AMBASSADOR ZOELLICK:

Presentation for Competitive Liberalization

Well, I very much appreciate the opportunity to be here with all of you today and with Phil, first and foremost. The president was very fortunate to have someone of his both international and business experience to assume the leadership role of Ex-Im, and we really all look forward to working with him, as we do an effective team, with Secretary Evans at the Commerce Department, and Secretary Veneman at Agriculture, and other groups.

So this is a nice opportunity for me to be with a group of people that I know are in the forefront of our trade relationship.

What I've put together for you today is a little PowerPoint presentation to just give you a little sense of our overall strategy, which I'll take you through and then be happy to take your questions.
The approach that we've taken, we've termed competitive liberalization. And what we mean by that is that we're trying to regain momentum for free trade and advance the agenda by moving on multiple fronts: Global, as Phil mentioned, and that's the focus on Doha, the WTO negotiations; regional, the primary one, being the Free Trade Area of the Americas, the Western Hemispheric effort; and then a series of bilateral accords.

Our logic is basically as follows:

The United States starts out, depending on exchange rates, with about 25 to 30 percent of the world's GDP. So it gives us a good point of leverage for negotiating, but how do we add to that? Well, if we offer to work on multiple fronts, if we get stuck in one area; for example, there's now 146 countries in the WTO. If one of them decides to hold things up, we want to be in a position to say, We're ready to go forward. Here are our proposals, but if you're not ready, we're not going to let you veto it. We're going to keep moving.

And so by moving on multiple fronts, we leverage for openness and, frankly, we keep free trade on the offensive because some of these negotiations, as all of you know, have their own time and pace, and ultimately that helps workers, consumers and the overall economy.

Overall, over the past two years, a quick assessment I think of where we've been and what we've accomplished, I think we've been able to regain momentum for trade at home and abroad with U.S. leadership. And given the events of September 11th and then the war in the Gulf, I have to emphasize we're very fortunate in making sure we did this because, as many of you who operate around the world know, there's a lot of attention about America's role in the world. I think it's very important that, in addition to the security agenda, we're emphasizing the economic front.

We've also been able to try to connect trade to some broader issues: Its importance to global growth, its importance for development--a lot of our negotiations are with developing countries--the rule of law, open societies, and then after 9/11, we also emphasized the importance of trade and openness to America's larger agenda in the campaign against terrorism.

Let me just expand on this for a moment. You know, I certainly do not believe that terrorism is caused by poverty. If you look at the demographics of the people who are engaged with terrorism, you have a hard time making that case. Most of them are actually from relatively middle- class or well-off families and, frankly, it's an insult to hundreds of millions of poor people around the world who struggle with an existence, but don't turn to bombing buildings or killing innocent people.

On the other hand, I think there's no doubt that if societies fragment, if people start to lose a sense of hope, if the ability of authority to control its own borders, if all of those things start to unravel, those become the breeding grounds or fertile areas for terrorism, and so that's why part of the effort is not only to secure the overall environment, in terms of terrorism or war in the Gulf, but it's also to build on that and to create opportunity and a positive agenda of hope and development.

More specifically, and Phil mentioned some of these, there's a little bit of kind of a milestone so far. With the help of many of you, the president secured the Trade Act of 2002, which included Trade Promotion Authority, what we used to call fast track. And as Phil mentioned, this was obviously a very narrow vote, but it was a very important vote because, frankly, although President Clinton had tried three prior times, he had been unsuccessful, and the rest of the world saw that as a sign of the United States' lack of engagement internationally.

But the Trade Act also included some other important parts. There were a series of preferential laws the United States has, which open our market for various developing countries if they meet various criteria.
One of these was with the Andean Trade Preference Act. That's with Colombia, Bolivia, Ecuador and Peru.
We expanded AGOA. Some of you deal with sub-Saharan Africa, and that's the African Growth and Opportunity Act.

The GSP, which had frankly expired, that deals with some 140 developing countries, and then also the important component of trade adjustment assistance.

We launched the Doha Development Agenda, and I'll talk a little bit more about that. As you know, these global negotiating rounds have their ups and downs, but we found it was very important, frankly, given the failure in Seattle in 1999, to get this on track, get a mandate that would allow us to move forward and all the more so because we knew we were going to want to focus in the regional and the bilateral level, as well. And given the United States' standing in the world, it was absolutely vital, as Phil mentioned, that the United States be seen a leader on the global front as well.

The completion of the negotiations for China and Taiwan or the WTO, this is one that didn't get much attention because, undoubtedly, the big effort made with the Congress was the vote on PNTR in '99, but when we came into office, the work really wasn't completed. There were some sensitive negotiations that had to be done to complete some of the agricultural issues, retail distribution issues.

