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U.S. Department of State

Department Seal Advisory Committee on International Economic Policy
Meeting Highlights: June 12, 2000

Released by the Bureau of Economic and Business Affairs
U.S. Department of State, Washington, DC

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Meetings of the Advisory Committee are open to the public. However, participants' statements are not for attribution.

Alan Larson, Under Secretary of State for Economic, Business, and Agricultural Affairs, opened the meeting and introduced Tony Wayne, the new Assistant Secretary of State for Economic and Business Affairs.

U.S.- EU Summit

Mr. Larson gave a report on the U.S.-EU Summit in Lisbon, Portugal. The Summit's accomplishments included conclusion of the Safe Harbor agreement on data privacy and the establishment of a two-track discussion of biotechnology. A government to government group and a Consultative Forum of private citizens would both seek areas of consensus and give reports to the December Summit.

Discussion of trade issues at the Summit included Airbus subsidies, the Beef and Bananas WTO Disputes, the Foreign Sales Corporation Dispute, and the U.S. "carousel" legislation, which would rotate retaliation lists. Little progress was made on these issues. The two sides did call for the launch of a new WTO trade round this year.

A committee member gave a detailed presentation on U.S. business's concern about the Foreign Sales Corporation WTO dispute. The amount of retaliation is potentially very large, but business sees the tax break as necessary for international competitiveness. EU Member States seem to have completely ceded leadership on this issue to the European Commission.

G-8 Okinawa Summit

The Committee received a briefing on expected themes for the July G-8 Summit in Okinawa. Key topics will include the global information society, development, biotechnology, and health issues, including HIV/AIDS. The U.S. wants other G-8 nations to double bilateral assistance on AIDS and to support efforts to develop vaccines against diseases that threaten developing countries.

A committee member asked that pharmaceutical industry leaders be kept informed about health initiatives. He noted that the major barriers to improved public health in the developing world were poverty and poor health care infrastructures. He recommended the website www.phrma.org for information on private sector efforts to improve health care.

A committee member urged that the U.S. look at ways the work of export credit agencies hinder achievement of environmental goals, including controlling emissions. U.S. Government representatives noted that the U.S. has pushed hard to address the environmental impact of export credit policies, but has met with resistance from other developed countries.

Global Information Economy

The committee was briefed on State Department efforts on the Global Information Economy. The briefer noted that the cost of internet use was heavily influenced by the cost of telecommunication. Countries with high telecommunication costs have less widely dispersed Internet usage. E-commerce is an important development in international business, but it depends on the speed and quality of the physical delivery system. Thus an enabling environment for international e-commerce must include good customs clearance procedures, competitive air cargo markets, and easy small parcel delivery. The State Department is also interested in the impact of the information economy on democratization and the opening of closed societies. Malcolm Lee was introduced as the new Deputy Assistant Secretary for Communications and Information Policy.

A committee member expressed concerns about the State Department's Bureau of Political-Military Affairs oversight of dual use technologies. Under Secretary Larson noted recent new initiatives in this area to facilitate trade.

Another committee member noted that the sudden emergence of the issue of privacy showed how government regulation can emerge suddenly in unexpected areas. Business faced difficulties in e-commerce if it had to reconcile diverse domestic regulations with the need to be globally competitive. A better international system is needed to identify and resolve emerging issues related to the global information economy. Examples were noted of UPS having difficulties delivering packages in Asia and of pharmaceutical companies facing privacy problems when complying with legal requirements to provide information to the Food and Drug Administration.

The Global Information Economy Working Group of the ACIEP will meet within the next few weeks. The State Department coordinator is Tim Finton fintonc@state.gov

Indonesia

Nancy Yuan of the Asia Foundation, which has more than 40 years of experience organizing programs in Indonesia was invited to give a presentation on Indonesia's future.

Ms. Yuan noted that there has been great progress in Indonesia despite the widespread perception internationally that reform is moving slowly. International expectations are very high on the issue of investigating past corruption and human rights violations, while Indonesians are more focused on national reconciliation.

Important issues for the future include demilitarization and defining a new role for the military in society. Another is decentralization that poses challenges for local governments which have historically weak legislatures and will have to find ways to address corruption. She added that there is a great need for legislative reform, but little understanding of this need in domestic public opinion. Support for public education programs on law and civics will be important.

During the discussion, a participant with considerable experience in Indonesia emphasized that Indonesia's remarkable transformation has not been widely recognized internationally. He noted that Indonesia is by population the fourth largest country on Earth, but one on the most underrated and least understood. He asked rhetorically if the Wahid administration has neglected economic policy while noting that the government had made a great turnaround with the IMF and seems on track for 4% growth this year. Summing up he said that Indonesia has problems but has shown great resilience.

A State Department Desk Officer for Indonesia listed four major challenges for President Wahid: 1) reforming the military; 2) maintaining a unified Indonesia in the face of separatist sentiment in Aceh, Papua, and the Molukus; 3) completing the commitment to independence for East Timor; and 4) addressing economic problems which have been relegated to the back burner.

