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Sending Signals

Bush’s Trade Rep. Tells the World: ‘We Will Open Up if Others Do’

A marathon runner, U.S. Trade Representative Robert Zoellick, has been traveling the world almost nonstop since his confirmation in February 2001, pursuing an aggressive agenda of market-opening agreements. And he’s scored several victories. He helped launch the Doha round of international trade talks, brought China and Taiwan into the World Trade Organization, doggedly pushed the House and Senate to narrowly approve trade-negotiating authority for the president and completed free-trade deals with Chile and Singapore. But this former undersecretary of State in the first Bush administration faces a delicate path ahead as he tries to further the president’s free-trade agenda under the cloud of increasing trade tensions. With a midterm Cancun meeting scheduled later this month to keep the Doha round of trade talks on track, Zoellick recently sat down with Roll Call Executive Editor Morton Kondracke to discuss the purpose and goals of the meeting, the recent agricultural breakthrough with the European Union and the politics of trade heading into 2004. ROLL CALL EXECUTIVE EDITOR MORTON KONDRACKE: I want to cover two topics – the upcoming Cancun meeting of the World Trade Organization and trade as a 2004 political issue. Let’s start with Cancun. Many commentators say that the Doha round of world trade talks, launched in 2001, is proceeding disappointingly. Is there any reason to think that the Cancun meeting will achieve any breakthrough? U.S. TRADE REPRESENTATIVE ROBERT ZOELLICK: It’s important first to remember the purpose of the Cancun meeting, which is a midpoint review. It is not a meeting designed to try to reach grand conclusions. What I hope we will be able to do is to create some frameworks that narrow the differences in some of the key areas, and the most important ones will be agriculture, manufactured goods – whether it’s industrial or consumer goods – and services. The other key topic has been access to medicines, dealing with the intellectual property rules. That is, if you are a poor country that cannot compulsorily license drugs in your own country and therefore have to import them, what are the conditions under which that can be done? ROLL CALL: So this issue of pharmaceutical patents and access to medicines for poor countries has been a big stumbling block, hasn’t it? ZOELLICK: Yes, it has been a top issue. We’ve been working hard on it, and we’ve made a lot of progress. You have 146 countries that are as diverse as the United States and the European Union on one hand, a major developing country like India or China on the other, and small developing countries like Senegal. It’s not a negotiation in the way in which people probably think of negotiations like when they buy a house. It’s a question of shaping what trade people call the “modalities,” or the methods of reducing barriers. And it has to occur in multiple areas in roughly the same pattern. So if you almost imagine a funnel – in Doha, the challenge was to describe all the items that would be at the top. What we need to do in each step of the way is to narrow the differences in some balanced fashion to bring the various items forward. So what we’re trying to do is come up with procedures, approaches, variables that are used in cutting the barriers and describing which barriers will be cut. ROLL CALL: You’ve written that you hope to spark a worldwide competition among nations to achieve trade liberalization. Is any such competition under way? ZOELLICK: I believe so, particularly if you would look at the long list of countries that want to do free-trade agreements with the United States. During this administration, we passed the Jordan Free Trade Agreement, which is one we inherited from our predecessors. We just passed the Chile and Singapore agreements with significant margins, so of the six countries the United States has free-trade agreements with, three have happened in this administration. And we have negotiations well on the way with five Central American countries, Australia, Morocco, five countries of the Southern African Customs Union, and we notified the Congress that we intend to start negotiations with the Dominican Republic and Bahrain. There are a number of other countries that are eager to begin negotiations, including Colombia, Peru and Bolivia. What we’ve tried to do is not just approach this in a haphazard fashion, but create a structure by which countries can move up the ladder of trade liberalization. For some it’s getting them in the WTO. For some who are already WTO members, it’s what can they do with us to prepare for free-trade agreements. In two other major developing parts of the world, Africa and Latin America, we have sort of a separate road map. In Africa, it starts with something called the African Growth and Opportunity Act, which is a preferential trade arrangement. We have eliminated our barriers of trade for some 91, 92 percent of African exports without them lowering their barriers. But a deeper trade and investment relationship would be fostered by a free-trade agreement, and we’re starting with the Southern African Customs Union because it is the most developed part of the continent