United States: October 1996
The United States continues to be the world's largest trading nation in exports and imports of goods and services. Over the past decade, trade has become increasingly important for the U.S. economy with the ratio of trade to GDP in 1995 reaching 23.6 per cent, up from 17.2 per cent in 1985 and 20.6 per cent in 1990.
Open markets - domestic and worldwide - remain the key to U.S. economic growth
The United States continues to be the world's largest trading nation in exports and imports of goods and services. Over the past decade, trade has become increasingly important for the U.S. economy with the ratio of trade to GDP in 1995 reaching 23.6 per cent, up from 17.2 per cent in 1985 and 20.6 per cent in 1990. A new WTO Secretariat report on the trade policies and practices of the United States notes that the U.S. invests less as a share of GDP than its industrial counterparts but with very efficient resource allocation, capital productivity is high, a factor that underpins U.S. prosperity. The report stresses the need to keep markets securely open as a major element in maintaining U.S. productivity growth.
The report confirms that WTO commitments are at the centre of U.S. trade policy. The application of the Uruguay Round Agreements and the consolidation of trade remedy measures under WTO dispute settlement procedures have stabilized many elements in U.S. trade policy that at times were perceived by some as unpredictable and unilateralist. In parallel to the implementation of its WTO commitments, the United States has continued with regional, bilateral and unilateral trade initiatives. The report observes that the U.S.' multi-track approach to international trade policy can be a source of tension within the multilateral system. The WTO report and a policy statement by the Government of the United States, will be the subject of two days of discussion at the WTO's Trade Policy Review Body on 11 and 12 November 1996.
Commitments made by the U.S. during the Uruguay Round include a trade-weighted tariff reduction of some 35 per cent by 1999. Full tariff elimination on U.S. imports has been agreed for steel, pharmaceuticals, paper, furniture, medical equipment, farm equipment, construction equipment, beer and spirits. By the end of the Uruguay Round implementation period, some 70 per cent of U.S. tariff lines will be subject to most-favoured-nation (m.f.n.) rates of 5 per cent or less. Duty-free treatment will cover 40 per cent of tariff lines. As concerns agriculture, quantitative import restrictions on agricultural products have, as required by the WTO Agreements, been converted to tariffs and tariff quotas; however, above-quota tariffs remain high and tariff quotas are not always filled. Agricultural and food products accounted for some 11 per cent of U.S. merchandise exports in 1995, following an increase in the value of exports - due mainly to rising world market prices - by some 30 per cent since 1992. The U.S. has converted domestic price support to direct income support and has reduced its overall level of support to agriculture.
The report discusses changes in U.S. anti-dumping and countervailing legislation, and notes that it is too early to assess whether these changes will facilitate affirmative findings. The number of anti-dumping and countervailing investigations launched in the U.S. has dropped sharply, perhaps due to the continuing U.S. economic recovery. Three safeguard investigations were conducted in 1995 and 1996 with one investigation concluding that imports caused injury to the domestic industry.
The use of "Section 301" legislation is now closely tied to multilateral dispute settlement, at least for WTO members and in areas subject to WTO rules and disciplines. The United States is the most active user of WTO dispute settlement provisions; it has requested consultations under WTO dispute settlement provisions on 19 cases covering 17 measures, while U.S. trading partners have raised nine complaints against eight U.S. measures. Since its last trade policy review in 1994, the U.S. has initiated 16 "301" investigations and concluded agreements covering two previous investigations. Seven of the 301 actions initiated in 1996 and two earlier investigations (European Union, bananas; and Japan, photographic film and paper) have been referred to the WTO Dispute Settlement Body.
In separate developments, the U.S. has enacted the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act and the Iran and Libya Sanctions Act. The extra-territorial aspects of these laws have been criticised by U.S. trading partners and cases against the LIBERTAD Act (Helms-Burton Act) have been filed under the North-American Free Trade Agreement (NAFTA) and the WTO.
Voluntary export restrictions administered by U.S. trading partners have been phased out. A new automotive agreement with Japan does not set quantitative targets for U.S. exports but provides for bilateral monitoring of various qualitative commitments, while a Memorandum of Understanding, which seeks to liberalize access to the Korean vehicle market, is to be implemented on an m.f.n. basis. A new co-operation agreement with Japan on semi-conductors reaffirms market principles and establishes a consultative framework open to industry associations whose governments are committed to tariff elimination.
The report notes that the U.S.' technical regulations are generally based on international norms and privately developed standards; however, there are a limited number of mandatory environmental process standards enforced at the border, notable examples being "dolphin-friendly" tuna fishing methods and turtle-excluder devices used in harvesting shrimp.
The U.S. has a well developed and enforced system of intellectual property protection based on constitutional provisions. The TRIPS Agreement increased the duration of protection and resurrected protection for works that had fallen into the U.S. public domain. The report states that the United States monitors bilaterally the protection for intellectual property extended by all its trading partners, Irrespective of whether a bilateral agreement is in force, the U.S. is required to identify countries that deny adequate and effective protection for intellectual property rights or fair and equitable market access to U.S. persons that rely on intellectual property protection.
The report notes that textile and clothing production has realized significant productivity gains on the basis of greater capital intensity in the U.S. market and outward processing operations in Mexico, the Caribbean and Central America. In addition to import tariffs well above the manufacturing average, the United States maintains country specific import quotas under the WTO Agreement on Textiles and Clothing and has issued 25 safeguard quota calls on WTO members. Removal of import quotas is to be conducted in four phases and the allocation of all textile and clothing products to each phase has been published. The most sensitive products have been left to the last phase, to be implemented in 2005. The report also notes significant changes which have been made in the rules of origin used for the administration of import quotas. The origin of a product is now specified to be the place where it is assembled and not the place where the textile components are cut.
The WTO report notes that services have gained an increasing share of U.S. output, generating about two-thirds of GDP, or some four times the share of manufacturing, and accounting for 65 per cent of employment in 1995. Cross-border supply of foreign services has become less important than establishment as a mode of delivery. While Western Europe is the U.S.' largest trading partner for cross-border trade in services with approximately 60 per cent, Japan is the largest individual destination, taking in 15.5 per cent of U.S. services exports. The report notes that productivity increases in services are likely to be a decisive factor in raising total U.S. productivity growth and standards of living. Recent developments in the telecommunications, financial and professional services sectors have enhanced such prospects. The benefits to the United States of maintaining and improving on an efficient, open and competitive services sector are thus evident.
The report concludes that while an open, predictable world trading system is crucial for the well-being of the U.S. economy, an open, predictable U.S. market is also vital for the world's trading system. It is, therefore, essential that the United States and its partners utilize the system to maintain multilateralism as the key to future developments and discourage pressures for increased bilateralism or unilateralism.
