USTR Kirk could be accused of catering to his audience when he said early in his speech, “You understand the intersection of innovation and trade.” He went on to talk about U.S. researchers, scientists, engineers and manufacturing workers tackling the world’s greatest challenges. This key point is usually overlooked. The U.S. cannot compete in world trade based on low-priced labor, access to raw materials or knocking off imitations of products developed in other countries. The best export opportunities are in satisfying business and consumer demands that require research and creativity in design, manufacturing precision and quality control and disciplined delivery schedules. Those types of industries require constant innovations to stay ahead of developed country competitors and those in developing countries who want to repeat our successes.
U.S. agriculture’s ability to compete in international trade reflects innovations in production. Biotechnology has helped to reduce costs and increase yields while lessening farming impacts on the environment. Minimum-till and no-till farming practices have improved soil management while reducing petroleum use and providing for timely planting. Precision farming practices have resulted in more efficient use of fertilizer. Increases in production efficiencies in livestock and poultry production and processing have kept meat products competitive.
A rules-based trading system was mentioned several times by Mr. Kirk. He was referring to the WTO and to a lesser extent the bilateral and regional trade agreements that establish a set of rules. These arrangements are not perfect, but they provide a framework for trade policy actions and a forum for constructive dialogue on trade policy disagreements. As trade increases, disagreements will increase and dispute resolution processes are essential. This is particularly important as governments face a rising tide of trade protectionist sentiments.
This led to USTR Kirk’s third point about protection of intellectual property rights, “American intellectual property, goods, and services can hit the global marketplace sometimes with just a keystroke. If we’re not vigilant, they can vanish after that.” Vanish is exactly what sometimes happens and intellectual property rights have been a major issue in the WTO Doha Round of trade policy discussions and with one-on-one country relationships. He pointed out that not only do U.S. businesses and workers lose out, but risks to health and safety occur when substandard, counterfeit products are sold to unsuspecting buyers.
There is some good news from the USTR’s office on this issue. The U.S. and Japan proposed in 2006 the creation of a new plurilateral treaty to thwart counterfeiting and piracy. Preliminary talks in 2006 and 2007 on the Anti-Counterfeiting Trade Agreement (ACTA) included Canada, the EU and Switzerland. The negotiations expanded in June 2008 with Australia, Mexico, Morocco, New Zealand, South Korea and Singapore. The talks have progressed enough that other countries have asked for a summary of the issues discussed. The focus has been on counterfeiting and piracy activities that affect commercial interests and is consistent with the WTO Agreement on Trade-Related Aspects of Intellectual Property Rights.
The last point raised by USTR Kirk was that 95 percent of the world’s consumers live outside the U.S. U.S. agriculture has raised that issue repeatedly as a reason to seek out new trade agreements, but it applies equally to all innovation and trade activities. Once a new product has been designed and produced, economies of scale are achieved by selling the product into as many markets as possible. The market in any one country may be relatively small, but multiplied by 40 or 50 countries the market is profitable. As new manufacturing technologies are developed and production costs are lowered additional markets open up.
This approach on innovation and exports is somewhat evident in recent U.S. trade numbers. While U.S. exports were down 16.7 percent for the first two months of 2009, exports for February were actually up 1.6 percent from January at $126.8 billion. U.S. imports were down 5.1 percent for February over January and down 25.8 percent for the two months. In February capital goods exports, even with a sharp drop in civilian aircraft, and industrial supplies exports were up slightly in what was considered to be a tough market worldwide for those products.
In his speech USTR Kirk reminded the audience that intellectual property rights are only one part of the Obama Administration’s wider trade policy agenda including:
- Market access and protection for U.S. investors
- Respect for internationally recognized labor standards
- Higher environmental standards
- Fair treatment where governments set rules about safety
- Governments not creating rules to pick technology winners
- Governments keeping trade commitments they make, and
- The U.S. taking actions when commitments are not kept
As happens with all USTRs, Mr. Kirk made no mention that open trade also allows U.S. businesses and consumers to benefit from innovations in other countries. New ideas are not confined to the U.S., and economies of scale are as critical for a new idea from Australia or India as ones from the U.S. Trade is a two way flow of goods and services that improves economic conditions in all countries that participate.
USTR Kirk’s focus on innovation is a key component in building a sound U.S. trade policy strategy. He has many fronts to work on to achieve meaningful progress toward more open trade. His challenge is to make convincing arguments with his counterparts across the trade policy bargaining table and with his Obama Administration colleagues who appear to be somewhat skeptical.