roosevelt proposed the alternative we have followed ever since. As he put it in 1944:

"A basic essential to peace, permanent peace, is a decent standard of living for all individual men and women and children in all nations. Freedom from fear is eternally linked with freedom from want. [And] it has been shown time and time again that if the standard of living in any country goes up, so does its purchasing power -- and that such a rise encourages a better standard of living in neighboring countries with whom it trades."

Since the Second World War; accelerating under the Kennedy Administration; and together with our trading partners, we have turned this insight into lasting institutions and policies. The work has continued for over fifty years; and it has brought enormous benefits:

  • Growth and Opportunity: The opening of world markets has sparked what is in effect a fifty-year boom. Trade has expanded fifteen-fold since the 1950s, world economic production grown six-fold and per capita income nearly tripled. And the result has been historically unprecedented social progress: since the 1950s, world life expectancy has grown by twenty years, infant mortality dropped by two-thirds, and the threat of famine begun to recede.

  • Economic Security: In the Asian financial crisis of 1997-99, with 40% of the world in recession, the respect WTO members had for their commitments kept open the markets necessary for affected nations to recover. Thus the system of mutual benefit and rule of law represented by the WTO helped prevent a cycle of protection and retaliation like that of the 1930s; and ultimately to avert the political strife that can erupt in economic crisis.

  • Peace and Stability: And the trading system has helped us address some of the profound political challenges of the past decades: the reintegration of Germany and Japan in the 1950s, and of the nations emerging from colonial rule in the 1960s and 1970s; and now a task of equal gravity, as after the Cold War, nearly 30 nations breaking with communist planning systems seek WTO membership to reform their economies and integrate with the world.


This is a remarkable record, and we can look back on it with justified pride. But as we think about the agenda of the coming years, we must also look at it with a critical eye - recognizing that in some areas negotiations have fallen short; that new challenges have arisen from the end of the Cold War and the technological revolution; and that the world remains marked by inequities and untapped opportunity.

Central to each of these challenges are the questions of development: Why, in a world more prosperous and dynamic than ever before, do over a billion people remain trapped in absolute poverty? Why have some nations moved ahead so rapidly and others found it so difficult to enter the world economy? Will new technologies heal or widen these gaps among people and nations?

These questions demands answers -- for practical reasons, as stagnating development can bring political tension; and in light of our moral responsibility in the face of suffering and deprivation beyond our borders.


Trade policy must respond; but we must begin by recognizing that trade policy can never be enough alone. Ultimately, countries largely control their own destinies. While it can create new opportunities, trade policy can never substitute for effective domestic policy measures or for financial stability, and to believe otherwise is to court disillusion. Rather, development is the union of several different fields:

  • Appropriate domestic policies: the rule of law and a stable, democratic political system; a market-based economy; health and social safety net policies; financial stability; education and the development of skills for workers.

  • The right balance of international assistance and financial policies: the practical, people-to-people support that Peace Corps volunteers provide; the larger-scale government-to-government work of AID, the work of the IMF and the World Bank; and recognition of the fact that for the least developed countries, the financial burden posed by debt has made growth very difficult, which is why President Clinton has challenged our Congress and the world to forgive 100% of this debt when relief will help finance basic human needs.

  • And together with these, a trading system that gives developing nations, in particular the least developed, greater access to world markets; more ability to diversity their economies; and more ability to defend their rights and interests.

To this latter challenge, we bring our own experience and principles, and the advice and ideas we have received from many sources. And from these we can set two policy goals: a more fully open world market; and a trading system more transparent and easier to use.


The first point is more open markets.

  1. Benefits of Open Economies

Again, part of the responsibility lies with developing country governments. Experience throughout the world shows that the most open economies grow fastest, create new businesses most efficiently, and reduce poverty most rapidly. As Southeast Asia, Central Europe and Latin America opened to the world, they grew more rapidly; reduced poverty; and built more stable, peaceful regions. By contrast, South Asia, the Middle East and Africa, where trade barriers remain highest, have reduced poverty more slowly and seen political tensions persist. So there is no substitute for reduction of tariffs and other barriers; membership in the WTO and participation in its most recent agreements on information technology, telecommunications and financial services; and development of regional integration initiatives like the ASEAN Free Trade Area, the Free Trade Area of the Americas, and Africa's three regional trade groups.

  1. US Programs

But when countries do the right thing, the world must do more than stand by and applaud.

The United States already offers a generally open market. We see this in more than $500 billion worth of goods and services imports from developing countries last year -- a figure that has more doubled since 1990 -- and perhaps $600 billion this year. But we also recognize that we can do better, and we have thus developed a series of special market access programs:

  • The Generalized System of Preferences, or GSP, which since 1976 has offered duty-free treatment to nearly 5,000 types of goods from developing countries, and which I recently expanded by another 1,800 for the least developed countries -- meaning that almost two-thirds of all products from these countries are now duty-free.

  • The African Growth and Opportunity Act, signed by the President just last month, which will create substantial new opportunities for African entrepreneurs, including guarantees of quota-free and in most cases duty-free treatment for textiles and apparel.

  • Regional integration in the Middle East, through a pilot program in support of the peace process, which since 1998 has offered duty-free privileges to joint Israeli-Jordanian industrial projects, and we hope in future will include projects involving Palestinians and Egyptians; and which will create a full Free Trade Agreement with Jordan later this year.

