Cameron Hume
The Proposed U.S.—SACU Free Trade Agreement: An Insight Into the U.S. Perspective
Remarks by Ambassador Cameron R. Hume as delivered to South African Chamber of Business (SACOB) members
April 10, 2003
The proposal for a Free Trade Agreement between the United States and the Southern African Customs Union is an example of how the United States and the five SACU countries can work together to promote economic development in Africa through trade.
The U.S. Trade Representative, Ambassador Robert Zoellick, has described our trade policy in terms of a competition for liberalization.
I'd like to share with you background on where the United States is coming from in reaching the decision to embark on this endeavor with SACU.
History
In the twentieth century, the United States made enormous progress in its economic development. Using 1990 dollars, in 1900, per capita GDP in the United States was about $4,000. In 2000 (still using 1990 dollars), it was about $28,000, or seven times higher.
While there are certainly a number of reasons for the economic growth in the United States, I would cite the adoption of liberalized trade policies as an important factor in my country's economic success. This allowed us to increase both imports and exports and make the best use of our resources.
We entered the century with high tariffs. Following decades of high tariffs, in 1913, the United States adopted the Underwood Tariff, which reduced our ad valorum tariff rates to the lowest level since our Civil War in the 1860s.
Our retreat from free trade started to take shape with the Emergency Tariff Act of May 1921. It restored high tariffs on a number of products, both agricultural and manfuactured. The following year, the Fordney-McCumber Act of September 1922 produced the highest tariff rates on manufactured goods in U.S. history. The United States hiked up tariffs even higher just a few years later, following the 1929 stock market crash, with the Smoot-Hawley tariff.
Our trade partners also hiked their tariffs and the world witnessed a destructive international trade war. In the United States, the average tariff rate on agricultural products went up from 20 to 34 percent. On wines, spirits and beverages, it increased from 30 to 46 percent, and on wool and woolen products, from 50 to 60 percent. 1930's unemployment in the U.S. was as high as 25 percent.
After World War II, the United States helped to set in place the General Agreement on Tariffs and Trade, the GATT, in 1947. We negotiated in several rounds - the Dillon Round, the Kennedy Round, and the Tokyo Round - to reduce tariffs around the world. This culminated in the Uruguay Round that we helped to launch in 1986 and which concluded in 1994.
WTO
The Uruguay Round replaced the GATT with the World Trade Organization. The Uruguay Round recognized that the subject of trade is much larger than the commerce of manufactured goods. Countries also trade in agricultural goods and services.
The Uruguay Round also led to the General Agreement on Trade in Services, otherwise known as GATS. To give you an appreciation of the importance of the service sector, consider the following: the service sector comprises 80 percent of U.S. employment and 64 percent of U.S. GDP. Trade in services also benefits developing countries. The World Bank estimates that services account for 54 percent of GDP in developing countries.
Doha
The Uruguay Round, however, did not complete the work for trade liberalization. U.S. Trade Representative Ambassador Robert Zoellick was active in negotiations with other WTO members in launching the Doha Development Agenda in 2001. Your trade minister Mr. Alec Erwin also played a pivotal role in launching these talks. Following up on the commitments made there, the United States submitted ambitious and comprehensive proposals for free trade in goods, services and agriculture.
Today there are 145 members of the WTO. As you can imagine, it is difficult to reach consensus with so many participants. With 25 percent of the world's economy, the United States does not want to allow a single country to veto its trade policy. So while we continue to push for global trade liberalization through the multilateral trade negotiations in Geneva, we are also active in pushing for free trade agreements with like-minded countries wanting to liberalize faster.
Plurilateral - Procurement, telecommunications, information technology
WTO agreements on government procurement, telecommunications services, and information technology are examples of agreements for trade liberalization that the United States has signed that do not include all WTO countries. Twenty-eight parties (mostly European countries along with Japan, Korea and Singapore) have signed on to the Agreement on Government Procurement (GPA).
There is also a WTO agreement on liberalizing telecommunications services that does not bind all WTO members. Sixty-nine countries, including South Africa, made various commitments to liberalize their basic and value-added telecommunications services sector. In the area of information technology, the United States is one of about 44 WTO members that have signed the Information Technology Agreement (ITA).
Regional - FTAA
The United States is also moving forward to liberalize trade with other countries who are prepared to do so on a regional basis. The United States is one of 34 democracies in the Western Hemisphere seeking to establish a free trade area of the Americas, the FTAA. The FTAA is the cornerstone of President Bush's vision for trade in the Western Hemisphere - a plan that would foster economic growth and opportunity, promote regional integration and strengthen democracies.
In the ongoing FTAA negotiations, the United States has already put forth some bold offers. For example:
- All tariffs are on the table in the U.S. offer;
- U.S. imports of textiles and apparel would be duty-free in five years provided other countries reciprocate;
- Immediate elimination of tariffs offered on a reciprocal basis in key sectors such as chemicals; construction and mining equipment; electrical equipment; energy products; environmental products; information technology; medical equipment; non-woven fabric; paper, steel, and wood products.
Bilateral FTAs
With a few countries, the United States has also moved to establish free trade on a bilateral basis. We signed our first FTA in 1985 with Israel. Our next FTA was with Canada, which we concluded in 1989. Next, we replaced that bilateral FTA with a larger one to include Mexico, resulting in the North American Free Trade Agreement. We began implementing NAFTA in 1994. We entered an FTA with Jordan in 2001.