And I was just in China four, five, six weeks ago. Whenever one goes there, one is certainly struck by the critical role that country is going to play in the world economy, and it's vital that it be brought into that system, as well as Taiwan. This obviously builds on the work of a number of my predecessors--Charlene Barshefsky, Carla Hills, others that were very active in this. The China negotiations were actually in play for 15 years and Taiwan for 9 years.

We have now moved forward the Free Trade Area of the Americas negotiations into a concrete stage, and I'll talk a little bit more about this in a minute. And what we mean by this is we're now actually putting forward offers and taking offers in the negotiating categories.

We put on some steel safeguards, which I know were a controversial issue. The key point here is we felt it was important to use the WTO rules for safeguards to allow the steel industry to use a breathing space. I'm actually pleased they've used it as well as they have, in terms of some of the restructuring. You saw in the paper today, actually, the clearance for U.S. Steel to buy the National Steel assets. You already had the ISG--the International Steel Group--actually do the same for Bethlehem. They're doing some new labor contracts.

And at the same time recognizing that some of the strain this would put on some of the small businesses, we tried to blend it with a careful exclusions policy.

We passed the Jordan Free Trade Agreement and the Vietnam Bilateral Trade Agreement. The Jordan Free Trade Agreement is really only our third or fourth, depending on how you count. We have the NAFTA, which is Canada, Mexico and Israel and Jordan after that.

We have now completed the Singapore and Chile Free Trade Agreements, and we've launched a series of new Free Trade Agreements; one with Central America, that's with five countries. That's Nicaragua, El Salvador, Guatemala, Honduras, Costa Rica; Southern African Customs Union, that's South Africa, Botswana, Namibia, Lesotho, and Swaziland; Morocco, our second with an Arab Muslim country; and Australia.

Now, let me dig a little bit more into the particular initiatives. On the WTO, that was the Doha Round launched in Qatar in 2001, we now have 146 participants because Macedonia just joined. We're looking at the next meeting of ministers in Cancun of this year, in September, and the target date for completion is January 2005.

Once this round is launched, the United States really wanted to set a pace by focusing on what we think should be the most important part of global trade negotiating agenda, and that's market access, and that's in the three core areas of agriculture, consumer and industrial goods, and services. I mention this because there are other countries that want to add other topics. Europeans have wanted to try to broaden the agenda, and we're trying to work with them on that. But, for us, the core to this round is opening markets, and these are the three categories in which we can do so.

Now, the next one gives you a little sense of our proposals.

In agriculture, we worked with our farm community, which has its own subsidies, to say, Look, are you guys really willing to cut if we get others to cut? And they said, yes. And so we came up with a proposal that we eliminate agricultural export subsidies. Today, the United States only has about $15 million of this. The European Union has about $2 billion--"B," as in billion--and they have a limit of about $5 billion.
We would cut farm tariffs dramatically, from the global average about 60 percent to 15 percent. The U.S. average now is about 12, and we've cut ours down to 5.

We seek an agreement on a date for eventual tariff elimination, and we cut the trade-distorting farm support--and these are subsidies that aren't export subsidies, but distort production and therefore affect the market--by some $100 billion globally.

In the area of consumer and industrial goods, which a lot of you probably have a particular interest in, we looked at the fact that the WTO, which started as the GATT, had been in business for some 50 years, and we wanted to focus on the area that the GATT had started with, goods, and try to see if we could bring it to a conclusion.

So we, again, tried to set a bold mark by talking about the eventual elimination of all tariffs in goods, and on the way to doing that, we had some components.

First, if we could take all tariffs under 5 percent and take them to zero in the first five years, that would actually free up about three-quarters of the trade among the United States, Japan and the European Union. So that's a critical element to, frankly, just removing a barrier that exists with both paperwork and financially for a lot of trade.

Trying to have a formula that cut all other tariffs to 8 percent by 2010 and to eliminate it by 2015.
And then for a number of you who are particularly interested in what we call for the zero-for-zero negotiations, if you can get a critical mass in a sector where we all agree to go to zero, all the participants, we'd try to do that earlier.

Now, the next category I want to highlight is services. Services were really not even part of trade negotiations at the global level until the Uruguay Round, but we've been trying to emphasize their critical importance because, if you take the U.S. economy today, our GDP is about two-thirds services, about 80 percent employment. And indeed the line between services and manufacturing is increasingly blurring, if you consider those of you in manufacturing businesses, because of the role of IT or the retail distribution, all of the elements that frankly go into much more efficient sourcing networks and use of information technology.