  • A new program we have proposed to Congress, called the Southeast Europe Trade Preference Act, which if passed would offer duty-free treatment to a number of goods from the countries most deeply affected by the recent conflicts in the Balkans.

  • And the Caribbean Basin Initiative, which we created in 1984 and enhanced just last month. Through broader duty-free programs and special access for textiles and apparel, CBI has helped the countries of Central America and the Caribbean to create jobs and stabilize their economies and create jobs. Fifteen years ago, many of these nations relied on coffee and oil for 60% of their exports to the United States; today, these commodities make up only 15% of regional exports, and are joined by much larger volumes of apparel, semiconductor, fishery and computer exports. Thus they are far less vulnerable to fluctuations in commodity prices; and this in turn has helped to create a framework for the success of the Central American peace process.

This experience illustrates the inseparable links between domestic policy, assistance and trade policy: resting on a domestic commitment to reform and reconciliation; offered a path to growth through open trade; and helped onto the road by the work Peace Corps volunteers do in 16 CBI beneficiary countries -- including the bridge Director Schneider helped to build in a San Salvador barrio thirty years ago, which Salvadoran children now take to school every day.

  1. WTO Negotiations

Our hope is that others will take similar steps. The EU, Japan and Canada have expressed interest in the concept. There is also clearly room for the more advanced developing countries to do more -- as we see when we consider that Nepal exports more to the United States than to India. And we are working toward opportunities on a broader scale at the WTO.

This begins with the talks the WTO opened last February on agriculture and services. In these, to choose an example, we hope to see elimination of export subsidies in agriculture. This is one of the most disruptive practices in trade today, as it not only blocks developing country farmers from world markets, but disrupts their domestic markets as well. The rewards of success may be substantial: according to the UN's Food and Agricultural Organization, when the European Union cut export subsidies on beef sales to West Africa six years ago, the result was a sharp increase in beef production in some of the world's poorest countries - Mali, Niger, Burkina Faso and others. We also can do more in other areas, such as manufacturing. We are therefore working to build consensus for a new, more broadly based Round that would include such issues.


Second, open markets mean little in practice without ability to reach them. This presents two challenges: ensuring that the least developed countries can take full advantage of a trading system that is more complicated than ever before; and making sure the WTO and its agreements give smaller businesses, artisans and family the same opportunities they create for larger firms.

  1. Technical Assistance and Capacity-Building

To take the first point, modern trade agreements -- on intellectual property, services, sanitary and phytosanitary standards, or dispute settlement -- demand considerable expertise from participating governments. We are therefore committed to a program of increased technical assistance and capacity-building to build understanding of the agreements; help governments comply with them; and equally help countries assert their rights and interests in negotiations.

This is especially important for the least-developed countries, which come to the WTO with less experience and resources. Last year we joined Bangladesh, Lesotho, Nigeria, Senegal and Zambia, as well as Bangladesh, in a proposal to improve the WTO's current program, known as the Integrated Framework, in these areas. More broadly, we have begun a series of workshops and sessions in several different regions of the world -- on our own, and together with colleagues from the Agency for International Development, the Federal Communications Commission, the Department of Agriculture and elsewhere -- to offer advice and assistance on the WTO, as well as on our own market access programs.

  1. Electronic Commerce and Trade Facilitation

At the same time, new information technologies, together with practical trade facilitation measures, can offer practical assistance to smaller and newer businesses.

One of today's most profound and exciting trends is the development of the Internet and worldwide telecommunications. Internet access requires little capital, helps entrepreneurs find customers and suppliers quickly, and eases technical and paperwork burdens that can slow participation in trade. Thus electronic commerce is ideally suited for developing countries.

Peace Corps volunteers are capitalizing on this today: setting up computer networks in African villages and Pacific islands, or helping Guatemalan women market traditional textiles to international buyers over the Internet. Our colleagues at AID are doing the same through the Leland Initiative in Africa and the Internet for Economic Development program, which help developing countries gain information technology skills and ease access to the Internet.

Our work on duty-free cyberspace program and our focus on trade facilitation complements these initiatives. Here the work is very practical: in the Free Trade Area of the Americas talks, we have a hemispheric agreement to post all visa and customs requirements on the Internet, and are also implementing streamlined customs procedures for express shipments and commercial samples. Similar initiatives are underway in APEC. And at the WTO, we can build on this to reach worldwide commitments that make it easier to find customers, deal with paperwork and customs regulations.


Altogether, we hope to create a system that does more to support long-term growth and export opportunities for developing countries; which is easier for governments to use and takes account of the special problems of smaller businesses and new entrepreneurs; broadly speaking, which gives people a fuller sense that the world economy offers opportunity to anyone willing to work.

The challenge is complex, and we do not pretend to have all the answers. But we are confident that we are on the right course: in our own open market policies; the work we have done to build a trading system of shared responsibility and mutual benefit; the seamless fit between trade policy, development assistance and the work 7,000 Peace Corps volunteers are doing as we speak, in 77 nations across the globe. But most of all, in the faith that Kennedy held at the creation of both the Peace Corps and the USTR: that our ideals and our energy can change the world for the better.

Thank you very much.

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