The Clinton administration is vocally pro trade. But is that free or managed trade? At a special CE roundtable conducted in the white house, participating CEOs talked with national economic advisor Laura D’Andrea Tyson and counselor to the president Mack Mclarty.
October 1 1996 by JP Donlon
With the completion of the Uruguay Round and the creation of the World Trade Organization, the world seemed to be headed for a more open global trading system. Then came the bitter confrontations with
But despite the administration’s vocal support-and several victories-for open trade, some observers argue its policies are confusingly followed by moves for managed trade or steps that encumber markets with new regulations. With administration support, the environmental and labor lobbies have succeeded in gaining permanent seats at the trade table of
In the following roundtable, held in partnership with Andersen Consulting and conducted in the Roosevelt Room of the White House, National Economic Advisor Laura D’Andrea Tyson outlined the administration’s international trade strategy, arguing that it has been vigilant in removing tariff barriers and opening up markets. In responding to specific concerns of participating CEOs, Tyson and McLarty were joined by SEC Chairman Arthur Levitt.
PARTNERS IN TRADE
Laura D’Andrea Tyson National Economic Advisor): In a 1993 speech at American University, President Clinton clarified the U.S. policy toward the international economy and free trade as such: “We must compete, not retreat.” That statement still holds true three years later. To achieve that aim, we have attempted to strengthen our competitive capacity at home and to work with the rest of the world to break down barriers to competition.
On the domestic front, we now have the lowest deficit as a share of GDP among the G-7 countries. We’ve created more high-wage jobs than the other six countries combined. Technology, quality products, innovation, and tremendous sales efforts have led to increased improvement and competitiveness in the automotive, computing, and aircraft industries, among others.
In the international arena, we are trying to negotiate trade agreements and are working with business and foreign governments to improve selling opportunities.
This is essentially a partnership effort. We are on track to develop an open trade area in Asia Pacific by 2020, and one in the
I recently heard someone say that when they turn on the radio in the
How can we address this sentiment? One way is through education, making it clear to people that if we cut ourselves off from 95 percent of the world’s consumers in the fastest-growing markets in the world, they will cut us off, and that will be the end of our prosperity going into the future. And at the federal and corporate levels, we must address the underlying insecurities that foster protectionist tendencies. Americans must feel they have the keys-education and training, the ability to move health and pensions around, the ability to change jobs-to make the most of the opportunities or to confront the challenges. The only way to do that is for business and government to work together as partners.
Arnold B. Pollard (CE): In the area of intellectual property issues, Microsoft is frustrated because for every unit it sells internationally, eight are knocked off illegally-with China being the most serious offender. How can we resolve this problem?
Tyson: It is likely to be a continuing struggle. This year, we came close to imposing stringent sanctions on the Chinese for their failure to enforce an intellectual property protection agreement pertaining to our firms that they had signed a year ago February. After talking to many companies, we found things had not gotten any better, and in some instances, had gotten worse. So we put together a plan that spelled out how many plants had to be closed down and what kind of monitoring system had to be put in place. At the eleventh hour, the Chinese agreed to this plan.
We created a periodic review process to determine whether the enforcement plan is being honored; the first review will take place some time this foil, so I can’t tell you how it’s been working just yet.
Dean LeBaron (Batterymarch Financial Management): I travel a lot internationally and often hear the word “bully” used to describe the
Tyson: Keep in mind that you are talking about two different kinds of sanctions. One is the use of economic sanctions for economic reasons, and the other is the use of economic sanctions for non-economic reasons. Unfortunately, both the Japanese and Chinese have created a pattern in which they take no action until they evaluate the sanctions we threaten. We got action with the Chinese on intellectual property protection because they believed our threatened sanctions were going to be harmful to them. Of course, those sanctions also would have hurt us economically, but the cost was not as great as the costs of not enforcing the intellectual property protection agreement. I would rather have the enforcement mechanism be handled by the WTO rather than our imposing sanctions, but
The Japanese claim that the
In terms of sanctions for non-economic reasons, we believed that the threatened use of sanctions would bring benefits in terms of our foreign policy objectives that we could see no other way to realize. For example, we could not get our multilateral trading partners to agree on the situations with
Ernest S. Micek (Cargill): The problem is that these sanctions seem to serve a short-term purpose. I worry that we are doing some long-term damage to trade because if we unilaterally impose a sanction, dozens of other countries are waiting in the wings to replace us. In
Tyson: In the case of threatening sanctions for intellectual property rights enforcement, we spoke to a large group of American industry leaders, including companies that might be adversely affected by retaliation by
In these kinds of negotiations and relationships, the threatened use of economic sanctions is, unfortunately, part of the process. The closer we can move toward a rules-based system, the better off we will be.
In terms of sanctions for non-economic reasons, you’re saying we got the cost part of the equation wrong. That may very well be. But I think it’s important for the business community to mobilize its own evidence and present it to Congress.
Albert R. Gamper Jr. (CI T Group): You indicated a linkage between a strong
Tyson: The first half of this year, the economy has been growing at a rate of more than 3 percent. Our prediction for the year is 2.6 percent. On a measured growth rate, given the projected rate of growth of the labor force and projected rates of growth of productivity for the foreseeable future, we are saying the economy will grow around 2.3 percent or 2.4 percent on a sustained basis. However, the private-sector growth rate is much higher-3.2 percent. The reason the overall growth rate is slightly lower is because the government is contracting. I think we have a strongly growing economy, though I would like to see us do better, and I think we are on that path.
J.P. Donlon (CE): Some economists differ on your growth statistics. Studies by the National Association of Manufacturers and the American Enterprise Institute, for example, say that current average annual growth for the last four years is around 1.9 percent to 2.1 percent and below the historical average of 3.2 percent.
