Monday, February 26, 2024
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HomeInsightsAn open economy, engine for the world

An open economy, engine for the world

    • Remarks by Ambassador Maria Pagán at the WTO Trade Policy Review Group

By Maria Pagán

The United States remains one of the most open and competitive economies in the world. This World Trade Organisation (WTO) Trade Policy Review (TPR) provides a compelling reminder that our trading partners expect – and need – the United States to ensure its economy continues to thrive.

The United States is the world’s largest single-country importer. In 2020, the United States purchased 17.6 percent of goods and services exports from the rest of the world, not including exports within the European Union. Seventy-seven countries count the United States as their first, second, or third largest export partner.

US tariffs are among the lowest in the world. The US simple average tariff is 3.4 percent on an applied basis and 2.3 percent on a trade-weighted basis. In 2021, 66 percent of all US imports, including those under preference programs, entered the United States duty-free. US service markets also remain open to foreign providers. US regulatory processes are transparent, accessible, and open to the public, including to non-US citizens.

According to UNCTAD, the United States continues to attract the largest inward flow of foreign direct investment at 367.4 billion dollars. Total stock of FDI in 2021 stood at 13.6 trillion dollars. We attribute these flows to our unmatched diversity, a thriving culture of innovation, and the most productive workforce in the world, among other assets. The United States is also the world’s largest investor with FDI outward stock of 9.8 trillion dollars.

As these figures underscore, the openness of the US economy to goods, services, and investment remains a critical driver of global economic growth, higher living standards, and sustainable development.

Committed to development and economic cooperation

We are also steadfast in our commitment to provide technical assistance and engage in economic cooperation to support sustainable development globally. We do this primarily through the US Agency for International Development, or USAID. Our partnerships are driven by host-government priorities. Programs are delivered in a wide variety of formats to suit the need. They range from single-country projects to regional trade programs to global facilities that are positioned to provide on-demand technical assistance.

I’d like to briefly provide a few examples of pragmatic, effective US partnership programs. The Prosper Africa Initiative leverages private capital to create economies of scale for firms seeking to utilize US preference programs. Since 2019, the initiative has directly supported US-Africa trade through more than 280 business-to-business deals worth over 22 billion dollars.

The United States also has a variety of programming to help Members achieve the benefits of the Trade Facilitation Agreement. For example, the United States committed 200 million dollars to support customs improvements in Guatemala, Honduras, and El Salvador, including through the creation of a Border Academy. We also provide trade facilitation assistance to fifteen countries through our West African Trade and Investment Hub in partnership with the Borderless Alliance.

These types of partnerships are yielding concrete results. After reviewing documentation requirements, seven partner countries streamlined requirements on food products, reducing time and costs by an average of 15 hours and nearly 42 dollars for each document eliminated. It’s a savings that adds up to real benefits, particularly for small traders.

We are also working closely with our African partners to overcome the challenges of the pandemic, for instance by helping governments and organizations that procure public health goods to digitize their procurement processes, increase collaboration among national health agencies, and mitigate delays at the border for donations. In Sub-Saharan Africa, the United States distributed critical vaccines, including through the US Initiative for Global Vaccine Access. These are just a few examples of our sustained commitment to trade-related technical assistance and capacity building.

Committed to the WTO and the multilateral trading system

For many decades, the United States has led by maintaining a fundamentally open economy. We played a key role in creating the GATT and subsequently the WTO, joining other like-minded countries to negotiate rules dedicated to openness and transparency, and to fair, market-oriented competition, grounded in the rule of law and predicated on values that benefit all.

The system we helped build embodies an optimistic vision. Despite different histories and challenges we understood there was a common goal: to create opportunities for our citizens to realize their economic potential.

The world has turned over many times since 1947, and again since 1995. We now find ourselves in far different circumstances that require careful examination of some long-held assumptions.

The Biden-Harris administration firmly believes that working pragmatically with partners in all corners of the globe, and at all levels of development, is necessary to better the lives of our people.

That purpose – bettering the lives of our people – lies at the heart of the WTO and at the root of our commitment to this organization. The Marrakesh Declaration and Agreement, on which the WTO is founded, begins with the recognition that trade should raise living standards, ensure full employment, pursue sustainable development, and protect and preserve the environment.

