RICHARD PARKER: (In progress.) We appreciate you taking time from your busy schedule to join us today. I think we have for you a very interesting group of people and a very interesting discussion about the future of free trade. Everybody knows that it’s a big and controversial issue now that it’s no longer a theory but we’ve had quite a bit of experience with it.
So with that, our format for the day is going to be a panel of discussion led by Jeremy Kahn, our managing editor, a discussion between the panelists. Jeremy will open the floor to questions. Please participate in the questions. It is your opportunity to be famous. The edited transcript of today’s discussion will be published in a four-page special section in The New Republic in about a week, I think.
Again, thanks for coming. I would like to introduce Nail Al- Jubeir for a few remarks. Mr. Al-Jubeir is Director of Information at the Embassy of the Kingdom of Saudi Arabia. The Kingdom, along with corporations like Federal Express, Altria and others in the technology, manufacturing and energy industries underwrite our series of conferences and research on public policy. This is part of a three-city tour that we’re embarked on regarding free and fair trade, and we’ll be in Chicago shortly and in San Francisco next month, and if you happen to be in either of those cities and want to do this again, you’re more than welcome to have lunch. With that, Mr. Al-Jubeir.
NAIL AL-JUBEIR: Good afternoon and thank you all for coming. It’s always a pleasure to be able to discuss something other than politics, but in free trade, I think everything is politics these days.
Saudi Arabia, after 12 years of negotiations, I think we’re the second-longest period of negotiations after China and we finally got into the World Trade Organization. We look forward to joining, for a number of reasons: it opens up our markets, it opens and encourages ourselves to reform to accept international standards, whether it’s the judiciary, whether it’s the market issues, open the more transparency that we hope will lead to more trade and, more importantly, creating investments in Saudi Arabia. Currently we’re expected about a little bit less than $700 billion investment in the next 20 years. Saudi foreign investments are outside the country. It’s estimated at about $700 billion, and which we would like to bring back. We believe that free trade and opening up the market will encourage some to bring back the money into the country.
I just would like to thank The New Republic for hosting these events. It’s an opportunity to discuss issues, and actually going on the road rather than in Washington, going out and then hopefully I’ll be able to make Chicago, but I’m looking forward definitely to Seattle. And if you happen to be in Miami Beach, maybe let’s say around February, I’d love to go. Other than that – (laughter) – other than that I’d refuse to go to Montana in June – I’m sorry, not June, in January.
But again, thank you all for coming, and I do apologize; I’ve got some business to take care of outside and I’ll be back later for that. It’s all yours.
JEREMY KAHN: Thank you very much. I’m Jeremy Kahn. I’m The New Republic’s managing editor. And first, I’d like to thank you all for attending today, and I’d like to thank our panelists for joining us and the Kingdom of Saudi Arabia for hosting. I think it will be a very interesting discussion today. These are – it’s sort of that old Dickens’ line: It’s sort of the best of times and the worst of times for free trade. In absolute terms, the flows of goods and services between countries have never been greater, and the level of trade continues to grow each year, as reflected in our record high trade deficits here in the United States. And yet, at the same time, these are not auspicious times for the political support for free trade, either here or domestically or abroad. The free-trade consensus that once existed as recently as five years ago in Washington seems to have collapsed to some extent. It certainly seems to be fraying on the left, and on the right you saw that the president was barely able to get CAFTA ratified earlier this year, and I think you’ll see continued problems with trade issues. There is considerable debate about whether the president will get fast-track authority reauthorized in 2007.
And meanwhile, abroad the news is mostly bad. We seem to go from one sort of free-trade disaster to another. Cancun ended in disaster. The Doha Round seems terribly stalled, and just recently the Summit of Americas, which we have an article in the magazine this week that’s a dispatch from Argentina that said it was more like the nadir of – (chuckles) – trade rather than a summit. So I think it’s a very interesting time, one that’s filled with both promise and peril. And I’m sure our panelists will have a lot to say about that. I would like to introduce them now.