Thomas C. Wajnert (AT&T Capital): I’m a little confused about the convergence of international tax policy with trade policy, particularly regarding some new proposals for taxing foreign source income and inventories manufactured outside the
Tyson: After a great deal of analysis, we decided that adjustments in our tax policy in the area of foreign source income would not have a significant effect on the competitiveness of
A MATTER OF ETHICS
Leslie G. McCraw (Fluor): From an ethical standpoint, American companies are often at a disadvantage because other countries don’t have regulations prohibiting bribery and corruption as the
Tyson: An interagency effort is under way to make some decisions on this issue. We also have been encouraging the international community, through the Organization of Economic Development, to make a more active effort.
Thomas “Mack” F. McLarty (Counselor to the President of the U.S.): Latin American leaders, amid a strengthening of democracy, are beginning to take a much more engaged and proactive role in this matter, particularly those in Brazil and Mexico.
DEVIL’S IN THE DETAILS
John D. Correnti (Nucor): Our disadvantage is dealing with an overwhelming number of
Tyson: When he first took office, President Clinton signed an executive order requiring agencies to conduct cost-benefit analyses and risk assessments, to be actively involved with companies in terms of assessing regulations, and to reduce paperwork. That’s happening now. In fact, 55 regulations have been eliminated, along with 16,000 pages of paperwork.
Arthur Levitt (Securities and Exchange Commission Chairman): The paperwork problem will never end unless business keeps the pressure on and maintains a dialogue with the agencies themselves. It’s just the nature of the process.
W. Keith Smith (Boston Co. and Dreyfus): Hopefully, technology will help alleviate some of that burden. But it also brings its own share of problems. As technology continues to evolve, it will change the world and the way we compete. This can be seen in the Internet and how it is changing the way we sell and distribute goods and services. How can the government help the business community both protect itself and take advantage of these evolving trends?
Tyson: The administration actively has sought to reduce the controls on our technology exports, particularly in computers and telecommunications. On the Internet, we’ve assembled a group to examine what kinds of adjustments should be made in commercial policy as more and more transactions are conducted electronically.
NOTHING IS PERFECT
William E. Mayer (CE): Has your thinking on the various international trade issues we’ve talked about changed in the past four years?
Tyson: Not in a fundamental way. I believe that there’s no such thing as total free trade and no such thing as perfect protection. It’s going to take a concerted, sectorial effort to figure out what the barriers are. It was easy in the days when the barrier was simply a tariff. Then, the solution was to reduce the tariff 50 percent. Today, the structural barriers of intellectual property protection also carry cultural or systemic differences in how businesses are organized. That’s why we are in trade negotiations today.
We have to actively try to eliminate these barriers and try every track. If we can’t get it multilaterally, we have to try it bilaterally. If we can’t get it bilaterally, we might have to try a sanction. If we let the perfect be the enemy of the good, we’ll never get anywhere.
A Who’s Who Of Roundtable Participants
Michael Baly III is president and chief executive of Arlington, VA-based American Gas Association, a national trade association comprising 275-plus natural gas utilities and pipeline companies in the
Frederick C. Copeland Jr. is president and CEO of Hartford, CT-based Aetna International, an insurance subsidiary of $7.4 billion Aetna Life & Casualty.
John D. Correnti is president and CEO of Charlotte, NC-based Nucor, a $3.4 billion manufacturer of steel products.
Albert R. Gamper Jr. is president and CEO of Livingston, NJ-based CIT Group, a commercial and consumer lending firm with $17.8 billion in assets.
Philip H. Geier Jr. is chairman and CEO of New York-based Interpublic Group of Cos., a $2.2 billion group of advertising agencies.
Michael S. Graff is president of Canada-based Bombardier Aircraft Division, a division of $5.2 billion transportation company Bombardier.
Mark W. Grobmyer is chairman of Little Rock, AR-based Commerce International, a consulting company. He is also The Center for the Study of the Presidency Liaison to the White House.
Dean LeBaron is chairman of Boston, MA-based Batterymarch Financial Management, one of the investment management subsidiaries of Legg, Mason, which manages $35 billion through several independently operated firms.
Arthur Levitt is chairman of the SEC.
William E. Mayer is dean of the
Leslie G. McCraw is chairman and CEO of Irvine, CA-based Fluor, a $9.3 billion construction and engineering company.
Thomas “Mack” F. McLarty is Counselor to the President of the
Ernest S. Micek is chairman, president, and CEO of Minneapolis, MN-based Cargill, a $51 billion marketer and processor of agricultural, financial, and industrial commodities.
Donald E. Moffitt is chairman, president, and CEO of Palo Alto, CA-based Consolidated Freight-ways, a $5.7 billion transportation company.
Bryan T. Moss is vice chairman and CEO of Savannah, GA-based Gulfstream Aircraft, a business aircraft company with revenues of around $1 billion.
Maurice L. Reissman is the former CEO of Crossland Federal Savings Bank in
John J. Roberts is vice chairman of New York-based American International Group, a $25.8 billion insurance company.
Stephen M. Smith is managing partner, Federal Government Practice in
W. Keith Smith is chairman and CEO of Pittsburgh, PA-based Boston Co. and Dreyfus, units of Mellon Bank, which has $40.6 billion in assets.
Laura D’Andrea Tyson is the U.S. National Economic Advisor.
Thomas C. Wajnert is chairman and CEO of Morristown, NJ-based AT&T Capital, a $1.5 billion machinery and equipment leasing company that owns and manages more than $11 billion in assets.
Stephen M. Wolf is chairman and CEO of Arlington, VA-based USAir Group, a $7.5 billion commercial airline carrier.