These objectives are timeless. A WTO that focuses on them deserves our commitment and energy.

Facing a more challenging era

We must acknowledge that Members have, at times, lost focus on the WTO’s foundational objectives. Gains from trade for consumers are elevated while the impact on our producers and workers is downplayed. People are workers, not just consumers. To raise living standards in a sustainable and inclusive way, meaningful work must be available for all parts of our societies. Employment and the social bonds provided by that employment are a foundation for families, neighbourhoods, and communities.

Economic models that predict overall welfare gains from trade assume a perfectly level playing field, but fail to account for how the world actually works. The playing field is not level. Gray areas in the rules are easily exploited to the detriment of our workers, our communities, and our industrial development. Liberalization has benefits but also comes with costs; fragmented supply chains generate vulnerabilities. De-industrialization decimated some of our manufacturing communities. Economic efficiencies helped keep prices low, but they also encouraged a race to the bottom in protecting workers and the environment.

The past three years have revealed vulnerabilities in global supply chains. Faced with a pandemic that killed millions, we did not always have critical equipment and goods when and where we needed them. Like others, we depended on production far from our shores, in countries whose governments must be accountable to their own people, in the midst of their own crisis response.

The pandemic also led to wider disruptions in many supply chains. The Biden-Harris administration responded with urgency, establishing the Supply Chain Disruptions Task Force to address immediate bottlenecks and ultimately build a more resilient, globally competitive goods movement chain. The Task Force worked with ports, ocean shippers, trucking companies, and supply chain operators to reduce congestion at the ports, expedite intermodal transportation, and reduce shipping costs for both imports and exports.

Russia’s full-scale invasion of Ukraine is causing unimaginable death and destruction in Ukraine. This brutalization of Ukraine’s people is barbaric. Russia continues to attack Ukraine’s energy infrastructure as winter arrives. Its war against Ukraine has also wreaked havoc on critical global supply chains. The United States will continue to support Ukraine’s courageous efforts to uphold its territorial integrity and protect its population. Working with our partners and allies, the United States will continue to take all appropriate measures to defend the rules-based international order that Russia has so egregiously violated.

In this more challenging era, it is even more important for trade and the WTO’s role in the multilateral trading system, to be a force for good. There is a perception that deliberations at the WTO do not reflect the lived experiences of regular people, including the insecurity and fragility they feel. That must change. For the WTO to be relevant, our work here must help improve the lives of regular people. Members must be able to work here to tackle global challenges as they arise.

The United States is adapting . . .

This new, more challenging era requires that we all adapt. The United States is no exception. We are moving forward to adapt our trade policies and initiatives to the circumstances of today, by pursuing fair competition, addressing the climate crisis, protecting our national security, and making the trading system more resilient, sustainable, and inclusive.

Pursuing fair competition

The Biden-Harris administration continues to advance a trade policy that stands up for workers’ rights. We are working across the U.S. government and with our partners to eradicate forced labor from global supply chains. And we are promoting a broader agenda of fair competition to ensure that workers compete on the basis of skills and creativity, not exploitative cost advantages. We will work with our partners and allies to chart new trade rules that advance decarbonization and other critical environmental standards, support sustainable farming, and promote sustainable and resilient supply chains.

Exploitation of workers and the environment are not the only forms of unfair practices that damage our workers, industries, and communities or that provide others with artificial comparative advantage.  Non-market policies and practices, including industrial targeting, also violate notions of fair competition. We continue to work with our partners and allies to address these shared challenges and promote a level playing field.

Addressing critical climate objectives

To seriously combat the climate crisis, there is an urgent need to increase investments in clean energy technologies. Many Members agree. In their TPRs, other Members have shared their national strategies to address climate change, including steps toward net zero emissions.

The transportation sector is the highest source of greenhouse gas emissions in the United States. We will not meet our Paris commitments and other climate goals without bold action to promote major new investments in clean energy technology, especially incentives for electric vehicle production and their adoption. For the United States, the Inflation Reduction Act and the Bipartisan Infrastructure Law are key tools to meet these critical objectives. Both laws provide incentives to encourage a rapid transition to clean transport. They ensure we can create more diverse and robust supply chains and promote the domestic adoption of clean vehicles.

