Committee on International Relations
U.S. House of Representatives
Washington, D.C. 20515-0128

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The Atlantic Marketplace

The Honorable Henry J. Hyde

The Chicago Conference on the Global Economy

September 15, 2003

A defining element of the Bush Administration’s foreign policy is its strong commitment to an expansion of free trade. From its inception, this Administration has devoted considerable attention and political capital toward this end, including a successful effort to restore the all-important Trade Promotion Authority for the President, without which meaningful trade agreements would be all but impossible to negotiate and secure Congressional approval.

Everyone in this room understands the importance of trade to the U.S. economy. Its scale is easily conveyed by the most basic figures: The value of U.S. exports exceeds $1 trillion annually, comprising 10% of our gross domestic product and directly supporting 12 million jobs. Clearly, much of our future prosperity and job growth will depend on increasing our exports, and the most effective way of accomplishing that is the removal of impediments imposed by other countries.

To that end, the Bush Administration has made and continues to make a very impressive effort to conduct simultaneous trade negotiations on several different fronts, including the Doha Round; the Free Trade Area of the Americas; a series of bilateral free trade agreements with Chile, Singapore, Australia, and a host of other countries; and a range of additional initiatives in many other areas.

Managing the vast number of issues and partners involved in this enormously complex endeavor has placed an extraordinary burden on the Trade Representative’s office, and I believe Ambassador Zoellick and his staff deserve our praise for the achievements they have already secured and for the many more certain to follow.

Europe As Partner

Our trade policy obviously embraces a global agenda. However, I want to focus my remarks today on our relationship with Europe. By so doing I do not mean to diminish the enormous importance of other countries, such as Japan and China, to our continued economic health. But I believe that our economic relationship with Europe receives too little attention relative to its importance and that our focus on other regions may be inadvertently diverting us from the benefits to be obtained from closer cooperation across the Atlantic.

Our interests require that our cooperation be oriented in two directions. The first is the joint promotion of measures to advance our common economic interests world-wide, especially in the Doha Round of negotiations now underway. The second is the establishment of an institutionalized bilateral relationship that is devoted to achieving and preserving the most open trading and investment relationship possible between economically advanced economies, a goal that may be termed the Atlantic Marketplace.

A Global Perspective

Despite our many bilateral disagreements, the United States and Europe must develop common policies and maintain a coordinated approach to the ongoing global trade negotiations if we are to advance our own interests as well as promote continued market liberalization and economic reform around the world. Without that cooperation, the Doha Round may grind to a halt and even be doomed to failure.

Our shared interests are woven throughout our economies, but I would like to focus upon one issue of particular concern, namely the widespread loss of jobs in manufacturing.

This problem is the product of many factors, many of them of a purely domestic origin, but one of the most important is our trade deficit in manufactured goods, which totaled $364 billion in 2002. A significant source of this deficit is our having to compete with countries with significant trade distorting practices, such as China’s greatly undervalued currency and high tariffs on imports.

Manufacturing, Jobs, and Exports

There is no ready panacea for this imbalance. However, we do know what will not work, and that is the snake oil remedy of protectionism. Despite its simple temptations, not only does protectionism not work, its long-term impact can be devastating. We need only recall the tremendous mistake of the Smoot-Hawley Tariff Act of 1930. Instead of protecting U.S. companies, our raising tariffs to intolerable levels greatly angered our trading partners who quickly retaliated with even higher tariffs, thereby helping to precipitate the Great Depression.

But we are not without options. A first step should be for the Administration to redouble its efforts to push forward its proposal of last November to eliminate all tariffs world-wide on all non-agricultural goods.

This proposal would reduce tariffs on all merchandise, 75% of which is in manufacturing, to a maximum level of 8 percent by 2010 and then to zero by 2015. Equally important is the provision that these new rules would apply equally to all. There would be no exceptions or special treatment for any country. An agreement of this type would reshape the world trading system and, at long last create a level playing field that would greatly enhance economic growth and job creation here at home and in the world as a whole.

Here we and the Europeans have a great incentive to make common cause. However, the Europeans have always been far less keen on this proposal than we, thereby undercutting our efforts to overcome the opposition of the developing countries. As a result, this initiative has languished on the sidelines.

But I believe that now is the time to revive the proposal and make every effort to persuade the Europeans to not only sign on but to actively promote it. Working together, our combined clout could bring success within reach and thereby markedly bolster our ailing manufacturing industries on both continents.

Let me add a second recommendation: Given the importance of removing tariffs on manufactured goods, we should not allow this initiative to become hostage to a lack of progress, and even deadlock, in the agricultural negotiations of the Doha Round. If a global trade consensus proves elusive or beyond our grasp, we should strongly consider moving ahead on a less ambitious and more focused trade agenda, with this pro-manufacturing initiative as a centerpiece. Here again, given our overlapping interests in this area, cooperation with the Europeans would be essential.