First we have Susan Esserman, who is a partner at Steptoe & Johnson, which is a D.C.-based law firm. She is a former deputy United States trade representative and has also served as deputy counsel – I’m sorry, general counsel to the Office of the US Trade Representative and Assistant Secretary of Commerce. In addition, she has been the editor-in-chief of the International Law News, and American Bar Association publication, and chair of the DC Bar International Law Section. From 1989 to 1991 she served as the United States-Canadian binational – she served on the United States-Canada binational panel, and before joining Steptoe & Johnson, she was a judicial clerk to US District Court Judge Oliver Gasch and a legal intern at the Center for Law and Social Policy. She holds a BA at Wesley College, and AGD from the University of Michigan Law School.
And to her right we have Paula Murphy, who is the director of the Massachusetts Export Center. Paula is founder and director of the center. In addition to her role there, she has taught at the graduate level international marketing at Boston University. Previously she served as international trade counselor for the Commonwealth of Massachusetts and was an international marketing consultant with Hagen (sp) and Company. In addition to that, she was the New England agent for a number of foreign government agencies, including the Irish Board of Trade; the Department of Industry, Technology and Resources of Victoria, Australia; the Australian Trade Commission; the Government of Hamburg, Germany. Those are all very interesting; I’m sure she can share some of her experiences doing that work.
She has been awarded the National Leadership Award in International Trade by the National Council on Community Service and has led the Massachusetts Export Center to receive numerous awards. She has served on the boards of several nonprofit international trade organizations and is currently the director of the British-American Business Council of New England. She is also founder and current board member of the Greater China Business Council of New England.
We had an interesting discussion about China trade at lunch just before this panel, and it will be interesting to have Paula expand on some of her thoughts about China trade.
Unfortunately, Bob Lawrence from the John Kennedy School of Government was supposed to join us and was unable to do so today. But we have these two panelists and plenty of questions, so with that I think we’ll get started. I’m going to turn things over to Susan. I’m going to sit down and let her talk, and she can introduce herself further to you and say some brief opening remarks. Then Paula will get to do the same and then we’ll proceed to some questions. So, Susan?
SUSAN ESSERMAN: Well, first of all, I want to compliment The New Republic on the timing of this event following the failed Latin America Summit talks and the announcement yesterday that the ministerial conference – the WTO ministerial conference that is supposed to be held in Hong Kong next month is not going to meet its goals. It’s really tempting to attribute these failures completely to the lack of consensus for free trade, but obviously it is a lot more complex than that, and what I would like to do is just talk about what happened yesterday, what it means for the negotiations and maybe give you a little bit of a broader context as to why it’s so difficult to be successful in global trade talks.
The WTO has been vital to our ability to achieve trade reform on a global scale, and it’s pretty basic as to why, and that is because the members of the WTO cover 97 percent of world trade, and with the new countries about to join the WTO – Saudi Arabia, Vietnam and Russia – the WTO is going to account for almost all of the trade and all of the trading partners of consequence. And while free-trade agreements that you were referring to, they’ve been very, very popular in recent years, including in the US, and they can be important in achieving concrete gains. Generally they cover a very small amount of trade, and sometimes they’re not even free-trade agreements; they’re managed trade agreements. So the WTO is really important if we want to broadly achieve trade reform, get rid of trade barriers affecting many, many countries.
The Hong Kong mistrial conference was supposed to be this pivotal meeting in which the formula were going to be agreed for how we were going to go about reforming agriculture services and industrial goods trade. Now, yesterday, in quite a dramatic announcement, the United States and the EU indicated that they were just not going to meet the goal, and I think, having been involved in some of these fairly spectacular negotiating summits, I think what they were really trying to avoid was another big, spectacular public relations debacle for the WTO, because you had Cancun and Seattle, and I think the concern was that we better – we need to lower expectations now. Better to have a lower-ambition meeting than to have a spectacular failure.
So I think not a whole lot is going to happen in Hong Kong. It’s going to delay the negotiations. And I think we’re courting disaster here because there is an imperative, there is a deadline by which we really must complete the negotiations, and that is really early 2007. And the reason for that is that we have a special fast-track authority under which trade agreements are approved by the US Congress. And the reason why it’s an important procedure for trade agreements is that they go through Congress with an up and down vote, no amendments. It’s crucial if we’re going to get a free-trade agreement passed, and our fast-track authority expires in 2007. So the operating deadline is get an agreement finished by early 2006 and it’s going to be really impossible – it’s going to be not impossible but a tall order to get it done by early 2007.