Notes to Editors:
The WTO Secretariat's report, together with a report prepared by the United States, will be discussed by the WTO Trade Policy Review Body (TPRB) on 11 and 12 November 1996.
The WTO's TPRB conducts a collective evaluation of the full range of trade policies practices of each WTO member at regular periodic intervals and monitors significant trends and developments which may have an impact on the global trading system.
The two reports, together with a report of the TPRB's discussion and of the Chairman's summing up, will be published in due course as the complete Trade Policy Review of the United States and will be available from the WTO Secretariat, Centre William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
The reports cover the development of all aspects of the U.S.' trade policies, including domestic laws and regulations, the institutional framework, trade policies by measure and by sector. Since the WTO came into force, the "new areas" of services trade and trade-related aspects of intellectual property rights are also covered. Attached are the summary observations from the Secretariat and government reports. Full reports will be available for journalists from the WTO Secretariat on request.
Since December 1989, the following reports have been completed: Argentina (1992), Australia (1989 & 1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992), Cameroon (1995), Canada (1990, 1992 & 1994), Chile (1991), Colombia (1990 & 1996), Costa Rica (1995), Côte d'Ivoire (1995), Czech Republic (1996), Dominican Republic (1996), Egypt (1992), the European Communities (1991, 1993 & 1995), Finland (1992), Ghana (1992), Hong Kong (1990 & 1994), Hungary (1991), Iceland (1994), India (1993), Indonesia (1991 and 1994), Israel (1994), Japan (1990, 1992 and 1995), Kenya (1993), Korea, Rep. of (1992 & 1996), Macau (1994), Malaysia (1993), Mauritius (1995), Mexico (1993), Morocco (1989 & 1996), New Zealand (1990 & 1996), Nigeria (1991), Norway (1991 & 1996), Pakistan (1995), Peru (1994), the Philippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992 & 1996), Slovak Republic (1995), South Africa (1993), Sri Lanka (1995), Sweden (1990 & 1994), Switzerland (1991 & 1996), Thailand (1991 & 1995), Tunisia (1994), Turkey (1994), the United States (1989, 1992 & 1994), Uganda (1995), Uruguay (1992), Venezuela (1996), Zambia (1996) and Zimbabwe (1994).
The Secretariats report: summary
TRADE POLICY REVIEW BODY: UNITED
Report by the Secretariat Summary Observations
The United States in World Trade
The U.S. economy has performed well since the last Trade Policy Review of the United States. Growth has been above the average in industrial countries, inflation has remained moderate and the unemployment rate is at a low for the decade. Concurrently, the federal budget deficit has narrowed substantially, to its lowest share of gross domestic product since 1979. The external current account deficit has widened slightly but this is attributable to increased investment, improving the prospects for future growth.
The U.S. economy has a high degree of allocative efficiency. It invests less, as a share of output, than its industrial counterparts but capital productivity is well above the OECD average, a factor that underpins U.S. prosperity. One important element in maintaining productivity is the openness of the U.S. economy, which helps to keep economic actors under constant pressure to allocate resources efficiently. This also means that it is in the United States' own best interest to keep its markets securely open.
Trade has become increasingly important in U.S. economic activity. The ratio of U.S. trade to GDP has risen from 17.2 per cent in 1985, to 20.6 per cent in 1990 and to 23.6 per cent in 1995. This increased involvement in trade tends to serve as a counter-cyclical buffer. In the early 1990s, exports cushioned the impact of the U.S. recession, demonstrating the importance for the United States that its producers have secure, liberal access to foreign markets, within a strong, rules-based multilateral system. Subsequently, as U.S. growth improved, net imports accommodated excess domestic demand, allowing lower inflation, and interest rates, than might otherwise have been the case.
Since the last Review, the services sector has assumed an increasing share of U.S. output. In part, this reflects differential inflation rates in the goods and services sectors, with higher rates in the latter; in recent years, productivity growth in manufacturing has exceeded that of GDP. However, with services accounting for about two-thirds of GDP, or some four times the share of manufacturing, it is clear that productivity growth in services is a determining factor in U.S. living standards. The benefits to the United States of maintaining and improving on an efficient, open and competitive services sector are thus evident. This is especially the case for "input" services such as finance, communications and transport, where productivity gains can significantly lower costs in other sectors, such as manufacturing. Within this framework, it is also noteworthy that the cross-border supply of foreign services to the United States is now less important than establishment as a mode of delivery, emphasizing the ongoing interest of the United States in maintaining a liberal foreign direct investment régime.
The United States continues to be the world's largest single trading nation in goods and services, with some 15 per cent of merchandise and 16 per cent of services exports. The European Union remains the largest market for U.S. merchandise exports but there is an ongoing shift in the direction of U.S. trade toward east Asia, which is now the most important source of imports. The composition of U.S. merchandise trade has also continued to move from primary toward manufactured products, in spite of rapidly growing agricultural exports. Growth of manufacturing exports has been broad-based, with increased shares for exports of office machines, telecommunications equipment, chemicals, iron and steel products and automotive products. The share of manufactures in merchandise imports has also increased, led by office machines and telecommunications equipment, non-electrical machinery, and chemicals; the share of automotive products has declined.
U.S. markets and sources for goods and for services are, in general, closely correlated. While Western Europe as a group is the U.S. largest trading partner for cross-border trade in services, accounting for approximately 60 per cent of imports and exports, Japan is the largest individual destination, with 15.5 per cent of U.S. services exports. Transportation is the largest component of services exports, with over 50 per cent; however, exports of business services, royalties and licensing fees have grown rapidly, respectively doubling and increasing by 63 per cent during 1994-95.
Institutional and Legal Framework
The United States is an original signatory to all the WTO Multilateral Trade Agreements and to the Plurilateral Agreements except for the International Dairy Agreement. U.S. commitments under the Agreements are implemented in domestic law by the Uruguay Round Agreements Act (URAA). The U.S. WTO Schedule on goods provides for bindings on all but two tariff lines, and commitments under the GATS are widespread. The URAA also implemented the recommendations of GATT Panels concerning Section 337 of the 1930 Tariff Act and m.f.n. treatment for non-rubber footwear imports from Brazil, and authorizes certain future tariff cuts that may be agreed under negotiations that started in the context of the Uruguay Round.
The United States applies m.f.n. treatment to all but six countries: Afghanistan, Cuba, Laos, the Democratic People's Republic of Korea, Serbia and Montenegro and Vietnam. Since the passage of the Uruguay Round Agreements Act, Congress has enacted permanent m.f.n. status for Hungary and Romania. Russia receives m.f.n. treatment being deemed to be in full compliance with the Jackson-Vanik Amendment of the 1974 Trade Act. Countries currently subject to Jackson-Vanik waivers are Albania, Armenia, Belarus, China, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Mongolia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. Iran, Iraq and Libya retain m.f.n. status although imports are prohibited under U.S. economic embargoes.
