The meeting was open to the public; however, participants’ statements, other than those cited, are not for attribution. The meeting room was at capacity with individuals from the membership, general public and media.
Committee Chairman Theodore Kassinger of O’Melveny & Myers, LLP, opened the meeting of the Advisory Committee on International Economic Policy (ACIEP) and welcomed members and other participants. Chairman Kassinger reminded participants that Chatham House Rules applied and emphasized that comments were not for attribution.
The meeting focused on “Economic Statecraft—Using Diplomacy to Meet Our Economic Goals” and covered the regional topic “Transatlantic Economic Partnerships.” Assistant Secretary of State for Economic and Business Affairs Jose W. Fernandez opened the meeting by describing the Economic Statecraft Initiative. He explained that last fall, Secretary Clinton laid out a new framework for diplomacy that places economics at the center of U.S. foreign policy. In that framework, the Secretary made clear that U.S. foreign policy must adapt as emerging nations increasingly exercise economic power as their primary means of measuring and exercising influence over other countries. U.S. global leadership is critically linked to the vitality of its economy, and U.S. foreign policy must be a force for U.S. economic renewal. The State Department is in a unique position to promote American economic leadership globally by crafting policies that help to create and to sustain the growth of well-paying, productive American private sector jobs. U.S. commercial diplomacy efforts must be elevated to attract investment in America and to ensure that U.S. companies can invest on fair terms in overseas markets.
A/S Fernandez further described how the State Department has been working within other agencies and with U.S. embassies worldwide to develop strategies and tools to address these challenges. The new “Direct Line” program puts the business community in direct contact with our Ambassadors and economic teams overseas. These calls are designed to cover a range of issues from a general market overview to specific sector analysis. To date, more than 10 of these calls have been conducted. Updates and call registration information for upcoming calls can be found at: www.state.gov/e/eb/ifd/bit/index.htm . The Secretary has called for all senior State Department officials to include economic or commercial advocacy in their overseas travels as another way to increase support for U.S. companies. U.S. embassies have also adopted a standardized approach to how they share economic, business, and investment information with the public. Embassy websites have added new business tabs on their homepages that consolidate this type of information in one place and list contacts for these issues. As the Department celebrated the first annual Global Economic Statecraft Day on June 14, 2012, to recognize the efforts to place economics at the forefront of U.S. foreign policy, U.S. embassies hosted nearly 250 events in over 130 countries to encourage connections between U.S. companies and foreign markets.
A/S Fernandez then asked for comments from the ACIEP members on their perspectives concerning the State Department’s role in supporting American business overseas, ways that the Department can be more effective, the sectors and markets that present the greatest opportunities for U.S. companies, and the biggest and most costly challenges facing American exporters. One member recommended doing more to include workers’ voices. She added that business and labor share a common goal, which is to increase exports, and that by including both labor and business voices in our partnerships, we can maximize opportunities for U.S. companies. Another committee member suggested having a plan for pressing forward on bilateral investment treaties (BITs). Because the State Department co-led the interagency process to update the model for negotiating BITs, it is well-positioned to initiate BIT negotiations with many countries. Another member noted the positive change in the Department of State’s attitude toward business and encouraged the Department to do more. In response to these comments, A/S Fernandez affirmed that the Department is doing more to engage with labor, companies, local chambers of commerce, and multiplier organizations. Other comments cautioned that the Department should address the concerns of small business, and that many small farmers are out of business because of trade agreements. Another member applauded the Department’s efforts but stressed the importance of resourceful coordination at embassies and having the in-country economic officers well-trained.
A/S Fernandez then introduced the next topic, Transatlantic Economic Partnerships. He noted that the transatlantic economy is the largest in the world. This interdependence makes it essential that the U.S. and Europe work together to coordinate trade and financial policy. Europe’s debt crisis is not just a matter for Europeans, bankers, or U.S. exporters. U.S. prosperity and security are tightly linked, as Secretary Clinton has repeated stressed in her Economic Statecraft agenda. The U.S. Government has worked to play a constructive role in supporting Europe throughout its financial crisis by strengthening our transatlantic economic partnership.