And so this is just a sample of some of the topics that we want to try to liberalize in services, and frankly there's a lot of benefit for the developing world in this. If you take the average GDP of the developing world, over half of their GDP comes from the services sector as well, and you're getting a lot of win-win ventures, as you have seen in the newspaper about call centers, and things that we work out with countries in India or Central America and others around the world. Obviously, this includes vital areas like lodging and tourism.

And if you look at some of those key items on the left, it's hard to really develop a modern economy unless you've got the infrastructure backbone of telecommunications, financial services, energy services. And so, thus, those are core not only for U.S. firms, but actually developing an environment for growth globally.

The next piece should have Free Trade Area of the Americas. This was the agreement or the negotiation that, in a sense, President Bush "41" sort of talked about with the Enterprise for the Americas Initiative. In the Clinton administration, they launched this in 1994. And when President Bush came in, he had his first summit at the Quebec City Summit of the Americas, where we moved forward a specific agenda to try to have a timetable for negotiations among these 34 participants. We also set a target date for January 2005.
Now, at this point, the United States and Brazil are co-chairs, and this is key because Brazil is obviously the biggest country in South America and the leader. And we're now at a stage where we've had our first comprehensive offers for goods, agriculture, services, and government procurement.

The next meeting of ministers in this negotiation will be in Miami in November 2003, and that'll be the first large ministerial trade meeting the United States has had since Seattle.

And the Enterprise for ASEAN Initiative, this is one of our efforts to try to prepare the way for more free trade in other sectors of the world. This was an initiative that built on what, frankly, President Bush's father's administration had done with Latin America, leading to the Free Trade Area of the Americas. And the concept here is to work at multiple stages, depending on a country's need.

There are some countries in Southeast Asia that are not yet members of the WTO, like Cambodia and Laos, want to get those into the WTO. Then, with other countries, we have what we call a TIFA, a Trade Investment Framework Agreement, which is a working sort of arrangement where we can look towards a potential Free Trade Agreement, and then we wanted to hold out the incentive of Free Trade Agreements, building in our recent Free Trade Agreement with Singapore, which is a member of ASEAN.

And I put Middle East there because one of the things that we're working on right now is how can we follow up the military victory in the Gulf with some economic initiatives related to trade and development. So that'll be another regional area.

Now, I get a lot of questions about why bilateral initiatives. And the trade theorists, of course, like to have the WTO negotiations. It's the best bang for the buck. But as I said, the fundamental problem is I wish sometimes they could be in my office when I sit down with my staff and talk about all of the countries that are basically saying why they won't move on this item or that item, which could basically paralyze us if we only had one round.

So the benefit of complementary initiatives is that, first, bilateral initiatives allow us to level the playing field for U.S. firms and workers. The European Union has some 30 free trade and custom union agreements around the world--as I said, we now have NAFTA, Israel and Jordan-- and each of those agreements gives Europe an advantage, and it's not just the case of Europe.

For example, when we took office, and we started to move forward the Chilean negotiation, I started to talk to some U.S. industries about the disadvantage. Well, it ranged everything from our potato producers were finding that the 7-percent tariff disadvantage they had versus Canada was cutting into the potential for selling potatoes for the french fry sales, for fast food in Chile. The fast food stores were going for Canadian potatoes, as opposed to the United States.

A company like Caterpillar gave me a fairly striking example, which is that if you took one of their road graders, if they had the same road grader made in Brazil, which had a special trade relationship with Chile, it paid about a $3,500 tariff, and if you had their competitor's road grader from Canada, it had zero tariff, and if you were trying to manufacture and export this road grader from the United States, it had about a $13,500 tariff.

Well, this runs through the whole economy, and so one of the benefits is we've got to level the playing field.

A second point is we use these agreements to break new ground and set higher standards. In the bilateral accords, frankly, we can get into more detail than you can when you've got 145/146- some countries.
And so if you take a look at our Chile and Singapore agreements, they've developed some rather novel provisions dealing with things like digital intellectual property rights, moving forward the services agenda, even getting them, for example, to accept some of our standards for beef and for milk. And so we hope or intend to, in a sense, develop some models here and migrate it onto others.

Incentives for reform before negotiating. We now have a number of countries that want to approach us about Free Trade Agreements, and it gives us leverage to say, well, if you want to be considered, you have to clear up your Customs system. For example, Egypt is very interested in a Free Trade Agreement. They have a Customs system, whereby it doesn't really matter what your tariff is because the guy at the border will set the price. So until you get that system working, you know, it's hard to move forward a Free Trade Agreement.

And so we've been working with the State Department and AID with a system to try to strengthen the Customs arrangement. We also said to the Egyptians, look, you've got to accept the basic intellectual property laws. You might want to join the basic Telecommunications Act of the WTO. So we can use these as leverage for reforms.