to show what can be done in Africa. And in Latin America while we’re moving forward with individual free-trade agreements – Chile, Central America, Dominican Republic – we are simultaneously trying to achieve a hemisphere-wide agreement. And that, if we can accomplish it, is truly historic. I mean that is something that Henry Clay started talking about in the 1820s. The challenge is that Brazil, Argentina, Uruguay and Paraguay have obviously gone through a difficult economic patch. Their governments recognize that trade is going to be important to their growth, but their left populism doesn’t make trade popular. So what we are trying to do either at the WTO level, the hemispheric level, or some smaller regional or bilateral arrangement is to signal that we will open up if others do. And if others don’t, then we will keep going with those that do. And we’ve been able to regain some momentum on trade agreements here in the United States. Doesn’t mean it’s easy. Far from it. And recognizing that the Constitution gives authority to Congress over trade, one of the first key steps was regaining the authority of the president to negotiate agreements, which is what we did in the Trade Act of 2002 by a very modest margin – one vote in the House once, three votes in the House at other times. It had stronger support in the Senate. But if you look at the Singapore and Chile agreements that passed in July, it gives credence to the arguments that I always made – that that first step of getting the authority is the hardest step because when you bring back agreements that are with real countries you can show real benefits and it’s easier to build real support. So if you look at both the Chile and Singapore agreements, we had 195 Republican votes for one, 194 for the other, which is about the same as we had for Trade Promotion Authority. We had 75 Democrats for each of them, and that was in comparison to about 30 to 35 for TPA, and both passed the Senate by a 2-to-1 margin. ROLL CALL: Let’s go back to the WTO issues. Talking about agriculture – domestic subsidies, market access, or tariffs, and export subsidies – is there any progress likely at Cancun on any of these fronts? ZOELLICK: It’s going to be very difficult. Our approach has been to first narrow our differences with the European Union and then with all the other countries. The U.S.-EU made important progress in early August by coming up with a framework to guide agriculture negotiations. The three areas you mentioned have to be seen as a combination because there are the terms of the mandate we agreed to at Doha. In export subsidies, the United States has very few export subsidies. We have about $15 million. The European Union has between $2 billion and $5 billion. Everyone in the world that I know wants to eliminate export subsidies. The European Union just had a reform in their Common Agricultural Program. And the impression that Commissioner [Pascal] Lamy and Commissioner Fischler conveyed to their fellow ministers was that they can eliminate export subsidies for some crop and reduce them for others, but they can’t yet move to total elimination. We would like to encourage them to continue to move to total elimination. So we’ve suggested that we would in a parallel fashion be willing to add further disciplines to our export credits and food aid programs, but recognizing that there are still fundamental differences in export subsidies, export credits and food aid. The second box is domestic support, which are internal subsidies that distort production. This is the area where the European Union’s CAP reform has made the biggest difference. But it’s also the area where the European Union had the most to go, because coming out of the Uruguay round, even though the U.S. and European agricultural economies are similar size, Europe is allowed subsidies of about $70 billion a year while the United States has $19.1 billion. So not surprisingly the Congress says Europe has got to come much closer to us before we cut. The Europeans have said they can make at least a 60 percent cut, which is a good thing. And we in the United States have said we would be willing to make a significant cut if the Europeans come closer to us. And in fact our stated position was that we’d go from $19.1 to $10.5 billion. ROLL CALL: But in both regards, if each side does what they say they’re going to do, we’re still going to be very far apart. So at the end of the day, is an agreement possible? ZOELLICK: The purpose of the Cancun meeting will not be to reach an agreement on precise numbers. The purpose of Cancun is to try to, for example, establish the principle that the cuts in subsidies would be harmonized. In other words, since Europe starts out with three-and-half to four times more than we do, can we establish the principle that they have to cut more than we do? That’s the key principle. ROLL CALL: But before there is Doha round agreement, the level of subsidies has to be brought into balance or there’s no deal, right? ZOELLICK: It’s up to the parties to decide what they’re going to do with it. And it’s certainly our position, just to give you some indication, that the size of these domestic subsidies should be related to the overall size of their economies. So we suggested a 5 percent overall limit for