During discussion, committee members asked about the role of Amien Rais, who was described as an important player, but not a puppet-master. In response to a question the desk officer clarified that the U.S. Ambassador had not threatened to cut off AID funding to NGOs that criticize mining companies.

Ukraine

Alexander Pivovarsky of Harvard University gave a presentation on Ukraine. He began by arguing that it was not sufficient to liberalize, stabilize, and privatize; Ukraine also needed to institutionalize democratic and market reforms. He said that other important issues included addressing corruption and self-interest in politics, domestic reinvestment, and corporate governance, especially minority shareholder rights. Because mass privatization was implemented without protections for minority shareholders managers have been left in charge and unchecked leading to problems of embezzlement and an avoidance of necessary restructuring. Another problem is rule of law and the role of courts in creating a stable legal environment for business.

Positive developments include investment by international companies drawn by the possibility of good return on capital and a well-educated but inexpensive labor pool. Mr. Pivovarsky stressed four important areas to address: Transparency of markets, including the reduction of barter; transparency of ownership; improved information flow in the economy; and public education on the nature of a market economy.

A State Department desk officer began his talk by noting that Ukraine could have been the world's fourth or fifth largest nuclear power. He said that the U.S. has provided more than $2 billion in assistance since independence, but economic restructuring has been unsuccessful. He said that the new Prime Minister is a reformer and that we take President Kuchma at his word when he pledges reform and a European orientation for Ukraine. The good news is that there is finally a unity of commitment to reform among the President, the Prime Minister, and the Parliament. He noted that the IMF, in the wake of a scandal over Ukraine's manipulation of financial data, is being very strict. The IMF is pressing for reform, including effective and transparent privatization and energy sector reform.

During discussion a committee member said we need to broaden our view of reform to include core labor standards and the role of civil society. She stressed the need to support individual trade unions.

When asked why Poland had succeeded in reform and Ukraine had failed, Mr. Pivovarsky noted different historical experiences and more significantly different policy choices. He quoted former Polish Finance Minister Balcerowicz as saying that Poland moved early to reform while people were still willing to endure pain and economic interests were not organized. Mr. Pivovarsky added that the importance of trade unions in Poland had helped give Poland better corporate governance.

China Permanent Normal Trade Relations (PNTR)

One committee member began discussion of China by saying that it will be an ongoing challenge to manage our complex relationship with China. She said China's accession protocol to the WTO would be very important and stressed the need for funding to ensure that China complies with its commitments. She added that there is an important role for individual companies in improving working conditions and disclosing production data. She said that China lacks free trade unions.

Another committee member said that the U.S. China Business Council has been working to gain passage of legislation on Permanent Normal Trade Relations for China. He recommended the website www.uschina.org. He said that trade with China has great potential but also great challenges. Zhu Rong Ji knows what is needed but will face resistance. The goal of U.S. policy should be to resolve conflicts before they get out of control. He said that U.S. corporations must behave with propriety and cannot "look the other way."

A representative of the Office of the United States Trade Representative (USTR) described the next steps in U.S. policy on China's WTO accession. In addition to the well-publicized effort to obtain Congressional passage of PNTR, USTR is now focusing intently on the drafting of China's Accession Protocol and the work of the WTO Working Party. These bodies seek to consolidate all of China's bilateral agreements on accession into a single set of commitments. Then it is expected that both China and Taiwan will be approved for WTO membership at the WTO Council meeting in the fall. After that, USTR's focus will turn to monitoring China's compliance with its WTO commitments.

Jordan Free Trade Agreement

The U.S. Government is working to speedily conclude a free trade agreement with Jordan. This is part of the Middle East Peace Process. Important negotiations will take place on how to incorporate labor and environmental issues into the agreement.

During discussion it was noted that Egypt also wants a free trade agreement -- but given Egypt's greater size and importance in international trade, such an agreement could not be negotiated and ratified as quickly as with Jordan. It was also noted by a member of the committee that Egypt has obstructed international discussion of trade and the environment in international fora.

Biotech Working Group

The Biotech Working Group of the ACIEP reported that they had held the first meeting of this new working group. The group intends to work very transparently and is open to participation by anyone interested in biotech issues. The group is diverse and recognizes that it may not reach full consensus on all issues. The Working Group is seeking briefings on U.S. biotech regulation, biotech trade issues, and the impact of biotech on developing countries.

Sanctions Working Group

The Sanctions Working Group noted that the U.S. had made some opening toward Iran by relaxing some sanctions on March 17, 2000. The U.S. Government was also moving toward some liberalization of policy toward North Korea. Legislation to exempt food and medicine exports from sanctions is being discussed in the Congress. Representative Nethercutt and Senator Dorgan are leading the effort.

The Sanctions Working Group will be chaired by Bill Clement of General Electric. The group seeks to refine its role, formalize it membership, get security clearance to receive classified briefings, and will prepare a paper identifying key problem areas to be given to the next administration's transition team.

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