We are in the early stages of developing the regulations for this program. We are considering input from all stakeholders as the Department of Treasury moves forward with its public process in implementing these credits. Several of our trading partners already have taken advantage of the opportunity to participate in our transparent process, and there will be future opportunities to engage in this process.

In discussions regarding electric vehicle measures, the starting point should be the importance of working to achieve our overall climate, supply chain, and related goals in parallel – and to do so in a way that will have support from our stakeholders. This includes our shared goal in ensuring we achieve the Paris commitments.

Protecting national security

The United States is also moving aggressively to protect its national security in this more challenging era. US national security requires that we catalyze long-term growth in the domestic semiconductor industry and advance US leadership in R&D.

The National Defense Authorization Act for Fiscal Year 2021 authorized semiconductor manufacturing and R&D activities. The CHIPS Act of 2022 enhanced this program and appropriated US$50 billion to the department of commerce to implement it. Those entities that apply for incentives through the CHIPS program will be subject to the Act’s national security limitations. As is clear from the text of the law, the contemplated support is consistent with the WTO agreements, including the Subsidies Agreement.

Making the trading system more resilient, sustainable, and inclusive

This era of greater challenge and uncertainty also requires that we work differently with our partners to build a trading system that is more resilient, sustainable, and inclusive. In May, the United States launched the Indo-Pacific Economic Framework (IPEF) among 14 partners. Our collective aim is to develop a modern economic arrangement that delivers broad-based economic connectivity, benefits our workers, combats climate change, builds resilient supply chains, and levels the playing field for our companies. We will advance this vision in the Western Hemisphere as well, through the Americas Partnership for Economic Prosperity.

Adapting to a different era is not a simple or speedy task. It raises difficult and important questions for the United States, for our partners and allies, and for all Members in this room.

In seeking to answer these questions, US engagement is guided by fundamental aspects of our republic and of our polity. Being a representative democracy, our government is accountable and responsive to the American people. We expect – and respect – the same from other representative democracies. We must consider the human component of our economies and justify the benefits of our policies to all of our people. If the policies and measures we consider do not benefit our people, then we cannot pursue them.

To the extent these policies and measures implicate our national security, the United States will determine what is necessary. We will not apologize for this. This is a fundamental attribute of sovereignty.

Some will misconstrue my comments today as a call for unilateral and protectionist policies. This is incorrect.

. . . And so must the WTO

The WTO remains a valuable part of how we conduct our international economic relations. However, the WTO also needs to adapt if it is to retain its value in an ever-changing world.

WTO rules are important, but they are not an end in and of themselves nor are they immutable or static. Individuals adapt to changed circumstances; democratic governments respond to the changing needs of our peoples; and the WTO as an institution must similarly evolve.

That is why we sought to play a constructive role in producing outcomes at MC12 we can all feel proud of, and it is why we are committed to reform.

The WTO as an institution is a collection of the membership. So, first and foremost, we must all make the effort to engage differently at the WTO – in committees, in negotiations, and in resolving disagreements. Let’s use every opportunity to engage meaningfully with each other. We don’t need to agree on everything, but we must agree on one thing – that we will engage more constructively.

We must reform by doing. Many of you have heard me complain how much time we waste on process – discussing how we are going to discuss something – if we agree it is worth discussing. Process is necessary, but it should not be used to prevent willing members from talking to each other. There is a lot of talent and good ideas among Members on how to move forward and address today’s challenges. We must be open to the idea that working in smaller or different configurations can pave the way for future advancements that benefit all Members.

The United States was the first Member to table a reform proposal five years ago and we intend to remain at the forefront of these reform efforts. We will work with any Member that is committed, as we are, to the principles and foundational objectives that brought us here many decades ago.

Even as we undertake reforms at the WTO, it is important to acknowledge and support the good work that is happening here. This includes efforts to implement our agreements, particularly on trade facilitation, TBT, and SPS. The transparency elements are vital and valuable, and we fully support this work.

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