Next, Deputy Assistant Secretary of State for the Bureau of European and Eurasian Affairs Kathleen Doherty discussed the broader challenges facing European governments. Europe remains the United States’ economic partner of first resort, and the transatlantic economy accounts for over half of the world economic output. The key ingredient for any durable solution to the challenges Europe is currently facing is economic growth. The longer-term challenge for EU leaders is to reduce high unemployment, which stands at 11% in the euro area and at 10.3% when all 27 EU member states are considered. Among youth, the jobless rate is particularly high: over half of young workers are unemployed in Greece and Spain. D/AS Doherty pointed out that European leaders have taken significant action in the past few months to tackle their financial crisis, to adopt measures to spur growth, and to make Europe a better place to invest and to do business – for instance, by reforming pensions in Italy and implementing budget and wage cuts in Greece, Ireland and Portugal. The political climate of unemployment and slow growth in Europe is contributing to voter unrest, with 10 of the 17 euro area governments falling since 2010. The United States and Europe have a global partnership that is key for foreign policy challenges like Iran and the Arab Spring. The United States needs a strong Europe as a partner on foreign policy issues.
D/AS Doherty further stated that the United States continues to strongly support open markets in Europe and elsewhere in the world, and policies that offer more economic opportunities. The Transatlantic Economic Council (TEC) is at the center of U.S. work toward this end. The TEC brings together senior officials, regulators and experts from the EU and the United States. It is co-chaired by White House Deputy National Security Advisor Mike Froman and EU Trade Commissioner Karel De Gucht.
D/AS Doherty advised that TEC has made slow but steady progress on resolving regulatory differences in specific sectors. All agree that a more strategic and comprehensive effort toward boosting transatlantic jobs and growth is needed. At the U.S.-EU Summit in November 2011, Leaders asked a High Level Working Group (HLWG) on Jobs and Growth to review options for deeper transatlantic economic integration, to include the possibility of a comprehensive trade agreement. Secretary Clinton supports this engagement to grow transatlantic trade dramatically, to act as a catalyst for addressing global trade issues, and to encourage other countries to adopt the global standards that we create. As proposals for a transatlantic trade agenda are being examined, the best terms currently negotiated by the U.S. and the EU in Free Trade Agreements concluded with other countries, which address redundancies and inefficiencies, provide a foundation. Tough issues will require political consensus on both sides such as, for example, the issues of agricultural market access, sanitary/phyto-sanitary regulations, and technical barriers to trade. The TEC must continue its work to avoid new areas of regulatory friction in emerging sectors with significant economic potential for both sides including e-mobility, e-health, nanotechnology, and bio-based products. Success in the TEC will be an important signal that the high ambitions of the HLWG can be fulfilled.
Principal Deputy Assistant Secretary for Economic and Business Affairs Deborah McCarthy next offered comments on the investment climate in the European region. The OECD’s latest Economic Outlook forecasts that the global economy is slowly gaining momentum, but the recovery is fragile and uneven across different regions. The Eurozone remains the single biggest downside risk facing the global outlook. Structural reforms are the short-run remedy to spur growth and to boost confidence. Those reforms include making labor markets more flexible, making it easier for entrepreneurs to start new firms, and liberalizing protected service industries are critical to growth prospects in Europe. The combination of low growth, aging populations, structural inefficiencies, and high government debt load causes policymakers to face difficult choices in balancing fiscal restraint with growth-enhancing measures.
The economic relationship between the United States and the EU is heavily focused on investment ties. By the end of 2010, U.S. firms had invested nearly $1.5 trillion in the EU, while Europeans firms had invested an equivalent amount in to the United States. These investments have combined annual sales exceeding $4 trillion, a number that dwarfs both their bilateral trade and their trade/investment relationships with any other country, including China. For this reason, investment is a critical element of our economic relationship and making sure we foster an attractive business climate is a vital role for the government to support. A HLWG on Investment was launched in conjunction with the TEC. This group’s purpose is to build on and to strengthen the existing high level of cooperation on investment issues of mutual interest. It can help ensure that our large and highly integrated investment relationship continues to set the standard for open, transparent, and non-discriminatory international investment policies. To date, the HLWG on Investment has arrived at seven principles that describe fundamental aspects of an open investment climate, such as a level playing field, strong investor protection, fair and binding dispute settlement, transparency, responsible business conduct, and national security review criteria.
