Fresh analysis reveals that international trade has been a vital factor in the economic growth that has occurred in New York. And now, due to global trends, international trade is even more important to the future well-being of the state.
In addition to being a primary generator of business and job growth in the Buffalo-Niagara, Rochester, Syracuse, New York City, and Long Island regions, international trade also affords consumers greater disposable income, improving their standard of living.
But due to a massive dissemination of misinformation, many believe that international trade has contributed to New York’s economic difficulties. In turn, this has led to the belief that erecting trade barriers is a panacea for a variety of economic problems. Nothing could be further from the truth. For example:
In order for New York State to prosper in the 21st century, and seize the benefits presented by globalization, it’s imperative that local companies begin or expand exporting efforts. And, it’s essential that elected officials establish policies designed to encourage exports, while passing trade legislation that further opens foreign markets.
New York State has significantly benefited from international trade. However, as we enter this new and more competitive era of globalization, international trade is becoming even more important to the well-being of local companies and their workers. In order to improve the standard of living for all New Yorkers, more local companies must enter the global economy and penetrate new markets. In turn, this will help them to grow, increase productivity, and create high-wage jobs.
According to data from the Exporter Data Base, growth of the exporter population has accelerated. From 1992 to 1997, the number of U.S. exporters surged by 86% — but much more needs to be done.
Elected officials need to establish policies designed to encourage local companies to expand internationally, while passing trade legislation that further opening foreign markets.
What is the single most important act that our government can perform this year to assure the continuation of the record economic prosperity we've enjoyed throughout most of the past decade and into the new century?
You might say tweak the prime rate or cut taxes. However, there is one thing upon which we can all agree to further open the world's largest markets to American goods and services. This is an effort vital to our economic and national interests.
Congress can help achieve this important objective by passing Permanent Normal Trade Relations (PNTR) status with China. This would complete a process that started with the negotiation and signing of a landmark market access agreement with China last November.
The pact gave China the U.S. "thumbs-up" to join the World Trade Organization (WTO). However, for us to realize the benefits of this historic accord, Congress must pass PNTR legislation. WTO rules specify that member nations must grant each other PNTR status.
This deal is a win/win for the United States and New York State. And today, China, including Hong Kong, is New York State’s sixth largest export destination — bigger than Germany or France. Greater access to the Chinese market will result in increased exports and revenues for Western New York, a place where economic growth has not always kept pace with the rest of the nation.
The Buffalo-Niagara Falls metropolitan area employs more workers in the transportation equipment industry than any other manufacturing sector. Not surprisingly, transportation equipment is New York’s second highest export to China. And other major employers, which include the industrial machinery, food product, chemical, fabricated metal, electronic, and scientific instrument sectors, also are among New York’s top exports to China.
If Western New York is to catch up and enjoy the levels of growth achieved nationally, we must look beyond our borders to a greater extent. And, since 96 percent of the world’s customers live outside the United States, we need to focus on exports to maintain and create jobs here.
China already has access to our markets; supporting PNTR will not change U.S. tariff rates. It will, however, open the door to China's marketplace. With a population of more than 1.3 billion, we cannot afford to be locked out. The agreement will provide enormous opportunities for our goods. For example, the agreement will:
If our Members of Congress fail to vote in favor of PNTR, we will hand over this opportunity to our European, Japanese and other competitors.
But this agreement involves more than just trade; it is an exchange of ideas, beliefs, and values that changes and enriches all who participate. For a quarter-century, U.S. trade has helped change China for the better by supporting economic freedom, human rights, access to information, higher living standards, and the rule of law for the Chinese people.
Successfully integrating China into the global economy also would advance security in the Asia-Pacific region. In fact, Taiwanese president elect Chen Shui-bian said he hopes to see China join the World Trade Organization.
On behalf of Western New York companies, workers, and farmers, I urge Congress to expeditiously approve PNTR with China. Through exports, we can help grow our local economy. In turn, this will create higher-paying jobs locally so our children can live, work, and raise their families in Western New York.
Economic growth and prosperity in much of Africa and the Caribbean have not kept pace with the rest of the world. Recognizing this fact, the United States recently passed legislation that could improve the situation — and benefit your business.
United States Trade Representative Charlene Barshefsky pinpoints the value of reducing trade barriers. She has noted that since 1960, as world tariffs have decreased, global trade has increased 15 times, world production has increased five times, and world income per person has doubled. In turn, world standards of living and trade opportunities have increased considerably.
What is responsible for the decrease in global tariff barriers? The answer: the World Trade Organization (WTO) and its predecessor, the General Agreement on Tariffs and Trade (GATT).
