June 25, 2013
Foundation Guest Speaker Paula Stern talks economy, technology, and gender barriers.
The Honorable Paula Stern, Chairwoman of the Stern Group and former Chairwoman of the U.S. International Trade Commission, joined the French-American Foundation for a special luncheon at the Links Club in New York on Friday, June 7, at which she commented on the TTIP agreement currently in negotiations. To read the prepared text of these remarks, click here. To see photos from the luncheon, click here.
A former chairwoman of the U.S. International Trade Commission (ITC) and distinguished scholar, The Honorable Paula Stern founded The Stern Group, Inc. in 1988 and leads its practice, serving national and multi-national companies and organizations on business, political and technological issues that affect their competiveness in a global economy.
As chairwoman of the ITC, from 1984-1986, and a commissioner for a nine-year term, Dr. Stern analyzed and voted on over 1,000 trade cases involving a broad range of industries and issues. At the time, she was the second highest-ranking woman in the executive branch of the U.S. Government.
Dr. Stern is a member of the US State Department’s Advisory Committee on International Economic Policy, the US Department of Commerce’s Advisory Committee on Renewable Energy and Energy Efficiency, the Executive Committee of the Atlantic Council, the Boards of the Committee for Economic Development, the Diversified Search Advisory Board and the Columbia University School of Social Work, and a member of the Council on Foreign Relations, the Inter-American Dialogue, the Bretton Woods Committee and the Global Subsidies Initiative High-Level Advisory Group.
Dr. Stern also serves on the Boards of Directors of Avon Products, Inc. and RAC, Inc., and the International Advisory Board of Lafarge. She is a former Board member of Neiman Marcus, CBS, Duracell, Harcourt General, Hasbro, Scott Paper, Walmart, Westinghouse and Avaya.
As both a member and senior advisor of the Trade Policy Sub-council of the bipartisan Competitiveness Policy Council, Dr. Stern prepared the Council’s proposals for reforming U.S. international economic policy making, delivered to the U.S. Congress and President in 1993, which guided the trade and export policy of the Clinton Administration.
Dr. Stern was a also member of President Clinton’s Advisory Committee on Trade Policy and Negotiations, and served as co-chair of the International Competition Policy Advisory Committee for the Attorney General and U.S. Department of Justice Antitrust Division; chair of the Advisory Committee of the U.S. Export-Import Bank; and as a presidentially appointed member of the Board of Directors of the Inter-American Foundation.
Dr. Stern’s other service includes membership on the congressionally mandated National Academy of Sciences’ Panel on the Future Design and Implementation of U.S. National Security Export Controls, and the U.S. Congress’ Office of Technology Assessment’s Advisory Panel on Technology, Innovation and U.S. Trade.
Dr. Stern began her career in Washington in the 1970s as legislative assistant and senior legislative assistant to U.S. Senator Gaylord Nelson, and also was a guest scholar at the Brookings Institution, where she wrote a definitive book on Congressional-Executive foreign policy making, titled Water’s Edge – Domestic Politics and the Making of American Foreign Policy. She has also a fellow at the Council on Foreign Relations, a senior associate at the Carnegie Endowment for International Peace and a senior fellow at the Progressive Policy Institute.
Dr. Stern’s writings and commentary on foreign policy, trade-related topics and women’s issues have been widely published in scholarly and popular journals as well as The New York Times, The Wall Street Journal, USA Today, The LA Times, The Chicago Tribune and other mainstream media. She was named one of the top women influencing the American economy by MS Magazine, and honored by The National Women’s Economic Alliance Foundation with its Directors’ Choice Award for Leadership. She is a frequent public speaker and television commentator in the U.S. and abroad.
Dr. Stern has a B.A. from Goucher College, an M.A. in Regional Studies from Harvard University, a Ph.D. in International Affairs from Tufts University’s Fletcher School of Law and Diplomacy, and honorary degrees in Law from Goucher College and Commercial Science from Babson College. She is a recipient of the Alicia Patterson Journalism Award and the Joseph Papp Award for Racial Harmony from the Foundation for Ethnic Understanding.
In his 2013 State of the Union Address, U.S. President Barack Obama announced his intention to pursue a free-trade agreement with the European Union, creating much discussion about the potential Transatlantic Trade and Investment Partnership (TTIP).