Recently, the United States has enacted significant reform measures in both agriculture and telecommunications. These measures, which serve to remove many domestic restrictions, go beyond those undertaken in the WTO and could act to significantly improve efficiency in the respective sectors. The changes could impact on U.S. trade, and on world markets, with the United States a leader in both areas.
In a separate development, the U.S. has enacted the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act (the Helms-Burton Act) and the Iran and Libya Sanctions Act. The former allows U.S. citizens to take private action in U.S. courts to obtain compensation from companies "trafficking" in confiscated property that it is in Cuba, and claims to which are owned by those U.S. nationals; it also authorizes the State Department to refuse U.S. visas to such companies' executives, their spouses and their minor children. The President has deferred the right to file suit against foreign companies using the expropriated property of U.S. nationals until February 1997. The Iran and Libya Sanction Act authorizes trade sanctions against foreign companies investing in Iran and Libya. The extra-territorial aspects of these laws have been criticised by U.S. trading partners and cases against the Helms-Burton Act have been filed under NAFTA and in the WTO.
The United States is one of the most active users of the WTO dispute settlement provisions. Currently, the United States has requested consultations on 19 cases covering 17 measures and is involved in around two-thirds of all dispute cases raised to date. In one case, a mutually agreed solution was found in consultations and duly notified to the WTO; four panels have been established, and three others have been requested once, but not yet established. One panel report, whose findings were subsequently appealed by Japan, has been affirmed by the Appellate Body
Nine complaints have been raised in the DSB against U.S. measures. In three cases, the measures have been withdrawn. The adverse ruling of one panel, covering two cases, was appealed by the United States. The U.S. authorities have indicated their intention to implement the recommendation of the Appellate Body, which partly confirmed the Panel's decision; consultations between the parties are continuing.
The United States played a key rôle in the services negotiations in the Uruguay Round; to a great extent, the efforts of U.S. negotiators and the interest of U.S. industries behind them determined the course of the negotiations in this new area. Key sectors of interest to the United States in promoting international negotiations included telecommunications, financial services, air transport, some professional services, and audiovisual services. The United States has also participated in all of the post-Uruguay Round negotiations, but the results have so far been mixed. In the financial services negotiations concluded in July 1995, the United States took a GATS Article II exemption enabling it to apply non-m.f.n. treatment to foreign financial service suppliers with respect to new entries and new activities. The United States did not revise its commitments regarding the movements of natural persons in the negotiations concluded also in July 1995. In the extended negotiations on basic telecommunications, the United States submitted an offer providing unrestricted market access and national treatment to foreign services and foreign service suppliers in its local telecommunications market. In the negotiations on maritime transport, the United States did not submit an offer.
While overall public expenditure is a lower share of GDP in the U.S. than in most other OECD countries, federal and State procurement of goods and services have a potentially significant effect on trade. Buy-American or buy-State provisions have been eased to some extent, although they remain together with national security provisions, serious constraints on external competition.
The United States is a signatory to the plurilateral Government Procurement Agreement which entered into force on 1 January 1996. The U.S. commitments under the Agreement go significantly beyond those it undertook in the Tokyo Round Agreement, notably by extending procurement obligations to public utilities covering many States and by including public works and services. Access to U.S. procurement is extended, on a reciprocal basis, to other signatories. The effects of exceptions contained in the Agreement, such as set-asides for small and minority-owned businesses, have not changed, but have became more transparent as the coverage of the Agreement has widened. In the context of Title VII of the 1988 Omnibus Trade and Competitiveness Act, the U.S. authorities monitor the government procurement practices of their trading partners. The United States is advocating a new agreement in the WTO context to create greater transparency in government procurement.
Regional Trade Agreements
The U.S.-Israel Free Trade Agreement has been fully implemented. Under the Agreement, some important U.S. food and beverage imports from Israel are still subject to import tariffs; in 1994, 44 per cent of imports from Israel received trade preferences, as compared to 67 and 88 per cent of its imports from Canada and Mexico, respectively, under NAFTA.
NAFTA has been implemented on schedule, except that the deadline for non-conforming State measures on investment and non-financial services was shifted from 31 December 1995 to 31 March 1996. U.S. tariffs on imports from Canada and Mexico are now substantially lower than m.f.n. tariffs, although some agricultural imports at below m.f.n. rates are subject to tariff quotas. Elimination of import tariffs on a number of "sensitive" products is delayed to the end of the transition period, ending 1 January 2008.
Under Chapter 19 of the Agreement, NAFTA panels may review anti-dumping and countervailing measures taken. Approximately 20 per cent of all measures taken have been reviewed under this provision. Bilateral consultations under the dispute settlement provisions of Chapter 20 of the NAFTA have also been used and one panel has been established, to deal with the status of Canadian dairy import tariffs. The panel advised that the WTO-negotiated tariffs were the relevant rates.
The United States has a large number of bilateral agreements with enforceable provisions on increasing market access or reducing trade barriers. These agreements primarily cover intellectual property rights, investment, and product-specific market access. In the area of intellectual property rights the United States generally seeks shorter transition periods than those specified in the TRIPS Agreement, as well as pipeline protection for pharmaceuticals and agricultural chemical products. Since 1991, the United States has, as a policy, only concluded investment agreements with countries which agreed to an intellectual property right agreement.
Commitments made by U.S. trading partners under bilateral agreements have often been integrated into their WTO undertakings. This has most notably been the case for bilateral agreements covering agricultural products, textile and clothing items and commitments under the plurilateral Government Procurement Agreement.
Market access agreements, generally negotiated in the context of a WTO dispute settlement or a "Section 301" investigation, have generally not required substantial changes in U.S. policies. An important exception is the U.S.-Canada Softwood Lumber Agreement. Following lengthy discussions, Canada agreed to tax exports above specified volumes to the United States; and the United States committed itself not to use anti-dumping, countervailing and Section 301 measures against Canadian softwood lumber exports.
Trade Policy Features and Trends
Permanent trade policy instruments
U.S. commitments under the Uruguay Round imply a trade-weighted tariff reduction of some 35 per cent by 1999, with some exceptions (advanced or retarded). Full tariff elimination on U.S. imports has been agreed for steel, pharmaceuticals, paper, furniture, medical equipment, farm equipment, construction equipment, beer and spirits; partial elimination for wood and scientific equipment; participation in tariff harmonization for chemicals and non-ferrous metals; and participation in "substantial" tariff reductions for electronics, ceramics, photographic and cinema goods. By the end of the Uruguay Round implementation period, some 70 per cent of U.S. tariff lines will be subject to m.f.n. rates of 5 per cent or less, and duty-free treatment will cover 40 per cent of tariff lines. Quantitative import restrictions on agricultural products have been converted to tariffs and tariff quotas, while restrictions applied to textiles and clothing are to be eliminated over a ten year period.