The WTO was formed in 1995 with 81 member countries, a total that has grown to 135, with 36 observer nations. The latest country to join, Estonia, was admitted in November 1999. About two-thirds of the members are developing countries.
GATT, established in 1947 in Geneva, Switzerland with 23 member countries, was designed to reduce or eliminate tariffs and, in some cases, non-tariff barriers among the contracting parties. GATT was responsible for reducing the international tariff average from 40 percent in 1947 to five percent in 1990.
The November 1999 WTO Ministerial Conference in Seattle was expected to initiate a new round of trade talks designed to identify sectors where parties could further pursue tariff reductions. Yet, due to widespread and highly publicized rioting, few meetings were held.
Many demonstrators claimed that the WTO does not consider working conditions nor the environment. They charged, further, that it is not a democratic institution. WTO supporters acknowledged that improvements can be made. Additionally, they pointed out that in order to generate wealth, a prerequisite for raising living standards, each country must participate in the global economy.
According to the WTO, all its agreements are adopted by consensus. No agreement is binding on any nation unless that country first agrees to it, according to its own legislative process. And, WTO rules do not prevent countries from adopting and enforcing their own environmental and health standards.
GATT was a formal international agreement that specified the rules for conducting international trade. It led to an international organization created to support the agreement. GATT was ad hoc and provisional, never ratified in contracting parties’ parliaments.
On the other hand, the WTO and its agreements are permanent, and the body is comprised of full-fledged members. Whereas GATT dealt with trade in goods, the WTO covers services and intellectual property as well. Importantly, the WTO dispute settlement system is faster than its predecessor’s and more automatic than the old GATT system. Additionally, its rulings cannot be blocked.
This spring or summer, the United States Congress is expected to vote on a very controversial issue. As surprising as it may seem to some, however, the vote is not over admitting China to the WTO. The issue, instead, deals with granting China Permanent Normal Trade Relations (PNTR) status.
On November 15, 1999, the United States and China signed a bilateral trade agreement that unofficially gave the thumbs-up to China’s WTO membership. Formal admission will occur after all remaining WTO members complete their individual agreements with China.
Under the WTO, members must grant each other PNTR status. To achieve this under current United States law, Congress must either amend or repeal Title IV of the Trade Act of 1974, known as the Jackson-Vanik amendment.
Should Congress fail to grant China PNTR status, that country could invoke Article 13 of the WTO Agreement and elect not to apply multilateral WTO agreements to the United States. Such an outcome would deny the United States preferential market access to China, handing global competitors a significant advantage.
If Congress grants China PNTR status, the more likely scenario, the United States stands to gain unprecedented access to China’s markets for such leading American exports as high-technology products, capital goods, services, and agricultural crops.
China will reduce its average industrial tariff from 35 percent to 10 percent, while eliminating a multitude of non-tariff barriers that essentially prevent United States’ companies from significantly increasing exports there. In fact, the Congressional Research Service estimates that United States exports could almost double.
In reaching its 1999 accord with the United States, China made virtually all the concessions. And, as a member of the WTO, China must comply with the rules or be subject to trade sanctions under the organization’s dispute settlement procedures.
Most Chinese exports to the United States consist of inexpensive consumer products which are no longer manufactured in significant quantities in the United States. These include low-cost apparel, footwear, radios, televisions, toys, sporting goods, and consumer electronics.
Assembly of these items began shifting away from the United States in the 1960s. First came Japan, followed by Korea and Taiwan. Starting in the 1980s, Southern China entered the picture. As a result, China’s emergence as a consumer-goods assembler has come primarily at the expense of other developing countries, not the United States.
While apparel imports are likely to increase, that rise will take place irrespective of China’s joining the WTO. After 2005, imported apparel from India, Pakistan, and other developing countries will enjoy unrestricted access to the United States’ market. Preventing China from joining the WTO, therefore, will not protect the United States’ textile industry.
An agreement for China’s entry most likely would pave the way for Taiwan to join the WTO. When a working body was formed in 1992 to assess Taiwan, some WTO members felt that the Chinese and Taiwanese applications should be considered together. Recent developments in the China-WTO negotiations may open the door for Taiwan’s admission.
American business supports workable relations on the part of the United States with Taiwan and China, since most major American companies do business in both countries. A WTO package that admits China and Taiwan would improve American access to both markets and be a win-win proposition for American companies.
On Tuesday, July 27, 1999, Western New York Congressmen John LaFalce, Jack Quinn and Tom Reynolds, as well as the majority of their peers, voted to extend Normal Trade Relations (NTR) to China. We applaud this action for several reasons. Most importantly, because it is highly beneficial to Western New York companies and workers.