You also can link them to sectoral reform, and here let me take the case of Morocco. It's a moderate Muslim state. The government is trying to move towards both economic and political reform, but when you look at their agriculture sector, sort of a leftover from I guess the Carthaginian era, is they grow a lot of grains, but actually their comparative advantage is probably fruits and vegetables for the European market or others.

So we're working with them and the World Bank, as the World Bank is doing a sectoral loan program to adjust their agriculture system, and we're trying to connect that with what we're doing on the trade side.
It also creates a competitive dynamic to liberalize. In other words, one of the challenges we face with Latin America right now is how quickly will Brazil move. Well, I want to be in a position to be creative and innovative with Brazil, but if Brazil doesn't want to move, I want to be able to say, we'll see you when we're ready. We'll keep going with other countries that are ready. And that's the best way to avoid endless debates. It just allows us to keep moving forward the agenda.

Regional integration is another important item. This is particularly the case with Central America and the Southern African countries. Let me just give you an example.

Botswana is a country that has, in a sense, made a mark in sub-Saharan Africa for having the longest multi-party democracy. The president is a former central banker, the finance minister is a former central banker, the foreign minister is a central banker. Everybody is as careful an economist as you can come, but it's got a population of 1.8 million people.

And frankly they're going to have a hard time competing with that market unless they're integrated to another market, and so they have an interest in being part of the Southern African Customs Union, which actually dates back to early in the 20th century. And it's a way to, again, as in the case of Central America, to help countries benefit and draw investment as a regional market.

All of these, with the developing countries, also helps cement economic and political reforms. Take the case of Central America, where 12 years ago the United States' major concern was ending bloody civil wars. You now have five very fragile democracies. They are fighting to try to do the right things economically, but to secure the peace, economically and politically, the access they have to the U.S. market, and indeed the association they have with the United States can become a positive force.
We also use these to create allies for the WTO and the Free Trade Area of the Americas talks. So when I sit down with a country and they're interested in a Free Trade Agreement, obviously, we may have different positions on issues, but I make it very clear that we can't be looking like we're treating them well, to the exclusion of others. And so it's actually helped us build a strong coalition to move liberalization of the other points. And obviously if you take the case of Morocco or the Middle East, it can also support our security and foreign policy interests or, I'd argue, in Central America or a good partner like Australia as well.

So, on the bilateral front, as I mentioned, we concluded the Singapore and Chile Free Trade Agreements. We hope to have Congress consider those and get them done this year. The Singapore agreement, the expectation is that Singapore's prime minister, Goh Chok Tong, will be here on May 6th, and that'll be signed by the president.

Central America, we launched this in January of this year. We're going to try our best to try to get it done this year so we would have a chance of bringing it through the Congress next year. Same with the Morocco FTA.

Southern African Financial Affairs with the Southern African Customs Union, we launched at the start of this year. Because we're dealing with countries with very different levels of development, this one may take a little bit longer as a process. We don't have a set end date, but we're just starting those negotiations.

And, again, we began the negotiations with Australia in February, and I hope we can get those done over the next year or so, although we've got some sensitive issues, particularly on the agriculture side. And, again, as we're looking ahead, we partly have a resource issue here because we only have 200 people at USTR, but we're looking at how we could help with the development, and reform and openness in the Middle East.

So, to look ahead, if you take a little bit of my agenda, in addition to those negotiations, it's very important we follow through on the China and Taiwan accession, and we may have some questions about this. I'd be happy to get into greater detail. So now that they're in, we have to make sure they implement it, give us an opportunity to actually do business there.

Russia is very interested in joining the WTO. That's an off and on venture, but important to really make it a truly World Trade Organization.

We have a series of enforcement actions, so whether it be in the WTO or NAFTA and others, and on the flip side, we've got some compliance issues, in other words, cases that we've lost, and we have to work with the Congress to change.

Under the steel safeguards, there is a review built in that is supposed to be done by September of this year.

In the small business area, we've been trying to work with Ex-Im, the Small Business Administration and others to try to capture the opportunities for small businesses in these agreements. And it's interesting--I don't have the numbers right at the top of my head--but if you look at the Central American Agreement, already there's a large percentage of our trade with Central America that's driven by small businesses. And I expect, given also the migratory patterns, you'd even see more of this because you're starting to see an integration of the societies.

And so we need to try to work with others that have more resources to help us try to figure out how we can try to have the trade agreement process and the follow-through to help small business.

A key area is trade capacity building, and this is another area where we work with OPIC, and Ex-Im, and AID and others, and Inter-American Development Bank, World Bank, we'd appreciate a little bit more help, but at least we're moving it. And here's the problem is we're now in an era where, with a lot of these developing countries-- it's very different then when I was last in government 10 years ago--they want to do the right thing, but they've got some fundamental problems. They may not even have the teams to be able to negotiate or, even if they accept a negotiation, they don't have the ability to implement things like sanitary and phytosanitary standards or intellectual property rights or to link it to their overall development strategy.