I wanted just to give a sense of why it’s becoming so incredibly difficult to negotiate these free-trade agreements. First, today, unlike in the past, the WTO consists of 149 members. And the WTO operates on the principle of consensus. That means you’ve got to get every country agreeing before you can reach an agreement. It’s getting very, very difficult to operate with this many members under the current structure of the WTO, and I think we really need to look seriously at that. Long-gone are the days when the US and the EU controlled everything. If we agreed, the rest of the world would follow. Today, the leading developing countries have taken center stage. They have demanded a far bigger voice in the round, and they claim that past negotiations and past agreements have to be rebalanced. And in fact, as a condition for launching this current global round, they have demanded that they get special and differential treatment, and that was infused throughout the legal document that launched the round.
So this is very much reflected in the demands and the negotiating proposals, and most recently this week, India, as a great leader on this point, reminded us that they want to have delivery on the promise that they get special treatment. That means they get – they’re entitled to special concessions from other trading partners and they don’t have to give in a symmetrical manner.
So the rise of the developing countries has really changed the power alliances in the round and it’s really dramatically changed their expectation. And you can see this in a lot of the different coalitions, in the failed Cancun meeting. One of the dynamics that led to the failure was that the developing countries organized and they rejected the proposal on the table from the US and the EU, and so a very different dynamic than you’ve seen in the past. It used to be that the quad group of countries that managed the WTO was the US, EU, Canada, Japan. Today it’s India, Brazil, EU, US – very different dynamic.
So you’ve got the rise of the developing countries and these expectations, and then you have another interesting development, and that is since the round was launched, you have, in a very visible way, China and India integrating into the global economy, with quite visible effects in countries around the world – US, EU – but also in Latin America. And so you see in the US a real anxiety about the impact of these countries on our industrial base and for the first time in our high-paying service sector, and that in turn feeds into skepticism about free trade, and you certainly saw that in the EU, and maybe in a slightly different way with the votes on the referendum, and I think that really has been influencing the round.
So you’ve got these irreconcilable – or nearly irreconcilable forces underlying things. So when people talk about the WTO round, they’re always talking about agriculture. Agriculture is certainly at the heart of the round. And what we saw yesterday was the US and the EU were very far apart. The US put a very ambitious offer on the table. The EU really was not able to match the reform, and so people generally say, look, it’s because we’re not able to achieve reform in agriculture that we cannot move forward, but what I’m saying is there are broader forces underlying it that make it also very difficult to achieve consensus.
So, with these recent developments, with the recent failed meetings, with some of these competing or conflicting forces underlying the WTO, I think some really raise the question, is the world trading system, is that the proper vehicle for achieving reform? I think it’s premature to be saying that we should throw the WTO out. After all, as I said at the outset, it’s the only – only vehicle for achieving reform on a global scale. So my view is we need to go back and look at how we’re negotiating these agreements, and at a minimum, we’ve got to think about whether a different approach is in order.
What you’re seeing in – the way the agreements have been negotiated is based on what is called the grand round, or the single undertaking, and that is the conventional wisdom that progress and global trade negotiations depend on agreeing on all subjects at once, that nothing is agreed until everything is agreed. I think this just may not work anymore, given the complexity of the issues, the number of players, the need to achieve results in a more commercially meaningful timeframe, and the alternative options posed by the free- trade agreement. I think we’re going to really need to rethink this comprehensive concept of the grand round because I think it’s also mistakenly founded on the notion that you’re going to trade off one sector for another, and that’s why you need to have all of these subjects negotiated at once.
So I think we need to really think about a different approach, one in which individual sectors move autonomously, in which, say, a service agreement which might be so important to this area here could proceed autonomously and you would not have to wait years until you get an agreement concluded and where it takes years for companies to see the benefit of a free-trade agreement. So I think we really are going to have to think about whether or not different approaches are necessary to achieve trade reform.