agricultural economies. That would have brought the European number down to $12.5 billion and ours down to $10.5 billion. So even our proposal acknowledged that there would be a difference. Our proposal would remove $100 billion from the global trading system. Now the Europeans are far from accepting that proposal. So in the Cancun context, some have said, cut simply by a percentage. Well, a percentage will cut more from the top than those further down, but we have argued for a harmonized approach, which means that the guys who are at the higher level have to cut even more. The same challenge arises on the tariff issue. And that’s where the real challenge is going to be. The tariff area is where Europe appears to have the least flexibility. They have proposed a cut of at least 36 percent on average – and this is the approach that was done in the last global trade negotiation, the Uruguay round. We and many agricultural exporters have said you need to use a harmonizing formula so you’re cutting more for people who have higher tariffs. And so again, I think one of the challenges for Doha is that some countries want to just have straight percentage cuts, some want to have more harmonizing formulas that cut more for countries with higher tariffs. In Montreal I urged and there was a general positive reception – general, not full – that we have to get a blend of these two approaches. So at Cancun it would be a good step forward if we could at least agree on an approach, framework. But the numbers will have to be negotiated further on in the process. And even once you get the numbers within this framework, then you have to do individual schedules and product lines and then there’s little flexibilities. That’s with agricultural trade, and there’s a similar approach in the goods area. Now in the goods area, we call for a total elimination of tariffs, but few countries are as bold as we are so one of the discussions is, what should be the framework for cutting tariffs in goods? To what degree should you use a harmonizing formula? And if so, what should be the exceptions for developing countries? Should you have sectoral negotiations, like information technology, for example? And we had also proposed that you eliminate all tariffs below a certain level – in our case, 5 percent – if we can get ambitious results in other areas, which would take care of about 85 percent of the trade in goods among the United States, Europe and Japan and about 75 percent of our trade totally. But we will not be able to carry that unless we get others to do significant cuts in their tariffs. We recently drafted a joint statement with Canada and the EU that continues to emphasize ambition and that we hope will prompt further progress on these elements in Cancun and beyond. So it’s important to understand what Cancun is about. It’s not kind of a final negotiation session. It’s a drawing closer through putting this framework. But as your question suggested, it recognizes that we’ve missed deadlines to achieve these frameworks during the course of 2003. So it’s not surprising in trade negotiation that it would take a meeting of all the ministers again to see whether we can establish those frameworks and how far we can delineate them. You know sitting here today it’s going to be a tall order. ROLL CALL: Even to get frameworks? Suppose you don’t get frameworks? ZOELLICK: Then countries will have to assess how important the round is and how committed they are to liberalization. And that assessment may cause people to reassess whether they are willing to cut and how they’re willing to cut. We have said as a strategic course that since these global trade negotiations take a number of years to negotiate, and 10 or 12 or more years to implement, that it’s a once-in-a-generation opportunity. And if we insist on ambitious results and a number of countries agree with us, therefore you can have flexibility to meet special circumstances with ambition. But we will not agree just for the sake of an agreement. We want to have ambitious results, cutting subsidies and tariffs, in manufactured goods – we believe in cuts across the board. The United States, contrary to a lot of what you read, starts out with much lower barriers. Our average tariff is about 4 percent. And for all those who claim the United States is not an open economy, I would like them to explain to me how we are running a $500 billion current account deficit. We must be buying something from somebody. So we still have barriers. There’s no doubt about it, but for us to eliminate barriers, we’re going to have to have others make some significant cuts, including developing countries, but still recognizing that some developing countries, depending on their stage of development, will need more flexibility. Now, in addition to what we just discussed, the Europeans are developing rules for a new set of issues. These issues are called the Singapore issues – trade facilitation, transparency in government procurement, investments, competition costs. We’ve been supportive on the effort in trade facilitation transparency and government procurement. We’ve tried to be a broker on the investment and competition policy issues, because while we and many other countries have some concerns about what exactly the Europeans have