So we're trying to do a much better job of linking trade agreements into the capacity to trade, and grow, and develop, so that if, in a sense, if you kind of imagine that, you know, we're creating the hardware through the trade agreement that this will provide the software to actually make it work.

Environment in trade and labor conditions in trade. Many of you know this was an extremely divisive topic, nd it held up a lot of the efforts on the trade front. And it was always our belief that good environment and good labor policies should move together with openness and growth and trade policies, and we put together some provisions in the Trade Promotion Authority Act, and then in our Free Trade Agreements, to try to advance environment and labor objectives without infringing on sovereignty concerns and, frankly, without creating a back door for protectionism.

HIV/AIDS, I mention this because, particularly in some parts of the world, particularly sub-Saharan Africa, this is a very critical issue. If you think about the SARS topic now, you can expand this in that it raises all of the fears that you have in a number of countries about their ability to combine economic reforms with the human resources.

Take my example of Botswana. Again, for a very well-run country, the government has actually also been out front in trying to identify how to get ahead of the HIV/AIDS issue, and the starting point was to get people tested and find out how bad the problem is, and I'll tell you, it's very bad. For a working age population, it's probably 30 to 35 percent of Botswana's population.

So, actually, we're working with Merck right now to try to not only do some things in Botswana, but maybe to try to talk with companies doing business in Botswana to try to develop some best practices.

I'll give an example from South Africa, when I was there earlier this year. This is a program we did with OPIC, and it actually drew a little bit on my Fannie Mae experience, is that one of the problems with HIV/AIDS in the developing world is getting people willing to be tested. You can't treat people unless you test people. And, understandably, some people are afraid to be tested because they're afraid of what will it do to their position in society, including their ability to get credit.

And so OPIC actually put together an innovative program, where it brought people in and required them to be tested to be able to get the loan. And if they tested positive, they could still get the loan to be able--this is to get sort of a very small housing ownership--they could get the loan if they went through the treatment program. So it was trying to make this into a virtuous circle, as opposed to a negative circle.
And then I just noticed that, I put at the end we have some other legislative items. There's some other adjustments in the African Growth and Opportunity Act, and we still have the Laos Normal Trade Relations, which I think was done in the late '90s, and it was never passed.

Now, a final slide for you, and then I'll take your questions.

A word about USTR. At least by U.S. Government standards, we're extremely small. As I mentioned, we're about 200 people. Now, one of the benefits of that is that--this was, I'm sure unintentional, but it worked to our advantage--we became a classic networked organization before people talked about networked organizations.

So when we need information, we don't have somebody in the basement who's been studying the topic for 20 or 30 years, we have to go out in the marketplace. And so I, and my colleagues, spend a lot of time trying to talk either to some of the formal sectoral groups we've set up or informal groups to try to understand what's happening in the marketplace and what we should be focusing on, and that's why I also mentioned this in the small business category.

So we need the help of all of you and others to do our job right. And in particular, if we're approaching this in a combined fashion, we need your help in multiple ways. We need your help in explaining trade and openness to the United States. Trade remains a very difficult political topic. Now, it may be very important for our efficiency, for our growth, for our prosperity in the future, but it's always a difficult sell, and we need to work with the private sector to do a better job to explain the importance of trade to employees and shareholders.

There was one of the agricultural cooperatives that I worked with over the course of the past couple of years that started to put on their pay slips the amount of exports that were part of their overall production, and it was a very, very large percentage.

I was out in L.A. about two or three weeks ago because I'm trying to build a Coalition for Openness with the entertainment industry. The entertainment industry gets about 50 percent of its revenues, 50 percent, from global business, but yet you have a devil of a time getting support from the Congress people interested in the entertainment industry for trade. Well, we've got to make that nexus more real.

Frankly, we've had some difficulties with the high-tech industry. When it came time for a push for Trade Promotion Authority, we didn't get the two Congresswomen from Silicon Valley. And if you look at the high-tech industry's future, it's going to be totally based on a global business model. And so why is that?
Well, we've got to do a better job of explaining to people that these things just don't happen naturally. They need to have the same political push because I assure you the people that want to close markets, they know how to work the Congress, and they make sure they pay if they vote for openness. So we've got to get the reverse side, with your help.

Building coalitions abroad with private sector and government. This is increasingly important. As I sort of look at a lot of the problems that I've been handed, and I discussed with some of the businesses that come in, you know, to a certain degree, you could work at a government level. But it's, as in anything else you do, if you've got somebody in that country that sees a benefit, in terms of bringing in the important or doing added business, then it creates a pressure on the government. So we need to do a better job of creating coalitions within not only our private sector, but with other private sectors to work on their governments.