PAULA MURPHY: Good afternoon, everybody. First I’d like to thank The New Republic for inviting me to participate on today’s panel and for organizing such an important forum.
My office, the Massachusetts Export Center, is a government agency. We work with businesses to help them export their products and services internationally through counseling, technical assistance, international market research, and we also work with some other government agencies to actually promote exports overseas by introducing US businesses to overseas buyers, customers through trade shows and matchmaking and things like that. And my presentation today is going to be focusing on the importance of global markets to local businesses and real-world challenges that companies face when they’re exporting their products and services internationally.
Accessibility to export markets is of paramount importance to Massachusetts businesses. Last year Massachusetts exported approximately $22 billion worth of manufactured goods overseas, and exports account for roughly 25 percent of the state’s manufacturing employment. The same trend holds true on the national level. Exports accounted for about 215 percent of US economic growth during the last decade and supported an estimated 12 million American jobs.
Although the government hasn’t figured a way of tracking service exports as of yet, we do know that our service industries have also benefited tremendously from export markets. Foreign patients are receiving treatment at our local hospitals. Foreign students are studying at our local universities in record numbers, and firms such as engineering, consulting, financial service firms are all doing tremendous business overseas. Many of our clients’ export sales account for 50 percent or more of their total sales, so for these firms, their ability to export is directly tied to their ability to succeed and in fact survive.
In addition, out of necessity, most US firms no longer hold off on targeting overseas markets until their US market is saturated. Many firms are born exporters today because they recognize that many foreign markets are just as important, and in many cases more important than their domestic US market. And, contrary to popular believe, exporting is not just for large businesses. In fact, the vast majority of exporters in the US are small businesses. Small business accounts for 97 percent of the US exporting population and are responsible for one-third of the value of US exports. Small businesses also accounted for 98 percent of the export population growth in the US over the past 10 years.
The spread of free trade has already fueled significant growth in US exports and will continue to present opportunities for US businesses. While Massachusetts still considers countries like Canada, Germany, Japan and the U.K. among its largest export markets, the strongest growth is coming from the emerging markets of the world. Massachusetts’ exports to China grew over 100 percent over the last two years, and countries like India, Thailand, Iraq, Turkey and Egypt are all rapidly growing markets for Massachusetts products. And so far this year, our exports to Saudi Arabia are up almost 50 percent from Massachusetts.
With these opportunities come challenges, however. Trade barriers continue to threaten the competitiveness of US businesses overseas. Some of these barriers are what most people would consider to be classic barriers – things like tariffs and quotas – but many of these barriers are very subtle, hidden, and can sometimes even be unintentional. And certainly in my job, working with businesses to help them export, it’s these kinds of barriers that tip up their successes overseas. For example, in my job of helping businesses to export, the greatest barriers faced by most of our clients are imposed by our own US government. The sheer disarray of US export regulations mean that our businesses are facing sometimes insurmountable barriers before their products can even leave the country. The terror attacks of September 11th, 2001, have resulted in a paranoiac scramble among US government agencies to expand the reach and enforcement of US export regulations.
Currently there are approximately 10 different US government agencies that are responsible for various aspects of export controls. If an exporter is to be compliant for any given export sale, they must check their foreign customer against five different lists maintained by three different agencies. So you can imagine this is a tremendous task for a company that’s making several export sales a day.
Many exporters need to perform license checks for controlled products. What constitutes a controlled product? Items as benign as cameras, laptop computers, plastic handcuffs, and thousands of other products are controlled. If a company does need an export license, they will need to wait anywhere from a couple of weeks to a couple of months for approval, and in today’s competitive global environment, a wait this long can constitute a lost sale. Moreover, there is little support to help companies comply with these regulations. So organizations such as mine, which are supposed to be promoting US exports, are often held back by having to help companies navigate the system.
US firms are already at a disadvantage over their foreign counterparts when it comers to government support. Yes, there are cases where foreign governments directly subsidize exporters, but the reality is far more subtle. US firms are competing head-to-head with foreign firms that are assisted by very well funded and very aggressive government trade organizations. The US policy has been to minimize investment in this area and current indicators point to significant budget cuts and trade promotion for the future.