By granting China NTR, China’s products continue to be allowed to enter the United States at the same normal duty rates we offer other countries (all but Afghanistan, Cuba, Laos, North Korea, Serbia/Montenegro, and Vietnam).
In return, U.S. products continue to be allowed competitive access to the Chinese market at a time when exports are fueling Western New York’s economic growth. This is key, since in June 1999, the Buffalo-Niagara Falls metropolitan area registered an unemployment rate 18 percent higher than the national average.
Furthermore, export-related production has become a primary source of new jobs in New York's manufacturing sector, and now accounts for almost one-third of real U.S. economic growth. Its importance is increasing at the same time when China, with one of the world’s largest economies, represents one of the United States’ fastest growing export markets.
Compared to other U.S. states, New York is the third largest merchandise exporter to the world. And New York exports to China, which now includes Hong Kong, are larger than New York’s exports to Germany or France.
To determine just how important exports are to our local economy, one simply needs to review the local area employment picture. For example, as of June this year, the Buffalo-Niagara Falls metropolitan area employed more workers in the transportation equipment industry than any other manufacturing sector. Not surprisingly, transportation equipment is New York’s second highest export to China. And other major employers, which include the industrial machinery, food product, chemical, fabricated metal, electronic, and scientific instrument sectors, also are among New York’s top exports to China.
When looking at exports from a national perspective, their benefit is obvious. For example, in 1998, U.S. exports of goods and services worldwide reached $931 billion, increasing almost 140 percent since 1990. This supported approximately 12 million American jobs. And high-technology industry jobs --which tend to be big export winners -- when supported directly by exports, pay 34 percent more than the average national wage. In general, jobs supported directly by exports pay 20 percent more, and workers in jobs supported both directly and indirectly by exports are paid 13 percent more.
Additionally, according to the report, Why Exports Matter: More!, published by the Institute for International Economics and The Manufacturing Institute, “in U.S. plants that export, worker productivity is higher, jobs are compensated better and technologies are adopted more aggressively than among non-exporters.” The report contends that since the late 1980s, plants and firms that have sustained an export commitment, or that have initiated exports, experienced almost 20 percent faster employment growth than those that never exported or stopped exporting. In fact, the report states that communities that hosted exporters benefited from a stable, growing, high-performance workforce and tax base.
These benefits don’t only apply to large companies. Export participation by small and medium-size companies is significantly higher than at any time in the past. And, according to the U.S. Small Business Administration, small businesses provide virtually all net new jobs, represent 99.7 percent of all employees, and provide 55 percent of innovations. The international success of small businesses has numerous implications for Western New York.
The United States, which accounts for only 4 percent of the world’s population, needs to sell to the other 96 percent. Passing NTR legislation helps us to achieve this. And although trade is not a panacea, it is one of the best tools we have to influence foreign government policies with which we don't always agree.
Thus, denying China NTR would have lead to deteriorated U.S.-Chinese relations, fostering an environment of alienation and suspicion. This also means that any future U.S.-Chinese cooperation on sensitive issues, such as human rights, environmental and intellectual property protection, nuclear proliferation, and China’s currency stability would have been unlikely.
Today, U.S.-Chinese relations are even more important as a result of heightened tensions between Pakistan and India. As those two countries attempt to flex their military muscle and display their new nuclear capabilities, China and the U.S. need to cooperate more than ever before in order to counterbalance the increasing probability of a military miscalculation.
The failure of Congress to pass Fast Track legislation earlier this month is a blow to growth of Western New York.
Since 1974, U.S. trade agreements, which have been made possible through the use of Fast Track negotiating authority, have opened foreign markets allowing our companies to sell their goods and services worldwide. And over this same time period, U.S. exports have increased more than 600%.
Why are exports important to the United States? During the past decade, U.S. exports of goods and services accounted for one-third of U.S. economic growth. In 1996, they reached $850 billion. This sustained 12 million U.S. jobs that pay 10 to 15% more than the average wage. Furthermore, companies that export expand their employment base approximately 20% faster than others, and are 10% less likely to fail.
Why are exports so important to Western New York? Western New York recovered more slowly from the 1992 recession than the national average, but is now performing relatively well. In 1996, the unemployment rate of the Buffalo-Niagara Falls metropolitan area, the center of Western New York's economic activity, was slightly lower than the national average, and during the first eight months of this year, the two nearly matched. In 1995, the per capita personal income for the Buffalo-Niagara Falls metropolitan area was slightly higher than the national rate and ranked 109th out of more than 300 metropolitan areas. To ensure regional growth, our companies need greater access to foreign markets.
