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The Advisory Committee on International Economic Policy (ACIEP) met in partially closed session from 9:00 a.m. to 1:00 p.m., under the chairmanship of Michael Gadbaw. Gadbaw opened the meeting by welcoming new members Mel Klein of JAKK Holding Corp., and Joel Johnson of the Aerospace Industries Association. The closed session of the meeting was on state and local sanctions. Other session topics were as follows: Global Financial Architecture C. Fred Bergsten, Director of the Institute for International Economics, gave a presentation on the global financial architecture. Bergsten commented that the creation of the Euro was the most important change in the financial system in the last twenty-five years. He expected the Euro to challenge the dollar soon and to create a bipolar monetary system that will need to be managed by a new G-2. He then went on to examine the current financial crisis, noting that it had not been caused by the classic macro problems of high budget deficits and large current account deficits. The crisis was rooted in poor national policies on the micro level, especially in regulation of the banking system. He stated that the increased volume and speed of international financial transactions did not change the system, but that there was systemic failure. In his view, the IMF-based early warning system had failed repeatedly. Bergsten outlined the major proposals which have been made for reforming the international financial architecture. These proposals include new international standards for accounting, banking, bankruptcy, and auditing. International financial institutions would identify, monitor, and possibly condition lending on adherence to international best practices. Another proposal is for orderly debt restructuring through establishment of an international bankruptcy court or new international standards for bond issues that would allow majority voting on the orderly rescheduling of repayments, as now happens with bank loans. Bergsten stated that many observers have also called for limits on international capital flows, which could be achieved either through regulation or taxation. He concluded his remarks with a recommendation that countries should adopt managed floats, including target zones for exchange rates in some areas, particularly the G-7. He called for the G-7 to set reference rates and allow currencies to move in a range of plus or minus 15 percent. For emerging markets, he recommended a crawling peg. Human Rights and the International Economy Assistant Secretary of State for Democracy, Human Rights and Labor Harold Hongju Koh said that he wanted to dispel two myths. The first myth was that human rights and global economic development are unrelated. On the contrary, Koh argued, stable democracies that respect human rights provide the best climate for international investment. The second myth was that the efforts of those who promote democracy/human rights/labor issues obstruct economic development. This was also untrue, as evidenced by the positive impact of State Department initiatives on Holocaust assets, corruption, and sanctions policy. Koh asserted that the task at hand was to develop a new paradigm for the relationship between business and human rights. He outlined the role that the State Department, and particularly his own bureau, can play. The Department is pursuing several democracy and rule of law initiatives; it is deeply engaged with the UN Commission on Human Rights and also uses an "inside-outside" approach of quiet dialogue with problem countries (e.g., China) that we do not hesitate to criticize publicly. On the labor side, Koh also highlighted the focus on core labor standards; the linkage between trade and labor standards; social safety nets; and codes of conduct. Koh concluded by emphasizing the broad common interests of all parties to this debate and called for a cooperative effort based on the "process model" paradigm. In the question-and-answer period that followed, Carole Brookins asked whether there is enough understanding of what the business community is doing worldwide to promote human rights. On the labor side, Steve Beckman, Owen Hernstadt, and Mark Anderson maintained that voluntary codes of conduct were problematic for the labor movement, and that what really mattered was the promotion of free and independent trade unions. Koh stressed the importance of engagement, forward movement, and making the most effective use of dialogue and the other tools available. Civil Society and Economic Agreements Kimberly Elliott, Research Fellow at the Institute for International Economics and Chair of the ACIEP Civil Society Task Force, introduced the Task Force's 1999 Issue Agenda paper. Elliott explained that the Task Force is looking at both substance and process issues related to integration of civil society concerns into the international trade agenda. She also noted that the Task Force is focussing on fairly narrow, discrete issues consistent with U.S. objectives, namely the World Trade Organization (WTO) Ministerial Agenda, the Free Trade Area of the Americas (FTAA) Government Committee on Civil Society, and building an international consensus on trade and labor and trade and environment issues. Ms. Elliott pointed out