Of course, many challenges faced by US exporters overseas are not the fault of the US government. Many of our clients recognize the need to tap into emerging markets to position themselves for growth in the future. China, for example, is a top priority for many of our clients right now, and yet companies face a real gamble if they want to access these emerging markets. While much progress has been made in outlining a framework for intellectual property protection in these markets, the reality is that IP enforcement is almost nonexistent and US companies are approaching these markets with almost an expectation that their IP rights will be violated. Companies should not have to think of IP infringement as a given to access to emerging markets.
Of course there are a host of other issues faced by US firms in foreign markets: the inability to repatriate funds in many emerging markets, excessive foreign government standards and regulations, laws that put US exporters at risk of having to make payouts to poorly performing distributors. The challenges are everywhere. Some of these might be accepted risks for doing business internationally. Others, however, will require intervention to create a fair and level playing field for all.
MR. KAHN: Thanks, Paula. What I’m going to do is I’m going to ask a couple of questions and then we can throw it open to the floor for questions. One thing I think you maybe both could address is given the fact that India, as you say, Susan, has been insisting on special and deferential treatment, and yet providing that treatment was essential, in many cases, to getting developing countries to sign up to the WTO. And, Paula, given what you’re saying about certain of the problems that Massachusetts exporters face when they go overseas, in terms of intellectual property rights, in terms of competing on a level playing field in retrospect was it a mistake to have granted special deferential treatment in all of these cases?
MS. MURPHY: Well, we haven’t yet done it. And I’m glad you asked that question because I actually want to make sure the two conflicting – the two competing underpinnings of this agreement are clear. On one hand, we did – we could not get – let me go back even further. In the late ‘90s, we tried to launch a round. You may recall the Seattle ministerial. It was not a happy session. At that point, it was an era of very strong economy. Our companies had high expectations – very high expectations – and, frankly, our agenda was way too ambitious. And the developing countries said, no, we’re not ready. You guys have gotten all the benefits from the past rounds and we’re going to need to have special terms. It’s something that in the past rounds we had not been prepared to do.
While “special and deferential” treatment, which means that developing countries don’t have to give as extensive commitments as the developed countries, is I think very appropriate for the poorest countries in the world, no question, and we should do everything we can to try to bring these countries into the trading system.
I think the big question, and the thing I didn’t fully, I think, explain, is that if you’ve got India and Brazil or China being so successful in the world economy and having themselves huge markets which are so important to the companies that Paula mentioned, if they want access – unfettered access to our country, shouldn’t they have to provide serious access to their own country? So the difficulty is that if the United States, or Europe or any country, is expected to make serious concessions, to lay open their market completely, they’ve got to show their exporters they’re going to get something in return. Otherwise there will not be political support or support in the country for moving ahead with these negotiations.
So my answer is maybe that it’s easier to launch around and say development is important; we’re going to give special and deferential treatment, but when you have to sign on the dotted line, make a concrete agreement, it becomes very difficult because the Indians certainly think we must deliver fully across all negotiation and give them special treatment and all of the other developing countries special treatment. And I think the answer really is that not all developing countries should be treated the same. I think that is an idea from the past, from the ‘60s, because certainly Ghana is not the same thing as China or India, and these big developing countries – Brazil and India and China – and Korea is even, under some lists, considered a developing country. They should not be treated the same way as some of the impoverished African nations.
MS. ESSERMAN: I would certainly agree with that. I am not the best person to talk about the intricacies of the WTO agreement, the negotiations and things, but from the perspective of businesses that want to access these markets, especially places like China and India, we have very savvy exporters that we’re working with. These are companies that are exporting to 30, 40, 50 countries around the world – they know what they’re doing – and they still can’t figure out China. And that’s one of the reasons we had to form the China Business Council that we formed last month because of these challenges. And so there needs to be some way of making sure that the environment is created for companies to succeed over there, and when you are talking countries like that, there is no reason they shouldn’t be.
MR. KAHN: All right – interesting. And in terms of – I mean, you said maybe it’s time to stop proceeding multilaterally on all fronts in these grand rounds. Some people were saying, well, forget that – forget the WTO altogether and go back to a system in which you do bilateral deals. You can do them faster, you can access the markets in some cases you want to access; you don’t get the same countries forming alliances in the same way, and the developing world ganging up on the developed world, for instance, or vice-versa.