The process for deriving these principles gave a deeper understanding of the European Commission’s approach to investment and will serve well in future negotiations. The transatlantic business community helps to set the agenda for the HLWG on Investment by identifying investment priorities of mutual concern that would benefit from a joint approach by the U.S. and EU. The U.S. Government can be helpful to Europe by shoring up momentum toward full economic recovery from the 2008-2009 financial crisis. In that regard, the State Department has a number of important programs that aim to advance economic stability at home and abroad. At the Global Business Conference last February, Secretary Clinton announced her ambition for officers and embassy personnel abroad to be the most effective force multiplier for American business in the world.
D/AS McCarthy continued by describing how the State Department has been working with other agencies, including the Departments of Commerce, Agriculture and Treasury, the Export-Import Bank, the Overseas Private Investment Corporation (OPIC), the Trade and Development Agency, and USAID, among others to promote U.S. business and commercial opportunities in Europe and other regions. Some recent efforts include continuing strategic bilateral dialogues, opening a direct line to American business, and other work to support the National Export Initiative.
She concluded by pointing out that the U.S.-EU economic relationship generates trade flows of about $3.6 billion per day. Transatlantic investment is directly responsible for roughly 7.1 million jobs. Europe accounts for over 20 percent of U.S. goods exports and over 35 percent of U.S. service exports. U.S. commercial relations with Europe are three times that of China. The State Department has renewed its commitment to being a steadfast advocate for promoting economic growth.
Next, Deputy Assistant Secretary of the Treasury for Europe and Eurasia Chris Smart described developments in the Eurozone financial crisis and outcomes from the G20 Summit. The Eurozone consists of 17 countries locked into the same currency. Deficits and debts by member states continued to increase through times of low economic growth. In the past, Eurozone countries were able to borrow unlimited amounts at low interest rates as needed. Countries like Portugal and Italy have lost their competitiveness and their growth rates have slowed. At the G20 Summit, leaders focused on the challenges of the Eurozone. There is a need for the Eurozone countries to build out political and financial institutions. Strong commitments by leaders were agreed upon to promote jobs and growth while strengthening recovery efforts and addressing financial market tensions. The creation of a banking union will help overcome some of the obstacles Eurozone countries have faced. The growth of the economy also depends on a sustainable debt dynamic. The interest rates in Spain are above 7%, which is unsustainable over the long term. DAS Smart also noted that Greece had more debt, a larger trade deficit, and much lower productivity than had been officially reported initially. The U.S. Government is engaging with Europe at the highest levels on these matters.
Mr. Kassinger then opened the floor for comments from ACIEP members. Members asked which policies were being advocated by the U.S. Government that would help Europe stabilize some of its weak institutions and what could be done to calm Europe’s financial markets. Administration officials responded that it is in the United States’ interest to have a strong and integrated Europe and that Europe’s plan for stabilization needs to be more ambitious than two years ago. Its banking agenda needs to be supported by the financial institutions.
Another member suggested that Treasury has been too cautious in raising U.S. concerns with the EU. He stated that Treasury should explain more forcefully how the European crisis is affecting the United States. Another member raised the possibility of a transatlantic trade agreement and asked whether the EU has the capacity to undertake those negotiations in the near future. State Department panelists responded that there is the political will to work toward a trade agreement, but questioned whether the current time is appropriate.