What are the political and economic issues that will define the debate around this agreement?
The political and economic issues that define the discussion about TTIP are intertwined. The United States’ economy has grown slowly since the financial crisis, [6.8 percent since the trough of the financial crisis, but only 2 percent from pre-crisis (2008) levels)]. Europe’s economy has been stagnant at best. Obama’s first term focused on stimulating the U.S. economy out of recession and on passing his preeminent domestic policy goal – the Affordable Care Act. President Obama also has had to deal with winding down the wars in Iraq and Afghanistan. Partisan intransigence in Congress has complicated all of these efforts.
Meanwhile, trade policy remained secondary until President Obama’s State of the Union Address after his election to a second term in office. In that speech, he signaled his intention to negotiate a U.S.-EU agreement stating how transatlantic trade “supports millions of good-paying jobs.”
President Obama, like any elected official, emphasizes the job opportunities from trade liberalization like the TTIP negotiations. Organized labor, especially those union members in manufacturing jobs, has been traditionally wary of free-trade agreements. So, President Obama seeks to assure this important constituency that the TTIP arrangement can stimulate export jobs and more investment in the United States.
On economic issues, Germany’s voice is the dominant one in Europe. Its’ strong monetary hand and dominant voice on fiscal austerity is clear evidence of that. One sees further evidence of this fact in Germany’s trade policy, where just last week it succeeded in watering down the European Commission’s order to levy duties on dumped Chinese solar panels. Under the WTO-sanctioned laws governing this procedure, authorities were set to impose dumping tariffs on Chinese solar panels that had captured 80 percent of the European market share. Fearing Chinese retaliation against German exports and investment in China, Germany aligned with China to avert severe dumping duties; 15 other EU countries joined Germany. Berlin wielded substantial weight. Chancellor Merkel and Vice-Chancellor Philipp Rösler divided what had been a united European front – over the objections of the European Commission authorities.
In response, the EU Trade Commissioner Karel De Gucht had to step back and lower the initial duties to 11 percent for 60 days – largely caving to the Beijing-Berlin position. Yet this has not satisfied the Chinese authorities, who quickly retaliated against selected EU products – prominently wine from France, Spain, and Italy – rather than follow procedural channels for dispute settlement at the WTO.
What does this mean for TTIP? Certainly it means that observers, particularly those of us in the United States, must remember that the EU is not always a unitary body. It also highlights the fact that while Germany typically favors a stronger Brussels, it will place its own national interest over that of the EU as a whole.
The legislative environment in the U.S. Congress and the European Parliament will influence the negotiations but in different ways. The Obama administration suffers from acrimonious Congressional relations, especially since the Republicans took control of the House of Representatives in 2010. Though the TTIP would benefit many Republican backers, it may not be politically desirable for the Republicans to let the Obama Administration pass TTIP easily through Congress. The executive branch leads the negotiations, but ultimately Congress has the constitutional power to regulate foreign commerce and stamp its final approval for any trade deal. In Europe, the European Parliament is flexing more independent political muscle. On May 23, 2013, the Parliament passed a resolution that TTIP exempt “audiovisual” issue from the negotiations. There are many more protected and subsidized sectors that each nation holds very dear. The job of the trade negotiators is to manage myriad sectoral and national actors wishing to influence the final outcome of TTIP.
With economic growth still sluggish in the United States and virtually nonexistent in Europe, expanded trade opportunities are vital to both sides of the Atlantic.
How could this proposed agreement stimulate economic recovery in both regions?
Will the state of both economies hinder or help this agreement?
TTIP would help to stimulate economic recovery on both sides of the Atlantic. The added demand for both American and European products would increase GDP. According to the Centre for Economic Policy Research, the United States would gain $120 billion per year and the EU would gain $150 billion per year. U.S. exports would increase by 8 percent, while exports in the EU would increase by 6 percent. Both economies are in weakened states where an agreement such as TTIP would surely benefit them. TTIP does not raise the traditional concern of unions that have opposed U.S. free-trade agreements with developing nations. (Remember NAFTA, The North American Free Trade Agreement with Mexico?) In short, the United States and the European Union are major open economies and together their trade and investment flows make up the largest economic relationship in the world. Consequently, liberalizing trade and investment further can improve overall standards of living on both sides of the Atlantic.