in mind, the bigger problem is that many developing countries say, “We don’t want to take on those new issues for some unless we get headway on the others.” ROLL CALL: Will you get into genetically modified foods at Cancun? ZOELLICK: That’s a dispute case. Keep in mind the WTO has negotiations, but it also is an ongoing mechanism that has rules that allows you to bring disputes to it. ROLL CALL: Is the European refusal to admit genetically modified foods basically a market-closing maneuver on their part – a protectionist maneuver? Or does it reflect deeply held worries among their population? ZOELLICK: I think for many Europeans, it’s not a conscious protectionism. I do believe that it stems from the fact that there were scares in Europe from the mad cow disease. There were problems with blood systems in France. And then, certain people, for a variety of reasons, decided to attack genetically modified foods, and I think that European leaders abdicated their responsibility to explain that these foods were safe. That has been demonstrated by scientific institutes in France, Britain, all over the world. And indeed, the potential of these foods to serve important purposes not only in Europe but all over the world is enormous in dealing with health problems, helping people grow crops in droughts and difficult circumstances. Ironically, to help deal with environmental problems because you can avoid pesticides and fertilizers. And so I think that the debate in Europe in this area and in some others has reflected an undercurrent of European elite that rejects science and progress. Now there are deep roots in this in Europe because sometimes science and progress was misused in terrible ways, and so there’s this suspicion into the politics. But I think [British Prime Minister] Tony Blair actually has been a leader who’s been trying to prod the public to engage on the benefits of these crops. The message that I conveyed to the Europeans was that we waited patiently for some four years, and now the intellectual dishonesty is spreading to other parts of the world. Some countries do use it blatantly for protectionist purposes. Even though China has one of the largest biotechnology programs, they were using it to block our biotech soybeans. ROLL CALL: When is the WTO likely to make a decision? ZOELLICK: This is an encouraging sign. The European Commission knew that the moratorium [on genetically modified products] violated their own rules and WTO rules, so they’ve been pushing to lift the moratorium. It still depends on some of the member states. And then what they’re doing now is another variation – not only labeling, which occurs in many countries of the world and people can defend in various ways – but creates a system that could end up putting extreme cost burdens and, frankly, be very susceptible to fraud. ROLL CALL: Do you expect trade to be a major issue in the 2004 presidential campaign? And what will President Bush be able to say about his record? ZOELLICK: I think the economy will be a major issue, and I think that President Bush certainly has a series of trade accomplishments to run on – completing the accession of China and Taiwan to the WTO; launching the Doha negotiations, which failed to be launched in Seattle, and the Trade Act of 2002, which not only restored presidential negotiating authority that had been lost for eight years, but included some $20 billion of trade for developing countries. And then we have the free-trade agreements that we’ve already negotiated and others that are coming through. But I think it’ll appear in politics in two ways. One, contrary to conventional wisdom, when you actually talk to the general public about their attitude toward openness in trade, you get some statistics that are surprising. For example, the Pew Research Center released a global survey in June, “Views of a Changing World.” Seventy-nine percent of Americans said that global trade is somewhat or very good for the country. Sixty-two percent of Americans say that globalization has had a good effect on the country, 23 percent, a bad effect. Eighty-one percent of Americans say it’s very or somewhat good that more different products are now available from different parts of the world. Now the other side of that is that some political consultants will always say that the intensity is stronger for those that resist trade. So you’ve got James Hoffa of the Teamsters threatening Democrats. My own sense is that at the macro-level of American politics, particularly at the presidential level, protectionists don’t do very well. Look at the 1988 primary – George Bush 41 against [Bob] Dole. Dole took a more protectionist line. Bush won. Bill Clinton was the most open market of the Democrats in 1992. George Bush 43 was unabashedly strong on free trade in 2000. And so I personally think that these generalized attitudes reflect a recognition among many Americans that we live in a global world and we’re better off being open and competing and just. At the same time, they want a fair shake. So, in addition to the agreements, we have to put a great focus on enforcement of the agreements and vigilance in the process. Now, at another level, I think people will make their own assessment about the economy and then what they really pay attention to