So some people say, well, why not go back to a bilateral system, and I imagine if you’re a Massachusetts exporter, does it really matter to you if the trade agreement you’re operating under was negotiated bilaterally or multilaterally, and so why not go back to sort of a bilateral system? I don’t know if, Susan, you want to address it just as a general principle?
MS. ESSERMAN: Well, I have a number of comments on that. I think it is premature to be suggesting we don’t go back to the WTO, because it is, first of all, more efficient to achieve reform through one agreement and get common terms. So, for example, your companies will face the same terms across all countries. The free-trade agreements can be important, and I think NAFTA was a terrific free- trade agreement in the sense that it was a comprehensive free-trade agreement – very deep reforms. We have, though, since 2000, negotiated – concluded or are negotiating 22 free-trade agreements. Do you know how much trade it affects? Nine percent. The WTO affects 97 percent, and soon nearly 100 percent, of world trade. It’s just so much harder to do, and that’s why I say we need to figure out a different system.
And the other thing you have to think about is that free-trade agreements are proliferating around the world. I think, interestingly, the US started it with NAFTA and then they were not able to proceed politically for some time. Europe went crazy – many, many free-trade agreements. Now Asia is – there’s all these different free-trade agreements, and even countries such as Japan, which had never, ever negotiated outside the multilateral system, are busy with their free-trade agreements, but I know from some of the work I do in India that India’s free-trade agreements are not really free-trade agreements; they are regulatory agreements. They may be fair trade agreements. There are many sectors that are not included in these free-trade agreements.
So the net effect is you get all sorts of different rules and different free-trade agreements. So I’m not saying that we shouldn’t do free-trade agreements at all; I’m saying I don’t think it can be a substitute for the WTO.
MS. MURPHY: I would agree with that as well. Many of the companies we’re exporting – while it’s wonderful that we have all of these new free-trade agreements on the horizon that have been recently developed, those really aren’t the high-volume markets that most of the companies we’re helping are exporting to. And as Susan mentioned, with free-trade agreements – and this is another area that we get heavily involved in – comes an increased burden of proof for companies that are exporting, so it’s actually more paperwork for them to export under a free-trade agreement than it is to not export under a free-trade agreement, and they have to prove that their produce qualifies for the rule of origin for that specific agreement, and it creates more confusion. And it’s beneficial but it can be kind of a pain in the neck. (Chuckles.)
MS. ESSERMAN: That’s interesting.
MR. KAHN: That brings up an interesting point. You both work with companies that are trying to enter new markets. And Paula mentioned there’s a ton of bureaucracy on the US side that is problematic, and, Susan, you may have encountered this as well with your clients. If there was sort of a single-biggest reform that you would like to see the US government institute in terms of helping companies export, what would it be?
MS. MURPHY: On my side it would absolutely be streamlining the export regulatory process, decreasing the export regulator burden and providing some support to help companies comply with those regulations because companies are getting fined and there is no way that some of these violations can, in some cases, be very easy to make. So a company that’s a new export company, they get an inquiry from overseas; they think, this is great, let’s send it out, can very innocently stumble into a mistake that’s easy to make and they’re slapped with a $20,000 fine. For a small business, that really hurts. And we’re out there doing the best we can but I think there really needs to be a way for the government to just simplify the process and provide some guidance and assistance to help companies in that area.
MS. ESSERMAN: I would agree 100 percent with Paula. The myriad of export-control regulations is just hard to believe. There is State Department, the Treasury Department, the Commerce Department; in some cases, if you get into criminal prosecution, the Justice Department. It is very, very difficult to deal with.
Number two, the regulations are impenetrable. They are not written in English. And so it is very hard for businessmen to read and understand in good faith the extent of their application. You see, I think that’s one of the interesting developments in recent years. The export-control regulations have been with us for some time, but with the increased concern about security generally, I think there are a host of regulations that our companies now face, both relating to exports and otherwise, and I think that puts the United States in a different position than many other countries today.