The latest June trade statistics underline what is at stake. This year, U.S exports so far have fallen 7.4 percent compared with the same period last year. This decrease reflects the fact that European demand is still sagging. TTIP can serve as a beneficial stimulus to the European economy.
A more transparent and connective trading partnership would generate spillover effects that would stimulate other parts of the globe. Though multilateralism is the “first-best option” in terms of trade policy, TTIP is a bilateral/regional agreement. The EU’s Trade Commissioner, Karel De Gucht, believes that a bilateral agreement as large as TTIP could “support the resumption of work at the multilateral level in the future.” Whether or not TTIP prompts advances at the World Trade Organization (WTO), I believe it is opportune that both Europe and the United States cement their trading relationship. Both economies are not at their strongest or most competitive, relative to faster growing Asian economies. Transatlantic cooperation, however, does increase leverage of the EU and United States vis-à-vis the rising clout of China. Moreover, the effects of an agreement, and even just the negotiation factor, should encourage investor confidence in the transatlantic economies.
Based on your experience with the International Trade Commission, do you foresee this free-trade agreement as likely to succeed in the coming years?
What barriers exist? What implications would transatlantic free trade have for businesses and national economies in Europe and the United States? In France in particular?
At this starting moment, I am optimistic about TTIP’s prospects, but negotiating won’t be easy. Many relatively easier things have been done already in previous rounds of negotiation at the World Trade Organization and its predecessor, the General Agreement on Tariffs and Trade (GATT). Tariffs are already relatively low, but since our reciprocal trade is so enormous, it will be a welcome stimulus to our consumer economies. Reducing non-tariff barriers (NTBs) to trade will be trickier, as they are deeply embedded in the domestic systems of 27 different nations, layered over by EU rules and regulations. In the United States, our Congressional and federal systems complicate the job of steering the road to success. There are a number of thorny issues which will be on the negotiating table. Nevertheless, negotiators know that the greater the reduction in trade barriers that they can achieve, the greater the economic payoff will be for both sides.
The NTBs that are on the agenda are particularly resistant to negotiations. These in-country barriers include consumer health and food regulations and environmental standards. There are different government procurement barriers and so called cultural exceptions. These NTBs reduce trade as much as if there were customs duties of between 10 and 20 percent, according to official EU calculations. Wherever negotiators can find common ground, and there ought to be plenty, standards ought to be harmonized. That can be done through a variety of approaches including mutual recognition and convergence. Both Americans and Europeans are understandably cautious about changing these standards. These rules and regulations reflect political and commercial accommodations made over the decades at the national and EU levels in Europe or the federal and state levels in the United States. They involve strong, often entrenched domestic incumbent industries and their regulators and/or Congressional overseers. Furthermore, nobody, particularly nobody seeking reelection, wants to be seen as facilitating the outsourcing of jobs or lowering consumer protections.
Back in the mid-1990s during the Clinton era, I was the U.S. working chairwoman of the sub-committee on standards, certification, and regulatory policy of the Trans-Atlantic Business Dialogue, representing the TABD. In Congressional testimony, I described how heterogeneous standards and duplicative regulatory requirements on both sides of the Atlantic add greatly to the cost of exporting. Barriers from technical regulations and standards are greater impediments to transatlantic commerce than are tariffs. Since a third of inter-Atlantic trade is “intra-company matter,” bringing down barriers just makes sense for companies whether they are headquartered in Detroit or Paris.
A successful TTIP should automatically address trade and investment barriers. Since the United States and the EU invest heavily in the other, the flows should increase significantly where investment standards are harmonized, particularly in the world of financial services.
France should feel the benefit from TTIP. In France, unemployment has risen to close to eleven percent, and in the period from 1999 to 2012, France lost 40 percent of its export market share. Laying down rules of the road that preserve high-level standards particularly should also benefit France – especially relative to developing economies.
In the past weeks, France has taken center stage, leading the doubters on the future EU-U.S free trade deal.
Food safety, GMO cultivation, and, perhaps most critically, France’s treasured “cultural exception” for audiovisual services are non-negotiable areas, the French stressed.
What ramifications do these statements have? Is a free-trade agreement feasible with such exceptions, and if so, which exceptions?