The United States administers a variety of trade preferences under the NAFTA, U.S.-Israel Free Trade Agreements, the Caribbean Basin Economic Recovery Act, the Andean Trade Preference Act and the Generalized System of Preferences. GSP was temporarily suspended in 1994 and again in 1995-1996, but was recently renewed, with retroactive effect. GSP benefits have, in the period, been withdrawn from various exporting countries on grounds of income or competitive need; benefits may also be withdrawn or restored on grounds including intellectual property protection and protection of workers' rights.
Rules of origin governing preferential treatment vary by Agreement, while differing rules are used to administer country-specific textile quotas, anti-dumping duties and government procurement preferences. Significant changes have been made in rules of origin applied to textiles and clothing, inter alia changing the origin of a product from the place were the textile was cut to the assembly point; this latter tends to make quotas more restrictive for countries that specialize in assembly of clothing items.
Voluntary export restrictions administered by U.S. trading partners have been phased out under implementation of the Uruguay Round Agreement. In November 1995, Congress lifted the ban on exports of Alaskan oil. The Administration seeks to facilitate exports by speeding up the administration of export licences and export controls, while some exports have been decontrolled, including semiconductors, mobile telephones and some software.
The United States has a market-driven system of standards development, policed by product liability laws. Technical regulations are based on international norms and privately developed standards. Conformity assessment is tested by accredited firms in both the United States and abroad. There exists a limited number of mandatory environmental process standards enforced at the border; notable examples are dolphin-friendly tuna fishing methods and turtle-excluder devices used in harvesting shrimp.
The United States has a well developed and enforced system of intellectual property protection, based on constitutional provisions. The Uruguay Round Agreements Act increased the duration of protection and resurrected protection for works that had fallen into the U.S. public domain. Parallel importation of patented or copyright goods may be prevented by the rightholder, but anti-trust law discourages unreasonable conduct in this area.
The Uruguay Round Agreements Act made significant changes in the method of calculation for anti-dumping and countervailing duties, injury assessment for these and safeguard measures, and in the procedures to obtain exclusion orders for imports that infringe intellectual property rights. It is too early to assess the effects of these changes on the ease or otherwise with which domestic producers may obtain protection from "unfair" competition or surges of imports.
Recently, the number of anti-dumping and countervailing investigations launched in the United States has dropped sharply, perhaps in accord with the continuing U.S. economic recovery. Three safeguard investigations were conducted in 1995 and 1996; only one concluded that imports caused injury to the domestic industry. The number of exclusion orders on grounds of intellectual property rights infringement declined from 51 at the end of 1992 to 46 in 1994, rising to 49 at end-1995.
The use of "Section 301" is now closely tied to multilateral dispute settlement, at least for WTO members and in areas subject to WTO rules and disciplines. Investigations may be triggered in the context of "Super" 301, "Special" 301, Title VII of the Omnibus Trade and Competitiveness Act of 1988, and Sections 1374 and 1377 of the Telecommunications Trade Act of 1988. Since the last Review, the United States has initiated 16 "301" investigations and concluded agreements covering two previous investigations. Sanctions were applied once, briefly, in the case of intellectual property protection by China. Except for the dispute with China, a non-WTO member, all seven 301 actions initiated during 1996 and two earlier investigations (European Union, bananas and Japan, photographic film and paper) have been referred to WTO dispute settlement.
Agricultural and food products accounted for some 11 per cent of U.S. merchandise exports in 1995, following an increase in the value of exports by some 30 per cent since 1992 in the face of rising world market prices. In this favourable environment, the agricultural provisions of the WTO and NAFTA Agreements were implemented and the Federal Agricultural Improvement Act (FAIR) Act of 1996 was enacted, converting domestic price support to direct income support; the overall level of support to agriculture has fallen.
With the rise in world agricultural prices, U.S. export subsidies have declined to levels well below WTO commitments; the FAIR Act has also eliminated funding for certain export subsidies. Tariffication of quantitative restrictions often implies, as in other WTO members, prohibitive duty levels. In-quota tariffs for m.f.n. imports are, on average, some 10 per cent, much lower than the mean of some 50 per cent for out-of-quota imports but well above the simple average U.S. tariff rate of 6.3 per cent. Tariff quotas have generally been underutilized.
The WTO Agreement on Sanitary and Phytosanitary Measures has had an immediate impact on U.S. agricultural trade. The United States has adjusted its own sanitary and phytosanitary (SPS) measures on meat imports from Uruguay and changes affecting imports from Argentina are under consideration. The U.S. Department of Agriculture has invited comment on the liberalization of a selection of other outstanding SPS restrictions. On the other hand, the authorities consider SPS restrictions as an important barrier to U.S. exports and have requested five WTO consultations concerning four measures: one was settled during consultations and one panel has been established. SPS measures are also an important point of concern in U.S. trade relations with non-WTO members, including China.
The Federal Agricultural Improvement Reform (FAIR) Act of 1996 replaces most product-specific payments and guaranteed prices by annual domestic support payments, delinked from production or acreage and declining over seven years, with total payments capped at US$35.6 billion. The main crops covered are wheat, maize, sorghum, barley, oats, upland cotton and rice. Farmers are free to shift to other crops, except in the case of fruit and vegetables, unless there is a history of planting such crops. Land set aside provisions have been eliminated except for a "conservation reserve", which idles 14.7 million hectares of environmentally vulnerable land. Although it is too early to assess the impact of the Act it is expected that the increased supply originating from reduced land setasides and greater flexibility in production will, over time, raise the capacity of U.S. farmers to respond to changes in international demand.
Manufacturing value added has outpaced GDP growth since 1992, based on sharp productivity increases of over 3 per cent a year in the period 1992-95. Manufacturing exports in 1995 were some 32 per cent higher than in 1992 and foreign direct investment in manufacturing has continued to be important.
Textile and clothing production has realized significant productivity gains on the basis of greater capital intensity in the U.S. market and outward processing operations in Mexico, the Caribbean and Central America. In addition to import tariffs well above the manufacturing average, the United States maintains country specific import quotas under the WTO Agreement on Textiles and Clothing (ATC) and has issued 25 safeguard quota calls on WTO members. The United States has implemented the first phase of the ATC and has, as required by its legislation, published the products to be classified in the remaining three phases, with the most sensitive products classified in the last phase; no products under quota appeared in the first phase, while categories imported from the OECD countries, including Mexico, were well represented. As required by the ATC, quota growth has been increased for WTO members; however, the changes in rules of origin noted above are likely to affect the pattern of quota fulfilment.