Regarding trade, we live in a world of sinners. But for the sake of even-handedness, I should note that the United States itself is not without sin. Although our economy is one of the most open in the world, we do employ a number of protectionist measures by way of our countervailing duty and anti-dumping laws, which are intended to relieve some of our ailing industries. The most prominent recent example is the measures put in place by President Bush to shore up our ailing steel industry.

But however regrettable these may be in terms of free trade, the absence of a level playing field, and the legacy of competing against state-owned and state-subsidized producers, means that measures such as these are sometimes necessary to counter the predatory practices of other countries and will remain so until the rules of the game are applied equally to all.

Preventing New Mistakes

As noted above, our cooperation with Europe should also embrace the establishment of an area of genuinely free economic interaction between the two continents. But in addition to the conventional agenda of trade liberalization should be added a commitment to ensuring that new obstacles to trade and investment do not arise to take the place of those we have labored to remove for more than half a century.

In thinking about free trade, it is often the case that our attention is focused on reducing and removing well-known, traditional trade barriers, such as tariffs, quotas, subsidies, and other obstacles to the free exchange of goods and services. Reducing or eliminating these are quite properly the focus of the current Doha Round as they were of previous rounds.

But even as existing barriers are being gradually dismantled, considerably less attention is given to preventing new barriers from arising to take their place, especially in those economically advanced countries which currently enjoy a high level of free trade. But technology, commerce, and politics never cease to change and evolve, one outcome being the continuing emergence of new challenges to free trade, both as the unintended result of myopic government policies or as the product of deliberate protectionist intent.

This problem is most pronounced in our relationship with Europe, where two-way trade in 2002 exceeded $1.1 trillion. This relationship is significant not only in terms of its volume, but also because it is the principal example of trade between economically advanced countries of comparable wealth and development. It is also the case that, agriculture aside, most traditional barriers to trade have been virtually eliminated.

Given these characteristics and the dynamic nature of their economies, it is in this relationship that new and unfamiliar challenges to open trade are making their first appearance.

If we are to prevent our decades-old progress in trade liberalization from being undone and a gradual slide toward a new protectionism from gathering momentum, whether that occurs by inattention or by design, we must make a sustained effort to anticipate the emergence of these new obstacles and put in place the means to address these emerging problems before they become entrenched.

The Agenda: Regulation

Much of the agenda needed to establish a true Atlantic Marketplace is already familiar to us, the most prominent items being agricultural, tax, and environmental issues. But even more central is the growing importance of ever-expanding regulatory measures. Regulation is the hidden saboteur of free trade, because it proceeds slowly and incrementally and only rarely makes sufficiently bold moves to sound any alarms.

As officials on both sides of the Atlantic elaborate their regulatory systems largely in isolation from the other, a new version of continental drift is emerging. Decision by dry decision, the two economies gradually diverge, the product of silent bureaucratic processes that often conceal new forms of protectionism.

The danger should be obvious: the emergence of a body of competing and often incompatible regulatory standards throughout the economy that impose increasingly heavy and needless costs on businesses that seek to operate in both dominions. Many of the differences are due to genuine disagreements in methods of risk assessment, cultural preferences, the accepted role of government, and so forth. But much of the problem stems from the two regulatory systems operating in isolation from the other, taking and implementing decisions without review by one another prior to their formulation.

If we are to take effective action against this threat, we must start with a high-level accord on our overall objectives. We are not lacking in “summits.” For example, there was a recent U.S.-EU summit meeting in Washington for the purpose of highlighting some of our differences as part of an effort to advance a positive economic agenda across the Atlantic. But these types of meetings invariably have too general an agenda and are too undirected to produce anything of concrete utility. What is needed are more purposeful and defined meetings. I would urge that as a first step the U.S. and the EU convene a high-level meeting of our respective regulatory policy-makers and regulatory bodies to try to establish common objectives in regulation and devise a process of formulating complementary regulations.

But high-level meetings are not sufficient to ensure continuous attention to this enduring challenge. That will require that U.S. regulatory authorities and standard-setting bodies establish close, institutionalized cooperation with their European counterparts at the working level. This means creating effective mechanisms for the regular, perhaps even daily, exchange of information, discussion, review, and even direct collaboration needed to forestall the emergence of differences in regulation before they become entrenched.

In any attempt to devise solutions, a key element must be transparency of the regulatory process. Needed provisions include the publication of existing and proposed regulations, the right to comment and to be heard in administrative proceedings, and improvements in the reliability and accessibility of financial data for both businesses and consumers.