The prosperity of both our region and New York State, the third largest exporter among all U.S. states, is closely tied to exports. To our benefit, the highest employment sectors in the Buffalo-Niagara Falls area are among the top state export industries.
For example, our local transportation industry employs 14,500 workers, making it the largest manufacturing sector in Western New York. This industry is also highly competitive internationally, and as such, is New York's fourth largest export industry. As local transportation equipment exports increase, regional employment and revenues will rise, benefiting our workers and companies.
Industrial machinery and equipment, our third largest sector, employs 9,200 Western New Yorkers, and is our second largest export. Producers of food and kindred products, chemicals, electronic equipment, paper, and scientific instruments are among Western New York's top 10 highest employment sectors and New York State's top nine export industries. The growth of these industries is vital to our region's growth. As a result, we need to further open foreign markets to our products.
How have trade agreements advanced exports? Since 1992, trade agreements such as the Tokyo Round and the Uruguay Round of the GATT, and the North American Free Trade Agreement (NAFTA), as well as 200 other lesser-known trade agreements have benefited Western New York by substantially reducing foreign trade barriers.
Only three years after its passage and despite a Mexican recession, NAFTA is fulfilling its promise. U.S. trade relations with Canada and Mexico are better, prices on consumer goods are lower, the region is more competitive with fast-expanding trade blocs in Europe and Asia, and trade and investment throughout North America has increased.
In fact, from 1993 to 1996, U.S. exports to Mexico increased 36.5%, despite a 3.3% contraction in Mexican domestic demand, while exports to Canada and Mexico created 311,000 new jobs. What's more, in the first four months of 1997, U.S. exports to Mexico virtually equaled U.S. exports to Japan — an economy 12 times larger than Mexico's.
Why is the Congressional passage of Fast Track trade authority so important? Fast Track requires Congress to pass or reject a trade agreement, but prevents any changes. Without it, foreign governments are reluctant to make agreements and concessions that could be changed later.
To our disadvantage, Fast Track has not been renewed in three years. During this time, Canada and Chile forged a trade agreement that created freer access to each others' markets. This has hurt U.S. companies and workers, especially in the telecommunications and fresh fruit sectors. And that's not all. Numerous other trade accords, involving European and Latin American countries, have forged trading relationships at our expense.
If passed, how will Fast Track authority be used? If President Clinton is granted Fast Track negotiating authority by Congress, he is expected to forge new trade agreements with Latin American and Asian countries, whose economies are growing three times faster than ours. Overall, the focus of the President's efforts will be to lower or eliminate stiffer foreign tariffs.
The United States accounts for only 4% of the world's population. In order for both our country and Western New York to increase its standard of living and remain globally competitive, we need to sell to the other 96%. Fast Track is essential in helping us accomplish this. When it soon comes up for a vote, Fast Track should be renewed by Congress and supported by Western New York.
From 1991 through 1995, U.S. exports to the People’s Republic of China increased 86%. And if exports routed to China via Hong Kong were included, the numbers could be 37% higher. The 1.2 billion consumers have become the United States’ 13th largest export market, edging up from 16th place in 1991.
U.S. exports to China support over 200,000 high-wage U.S. jobs. This emerging powerhouse has one of the fastest growing economies and is expected to grow by 10% -12% annually through the year 2000. It’s already the 3rd largest economy and could become the largest early in the 21st century. As its economic strength grows, its need for U.S. goods will increase as well.
Many exporters believe that access to China’s market has been hampered, significantly contributing to our large trade deficit. Recent Chinese tariff reductions could positively affect this.
On April 1, China implemented 4,000 tariff reductions on a wide variety of imports, ranging as high as 50% for pharmaceuticals and related chemicals. Coupled with China’s elimination on December 31, 1995, of 176 quantitative restrictions, import controls and licenses, U.S. exports should increase at a further accelerated rate. Many, however, feel much more needs to be done, especially in terms of intellectual property protection.
As of last year, some 8,000 Chinese companies had import and export rights. These newly prosperous residents are in a better position to buy U.S. merchandise, including consumer goods.
In February, China began the process of making its currency fully convertible by the year 2000. This will make it easier for Chinese-based companies to import.
The annual review process of whether or not to grant China Most Favored Nation (MFN) trading status has made planning difficult for both U.S. importers and exporters. Granting MFN ensures continued access to each others markets.