Tariffs in most manufacturing sectors other than textile and clothing and a small number of other items such as trucks, are low by comparison to both historical and international levels. In some areas, including notably pharmaceuticals and semiconductors, the United States is committed to tariff elimination. Outward processing is significant in the semiconductors sector. Quantitative trade measures, such as "voluntary export restrictions" by U.S. trading partners have been phased out since the last Review; a new automotive agreement with Japan does not set quantitative targets for U.S. exports but provides for bilateral monitoring of various qualitative commitments, while a Memorandum of Understanding, seeking to liberalize access to the Korean vehicle market, is to be implemented on an m.f.n. basis. A new co-operation agreement with Japan on semiconductors reaffirms market principles and establishes a consultative framework open to industry associations whose governments are committed to tariff elimination.
Compliance costs with technical regulations - notably high for pharmaceutical products and rising in the automobile and other manufacturing sectors - and the accreditation of foreign suppliers or testing agencies have received more attention. U.S. federal authorities have supported bilateral initiatives that lead to the international recognition of conformity assessment tests; compliance testing requirements may have contributed to the shift from merchandise trade to foreign direct investment.
Private services generated 66 per cent of U.S. GDP and 65 per cent of employment in 1995. As noted above, productivity increases in the sector are a decisive factor in total U.S. productivity growth and, therefore, standards of living. Recent developments in the telecommunications, financial and professional services sectors have enhanced the prospects for productivity growth in these sectors. Protective policies continue in maritime transport while air transport is subject to liberalization on a basis of bilateral reciprocity under "Open Skies Agreements".
Within the general regulatory environment, some deviations from the principles of national treatment and m.f.n. exist. Legislation permitting such deviations, granting the authorities the powers of applying differential treatment to foreign suppliers or against foreign investment or ownership (amounting in some cases to absolute or conditional prohibitions) exists in certain areas of telecommunications, financial, air and maritime transport services sectors. However, new legislation passed in 1996 will open telecommunications and radio/TV networks to greater competition. A new bilateral agreement with Japan on insurance and other financial services is to be applied on an m.f.n. basis by both parties to all WTO members.
While an open, predictable world trading system continues to be crucial for the well-being of the U.S. economy, the converse is also true; an open, predictable U.S. economy is crucial for the health of the world trading system. During the past two years, the U.S. application of the Uruguay Round Agreements and the consolidation of trade remedy measures under WTO dispute settlement procedures have stabilized many elements that previously appeared unpredictable and unilateralist in U.S. policy; the Administration has also showed restraint in using the instruments available and has accepted WTO rulings. However, elements of U.S. trade legislation, even under the WTO, continue to cause concern for certain trading partners. Thus, the backloading of textile and clothing liberalization remains problematic for many developing countries, even though conditions of access have improved; access to government procurement remains restricted in various areas; and although the right to file suit under the Cuban Liberty and Democratic Solidarity (LIBERTAD) Act of 1996 has been deferred and, so far, no sanctions have been announced against companies investing in Iran or Libya, the extraterritorial application of U.S. trade laws has attracted significant attention.
The United States continues to use three main tracks in its trade policy making: multilateral agreements concluded on a m.f.n. basis (as in the Uruguay Round); regional agreements; and unilateral pressure to open third-country markets (with bilateral resulting agreements normally applied on an m.f.n. basis). In some ongoing areas of multilateral negotiations, concerns about the lack of "adequate" reciprocity by some partners have governed U.S. actions. While there is no doubt that U.S. trade policy is firmly founded in the WTO system, the interaction among these various tracks remains a source of tension within the system. It is therefore crucial that the United States and its partners utilize the system to maintain multilateralism as the key to future developments and discourage pressures for increased bilateralism or unilateralism.Back to top
TRADE POLICY REVIEW BODY: UNITED
Report by the Government
The United States in the Multilateral System
High-income countries like the United States as well as middle and lower income economies all pursue many of the same economic goals: more rapid expansion of productivity, higher-wage employment, increased living standards, and strengthened economic growth. These shared aspirations create a common interest between the United States and other members of the World Trade Organization in faithfully implementing agreements already reached as well as in moving ahead where possible in removing remaining distortions and impediments to global trade and investment flows.
The United States government has focused on trade policy as one of the principal tools available to it to achieving the national economic goal of expanded domestic economic opportunity. Various studies have shown the wages of U.S. jobs directly and indirectly supported by (goods) exports to be 13 per cent to 16 per cent higher than the average wage in the U.S. economy -- a premium no doubt reflecting both higher labor productivity in export-oriented sectors as well as the usually expansionary postures of such industries within the national economy.
Fairly traded imports likewise benefit the United States in expanding the range of choice in the U.S. market, in making available for purchase imported goods and services at lower cost than they could be produced at home, in providing low cost, high quality inputs into U.S. domestic production, and fostering healthy competition in the U.S. economy.
These effects of imports, together with those of exports, increase average U.S. labour productivity, expand national purchasing power, raise domestic living standards and increase attractive opportunities for employment and investment. In addition, the expansion of trade through the removal of distortions and impediments has had a positive impact on the rate of economic growth.
The United States has pursued a consistent policy of seeking a world of increasingly open markets and expanded trade since the first Reciprocal Trade Agreements Act of the U.S. Congress in 1934. In the 1930's, constrained by global political conditions, U.S. trade policy focused especially on the negotiation of reciprocal tariff reducing agreements with other countries in the Western Hemisphere. During and immediately following the Second World War, however, U.S. policy focused on the creation of a rules-based, truly multilateral trading system geared toward the removal of impediments and the creation of opportunity for all. Through 50 years and 8 successful multilateral trade rounds under the GATT, our support for the multilateral trading system and its key importance to achievement of a truly open and fair global trading system has never flagged.
In an era of low-cost, instantaneous communication, efficient transportation and globalized production, the multilateral system remains as relevant to our trade and economic interests as ever. Past achievements under the multilateral trade system have helped create and shape the modern American economy into one characterized by unprecedented levels of output and rapidly expanding economic opportunity. Likewise, American policy is based on the belief that if the promise of the Uruguay Round and a generalized movement toward more open markets -- both internal and at the border -- around the globe is to realize its full potential, an expanded and further strengthened multilateral trading system must be its foundation.
The United States has pursued a consistent trade policy based on this global view. Our policy is clearly motivated on our view of national self interest, but the endurance of this policy over so many years also reflects the profound belief of the United States that open global markets benefit all trade partners. The expansion of trade through the removal of barriers and distortions is a "positive sum" endeavor, in which the gains from better use of national resources and the enhancements to investment and growth are available to each country, not at the expense of others, but rather in addition to the gains reaped by others.