In a perfect world, trade negotiations would start with everything on the table, but the European Parliament and French voices have already called for excepting sectors. The “cultural exception” designed to shield European audiovisual and cultural industries is a particular concern for France. French officials have announced lack of support for the negotiation’s mandate unless the cultural exception was off the negotiating table. Weeks later, European Parliament demanded the same. While the move was expected, it underscores the point that there are many different competing interests that have to be reconciled. In the words of EU Trade Commissioner Karel De Gucht, it is “not good to start negotiations on the basis of carve-outs.” Ultimately, this is one area where the status quo is likely to be preserved. Better for media interests on both sides of the Atlantic to focus on common goals such as strengthening copyright protections.
The EU has strict standards which generally require products to carry extremely low levels of risk: the so-called “precautionary principle.” By contrast, the United States is more accepting of risk, and American producers have more regulatory leeway. U.S. and EU negotiators will have to find ways to accommodate these two different approaches to regulation, or be willing to accept a less ambitious TTIP agreement.
Another area likely to receive attention is European access to American government procurement markets, particularly at the state and local government levels. Government procurement markets are enormous, and more competition in this area would doubtless benefit taxpayers and companies providing competitively-priced goods and services. European negotiators would like to soften “Buy American” clauses or so-called domestic content requirements which instruct governments to buy American products whenever possible. The federal system in the United States complicates forming national policy on this issue. European companies are eager to enter these markets, but it is unclear to what extent the federal government of the United States will be able to guarantee them access. This will be a task requiring political “buy-in” state by state because the federal government cannot impose a new standard on all 50 states at once.
What do you think the importance assigned to Europe through this proposed agreement indicates about the current administration’s foreign economic policy?
In a climate where much attention has focused on Asia and developing economies, in what ways is the economic partnership between Europe and North America still crucial?
Why has President Obama so dramatically increased his administration’s focus on trade? The standard response is that the White House wants to boost the U.S. economy. That is true, but that overlooks a more complex and crucial aspect of President’s Obama’s thinking.
The President approaches trade with a “wide-angle” view of the international system, in contrast to a narrow focus on domestic economic indicators. The President’s trade agenda is not just about the economy but about the United States’ overall position in the global system. His nomination of former Deputy National Security Advisor Mike Froman as the new U.S. Trade Representative suggests that he views trade in terms of security as well as economics. Mr. Froman’s longtime association with President Obama further underscores that the President views trade policy and trade negotiations as central elements of U.S. global leadership.
President Obama’s simultaneous negotiation of major agreements on both the Atlantic and Pacific fronts reveals his desire to reshape global trade rules. Since the WTO Doha Round of negotiations is moribund, the Administration is looking for new avenues toward trade liberalization. These mega-agreements would cover an immense portion of international trade even if they are not per se in the WTO sense of the term “multilateral.” To agree to a standard of rules, or at least two concordant sets, would create a global standard or set of “rules of the road” for international trade. Together, the United States and the EU can increase their leverage vis-à-vis China.
The “elephant in the room” is that U.S.-EU standard setting has in mind China and other fast-growing-largely Asian-economies. The Obama Administration seeks to raise global standards by establishing more advanced rules while the United States and the EU are still relatively commercially strong or predominant. Moreover, history suggests that in the world of commerce, when the U.S. and the EU set standards for industries such as telecommunications or automobile safety, they become the de-facto standards for the world market, China included.
The Trans Pacific Partnership (TPP) is seen by some as a U.S. “pivot” toward Asia and a response to rising Chinese influence, but it can also be analyzed as a pressure signal for Europe. The United States has many economic and political interests in Asia; many of its top trading partners are in Asia and are part of the TPP process. With the addition of Canada, Mexico, and Japan to the TPP talks, pressure is on Europe to maintain its large trading relationship with the United States, so it does not get left behind.
Negotiating the transatlantic deal would be a major accomplishment for both Americans and Europeans. Whether we are talking about economic measures such as GDP and export growth or more subtle measures of U.S. global leadership, an ambitious, deep Transatlantic Partnership would strengthen the positions of both Europe and the United States in the world.
As chairwoman of the U.S. International Trade Commission from 1984-1986, and commissioner for a nine-year term, you voted on more than 1,000 trade cases on a wide range of industries and issues.