through their own lens of life are the fundamentals. Inflation. Interest rates. Jobs. You know, whether you see growth. Trade is a dimension of that. Trade is important to growth and openness, and open capital flow keeps interest rates down and open capital ends up helping investment and raising equity levels. I suspect, in the Democratic primaries you’ll see an anti-trade message because primaries play to the intensity, often, of the extremes. Just reading the newspapers, a number of Democrats are trying to get the union endorsement, and the unions, by and large, have declared war on trade even though it’s hard to see how that’s in their interest. Hoffa was attacking trade agreements, and I had to smile because the same week that he was attacking them, I noticed that United Parcel Service, which has Teamster drivers, had an increase of their net income beyond expectations, driven by their international business. So all these packages that people bring back through trade get delivered by UPS drivers who are Teamsters workers. I think that some union leaders have focused on trade as a surrogate for resisting change. Whether it’s change due to technology, change due to competition within the United States or competition abroad. That clearly is a losing economic strategy. It may be a useful political organizing strategy. It puts Democratic Party candidates in a difficult position. ROLL CALL: One of the things that the Democrats are saying now is that you have not been protective enough of U.S. jobs, that we’ve lost 3 million jobs on Bush’s watch, more than 2 million of them in manufacturing, and that a lot of these jobs have gone overseas. How do you respond to that? ZOELLICK: Well, in a couple of ways. The basic reason why jobs were lost is because you had a big bubble in the economy and you had a down point in the cycle. It’s going to be a combination of the president’s tax policies, monetary policies, budget policies and trade policies that we need to recover. And you can see that recovery happening, and it will create jobs. Now as to the particulars of manufacturing, I was just looking at some of the data. Most of our manufacturing deficit, three-quarters of it over the past three years, has come from slowdown in American exports, not an increase in foreign imports. What that really tells you is two things. One, we should keep opening our markets abroad. But equally important, we need to get more growth abroad. The real reason why you have a trade deficit is not to do with the details of trade agreements. It has to do with differential growth and exchange rates. In this case, with growth, even though the United States has had slow growth, its growth has been stronger than two other major parts of the world economy, Japan and Europe. So the best thing we could do would be to get them help. This brings up the questions of some of the developing world. Over time it will be important to have the developing world also to be a growth force. One other point about manufacturing. If you look at manufacturing as a share of the American economy, it was actually a little higher in 2000 than it was in 1980. It’s come down a little bit, but not much over the past few years because you’re in a down cycle, and I would argue it will come up again. What has happened is you have lost manufacturing jobs. But that’s because you had very large increases in productivity. So if you are keeping manufacturing about the same share on a price-adjusted basis of the economy and you are having increased productivity, what does it mean? You have fewer people to do it. If the United States didn’t do that, we wouldn’t have a competitive manufacturing sector. So I remember it wasn’t too long ago that everyone was concerned that the United States wasn’t having any increased productivity. Now we have increased productivity in manufacturing just as 100 years ago we had increased productivity in agriculture. You had 50 percent of the public being farmers. Well, now you have 2 percent. And they not only grow enough for us, but they grow enough to export about $55 billion a year. Well, you see the same phenomenon in manufacturing. So what happens? People move to service industries. So today 80 percent of Americans are in service industries. The protectionists used to argue, “Those are all going to be working for Burger King.” Well, no they’re not. They’re information technology, they’re financial services, they’re UPS drivers. It’s a function of the fact that America can now manufacture much of what it needs and grow much of what it needs with a much smaller percentage of the population. So people move to other areas. ROLL CALL: On the other side of the argument, there are people who say that despite the free-trade pretensions of this administration, that you’re not really totally dedicated to free trade, as witness the president’s signing the agricultural bill, which raised subsidies, and imposition of steel tariffs. So, they say that you’re at least impure if not hypocritical. ZOELLICK: Well, a couple of answers. We do believe in agreements that open markets and trying to move goods free trade. But there are also rules. And some of those rules include things like safeguards, which is what the steel decision was about. It was not designed for permanent protection