The U.S. government is strongly committed to building a world of truly open markets with the World Trade Organization as the centerpiece of the requisite open market disciplines. Despite the high level of per capita output and income already achieved in the United States, the U.S. public has legitimate concerns about job security and living standards; about how to assure expanded economic and attractive employment opportunities in the future; about how to spread such opportunities more widely among the population; and, how to prepare better for the material responsibilities of an aging population. While a number of purely domestic economic initiatives have been pursued in order to address these concerns, the U.S. government has also considered trade policy as an integral part of efforts to develop U.S. national economic interests and help to meet these public concerns. In working to expand the scope of open markets globally as well as to invest at home in people and knowledge, as well as plants and equipment, the government is fully committed to contributing to the creation of economic opportunity and prosperity in the United States and abroad.
The United States Economic and Trade Environment
The United States is the world's largest importing and exporting nation. It is also the largest investor worldwide and the largest recipient of foreign direct investment. Depending on the estimate, the United States continues to account for 20 to 25 per cent of real global production. As such, its economic performance and policies have a significant impact on the world economy and the global trading system. Recent U.S. economic performance has been impressive and U.S. trade has grown rapidly.
The U.S. economy, which has recently entered the sixth year of economic expansion, has done well since the last review. From the second quarter of 1994 to the second quarter of 1996 (latest available data), real gross domestic product expanded by more than 4.6 percent. Real non- residential fixed investment expanded by over 17 percent, while investment's producer durable equipment component is up by 20 per cent in real terms in just two years. Non-agricultural employment expanded by 5.5 million jobs net, and the rate of unemployment has fallen from 6.2 percent to 5.4 percent in 1996's second quarter. There has been no discernible upward pressure on the current moderate rate of price inflation and the federal budget deficit has fallen for the fourth year in a row to its lowest dollar level since 1981.
Similarly, U.S. trade has experienced strong growth. The value of U.S. goods and services exports (excluding earnings on investment) grew by 24 percent between the second quarter of 1994 and the same period of 1996. On an annualized basis, U.S. exports of goods and services were running at an annual rate of over $845 billion in the first seven months of 1996.
Reflecting strong U.S. demand, particularly for investment, goods and services, U.S. imports rose by 22 percent between the second quarter of 1994 and the same period of 1996. Imports of goods and services on an annualized basis were running at a rate of over $935 billion in 1996's first seven months. These figures reflect the U.S. position as the world's largest exporting and importing nation.
Trade likewise continued its rise relative to the total value of U.S. gross national product (GNP). Exports plus imports on their broadest balance-of-payments definition (goods, services and earnings on investment) rose from $1.8 trillion (annual rate) in the second quarter of 1994 to $2.25 trillion (annual rate) in the second quarter of 1996, or from an amount equal 26.4 percent of value of GNP to about 30 percent of the value of GNP. The corresponding figure for 1970 was 13 percent.
Estimates of the total number of jobs supported by U.S. exports are not available on a quarterly basis. On an annual basis, however, U.S. employment supported by exports has risen from 10.3 million in 1994 to an estimated figure of 11.4 million for 1996, based on extrapolated seven month data. This 1.1 million increase in export-supported jobs in two years represents roughly 20 percent of the overall 5.5 million two-year increase in civilian employment cited above (though the time periods are not identical).
Research on the U.S. economy has suggested that export-supported jobs are more highly remunerated than the U.S. national average while jobs in import-competing sectors on average tend to have remuneration below the U.S. national average. Trade expansion for the United States therefore can be expected to somewhat shift the composition of job creation over time toward higher paying jobs. This factor and recent strong trade growth are likely to have contributed to the recent findings of the President's Council of Economic Advisers that over two-thirds of U.S. full-time job growth between February 1994 and February 1996 occurred in industry/occupation groups paying above median wages.
The two-year time frame of our trade policy reviews is, of course, of too short a duration to draw strong, empirically-based conclusions about the effects of most recent developments like the Uruguay Round. However, the recent, on-going good performance of the U.S. economy reflects at least in part the pro-competitive structural posture of the U.S. economy, both internally and at the border. The United States has one of the world's most pro-competitive markets internally -- a stance that has been strengthened over the last several decades through the economic deregulation of a number of important sectors of the economy -- and has in recent years been cited by some outside authorities as the world's most competitive major economy. In addition, the United States has one of the world's most open markets with respect to imports and investment and also enjoys higher levels of average labor productivity and real per capita income than any other major economy in the world. U.N. trade data show that in 1994 the United States imported slightly more manufactured products than the European Union, Japan and Canada combined.
These factors, we believe, are closely connected: the already high, and still increasing, level of U.S. openness to trade and competition, and the corresponding high level of economic achievement and recent strength of economic performance. The 50 years of effort toward building a truly open multilateral trading system, while not complete, have contributed substantially to our own economic success and to that of other countries that did not offset such pro-competitive forces either through a failure to open borders or through internal restrictions and regulations countermanding the effects of freer trade. Furthermore, we believe that the more widespread global movement toward freer markets internally and at the border over the last decade is one of the most positive economic developments of our generation. These forces over time promise the extension of better economic opportunities and improved living standards for billions of the world's citizens, in a process in which each nation's gain comes not at the expense of, but in harmony with the gains of others.
The United States is committed to exercising its influence and leadership in working with other countries to reinforce these strongly pro-competitive developments. Our economic interests complement those of our trading partners and the global economic welfare. The ultimate goal, and the ultimate vehicle, is a WTO that is comprehensive both in membership and in its coverage of all barriers and distortions restricting global trade.
Trade Policy Developments, 1994-1996
The Uruguay Round and WTO implementation
The most significant demonstration of the competitiveness and openness of the U.S. market lies in its implementation of the Uruguay Round. In an important demonstration of bipartisan commitment and determination, the Congress approved the results of the negotiation and establishment of the WTO in the Uruguay Round Agreements Act (URAA). President Clinton signed the URAA on December 8, 1994. The United States continues to give the highest priority to full and effective implementation of the Uruguay Round Agreements.
The United States had much to gain from opening foreign markets through the Uruguay Round. Trade agreements that permanently change the rules and structure of trade, like the Uruguay Round Agreements, are really investments in long term growth. A study by GATT at the time of the Uruguay Round's conclusion estimated that by the year 2005, the Round would result in an increase in global production by as much as $510 billion (constant 1990 dollars) per year, with the United States accounting for $122 billion of this gain. Our own work suggested that the Round could add 0.15 to 0.3 percentage points per year to the U.S. GDP growth rate over a decade, with GDP growth enhancements being experienced throughout the global trading system.
American exports of goods and services in the first year of Uruguay Round implementation were buoyant--up nearly 13 percent from 1994. As a result, U.S. jobs supported by exports increased by over 600,000 (estimated) in 1995. While many factors contributed to this growth, the Uruguay Round would have to be included as a contributory element. The Uruguay Round helped, not only as a result of specific barrier reductions, but also because U.S. business began planning and investing on the basis of the fully implemented agreement. By bringing a higher degree of certainty to the open world trading system and a guaranteed blueprint for future staged market openings, the Round provided significant incentives for U.S. businesses to expand their production in preparation for the increased world demand.