And then I noted some of the points that I just referred to with Ex-Im partnership. For example, on each of these Free Trade Agreements, particularly with the developing countries, we have a separate effort on trade capacity building. And this is an area where, frankly, Ex-Im could help us, not only help the United States' exporters take advantage of it, but help--since it says "Im," as in import, as well as export--also help some of these countries be able to learn how to export to our market.

We, for example, OPIC and the Trade Development Agency has actually put an on-the-ground presence in Johannesburg as part of the SACU to try to work with the government there.

And then we've had some very good success with Ex-Im on programs like the Africa Air Cargo Roundtable, and in Europe, the Environmental Finance Seminar, ways in which you can do particular sectoral efforts that complement our overall trade agenda.

So that's an overview of kind of where we are. And I understand I'm the only thing standing between you and lunch, so I won't stand too much longer, but I'd be happy to take any of your questions, if you'd like.
Yes, sir?

PARTICIPANT: Thank you. Can you hear me?

AMBASSADOR ZOELLICK: I can.

PARTICIPANT: I enjoyed your presentation, and I work with a commercial bank, and really it's more of a comment to Ex-Im, through you, rather than a question.

As I looked at your presentation, I recognized some of the initiatives that Ex-Im Bank has been very successful in implementing, the sub-Saharan African initiative, the Renewal of Energy initiative, the Small Business initiative, the Renewable Energy, as I mentioned.

But I also recognized some disinitiatives or prohibitions to Ex-Im Bank employees, and I don't have a problem with this, necessarily. For example, I saw the steel review comment. The fact is there are some programs Ex-Im Bank won't submit or some transactions that it won't submit or it won't submit for approval or won't approve. Again, I don't have a problem with that.

I guess my recommendation or thought for Ex-Im Bank would be please let us know what those prohibitions are. You can find yourself involved in transactions affecting the steel industry. Perhaps there's a problem with tomatoes or certain agricultural products with Mexico. It would be good for customers of Ex-Im Bank, the commercial lenders or whoever is bringing deals in, as well as exporters of equipment in those industries that there are, say, prohibitions, to know up front what those limitations are or what those disinterests are from Ex-Im Bank, so that two, three, four, six months sort of isn't spent on a transaction only to realize it's never going to get approved.

So my request, sort of through you to Ex-Im Bank, would be please let us know what transactions aren't going to be supported, and I think it would be lot more efficient for Ex-Im Bank's credit analysts, as well as for exporters and commercial lenders. Thank you.

AMBASSADOR ZOELLICK: It's a good point, and I'm sure they are taking notes, but let me just broaden on it to make this point. Part of what we're trying to do, and this is even, it's a very good opportunity to be with all of you today, is to talk a little bit about the framework of what we're doing because then you, as business people, can get a sense of where we're trying to move in some of these areas. Some of you may be able to take advantage of opportunities. And what we're trying to do a better job of within the U.S. Government is to try to integrate the functions, OPIC, Ex-Im, have some good help from AID in a lot of this.

Let me give you another example is that we've tried to work with AID, on occasion, with countries that we want to strengthen their intellectual property rights enforcement, and some countries want to do the right thing. They just don't have the resources, but we're trying to work with AID to be able to strengthen, develop the abilities to do that, and we also combine that with these Free Trade Agreements.
So we're trying to make a--I don't like this word, but I guess it fits--a sort of more holistic approach on these things.
Any other questions?
Yes, sir?

PARTICIPANT: It was observed by a speaker that preceded you that sometimes the government doesn't seem to get it, and I was hoping you could help them "get it" as part of it. The issue that galls me right now is the Millennium Challenge Account, which is supposed to be addressing a new way of assisting countries that are trying to do the right thing.

AMBASSADOR ZOELLICK: Yes.

PARTICIPANT: Yet the leadership that's proposed for the organization does not have any representation either from the private sector, who we think "get it," or from the export-oriented organizations within the U.S. Government. It's composed of the same people who ostensibly don't get it or they wouldn't have to create the Millennium Challenge Account. It's Treasury, and State Department, USAID, and so forth.

AMBASSADOR ZOELLICK: Well, on particularly the Millennium Challenge Account, I share your interest in making sure that it gets off on the right foot. And for those of you that aren't familiar with all of the details of this, the basic concept is that, in the past, we've used a lot of aid money, and frankly if you put it in a country that isn't doing the right governance reforms, often the money will just go down the hole, from corruption or just poor usage.