What was your most interesting or compelling case?
The automobile import safeguard case was one of the most interesting investigations that I dealt with during my nine-plus years at the U.S. International Trade Commission. In 1980, I was part of the majority of Commissioners who turned down the U.S. auto industry’s petition for import relief from cars imported from Japan as well as all other nations, Europe included. The safeguard petition claimed that worldwide foreign imports were the main cause of trouble for the U.S. auto industry. The Commission majority saw other, larger market forces at work.
The U.S. auto market had changed significantly after the two great oil crises of the 1970s. The severe economic conditions of the time lessened demand for domestic vehicles. This was a time of economic crisis: recession, a credit crunch, rising costs of car ownership. Significantly, there was a major unprecedented shift in demand from larger to smaller, more fuel-efficient cars during the energy crisis. Productivity of U.S. auto workers and U.S. management techniques had slipped compared to Japan’s auto sector. Unfortunately, a byproduct of this deterioration was the loss of many jobs. New investments in the auto industry and new job-creating measures were needed to help the displaced workers. Foreign imports benefited from these market conditions in the United States at the time. The U.S. auto industry and its unions, in effect, blamed the messenger in the form of imported cars for the bad tidings.
Today, my USTC involvement relates to intellectual property cases concerning patent disputes that reflect the “ideas economy”. During the time that I chaired the USITC, trade disputes revolved around manufacturing issues. The rise of global supply management and ever-advancing technological breakthroughs has shifted the ITC’s work load and increased intellectual property rights disputes.
From 1984-1986, you were the second highest-ranking woman in the executive branch of the U.S. government.
Your writings on foreign policy, trade, and women’s issues have been widely published in scholarly and popular journals as well as The New York Times, The Wall Street Journal, USA Today, The LA Times, and The Chicago Tribune, among others.
You were named one of the top women influencing the American economy by MS Magazine, and honored by The National Women’s Economic Alliance Foundation with its Directors’ Choice Award for Leadership.
Tell us about your experience as an influential female figure in international trade and politics.
What obstacles have you overcome? What was the most helpful advice you received during your career trajectory?
In turn, what advice would you give to aspiring female business leaders or politicians?
Whether you work for government or private industry, you will be confronted with serious challenges to the status quo posed by the economic, political, and technological changes that beset our society. You are also living during a period when traditional sex roles are changing. During my career, I have encountered barriers which discriminate against women and minorities. Some did deflect me from my original career plans. But none permanently stopped me from striving. In the meantime, I also broke a lot of taboos barring women.
In 1978, at the time of my appointment to the U.S. International Trade Commission, I was the youngest woman to serve. In 1981, I was the first Presidential appointee to give birth while serving in office. I was, according to MS magazine in 1986, one of the ten most influential women for the U.S. economy. And for a time in the Reagan era, I was the second highest ranking woman in government.
I was lucky enough to have had a role model (my mother) and help from my husband to achieve a satisfying work/life balance. My mother imparted to me a sense of pride in professional excellence, as a community and government leader. I also learned from my mother how to juggle many responsibilities; these executive skills assist me both professionally and personally. My mother taught me through her actions that nothing is alien. Her tolerance of all races, religions, and gender and her insistence that no road blocks are permanent greatly influenced me. She taught me tenacity when I was told I couldn’t be a rabbi, arguing once again that obstacles are not permanent.
Much has changed over the past 30 years – so much so that what I see as dramatic progress is, for many young women in the workforce, the norm. It is the new status quo. In fact, when I wrote my 1969 New Republic article, there was not one top Presidential cabinet post filled by a woman.
Today, with careers, your options are almost limitless…indeed, mind-boggling. Your chances, though, of advancing to the next job can depend on serendipitous circumstances and many intangibles. Having a goal – be it career or personal – and an agenda to fulfill it can be constructive. Goals help you organize your life and give you something for which to aim. However, there are no set time limits, written in stone, to reach a career goal. There is one thing that always happens while you are making plans; that one thing is called “change” and we have to adjust to it because we can’t stop it. Circumstances change, priorities change, life changes. Any goals that you set for yourself must always take this into account. Plans for the future should be viewed from the broader perspective of one’s own personal growth. Don’t be a careerist. Be a career woman with the emphasis on the woman – the person.