but to give breathing space for the industry to restructure. And within about a year and a half, you’ve had about 50 percent of the industry restructuring. Now some of them won’t make it, and some of them will be better able to make it than they did in the past. In the area of lumber, first keep in mind there are laws on the books that allow private parties to challenge subsidies. And this is what happened in the lumber case. It wasn’t administration action – it was going into the Department of Commerce, which has a semi-autonomous judicial group that makes these determinations. But what has the administration done? We’ve defended those decisions in the WTO and the NAFTA. And guess what? Both the WTO and NAFTA panels have decided that the Canadians indeed did have subsidies for lumber. They disagreed on the amount that was set by the Department of Commerce, but based on the finding that there are subsidies, the Department of Commerce has been negotiating with British Columbia and Ontario to change their practices so they won’t have subsidies. We don’t disagree with the notion that while it’s free trade, you have to have rules and fight with things like unfair practices. And in this case, if the result of this is that these provinces quit subsidizing their cutting of lumber, well, that’s a good result. Now in agriculture, as we’ve discussed before, the test of our willingness to deal with subsidies is that, are we willing to cut? And even before we completed the trade act we put forward a proposal that would cut our subsidies in half and cut global subsidies by $100 billion. But I don’t think it’s unfair to work with American farmers to say we’ve got to get the European Union, whose subsidies are two or three times as high, to bring them down much further. So if you were an arms-control strategist, you would make sure that you build up or be able to build down. It turns out that what happened in American agriculture was after the Freedom to Farm Act was passed in 1956, which was good legislation, Congress each year added an annual supplemental. What President Bush said was, “Let’s have it all in one bill and not have annual supplementals.” And this was the first time he was tested on that, which was coming up to the 2002 elections, he held to it. And there were some great politics made of that. And so actually our projections are that overall U.S. farm spending will be down about 20 percent compared to what it was in the past. And having said that, we agreed that it would be better if we cut global subsidies, but we won’t do it alone. ROLL CALL: The Democrats have always said that, and this was Clinton’s position as well, that labor and environmental standards had to be built into trade agreements, and they felt that you wouldn’t do that. What have you done on those? ZOELLICK: This is actually one of the most striking developments, and it’s a real test of those who made the arguments as to whether they will ever be satisfied. Both the Chile and the Singapore agreements have labor and environmental provisions which Republicans long resisted for two reasons. One is, many developing countries were justifiably concerned that these provisions could be used for protectionist purposes. Because if we start to negotiate wage rates with developing countries, their productivity levels may not support it, so you’d have unemployment. How would we feel if Europeans were to insist as a price of trade that we had to have wage rates at their levels? So we had to avoid that problem that this would be a stake in the heart of developing countries’ trade and growth. On the other hand, when we do these trade agreements, remember, we are bringing back a package for an up-or-down vote without amendments. … So the compromise we struck was to say we will put in a system of requirements – and the biggest requirement is you have to enforce your own labor and environmental laws – which will be backed by a series of monetary fines, which are better than trade sanctions because if there’s a problem, the money goes to the environmental-labor issue as opposed to just blocking trade. But ultimately if the people don’t pay the fine, you can withdraw the trade benefits. But it’s a more customized version. But it respects our sovereignty and the sovereignty of the other country on their labor and environmental laws. Now, and this was basically the heart of the principle of the Jordan agreement, which the Clinton administration negotiated, but refined with this “fines” notion. Now after having done this and bringing along 195 Republicans to something they never thought they’d take, now the latest thing is we need more in labor standards. We have to tell them what labor standards to have. And the approach that we’re taking instead is to work with the countries to upgrade their laws. And if you take the case of Chile, while we were negotiating a free-trade agreement with Chile, the Chilean Congress was overhauling the Pinochet-era labor code. And the Congress even recognized that as they passed this that if the United States got what it was seeking in the trade agreement, that they would be held to the enforcement. The big target of attack now is Central America. So first you have to ask yourself, are the unions really interested in helping poor people in Central