And so the concept of the Millennium Challenge Account was for some of the poorest countries to say, for those who actually do the right things in governance and moving towards a more open economy, those are the ones that we'll put our money in, and it's a little-like what we are trying to do with free trade agreements is to create models of success. I have actually talked with NSC and others about, from my point of view, the importance of trying to integrate what we do on the trade side with them. We can do some of that informally. I have also, I know that in this case we have the good fortune, and one of the lead appropriators being Jim Kolbe, who has a very strong interest in aid and trade. So I think that's a reasonable point.

Without casting any aspersions on some of the other departments, Treasury has a good view I think on what needs to be done in terms of economic reform.

Now, as for the private sector, I think that's another very good insight. And one of the things that I'll take back that may come out of this meeting that you can also carry forward would be that's the sort of group that may want to have some sort of private sector advisory process.

It's interesting, in the trade area, because this is kind of the way the system has been built up, we have, I think, some 34 formal private-sector trade advisory groups. It sort of is a pyramidal structure.
And so, as I said, that, combined with our smallness, it's the way we live, but you're right, it's not always the way some of the other bureaucracies live. So I think that's a very constructive idea.

MS. GIBBS: What has been the impact on your negotiations of the U.S.--

AMBASSADOR ZOELLICK: I can't see you. Where are you?

MS. GIBBS: Right here.

AMBASSADOR ZOELLICK: Ah, gocha.

MS. GIBBS: I'm sorry. What has been the impact on your negotiations of the U.S. position on steel and how do you expect it to affect you going forward?

AMBASSADOR ZOELLICK: I haven't really--I mean, there was a fair amount of complaining, obviously, as we started, but let me put that into context.

First off, I certainly have a very strong bias about doing anything that would close U.S. markets. When I looked at the global steel industry, I had to acknowledge that this is an industry that manipulation was its code word. If you took a look at the five Japanese companies that made steel until 1997, from about 1970 to 1997, 27 years, those five companies didn't change their domestic market share by even 1 percent in any one year over 27 years. I've never seen a market work that way, and it's a little bit of what's happened in the global steel industry.

Now, having said that, the other point was that the safeguard rules are there for all countries to avail themselves on. There are some 30 safeguards in place around the world. And it certainly was my belief that the U.S. steel industry needed a time period for a number of reasons--we had by currencies and other things--if it used the time period well, and no one knew for sure whether it would do that.

And I've actually been encouraged, as I've mentioned, by some of the restructuring and consolidation, and, frankly, the new labor union agreements that are moving forward.

Now, at the same time, when we designed the safeguard, we excluded most developing countries. We also excluded Mexico, and Canada and our other Free Trade Agreement partners. And for other countries like Brazil, you know, where you hear a lot of complaints about, because of a tariff rate quota we constructed for slab, which was used by a lot of our importers, some 80 percent of Brazil's steel exports weren't even covered by this. And here's a little statistic to take home with you. Our steel imports last year were actually a little higher than they were the prior year.

And it's interesting to watch what's happened in the steel market. Prices moved up here, but they also moved up globally, and, frankly, it led me to even have a little bit of suspicion about what I felt in the past about how that market works or doesn't work.

But there are other conditions that are going on-line. For example, probably one of the biggest ones in steel right now is that China is using a lot of steel, and the whole construction of China is probably absorbing a lot of the steel market.

But as for the negotiations, while people complained, what we emphasized was, first, this is a WTO safeguard. If you disagree with the safeguard, take it to the WTO. Don't act outside the rules. A number of countries have done that, and as you may have seen, we lost in the first round, and we're now in the process of appealing. And so that'll be a judgment, if we lose on the next round, what course the administration will have to take. My own view is we push people to follow the rules of the system, and that's the approach that we should be trying to take.

In addition, we also used this a form of leverage in that we started some negotiations globally about the overall rules that should guide the steel system; for example, some of the subsidies that take place around the world, and we're actually hopeful that we might be able to integrate some of that into the Doha negotiation.

So my sense is it's given a breathing space to the industry. Some of the companies have used it relatively well. We followed the WTO process. It's actually given us a little bit of leverage in the rest of the world. So I think net-net, while it was a rocky period, I definitely believe it's the right course. I did before.

And the other part I left out, by the way, which is the political reality, which is that, when we came into office, over half the members of the House of Representatives had signed a bill favoring steel quotas. For those of you that know the details of how the Congress works, if you have over half the members sign a petition, they can discharge and force a vote on a bill, even if the leadership doesn't want to.

And, frankly, it was our view that it was better to try to get ahead of this problem, come up with a solution that allowed some breathing space and restructuring, rather than spend a year-and-a- half trying to fight the issue, and, frankly, I think that helped us get some of the votes that pushed over TPA as well.
One more question. Yes, sir?

PARTICIPANT: Hi. Doug Palmer with Reuters.

