Remarks as Prepared for Delivery by Business Roundtable President John Engler at the Chicago Council on Global Affairs' "Frontiers of Economic Integration" Conference on October 28, 2013.
Good evening. I’m delighted to join the members of the Chicago Council on Global Affairs, your supporters and guests at your international conference, “Frontiers of Economic Integration.”
Chicago is a great place to hold a conference on these issues. In historical terms, it wasn’t that long ago – 1833 when the city was founded – that Chicago stood on the edges of the American frontier. One-hundred and eighty years later, it’s one of the world’s great centers for international trade.
Tonight, I’m privileged to offer the perspective of our Business Roundtable CEOs, the 210 men and women who head companies that generate $7.4 trillion in annual revenues and employ more than 16 million people.
These companies are global in scope, but they also generate $540 billion in sales for small and medium-sized businesses annually – one of the realities that the public often does not appreciate.
Chicago’s own Jim McNerney, Business Roundtable’s chairman and the president and CEO of Boeing, often says, “Many owners of smaller companies, if you ask them if they do any exporting, they respond, ‘Oh, no, I just sell to Boeing.’”
Since I mentioned Jim McNerney, I note that 14 of our CEOs’ companies are headquartered in Illinois, 11 of them in the Chicago metropolitan area. Doug Oberhelman of Caterpillar, based in Peoria, also chairs our International Engagement Committee and is chairman of the National Association of Manufacturers.
Along with trade, I’d like to address some of the larger issues that must inform any discussion of global trade liberalization. Above all, the United States – and the world – needs stronger economic growth.
To propel growth, our nation’s leaders must move forward in such areas as energy development and tax reform.
And, we must avoid the kind of fiscal and political debacle we recently experienced in Washington.
Larry Fink, CEO of BlackRock and another Business Roundtable member, is very much in touch with what business is thinking. While Washington was dithering, Larry described what he was hearing from some of his major clients:
“CEOs told me they are holding off on hiring and putting off needed investments in factories and equipment. Global investors are reassessing their holdings of U.S. bonds.”
He summed it up: “This is the kind of anxiety that can and will hamper growth and drive up borrowing costs if our leaders don’t address it.”
Unfortunately, we’re facing another set of deadlines: December 13 for the budget and January 15 for the debt ceiling. The short-term mentality of D.C. wreaks havoc on companies’ efforts to plan for the long-term.
For elected officials at both ends of Pennsylvania Avenue: If America wants to be one of the world’s economic leaders, and if America wants its opinions respected, then America’s elected officials must act more responsibly.
The Business Roundtable was organized in the 1970s to influence economic policy. Early on, trade was a top BRT priority with such measures as the Omnibus Trade and Competitiveness Act and its “fast-track” authority, negotiation and completion of the U.S.-Canada agreement in 1988, and NAFTA and subsequent free-trade agreements over the years.
I’m proud to say that Business Roundtable played a lead role in all of these measures designed to increase trade.
Step by step, these initiatives helped lay the foundation for trade liberalization globally. Despite the failure of the Doha Round – unless Ambassador Schwab is able to present, in what I’m sure will be outstanding remarks tomorrow, a theory of how it might be resuscitated – we should not overlook the proliferation of bilateral, regional, and multilateral agreements that have been and are being negotiated around the world.
The most recent example is the announced completion of the EU-Canada deal announced last week.
Interestingly, many of these agreements have been quite ambitious and actually achieved relatively high standards that will facilitate global trade and investment.
Trade was not a priority in President Obama’s first term, but it certainly seems to have emerged as a priority in his second term.
The excellent appointment of Ambassador Michael Froman as U.S. Trade Representative, coupled with ongoing TPP negotiations among several Pacific nations and the launching of EU-U.S. talks, indicates a very ambitious agenda for U.S. trade.
An ambitious agenda would be helped considerably by Congress granting Trade Promotion Authority to the President.