Denying China MFN would result in the United States imposing such high tariffs on Chinese imports that trade would be severed. In retaliation, China would curtail our imports. This could negatively affect your business if you’re exporting there. Lucrative Chinese contracts and exports would undoubtedly shift to Japanese and European competitors. The myth that U.S. imports would decline would be quickly shattered. Asian low-cost suppliers would quickly fill the gap.
With little at stake in the U.S. market, China would have less incentive to protect intellectual property, or address human rights or nuclear proliferation issues. As a U.S. producer of computer software, for example, the Chinese long-term failure to prevent piracy could become a detriment.
The annual China MFN review process can easily be affected by unforeseen non-related issues and events. And this year’s decision can have little impact on next year’s process. Consequently, if you export to China, you must be prepared to identify substitute markets. If you import, it is wise to locate other sources. If you have investments there, know your opportunities, and risks — and have a flexible plan.
While it appears that Pat Buchanan is no longer a serious threat for the Republican nomination, his attacks on free trade will continue to have an undeniably negative impact throughout the remainder of the presidential campaign.
In the court of U.S. public opinion, it's important to separate the rhetoric from the reality. The facts can get lost in the fiction of shrill campaign politics. And the facts on NAFTA differ greatly from the picture painted by Mr. Buchanan in his protectionist tirades.
In NAFTA’s first year, trade in North America grew by 17% to $350 billion. U.S.-Mexico exports grew even faster, by 20.7% to $100 billion.
In 1995, despite Mexico’s economic crisis, NAFTA worked to preserve and promote U.S. export growth. While Mexico’s economic downturn undeniably dampened demand for U.S. goods, Mexico remained the third-largest consumer of U.S. products in 1995, purchasing more goods from the United States than all U.S. export markets except Canada and Japan.
These numbers may not mean much to Mr. Buchanan, but they have a real impact on the average American wallet. Contrary to his arguments, the growth of U.S. export industries directly benefits U.S. workers and businesses. A February 1996 study by the non-partisan Institute for International Economics found that since the late 1980s, both small and large firms that manufacture exports have experienced almost 20% faster employment growth than non-exporting plants.
Furthermore, firms that export provide higher paying jobs than firms that sell only to the U.S. market. In fact, workers in the export sector earn up to 15% more than those in the non-export sector. The report concludes that “deeper export and import reliance would raise average American living standards.”
While Mr. Buchanan wants to eliminate NAFTA, North American businesses want to expand it. In a survey released February 1996 by the Bank of Montreal/Harris Bank, 80% of the business leaders surveyed in all three countries — Canada, the United States and Mexico — agreed that NAFTA should be extended to countries in Central and South America. By a four-to-one ratio, a majority of the business executives surveyed expressed confidence in NAFTA, citing the positive impact to their businesses of expanding markets, elimination of trade barriers and increasing competitiveness.
NAFTA is attracting production and job opportunities into North America from beyond our borders. NAFTA’s rules of origin and Mexico’s improving manufacturing competitiveness are encouraging companies outside the NAFTA region to establish or relocate production partnerships and other business operations in North America.
Because of the strong supply links between the two countries, this is good news for workers, suppliers and other businesses in both the United States and Mexico.
A 1995 study by the U.S. International Trade Commission showed that Mexican-based production-sharing facilities are much more likely to utilize U.S.-made parts than are similar facilities located in Asia. According to the report, U.S.-made components account for more than half of the value of U.S. imports from Mexico under duty-free production-sharing provisions, while they typically account for less than one-quarter of the value of such imports from Asian countries. And the greater number of components used in the production of Mexican products, the more U.S. jobs are required to support this supply.
In 1995, Mexico’s imports of U.S. intermediate goods for use in production partnerships actually increased by more than 9%, According to SECOFI, Mexico's Ministry of Trade and Commerce. And while Mexico’s total imports from non-NAFTA countries dropped 23% for the first 11 months of 1995, Mexico’s total imports from the United States remained above their pre-NAFTA levels.
Point by point, the reality of the evidence refutes the rhetoric of Pat Buchanan’s “Fortress America” protectionist trade policy.
In its February 1996 report to the President, the Council of Economic Advisors found that “open economies...grew by an average of 2.5 percentage points more per year (over a 20-year period) than did closed economies.” Turning our backs on our trading partners, sealing off our borders and raising tariff barriers would, indeed, hurt the very constituency that Buchanan claims to champion. U.S. workers as well as businesses would suffer.
NAFTA has shown itself to be effective in promoting North American economic and business growth, through difficult times as well as good. This is a partnership we can, and should, be more than happy to live with.
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