You talked a little bit about some trade initiative for the Middle East to I guess help spur economic growth and development and that region. I just wondered if you could elaborate on that, what sort of ideas the administration is looking at.

And if I could just squeeze in a second question. There's two meetings coming up, an OECD meeting next week in Paris and another mini ministerial meeting in Egypt in June, and I just wondered if you could talk briefly about your expectations and hopes for those meetings, in terms of making sure that the WTO negotiations move forward.

AMBASSADOR ZOELLICK: On the first one, which was the Middle East, as I mentioned, we now have a Free Trade Agreement with Jordan, and we have a Free Trade Agreement with Morocco or we're negotiating a Free Trade Agreement with Morocco.

We've had trade investment framework agreements with a number of other countries, including Bahrain and Egypt. And as I mentioned, when I talked about my Egyptian example, we are trying to use this as an incentives, with things like intellectual property, Customs and others, to strengthen Egypt's ability to move towards a Free Trade Agreement.

So one of the ideas is could we extend this notion like we did with the ASEAN initiative. There are some countries that are not yet members of the WTO--Saudi Arabia. Saudi Arabia has blown hot and cold about its accession process. Most recently, there's been signs from the crown prince of an interest, and I had a good meeting with the former minister of Commerce on that to move it forward.

So bringing some countries into the WTO, moving other countries into TIFA, and then the prospect of moving from TIFAs to potential Free Trade Agreements is the idea to try to link it with aid and development. But this is something that, frankly, the president sketched in a speech that he gave at the American Enterprise Institute, where he talked about following up the security issues with a series of dimensions relating to everything from the Middle East peace process to creating economic hope and opportunity.

Let me just give you some statistics that a colleague of mine pulled together. I thought it as rather striking. Contrary to the conventional wisdom, if you look at the demographic statistics in the Arab Middle East, you see two striking things:

One is life expectancy has increased significantly, not in all countries, but in the vast majority, at the same time that birth rates have fallen. So, at least in a general principle, one might draw the conclusion that the health conditions are better, and that's very important in terms of human resource development.

If you also look at the education statistics, they're moving them quite quickly. So you're getting a better-educated workforce. Now, some may question the nature of the education, and this partly deals with the nature of secular societies in these countries, but just in terms of broad statistics, and I think this surprises most people, and it's not true for every country--I don't think it's true for Saudi Arabia or the Palestinian Authority--but for most of the others you start to see conditions that would suggest better health and higher education, and that is the raw material of human resources to move into trade. So that's a concept to build on.

And the other element that I think we have to try to catalyze is that there was a very interesting U.N. human development report about the Arab World, produced by Arab scholars, that was quite critical of the problems that the Arab countries face.

I actually see that as a good sign because it's a sign that within this region there are stirrings of change. If we can capitalize on that movement and help support it with things like this, I think that would be very positive for our long-run economic, political and security interests.

On the meetings, Doug, at this point, the focus is what do we need to do to try to move forward the process for the Cancun ministerial. And so what I have put forward, with some of my colleagues, is a need to focus on a limited number of issues. The core issues, you won't be surprised, three of them include the market access issues I mentioned, and I hope to try to discuss that with colleagues at the OECD more so that we can try to focus our attentions on those topics.

Then, in addition, we're trying to work with some other countries to try to see what else we can do to push along the negotiations in other areas, like the goods topic. So we are finding that a number of countries have--not to use too technical a term--the modalities, the ideas that we had in terms of cutting tariffs. If we can get some commonality of that, then it can put forward the process that has to be moved forward by the chairman of that negotiating group, Chairman Girard, towards the end of May, on its way to Cancun.

And that has the third element, which is that if the United States--and this is exactly what we're doing--is trying to show a leadership role in pushing this forward, trying to reach out with other countries to try to see some commonalities of interest, and I might add, including the European Union, then we come to the most critical issue, which is agriculture.

And here, the real key part is that it will be hard to move forward unless the European Union member states go along with the types of reforms of the common agricultural policy that the European Commission has itself proposed. Because they've proposed them, given the enlargement of the European Union, given their goals for rural environmental policies, they've proposed what is called the coupling of the payments from the production.

The European Union member states are debating that this year, and I hope that we can create an overall positive environment, where they see the interests for their own farm policy, the interests for the international economy, the interests for the international trade agenda, and the interests for the developing world.

So those are some of the things that we're trying to establish as a context going into those meetings.
I want to thank you all and thank Phil for inviting me. I really appreciate the opportunity to talk with you.
I know that, frankly, what we can do on the government side, going back to your point, is create an environment, but, ultimately, to make it go, it depends on the private sector. And we can try to open doors, and try to open markets, in an enabling sense, but the life blood of any commerce system is the people who run the businesses, and that's all of you. So I thank you.