MR. KAHN: And is it as bad on the import side as well, from your experience, in terms of how to get things into those countries?
MS. MURPHY: It’s getting there.
MS. ESSERMAN: Well, please, give your perspective.
MS. MURPHY: No, I’m just saying that there are a lot of regulations. I mean, some of them, they are establishing things like voluntary programs that companies can institute to ensure security for products coming in and things like that, but definitely on the import side, the regulations – in fact, you’ve probably seen more regulations increase on the import side than you have on the export side since September 11th; it’s just that the enforcement has increased on the export side. But the import side is definitively getting there too.
MR. KAHN: Is this an issue in terms of this kind of regulatory environment that’s going to become an issue for USTR at all do you think?
MS. MURPHY: I don’t know.
MS. ESSERMAN: Well, I would say that USTR probably doesn’t hear so much about that because what they’re typically hearing about is go knock down barriers in foreign countries. I just wanted to mention this broader problem because we’re talking about import and export regulations, but there are a host of new regulations – money laundering – and they’re complex subjects, they need to be dealt with, but they’re also difficult to follow.
Of course you’ve got the Sarbanes-Oxley, all these other evolving regulations that make the US a daunting market actually for companies that are seeking to come into the market too.
MR. KAHN: I wanted to ask about the extent to which anti- Americanism is tied up with trade or free-trade progress or the lack thereof. I think we just saw, you know, this Free Trade Area of the Americas, some of the Americas, there was quite a lot of sort of anti- Americanism. Anti-globalism is very often tied to anti-Americanism. And while individual countries may have their own economic reasons for opposing opening certain markets to foreign trade, they’re often – at least in the political rhetoric there’s quite a lot of anti- Americanism thrown about.
So I wanted to ask both of you sort of to what extent you feel like anti-Americanism is a factor in the lack of progress on free trade, as we’re seeing currently.
MS. MURPHY: I’m not, again, the best person to talk about the negotiations on the trade policy side, but certainly on the business side, I have to say I haven’t seen much of that from the day-to-day business. That doesn’t seem to get in the way. Our exports have been growing. Companies that we’ve been helping are becoming more experienced; they’re getting into new markets, and I haven’t seen any blatant evidence that that’s gotten in the way.
MS. ESSERMAN: Let’s take the Latin Americas Summit last week. There was no progress on the free-trade agreement, the Free Trade Agreement of the Americas, which was to cover 34 countries, actually something that I think, per our last question, is a good thing for the United States because it would be hemisphere-wide and cover a broad range of countries.
The press about what happened in Latin America I think has been to some extent misinformed in how it dealt with the trade issue. The free-trade agreement discussions were so dead before the summit that they weren’t even going to be on the agenda. And so I think there were some antics by some leaders down – by some down in Latin America that try to make this a challenge of views about the free-trade agreement. I really don’t think that the US had this even on the agenda.
So I think a lot of the reporting on that is not right. I think there is anti-Americanism in Latin America. I think it’s longstanding. It stems from a lot of different forces that have gone on for many, many years, decades and decades. You know, having said that, it is a small factor I think generally. I don’t think – from what I understand from the negotiators today, they really don’t see the affects of the anti-Americanism in, for example, the WTO round, but I think what you do see is that the United States cannot command the same authority as it used to because of the dynamics that I explained earlier.
But let’s put aside the negotiations for a moment. I do think that there has been some effect broadly on our exports, and here I cite a number of studies in that anti-Americanism and opposition to our foreign policy, including, interestingly from the studies relating to our positions on climate control, have really impacted the American brand around the world. And this I say from looking at the studies, the performance of some our large multinationals that are identified with the United States so visibly. These studies are based on how they’ve performed in recent years in markets around the world.
MR. KAHN: And in terms of domestically in terms of the consensus for free trade among the political leadership – I mean, Paula, you can probably speak to Massachusetts’ political leadership but also sort of popular sentiment either in favor or against trade – how are you seeing that dynamic move, and are we seeing it move in a positive or a negative direction, in your opinion? We’ll start with Paula and then Susan can –
MS. MURPHY: Well, on a very local level I know that many of our congressional delegation voted against the Trade Promotion Authority Initiative. So I think there is still some provincial mindset among some of our government leaders when it comes to free trade, but certainly I think in the business community here, we have a very active international business community in Massachusetts, and there’s broad support for free trade, but politically that could be a little bit different.