The United States recently concluded FTA negotiations with Chile and Singapore. With the passage of the Trade Act of 2002 last August, the United States is now embarking on new FTA negotiations with Morocco, Australia, and five countries in Central America.
Benefits of trade
Why does the U.S. government continue to promote free trade? We think free trade is a win-win proposition that benefits people around the world. It is not a zero-sum game. Cutting tariffs means cutting taxes. The resulting competition results in better quality goods for consumers at lower prices.
The Council of Economic Advisors in the United States has estimated that the full implementation of the Uruguay Round benefits will mean global income rises of $171 billion to $214 billion in 1992 dollars. The Uruguay Round tariff cuts were thus similar to a $310 tax cut for an average household of four. Similarly, the tariff cuts resulting from NAFTA were equivalent to a $210 tax cut for the same household.
Studies show that free trade helps both developed and developing countries.
Benefits for developing countries
World Bank researchers have compared developing countries that participate more in globalization (accounting for 50 percent of the population in the developing world) with other developing countries, and with high-income countries. Their findings are that from the 1970s to the 1980s, to the 1990s, growth rates accelerated for the globalizing developing countries while they decelerated for high income countries and non-globalizing developing countries. In the 1990s, per capita incomes grew 5.1 percent for globalizing developing countries and by 1.9 percent for high-income countries, but declined by 1.1 percent for non-globalizing developing countries. The trade share of GDP doubled for the globalizers between the late-1970s and the late-1990s, while the trade share for non-globalizers actually fell by 12 percent.
NAFTA Results
Despite claims that NAFTA would help Mexico at a cost to the United States, NAFTA has benefited all parties to it. In the first five years of NAFTA,
- Employment in Canada grew by 10 percent, generating 1.3 million jobs;
- Employment in Mexico grew by 22 percent, generating 2.2 million jobs; and
- Employment in the United States grew by more than 7 percent, generating 12.8 million jobs.
U.S.- SACU FTA
That brings us to the proposal to negotiate a Free Trade Agreement with the Southern African Customs Union.
We have driven policy in the direction of liberalization through decades of successive rounds of tariff cuts for GATT members. Today we are working on all fronts to expand global trade liberalization even further - multilaterally, regionally and bilaterally.
We have proposed bold and comprehensive proposals to implement the Doha Development Agenda. We are negotiating with the other 33 democracies in the Western Hemisphere to create the largest free trade area in the world.
Critics often lament that sub-Saharan Africa has been marginalized from the world trade scene. The United States is actively working to help bring sub-Saharan Africa more into the mainstream of international economic commerce. The African Growth and Opportunity Act (AGOA) was the first major step in this direction by expanding the duty-free preferences afforded African products. AGOA sends a strong message that the United States wants to trade with Africa and AGOA will help to expand and develop trade with African countries.
When Ambassador Zoellick made the first-ever visit of a U.S. Trade Minister to sub-Saharan Africa in February 2002, his first meeting was with the trade ministers of the Southern African Development Community. Some of the ministers asked the United States to consider an FTA with SADC rather than just SACU. AGOA directs us to consider FTAs that are feasible. We think one with SACU is feasible.
SACU's engagement in the FTA negotiations with the United States will demonstrate the extent to which it is prepared to accelerate its entry into the mainstream of global commerce.
What would an FTA provide for South Africa?
- A more stable and predictable framework for trade;
- A favorable environment for increased trade and investment;
- An anchor for an internal reform process;
- A support for regional policy and integration; and
- A boost in South Africa's bargaining power with other countries.
An FTA with the United States is:
- A vote of confidence in the underlying fundamentals of South Africa's economy, and shows that foreign capital is welcomed;
- A powerful signal to private capital markets;
- A trade policy tool that promotes economic development and prosperity.
We intend to use our bilateral negotiations with SACU to advance U.S. objectives for the Doha Development Agenda. Opening up global agricultural markets is one goal the United States and SACU share. We will also seek to level the playing field in areas where the EU's FTA with South Africa disadvantages U.S. exporters. We want the FTA to build upon the success of AGOA by further linking trade to SACU's economic development strategies - encouraging greater foreign direct investment as well as promoting regional integration and regional growth. We want to improve the climate for trade in goods and services, intellectual property rights, e-commerce and investment, and to expand U.S. access to SACU markets.
As part of our trade capacity-building assistance, the United States invited two dozen negotiators from the SACU countries to Washington a few weeks ago for a study tour. The SACU negotiators met with Ambassador Zoellick, with Members of Congress, with current and former U.S. trade negotiators, and with U.S. business representatives. Mexican, Chilean, Singaporean, and Jordanian trade negotiators told them about their experiences in negotiating FTAs with the United States.
As of today, of course, negotiations for an FTA with SACU have not begun. There are no offers on the table. There are no requests on the table. But there will be one soon.
With my presentation I wanted to inform and give you a sense of U.S. trade history and where we are with the rest of the world.
An FTA with the United States presents SACU with the same opportunity as our closest trading partners to move on a fast track for the best and most secure access possible to the $12 trillion U.S. economy. The founders of NEPAD have asked for increased trade and investment with the developed world. An FTA makes that feasible.
The United States believes that a prosperous, healthy and stable Africa is in America's best interests and contributes to our global efforts to foster worldwide economic growth and increased trade. We think an FTA between the United States and SACU will be good for all of us and will serve as a model for the rest of sub-Saharan Africa.
I will be glad to address any questions you may have. Thank you.