When you’re negotiating, it’s important that those sitting across the table know that if they agree to something, there’s a so-called fast-track process available when that agreement reaches Washington.
Business Roundtable believes strongly that Trade Promotion Authority is an essential tool for our negotiators and that Congress should act on this as soon possible.
Such authority would help shape U.S negotiating objectives that would promote closer cooperation among the Congress, U.S. negotiators and the private sector in pursuing those objectives.
Simply put, TPA sets in place legislative procedures that assure everyone that when the trade agreements are completed, they will receive a timely vote.
BRT is leading the Trade Benefits America Coalition, formed with other major business groups, to support the President’s call for TPA and work with Congress to get it passed. We could use your help.
If the Chicago Council would be willing, letters to your two Senators and delegation would be most appreciated.
The Transpacific Partnership negotiations are making progress.
This audience certainly appreciates the arguments involved with a market of 11 countries – now with the inclusion of Japan, Mexico and Canada – outside the United States that represent a combined population of 482 million people and roughly 15 percent of global trade.
Every state stands to benefit from increasing commercial engagement with these countries, as does the overall U.S. economy. For example:
- Together, the current TPP countries represent the largest market for U.S. goods and services exports in the world. Forty-five percent of U.S. goods exports went to TPP countries in 2012.
- In 2011, trade with TPP countries supported an estimated 14.9 million American jobs.
- Companies headquartered in TPP countries have invested nearly $600 billion in the United States and employ more than 1.5 million Americans.
An even bigger opportunity lies ahead as we begin U.S.-EU negotiations. These talks are much less about tariffs, and much more about encouraging even stronger investment ties across the Atlantic and cooperating more closely on regulatory issues.
The European Commission has published independent analysis that shows that TTIP could boost:
- the EU's economy by $165 billion in U.S. dollars.
- the U.S. economy by $124 billion.
- and nearly $140 billion for the rest of the world.
I think they’re right. The numbers explain why European leaders of countries with slow-growth economies are eager to seize the opportunities represented by trade.
Even the Germans are solidly on board. That’s a change from five years ago when I was in Brussels calling for the beginning of trans-Atlantic talks.
My belief then and now is that there is a strong economic case for an ambitious trans-Atlantic agreement representing half the trade in the world.
Ultimately, such an agreement should include Canada and Mexico, given these countries’ existing trade agreements with the European Union.
Both the TPP and the trans-Atlantic agreement should seek to set high standards that could one day become global standards in such areas as intellectual property and investment protections. And, being really optimistic, we could increase trade and reduce costs by achieving regulatory reform, ranging from mutual recognition and ultimately to harmonization of regulation.
In plain English, if the Europeans are test-crashing a car and telling everyone it’s safe, and the United States is test-crashing a car and telling everyone it’s safe, rather than duplicate the tests on both sides of the Atlantic, why don’t we recognize their mutual safety?
If the U.S. is successful in negotiating ambitious, high-standards trade agreements, then countries like China, Brazil and India would find themselves under pressure to ultimately agree.
I personally think it is a mistake for U.S. negotiators to accede to U.S. regulators and keep certain regulatory cooperation issues out of the trans-Atlantic negotiations, such as in the financial services area. The U.S. and EU are the two biggest financial markets in the world, but there are some pretty significant differences in our approaches.
My preference is that everything would be open and on the table for discussion, but at present that does not seem to be likely.
A major reason why these trade agreements are so important is that the United States has been suffering with a growth rate at about half of what might be normal while emerging from the deep recession of ’08 and ’09.
Imagine a GDP growth of 4 percent rather than 2 percent. How much easier would the deficit debate be in Washington?
Even a 1 percent increase in GDP would mean $3.5 trillion in deficit reduction over the next 10 years.
Trade’s economic importance is also seen in the growing proportion of company revenues that come from foreign sales.
Once, it would have been unusual to see a U.S. company with more than 50 percent of its sales outside the United States. Today it’s common for companies to derive 60 or 65 percent of sales from abroad.