MS. ESSERMAN: This is a difficult issue because it’s easy to say support for free trade is waning. I think trade has always been a difficult subject politically, ever since the ‘80s, and it’s interesting to look at the progression. What were we worried about in the ‘80s? Japan. Japan was going to – was such a serious threat that there was a huge request for government involvement, maybe to emulate the model of Japan, have the government more involved in selecting winning sectors.
In the ‘90s, what was the concern? In the early ‘90s it was the threat of NAFTA and Mexico. And in the ‘90s this was – after NAFTA was signed, the rest of the ‘90s, the congressmen on the Hill were wailing about how terrible NAFTA was. And even today when you look at the CAFTA debate, you often see the congressmen still annoyed about some of the provisions in the NAFTA. But today you’ve got new fears. The fear is really directed at China and India. And the India part is interesting because I think this really hit some of the different politicians because, for the first time, trade really affected service-sector jobs – potentially some high-wage service-sector jobs. And so that got an additional group of congressmen into the whole debate on free trade.
So I think that you are seeing continuing concern, changing concern, but the concern that you see today is this more traditional concern about the impact of these economies on our jobs. In the late ‘90s you also saw a great deal of concern about the morality of open trade, with the NGOs being very foremost in the debate. You’re not seeing that so much today. So what we’re seeing now is the more traditional fears about free trade.
And then finally I would just say, the votes on the free-trade agreements have not been very encouraging. And that is that they have squeaked through by one vote and they’ve been very lopsided – Republicans for and Democrats against. Now, I don’t think that is ultimately a good barometer of the views of the parties on this, and that’s because there is a lot of partisanship that went on that I don’t want to get into or bore you with, but I think there is a lot of that reflected in these votes. I will give credit to Ambassador Portman, the current USTR, who is really making an effort to get support for trade on a bipartisan basis. I think it’s a really important thing to do. Even yesterday from Geneva, or wherever he was in Europe, when he was announcing that we were not going to meet the goals on the WTO round, he – (audio break, tape change) – so I see importance of achieving bi-partisan support for trade. And I think it’s really shortsighted if we think it’s really shortsighted if we think it’s enough to get support from only one party.
MR. KAHN: Great. I’m going to ask one last question and then we’ll throw it open to questions from the floor here, and it’s a very potentially politically incorrect question, which is, in your opinion, where is the worst market to try to enter. (Laughter.)
MS. MURPHY: The worst market to try to enter?
MR. KAHN: Yeah, who had thrown up the most barriers? What is the hardest place to try to enter?
MS. MURPHY: Oh, goodness. Well, it’s hard because the hardest market to enter can sometimes be markets that people want to enter. And so in a place like China or India where people are almost desperate to get into the market, there are tremendous challenges to – or companies still haven’t figured out how to succeed in these markets. And so I wouldn’t necessarily call them the worse places to get – or places people don’t want to get into because they do want to get into them, they need to get into them, and they know they need to be there for, you know, the next 10, 20 years.
And so I guess I just wouldn’t classify it that way. You can say it’s a bad market to get into. They are markets that companies want to get into but there are just tremendous challenges to getting into them.
MS. ESSERMAN: I think Paula put it pretty well. These really important markets have some very difficult barriers. China dramatically reduced their barriers when they entered the WTO but that is not the end of the story; it’s when you’re a company going in there is just so much to deal with including the IPR issues that you mentioned. India is a huge new market and for the first time really opening up in a serious way. But it does take a lot of patience. There are so many different regulations, but given the size of the country, the rate of growth is one that is well-worth considering.
Vietnam now is undergoing its accession negotiations into the WTO, and through that the US government is seeking to eliminate a range of barriers. I was just in meeting with USTR on behalf of a US company with concerns about five or six different barriers, all of which operate in different ways to keep their product out of the market. And so USTR is trying to use all of these different agreements to try to eliminate these barriers. But even they are eliminated through the succession agreement, once you try to enter, you are going to find different ones.