There is little disagreement between the U.S. and the EU on principles of good governance, as outlined in a recent white paper by the European Commission: Openness, participation, accountability, effectiveness, and coherence. But these principles are far too general and unobjectionable to serve as useful guides to the harmonizing of regulations. That task will require much work by those with extensive experience in the arcane arts of making and implementing regulations. But first they need guidance and support, and these will be more easily obtained in a general meeting of policy-makers empowered to establish a system of regulatory cooperation.

The need for greater cooperation in regulatory and other matters extends into all areas of the economy. Let me mention just one for the purpose of illustration, namely environmental and health-related issues.

Environmental and Health-Related Issues

Environmental and health-related issues have already become the source of major disputes between the United States and Europe. Our disagreements are guaranteed to grow as these subjects become ever-more prominent in the mind of the public and the agendas of governments and as cultural preferences increasingly influence the respective regulatory processes.

The differences between the U.S. and Europe in these areas reflect a broader debate about the acceptability of risk in modern society. The European view, embodied in the so-called “precautionary principle,” is that in the face of uncertainty, it is preferable for regulators to just say no. In the U.S. regulators generally will give their approval for products and substances so long as there is not an identifiable risk.

Underlying these emerging conflicts is the fact that both the U.S. and the EU are employing significantly different standards and tests, as well as very different approaches in their cost/benefit analyses, often leading to incompatible results. The negative impact of these differing approaches is inadvertently made much worse than it need be by the fact that they are developing their respective regulations largely in isolation from one another.

The best-known of these disputes is that between the U.S. and the EU regarding genetically modified organisms (GMOs) and the food products that contain them.

While U.S. consumers have generally accepted the view from key regulatory agencies that there is no evidence linking GMO foods to increased health or safety risks, EU consumers and environmentalists are concerned about the possible health and environment risks of these foods and are not willing to accept any findings contrary to those pronounced by European scientific and health panels.

Even conceding the existence of legitimate cultural preferences, there is the very real danger of setting a harmful precedent that inevitably will be utilized for protectionist purposes. If we do not move to tackle this problem now, our confrontation will only grow and harden over time, to the detriment of businesses and consumers on both sides of the Atlantic. But despite the seriousness of this issue, it is only the opening wedge of what is certain to be a succession of confrontations regarding environmental and health regulations.

The Task Ahead

In discussing the barriers inhibiting trade and investment between the United States and Europe, I have chosen to focus my remarks on the negative impact resulting from different approaches to regulation in one sector of the economy. I could have easily spoken of similar problems in the area of services, intellectual property, government procurement, and a long series of others.

It would be easy to exaggerate their extent. For all our problems, our trade relationship with Europe is remarkably open. The danger is that, as our economies continue to grow and evolve, new and unfamiliar barriers will arise to take the place of those removed so laboriously in the post-World War II era. Some of those impediments will be the result of irreducible differences in preference, others of intentional protectionism. But many, perhaps most, will be inadvertent, the unnecessary and easily avoidable result of deliberations and decisions performed in isolation.

The malevolent effects of regulatory isolationism and other unnecessary barriers can only be prevented if the U.S. and the EU commit themselves to the creation and preservation of an economic relationship that is free of wealth-destroying impediments, one that permits the creative forces of their economies an unprecedented freedom of interaction. To do so will require more than just goodwill and empty declarations. It will require an extensive and enduring commitment at all levels, extending from the top decision-makers down to the working level of the bureaucracies. Such widespread efforts will require a unifying goal if they are to bear fruit. To provide that direction, I would suggest that we embark upon the conscious creation of a common economic space, an ever deeper entanglement of our economies, an Atlantic Marketplace.

Closing

In closing, I wish to highlight an additional reason for a renewed focus on the Atlantic relationship, one that is of great importance but one that has little to do with economics. At a time of significant and growing strains in the Atlantic relationship, especially the rising tensions with France and Germany and the efforts by some to endow the European Union with an anti-U.S. mission, I believe it is of great importance and some urgency that we find ways of strengthening our connection to that continent and ensuring its robust continuation. Even if some of these countries, either through ignorance or foolish ambition, craft narrow foreign policies that in the end are self-defeating, it is not in our interest to match their foolishness. Our self-interest lies in ensuring that our economic relations with Europe remain strong and continue to grow and remain free of impediments, regardless of our disagreements in other areas.

Our goal should be to not only reduce current tensions between us but to craft new and mutually beneficial ways of reinforcing that connection. To that end, by orienting ourselves to the future, rather than reminiscing about the past or allowing ourselves to be engulfed by the struggles of the present, and by ensuring that our cooperation keeps pace with the never-ending evolution of our world, we can enlist the self-interest of each to ensure the continuing prosperity of all.

Source: House International Relations Committee, U.S. Rep. Henry J. Hyde, Chairman