So, more trade and more sales mean more revenues for companies – and for the U.S. Treasury.
It also means more jobs. Too few people are aware of facts like the one cited by Proctor and Gamble, that 40 percent of the P&G jobs in Ohio are dependent on overseas trade.
As you can tell, I believe that trade is a powerful driver of the American economy.
In the future, I think we need to look at the North American region itself and consider how we can make NAFTA and companies operating in it more globally competitive.
An obvious starting point is greater cooperation on energy production among the United States, Mexico and Canada.
The technological advances in hydrofracturing and horizontal drilling have had an enormously positive impact on the U.S. economy.
The United States recently surpassed Russia as the number one oil-and-gas producing nation in the world.
The affordability and availability of gas has the potential to remake American manufacturing in the coming years. We should as a nation aggressively capitalize on this unprecedented opportunity. Let’s start by approving the Keystone XL pipeline.
Recently I was in Mexico City at the North American Forum. Business leaders from Mexico, the U.S. and Canada strongly agreed that greater energy cooperation could be a key contributor to more robust North American growth.
Mexico has taken aggressive steps to reform their energy sector, including the state-owned Pemex.
Canada continues to develop its abundant energy resources with an eye toward global exports.
Domestic energy development must be a key component in any U.S. growth strategy. I believe we’ll see the NAFTA region as a net exporter of oil in the very near future. We should celebrate that development.
At the Business Roundtable, we try to be comprehensive in setting an agenda for restoring America’s economic strength. Trade and energy aren’t the only concerns.
Business Roundtable this year released our 2013 CEO Growth Agenda — a comprehensive public policy agenda for restoring America’s economic strength. Our goal, and I quote: “To unlock private-sector investment and job creation through policy measures that eliminate barriers to growth.”
Other agenda items include proposals for regulatory relief, entitlement reform, improvements in education and workforce training, and stronger cybersecurity.
The good news is that I’m not going to go through all of them tonight, so let me close with just one more growth agenda item.
To restore vibrant economic growth, the United States should lower its corporate tax rates and move toward a territorial system of taxation.
The United States today has the highest business tax rate of any OECD country, making it difficult to compete in global markets.
The list of countries that have lowered their own top rates for competitive purposes just keeps getting longer: Canada… Britain… the Scandinavian countries… Japan. Even Portugal just announced plans to lower its corporate rate to jumpstart their economy.
The United States is also the only G-8 country to use a “worldwide” tax system, which collects U.S. taxes on the earnings of U.S. foreign subsidiaries.
Most other OECD countries employ a more modern international tax system, where a company's sales in foreign markets are taxed at the rate of that local market – the same rate borne by other competitors.
America – and the world – would be well-served by the United States adopting a system that encourages a more rational investment pattern by U.S. companies. Let U.S.-based global companies bring the money back to America… invest it here… pay dividends here… create jobs here.
Can Congress deliver on these changes? Well, Chairman Max Baucus of the Senate Finance Committee and Chairman Dave Camp of the House Ways and Means Committee have done yeoman’s work this year in developing the foundation for comprehensive tax reform.
President Obama has expressed support for lowering the corporate tax rate, and his administration is considering a modified territorial system. So we’ll put him down as a yes.
Earlier I mentioned a December 13 deadline. There is a conference committee meeting on the budget with action due by that date.
The timeline is tight, admittedly, but Business Roundtable believes our nation’s global leadership and economic growth are closely intertwined, and comprehensive tax reform is necessary to revive that growth.
So I suggest the conference committee directs the tax committees to come up with a plan for Congressional action in 2014. We’re playing catch up and it’s time to act.
Bottom line: I am very optimistic about global trade as an impetus for economic growth at home and around the world.
But trade alone won’t get the job done. America must also begin to resolve other critical domestic issues.
Thank you again to the Chicago Council on Global Affairs, your distinguished guests and supporters for the privilege of speaking tonight. You have my best wishes for a successful conference.