The essential point which I want to emphasize is that there is no one path that is right for everyone. You must choose what’s right for you individually. There is no other person that possesses the exact same skills, experiences, or personal dreams that you do. And only you can know what feels right for you – what sounds like the so-called “ideal” job or career may be anything but ideal for you, for the fulfillment of your own dreams.
You founded and currently head The Stern Group, Inc., advising national and multi-national companies and organizations on business, political, and technological issues that affect their competiveness in a global economy.
How have the challenges and advantages of global competiveness changed over time?
Why is such competiveness so crucial today?
How has new technology altered business and political landscapes worldwide?
Briefly, I wish to make several points:
- The global economy has undergone radical transformation from 19th-century agriculture to 20th-century industrialization. We are now in a 21st century ideas-economy, and intellectual property is key.
- Advanced global supply chains are a requirement for firms to compete and win.
- Trade rules and economic measures are based on nations’ trade statistics (imports and exports), not on value-added thinking. Ideas can also be considered producible goods, and this is where intellectual property comes in. So, for example, a company designs a new product or part for the smartphone in Silicon Valley, but the parts are produced in East Asia. Where was the most value-added in that smartphone? Was it where the phone was assembled, or was it where the idea for a technical improvement designed and engineered was crafted or where it was embedded in a sub-assembly? Natural trade statistics fail to capture these considerations.
- Intra-industry, and more specifically, intra-company trade, has steadily increased its share of trade, especially between developed countries. More than a third of trade between the United States and the European Union is intra-company. Global competitiveness, aided by rapid technological changes, pressures firms to expand their production globally in order to remain competitive.
New technology has altered business and political landscapes. The dominance of the Internet and the computer in daily life connects individuals in every corner of the globe. Globalization brings benefits and costs. The benefits are extraordinary. Capital and money can flow to the most promising investment opportunities; people can share ideas with a click of a button; firms can manage multiple locations and employees around the globe. Agreements like TTIP would help to harmonize standards to enhance this connectivity. There can be costs to these technological developments, as well. As the East Asian Crisis of 1998 showed, “hot money” can cause economic crises. If standards were more harmonized, however, and international rules were more streamlined, then the risk of such crises could be diminished. This is a reason why TTIP and other trade talks such as the Trans Pacific Partnership (TPP) have such potential to improve the flows of goods, money, people, and capital.
In the computer age, the issue of cyber security highlights some of the dangers of this era. Companies and countries can and do steal intellectual property. The threat of cyber terrorism has increased. Infrastructure is rendered more vulnerable to malicious hackers and malware, so precautions must be taken. TTIP can provide the foundation for shared principles and norms concerning U.S.-EU cyber secuirty. It can also help spread these principles to other areas of the globe, particularly in Asia. First, however, TTIP must get off the ground!
As a member and senior advisor of the Trade Policy Sub-Council of the U.S. government’s bipartisan Competitiveness Policy Council in the early 1990’s, you prepared the Council’s proposals for reforming U.S. international economic policymaking.
In 1993, these proposals were delivered to the U.S. Congress and President and guided the trade and export policy of the Clinton Administration.
What lessons, if any, from the Clinton years might be applied to today’s foreign policy and economic context?
The shift we see in President Obama’s second term marks a shift toward trade policies that characterize the Clinton administration from its first days in office. Focus is on enhancing the nation’s exports. A high number of imports by themselves are not necessarily a bad sign; it is a sign of significant wealth and consumer power within a country. Yet, importing significantly more than one is exporting can be political untenable. From the “get go,” the Clinton Administration tried successfully to focus on U.S. export opportunities. Likewise, President Obama hopes the TTIP would generate more output in the exportable industries.
I was senior trade advisor to Presidential Candidate Bill Clinton and remember well the Little Rock Economic Summit in 1993, where I was asked to make a presentation on new emerging exports markets in developing countries. I emphasized the political and economic advantages of thinking about exports and not just import protection. I also focused on how the United States must be more competitive at home to be more competitive abroad. Does this sound familiar today as President Obama discusses education and infrastructure reform?
During the Clinton years, there was a growing middle class at home and abroad. Today, there is an even more growth of the middle class in the emerging economies while in the United States the middle class shrinks. Part of Obama’s logic is that agreements such as TTIP can lead to more opportunities at home.