In fact, U.S. non-residential fixed investment was up in real terms by 10.1 percent in 1994 and an additional 6.1 percent in 1995 -- strong rates for the relatively advanced stage of the U.S. economic recovery. Anticipation of continued strong growth in foreign markets for U.S. exports -- due in part to the successful conclusion of the Uruguay Round -- undoubtedly contributed to this growth-enhancing investment strength in the United States.
Since the entry into force of the Uruguay Round agreements, United States policy has been to focus on ensuring the effective and timely implementation of the multilateral agreements. The various manifestations of this policy range from an active participation in the deliberations of the many WTO committees and councils to an aggressive use of the WTO's new dispute settlement mechanism. Where WTO Members have been slow to implement their Uruguay Round obligations, the United States has been quick to criticize such inaction. Where problems have arisen in the systemic implementation of the Uruguay Round's results, the United States has worked constructively with others to try to remedy the difficulties. Where obligations have been ignored or side-stepped, the U.S. has initiated action under the DSU.
The central role of the WTO in U.S. economic policy is also reflected in the resources which the United States devotes to the negotiations with the very large number of countries seeking to accede to the WTO. In these negotiations, American insistence on accession only on viable commercial terms has set the standard for others to emulate.
Finally, in the period leading up to the Singapore Ministerial conference, the United States has put forward several initiatives for further liberalization within the multilateral trading system. At the same time the United States has sought to ensure that other initiatives to weaken the rules agreed in the Uruguay Round or proposals which distract from the effective implementation of the WTO agreements do not gain undeserved credibility. In the U.S. view, the WTO must remain a consensus-based organization and the WTO can only succeed as a credible institution over the long term if its work program is seen to be beneficial to all of its diverse membership.
The United States recognizes the primacy of the WTO's multilateral trade system and believes that the first test of this conviction is the full consistency of regional arrangements with the WTO's multilateral rules. With this in mind, and in order to capture and expand the benefits of an expanding global trading system,the United States is actively embarked on an agenda of trade expansion in emerging markets.
The United States' trade expansion agenda in this area focuses on the expansion of trade in key markets, in part through the negotiation of new trade agreements, but also by enforcing compliance with current agreements (including WTO agreements) and pursuing regional trade expansion in Asia, South America and Europe. Such regional trade initiatives include the NAFTA, the FTAA, and APEC. At the same time, we seek to maintain and improve our ties with Europe through the Transatlantic Initiative.
As noted above and without exception, the regional initiatives in which the United States is involved look to the WTO as providing a solid foundation to go further. In an earlier GATT Trade Policy Review of the United States, the U.S. delegation made clear that the WTO system is seen as the base upon which regional arrangements might be built, provided that such arrangements go further in the cause of liberalization. This is fully in line with the fact that the GATT had historically recognized the "desirability of increasing freedom of trade by the development, through voluntary agreements, of closer integration between the economies of the countries party to such agreements" (Article XXIV) as long as the agreements did not result in increasing external barriers of the parties. The United States supports regional agreements that are consistent with WTO rules. We see such agreements as challenging the multilateral system to keep pace with the interests and needs of Members, and contributing to the WTO system in the form of innovation and strengthened disciplines.
Regional agreements often achieve deeper and broader economic integration than multilateral agreements; as neighbors, members often have interests in common. They can become models for future multilateral liberalization in new areas, such as services, investment, environmental and labour standards. The following regional initiatives are each examples of this potential.
The North American Free Trade Agreement
In January of 1994, the United States began to implement the NAFTA, the world's largest free trade area: 380 million people producing nearly $8 trillion dollars worth of goods and services. NAFTA increases opportunity for all three partners --Mexico, Canada and the United States -- to expand trade and enhance growth. The foreign trade partners of the NAFTA countries are likely to benefit as well from stronger growth in North America, as NAFTA acts to enhance the size of the NAFTA market and purchasing power of NAFTA countries. Since the Agreement's entry into force on January 1, 1994, the U.S. government has worked to ensure that its provisions are implemented swiftly. Cooperative agreements on labor and the environment are included in the NAFTA package.
NAFTA has helped sustain North America on a course toward free trade during a period of difficulties. From 1993 to 1996 (levels annualized from the first seven months), U.S. exports to its NAFTA partners increased by 33 percent, despite the international liquidity crisis beginning in Mexico in December of 1994. U.S. exports to the world over the same period increased by 35 per cent. NAFTA is also the first comprehensive trade agreement accompanied by agreements on labor and environmental issues related to trade. These provisions ensure that expanded trade supports the improvement of labor and environmental conditions and the enforcement of national labor and environmental laws in North America.
The Free Trade Agreement of the Americas
In December of 1994, the leaders of 34 countries of the Western Hemisphere met in Miami for the first hemispheric summit since 1967, when President Johnson met with 19 Latin American leaders at Punta del Este. At Miami, President Clinton and 33 other leaders committed to "conclude the negotiations of the "Free Trade Area of the Americas" (FTAA) no later than 2005." It is clear that the FTAA will support and enhance our commitment to the multilateral system. It is premised on the success of the Uruguay Round, and on further contributions toward and commitments to the multilateral system. In June of 1995, trade ministers from throughout the hemisphere pledged that trade liberalization should be consistent with WTO disciplines and comprehensive in scope. In March of 1996, trade ministers reaffirmed this pledge and agreed that approaches for constructing the FTAA must include consistency with GATT Article XXIV and its Uruguay Round Understanding and with GATS Article V. The increase in growth and improved access to new ideas that will result from liberalized trade brought about by the FTAA will also strengthen democracy in the region, and promote development. The trade ministers of the Hemisphere will next meet in May of 1997 in Belo Horizonte, Brazil, for the third Western Hemisphere Trade Ministerial.
The Asia Pacific Economic Co-operation Forum
Over the past two years the United States has continued its active involvement in the Asia Pacific Economic Cooperation (APEC) Forum, which includes the larger developing and developed economies in the Pacific Rim.
The United States considers APEC to be an important vehicle for building a regional economic structure to ensure that promotion of prosperity and stability is continued over the long term. After growing from the original dozen countries in 1989 to 18 countries on both rims of the Pacific, APEC is a unique combination of the world's biggest existing markets and the world's biggest emerging markets. According to the World Bank, trade liberalization in the Pacific Rim countries would provide enormous gains -- not only to the region but to the rest of the world.
APEC leaders met in Bogor, Indonesia in 1994 and agreed to dismantle barriers over the next 25 years that have impeded trade and investment between their economies. Last year in Osaka, APEC began to initiate implementation in the Bogor Declaration. As the culmination of a full year's efforts, leaders of the 18 APEC economies approved the Osaka Action Agenda on trade and investment liberalization, facilitation and co-operation. This year in Manila, the Ministers and Leaders will press forward on individual and collective actions to reach the trade liberalization goals set forth at Bogor and Osaka, as well as plans for co-operation in labour, capital, technology, infrastructure, and the environment.