America? Are we going to help them by stopping their trade? By stopping investment? By preventing them from creating jobs? Or is their purpose somewhat more malicious? But what we have said is we are working with the International Labor Organization and the Department of Labor and we’re working with the individual countries to upgrade their laws and, even more important, to help them get the resources for enforcement. But frankly, how will you get the resources to enforce environment and labor laws unless you’ve got a growing economy? So the environment and labor issue is a true test of whether some people will ever be satisfied or whether they’re always going to have to find issues. ROLL CALL: Rep. Richard Gephardt (D-Mo.) is calling for an international minimum wage – not the same wage across the whole world but somehow calibrated to the economies of the countries involved. Does that make any sense? ZOELLICK: Absolutely not. I grew up in Illinois. Do we want Europeans setting a wage rate? First off, we believe the wage rates should be negotiated. Now you talk about a minimum wage, look at the debates in our Congress about what should be the minimum wage. So how are we going set this for 190 countries in the world? Keep in mind that it’s a fundamental economic misperception that wage rates drive investment and jobs. Haiti has some of the lowest wage rates in the world. According to the Gephardt theory, it should be the manufacturing hub of the hemisphere. Well, that doesn’t happen. Well, why doesn’t that happen? Wage rates are related to productivity. This actually goes back to what I was saying in the manufacturing area. So we have higher productivity in manufacturing as well as other areas. That means people can get paid more. Productivity in this society is partly due to the investments, the infrastructure, the cost you have for your transportation and port. So that sort of international minimum wage is the classic example of somebody who doesn’t want to be labeled “protectionist” but is a protectionist and comes up with a phony reason to be against it. And I guess it wouldn’t be coincidental that he feels the heart of his campaign is to get the AFL-CIO’s support. ROLL CALL: One charge that’s made by Sen. Joe Lieberman (D-Conn.), who is a free trader, is that we should take China to the WTO because China is manipulating its exchange rate in order to promote its exports. Is there an argument there? There’s a similar case being made with Japan – not by Democrats but by automakers, who contend the Japanese are manipulating their exchange rate. ZOELLICK: It’s a legal matter. There’s no authority that allows you to go to the WTO and challenge some of these exchange rates. Again, let’s always turn the question on its head: Would the United States want other countries to challenge us about the value of the dollar? I have to be careful talking about exchange rates because this is really the job of the secretary of the Treasury. But he has emphasized, Secretary [John] Snow, the need to talk with the Chinese about perhaps expanding the bands of the rate which they’ve pegged. I will add that you can find many economists who will say it’s not just a question of that band but to really have totally floating exchange rates, which we believe is the policy one should move toward, you have to have open capital markets. It’s very hard to have open capital markets when you’ve got a very weak banking system. But even a step beyond that, there are many economists who say if you had totally open capital markets in China, it might actually strengthen the dollar rather than weaken it. Now why is that? Because maybe if you got 1.3 billion Chinese who today can’t hold dollars and they were permitted to hold dollars, maybe they’d rather hold dollars than they would Chinese money system. That’s true of a lot of people around the world. So the currency issue is a serious issue. Secretary Snow has talked about it with China and Japan. But in the case of China, one has to be a little careful about assuming the result, other than the type that Secretary Snow has talked about, which is having more flexibility in demands than they have so far. One other issue from China that does distinguish it from Japan: While China has a large trade surplus with the United States, its overall global surplus is close to zero. This is not Japan of the ’70s and ’80s. China is importing a lot. And U.S. exports to China – in part because we got China in the WTO and that means they start to lower their barriers, they’ve got a long way to go – in the first five months of the year, our exports to China were up about 32 percent; their imports were up about 28 percent, and they were off a much higher base. So there’s a long way to go. Whether it’s American soybeans or whether it’s some of the major industrial sectors that are now building China into their global sourcing system, there are a lot of gains to be had in the win-win fashion with China. Where I think you’ll hear more criticism and something we’re focused on would be, No. 1, what can we do to promote more U.S. exports to China, and No. 2, where China is not following through, then we first should try to work with them, but if we need, bring them to the WTO.

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