that the name of the Task Force had been changed from the Labor and Environment Task Force to better reflect the importance of process as well as substantive issues. One representative of the labor community perceived the name change as a broadening of the Task Force's agenda beyond labor and environment issues and objected to such a broadening. Due to time constraints, there was no time for detailed discussion of the 1999 Issue Agenda paper. However, based on previous presentations in today's meeting, Ms. Elliott indicated that the Task Force might want to broaden its Agenda to include discussion of corporate codes of conduct. Also, one of the members suggested that at least one hour be set aside at an upcoming ACIEP meeting to discuss more thoroughly what kind of labor policies we want to build into the international trading system. Assistant Secretary of State for Economic and Business Affairs Alan Larson noted that there seems to be a broad consensus among the G-7 for significant forward movement on trade and labor issues. Year 2000 (Y2K) Thomas Block, Senior Vice President, Chase Manhattan Bank, gave a presentation on the Y2K challenge from the perspective of the financial services sector. With regard to global financial infrastructure readiness, he indicated that major failure is unlikely. The impact of inevitable, minor problems will be inconvenient rather than catastrophic. Block pointed out that the linkage points that support the global payments system (e.g., the New York Clearing House where international payments exceeding $1 trillion a day are made, the New York Stock Exchange, central banks, governments) are already conducting industry testing for Y2K readiness. There is a positive picture with regard to major trading partners such as Japan, most of Europe, Mexico and Canada. However, there is concern with regard to developing countries that are not in the economic mainstream, have inadequate infrastructure, and lack both funding and resources to meet the Y2K challenge. Block described the steps central banks are taking to ensure global liquidity, including making more currency available. He concluded that the anticipation of the Y2K event and the behavior associated with it may create their own problems by abnormally stressing normal business practices. The worst should be over by the end of the first quarter of 2000. Combating Corruption in Commercial Transactions Under Secretary of State for Economic, Business and Agricultural Affairs Stuart Eizenstat described the Administration's current efforts to promote anti-corruption initiatives. He said that with the ratification of the OECD Convention on Combating Bribery of Foreign Public Officials in International Business Transactions, scheduled to enter into force on February 15, the international community now has a codified agreement on best practices for curbing supply-side corruption. The Convention is especially significant because the 'big six' ratifying states - the United States, the United Kingdom, Germany, Japan, Korea, Canada - account for more than 60 percent of global exports. Other countries which have ratified are Bulgaria, Finland, Greece, Hungary, Iceland, and Norway. The next step in strengthening the Convention will be the development of a strong monitoring mechanism. Nancy Zucker Boswell, Managing Director, Transparency International USA, underscored the need for 1) adequate resources to enable the OECD Working Group to do effective implementation monitoring, 2) securing ratification by other major OECD exporters and adherence by major non-OECD exporters. and 3) inclusion of interested stakeholders in the monitoring process. Boswell described other anti-corruption initiatives, including the Organization of American States Inter-American Convention against Corruption (the OAS Convention), which differs from the OECD Convention in addressing demand side issues. She said there is broad support for US ratification to strengthen the Administration's ability to continue to press others to implement the convention. Effective implementation and Hill support will likely depend on the creation of a monitoring mechanism for the OAS Convention. The World Bank and regional development banks have modified their procurement rules to provide for greater transparency, and there is broad US corporate support for securing a WTO agreement on transparency in government procurement at this year's ministerial. Boswell also described a transparency initiative which major business groups are supporting within Asia Pacific Economic Cooperation (APEC). Seeking to turn previous statements and commitments by APEC leaders into concrete change, the initiative aims to mobilize public and private sector action to enhance transparency of macroeconomic data, laws and regulations, procurement, customs, and private sector governance. Success stories could be highlighted at the Summit in New Zealand, sending a strong signal to the international financial community that APEC economies are serious in their reform efforts and in creating economic conditions necessary to attract the stable flows of long-term capital required by the region. 02/10/99: Kimberly A. Elliott, Remarks on "Civil Society and Economic Agreements [end of document]
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