The New Transatlantic Agenda
The U.S.-European relationship, one of the most durable in the world, is further strengthened by the Transatlantic Agenda, an initiative which seeks to deepen transatlantic relations by initiating specific joint U.S.-EU actions to address global economic, political, humanitarian and environmental challenges more effectively. This is a key component of United States efforts to meet the challenges posed by the post-Cold War reality, including the need to build a strong transatlantic community of democratic, free market economies.
The emphasis on joint action is a recognition of the fact that many global challenges are transnational and can only be satisfactorily addressed if the United States and EU act together; in an age of increasing budgetary stringency, neither the United States nor the EU has the financial means to solve certain problems alone.
The Joint Action Plan also specifically includes strengthening the multilateral trade and investment system by; consolidating the newly-created World Trade Organization (WTO); exploring ways to reduce tariffs, including an effort to eliminate tariffs on information technology products; starting work on new international rules for intellectual property rights and government procurement; and agreeing to work together in the OECD to conclude a multilateral agreement on investment (MAI).
Domestic regulatory developments affecting trade policy
Among the more notable structural developments in the U.S. economy are deregulation efforts that provide increased incentives for active pursuit of market openness in both multilateral and regional fora. Domestic regulatory developments in the two years since the last review of the United States are significant. They include regulatory reform in the public sector, and increased recognition of the costs and benefits of deregulation and promotion of competitiveness in several important industries.
In addition to taking steps to make its private and regulated sectors more competitive and efficient, the United States has been engaged in an effort to make its public sector more efficient. The National Performance Review has focused on making government agencies more performance- and customer-oriented, eliminating outdated programs and promoting new ones designed for the 21st century. For example, the Department of Agriculture has reduced the number of its agencies from 43 to 29 and is in the process of closing or consolidating 1200 field offices. As a percentage of total employment, Federal employment is smaller today than at any time since the early 1930's.
The "reinvention" of government has been accompanied by a philosophical change, as the United States has sought to change its regulatory systems from rules-based, to performance-based, regulations. In facilitating compliance rather than acting as a disciplinarian, the Federal government has encouraged innovation and cost-effectiveness. Regulatory systems affected include pension systems, regulations affecting the banking and communications sector, and those affecting the environment. This is regulatory reform that responds to fundamental changes in the economy, promoting non-discriminatory competition and innovation, but also retaining safeguards designed to protect consumers, and the environment.
As the authors of the Report on the United States have correctly observed, "the United States is among the world's most open economies, which helps to keep economic actors under constant competitive pressure not to misallocate resources." The pace of the domestic deregulation initiated in the 1970's has continued, reinforcing America's free-market orientation and entrepreneurial traditions, and complementing its open trade policy with regulatory changes that enhance markets and promote competition. An open international trade system allows all nations to use their resources most efficiently, thus maximizing real incomes and living standards. Responsible deregulation spurs competition, and improves economic efficiency, thereby expanding economic opportunity.
Regulatory reforms in the 1970's and 1980's demonstrated that removing regulatory elements that needlessly distort markets and limit competition yields more efficient performance in industries such as air transport, trucking, and long-distance telephone service. The momentum of this regulatory reform has recently expanded to new areas, such as telecommunications, where the United States experienced an explosion of technology and new service venues, and financial services.
Over the past three years, the United States has modernized and strengthened the competitiveness of its financial system. Legislation and regulatory reform have eliminated barriers to financial innovation, promoted open competition in financial services, and reduced the costs -- while improving the quality -- of depository institution regulation.
Regulatory reform has been achieved without compromising safety and soundness, jeopardizing the federal deposit insurance funds, or impairing protections for consumers and communities. Legislative barriers to competition have been removed, allowing for full interstate banking and branching. Previously, both bank holding companies and individual banks faced severe restrictions on their ability to operate on an interstate basis.
The United States' commitment to the multilateral system and to economic reform is evident in the reforms introduced in the Federal Agricultural Improvement and Reform Act of 1996. For the next seven years, income support to farmers will be completely delinked from commodity prices. A declining level of payments will be made based solely on historical program participation and the number of farmers who sign up for the new contracts. Planting decisions and commodity prices will be determined by market forces, not government incentives. This decision, along with export subsidy caps approved by Congress, will leave U.S. agricultural support expenditures well below U.S. Uruguay Round commitment levels.
Future Developments in United States Trade Policy
As emphasized at the beginning of this statement, U.S. policy is based strongly on the premise that the removal of barriers and distortions to global trade enhances higher wage job creation, incomes, living standards and growth potential, in the United States as well as in the economies of our trade partners. In efforts to reduce barriers and expand trade, the U.S. interest is in the resulting promotion of economic opportunity and expansion.
Given our strong sense of its broad effects and objectives, U.S. trade policy has been consistent over many decades in its pursuit of more open global markets. Those efforts, however, have had to be tailored to specific conditions and challenges which have evolved over time. At the present time, we would emphasize two over-riding factors.
First, rapidly changing technologies in communications, transportation and other areas are increasing the global potential for welfare-enhancing trade in goods and services. With this tremendous expansion of trade potential, however, has come a substantial increase in the complexity of the trade policy issues with which the global trading community must deal. This complexity comes both from an expanded scope for trade and increased potential for non-traditional trade and trade-related measures to restrict or distort trade flows. The Uruguay Round represents a major step forward in matching global trade structures and disciplines to current realities of international trade. But, while recognizing the importance of our efforts to make the WTO as effective as possible, we must also recognize that much work which was begun and even well advanced in the Uruguay Round, remains to be done in the years ahead.
Second, the movement over the last 10 years of many low and middle income countries around the globe to freer markets at home and more outward, less restrictive policies at the border is of fundamental importance in the shaping of future trade flows and issues. Some 85 percent of the world's population lives in countries with low and middle per capita incomes. With freer markets and greater outward orientation many of these countries are or will soon be experiencing high rates of growth in output, incomes and trade. Needless to say, from a U.S. perspective, this is one of the most positive developments imaginable on the global economic front -- for the new economic opportunities that will be generated for large segments of the world's population where such opportunities have been scarce, as well as for the expansion of welfare-enhancing trade potential these developments create for high-income countries like the United States. Substantial efforts on the trade policy front, however, will be required to help encourage and nurture such trends, to address remaining barriers, and hasten adjustment in all our economies. Because of our belief in the importance of trade, our sense of the challenges ahead and our understanding of the centrality of the WTO to economic progress, we are, as we have been, committed to efforts to maintain and expand the momentum of the multilateral system, through the WTO and other international institutions. The United States remains fully committed to active participation in the multilateral system and to work with our trading partners to ensure full implementation of its achievements. Back to top