A/S Fernandez then gave an update of activities concerning the 2012 Model Bilateral Investment Treaty (BIT). The Administration completed its review of the model BIT in April. Subsequently, State and USTR co-hosted briefings with key stakeholders to inform them of the changes before they were publicly rolled out. The report, including recommendations that ACIEP submitted to the Department, contributed substantially to our deliberations. State, USTR and the broader interagency committee deliberated at length on the right balance among the policy choices, and believe that the revised model BIT represents a significant improvement over the previous model. In general, the new model BIT maintains the approach of providing strong investor protections while preserving the government’s ability to regulate in the public interest. It includes enhanced provisions on transparency and public participation. It contains enhanced provisions related to state-led economies, including a new obligation prohibiting domestic technology requirements, and it strengthens provisions on the protection of labor rights and the environment. The new model enables the advancement of a full range of BIT negotiations, including those with China and India, as well as exploratory talks with Russia, Ghana, Gabon, and the East African Community. The text of the 2012 Model BIT can be viewed at www.state.gov/e/eb/ifd/bit/index.htm. ACIEP members expressed support of the 2012 model BIT, especially in the area of transparency. Members expressed support for further work in the area of state-owned enterprises.
Co-chair of the Subcommittee on Women’s Economic Empowerment Judith Barnett informed the group of the interest expressed by established women’s organizations on the ACIEP’s recently released report, “Corporate Advantage: How Women Leaders Elevate the Bottom Line.” The report is available at http://www.state.gov/e/eb/adcom/aciep/index.htm. The Women’s Subcommittee is looking at examples of model programs to advance women such as MEPI and the World Bank. A plan to stimulate job creation for women in the Middle East is critical. The Subcommittee is considering this as the topic for its next report.
Investment Subcommittee Co-Chair Thea Lee discussed a co-hosted State and USTR stakeholder briefing of the Investment Subcommittee on the 2012 model BIT. At that meeting, Under Secretary of State Bob Hormats, Deputy USTR Miriam Sapiro, Economic Bureau D/AS Deborah McCarthy, and the negotiators of the model BIT text briefed on the changes to the model BIT. Participating stakeholders were complimentary of the increased transparency provisions in the BIT process, but expressed various concerns about the labor and environment provisions.
Sanctions Subcommittee Chairman Barry Carter gave a read-out of an April briefing by A/S Fernandez to the subcommittee on, “Economic Sanctions: Recent Developments in the Process and Implementation at the State Department.” In that briefing, A/S Fernandez discussed the work of the Department’s sanctions team and underscored the message that U.S. sanctions regimes have helped affect some very positive changes around the world using Libya, Burma, Syria and Iran as evidence of this. Prof. Carter forecasted the next few weeks in anticipation of the United States’ announcement of the tightening of sanctions on countries that have not cut back their oil purchases with Iran. China and Malaysia are expected to be sanctioned by the United States. Prof. Carter also announced plans for a follow-up briefing by A/S Fernandez in July. An ACIEP member applauded the Administration’s work to toughen sanctions and added that the policies are having an economic impact on bad actors, but he expressed concern that the U.S. would not be able to keep up the pressure on the sanctioned countries. Another member expressed concern about the relaxation of the Burma sanctions at a time where there is a lack of democratic structures to monitor potential human rights abuses.
Stakeholder Advisory Board (SAB) Co-chair Trevor Gunn reported on the group’s recent activities. The SAB has established its work plan which will primarily focus its efforts to assist the U.S. National Contact Point (NCP) on promoting the NCP, establishing a proactive agenda that will help business and other stakeholders coordinate to find solutions to emerging corporate social responsibility issues, and developing procedures for handling specific instances. Mr. Gunn reported that in May, the SAB met to discuss the NCP team’s promotion activities, and that Alan Yu, the U.S. National Contact Point, gave a detailed briefing of those activities. Members discussed suggestions, such as the SAB assisting the NCP in raising awareness of the OECD Guidelines to SMEs, and generally to corporate social responsibility and sustainability officers at companies, as well as how to make the Guidelines more user-friendly and accessible to business and stakeholders. The SAB will meet again in July to focus on procedures for handling specific instances. The SAB plans to submit a report to the ACIEP at a date yet to be determined.
At the conclusion of the subcommittee reports, ACIEP Committee Chairman Ted Kassinger thanked the participants and adjourned the meeting.