The interagency Trade Promotion Coordination Committee (TPCC) is
required by the Export Enhancement Act of 1992 "to develop a
government-wide strategic plan for carrying out Federal export
promotion and export financing programs" and to submit to Congress
annual reports describing the plan and how TPCC member agencies
will implement the strategy.
The 2007 National Export Strategy is the latest plan
describing the year's government priorities of supporting
e-commerce as a means of boosting exports, promoting greater
participation of small and medium-sized firms in exporting
activities, and advancing key projects in "priority"
markets--China, India, and Brazil. While the document lays out
more of an agenda of key priorities than a coordinated strategy for
implementing agencies to follow, it does provide a look back
over the previous year at what activities were accomplished by
the agencies to give a general sense of how well they met
The value of such export-promotion activities to the U.S.
economy continues to be debated, especially for certain agencies,
including the Export-Import Bank and the Overseas Private
Investment Corporation, and for various programs carried out
by other member organizations. While it remains difficult to assess
how much explicit federal export-promotion programs actually
bolster U.S. jobs, economic growth, or overall prosperity,
policymakers remain intent on advancing a formal U.S.
Fortunately, The 2007 National Export Strategy gives a
nod to the contribution of free trade agreements (FTAs). One
need look no further than the chapter on the impact of trade
liberalization and an Appendix at the end of the document to see
the most effective policy answer to advancing exports: freer
Benefits of Trade Liberalization
Ideally, free trade would be achieved without any negotiations
at all. So pervasive are the benefits of trade liberalization for
the country doing the liberalization that countries would be
smart to lower their protectionist barriers on their own,
irrespective of what other countries do. It is true that the
more widespread such liberalization becomes, the greater the
benefits for all, and multilateral trade negotiations, which seem
to provide valuable political cover to help politicians do
what is best for their country, should be encouraged. However, as
the current round of global trade talks ably demonstrates, the
pace of such negotiations is slow, and consensus can be hard to
Yet the expected benefits of a meaningful conclusion to the
current Doha Round of multilateral trade negotiations make the
effort to reach agreement worthwhile. Numerous studies have
estimated the potential gains under various
trade-liberalization scenarios. While their results and
methodologies differ, these studies consistently show that real
economic gains are associated with further trade
- The Institute for International Economics has calculated that
moving from today's trade environment to one characterized by
perfectly free trade and investment would generate an
additional $500 billion in annual income for the U.S., or
about $5,000 per household each year.
- A University of Michigan study concludes that reducing
agriculture, manufacturing, and services trade barriers by
just one-third would add $164 billion, or about $1,477 per American
household, annually to U.S. economic activity. Completely
eliminating trade barriers would boost U.S. annual income by $497
- The World Bank estimates that the continued reduction of
tariffs on manufactured goods, the elimination of subsidies and
non-tariff barriers, and a modest 10 percent to 15 percent
reduction in global agricultural tariffs would allow
developing countries to gain nearly $350 billion in additional
income by 2015. Developed countries would stand to gain roughly
Free Trade Agreements
FTAs negotiated by smaller groups of countries are the next best
thing to promote global trade liberalization. FTAs can provide
institutional competition to help keep multilateral talks on track
and provide the U.S. an option of pursuing agreements with
countries willing to engage in serious liberalization of foreign
trade. In the process, FTAs formed with smaller groups of countries
can serve as starting blocks to facilitate a transition to broader
Free trade agreements can also help developing countries to lock
in and effectively implement economic and political reforms,
spur regional integration, and enhance prospects for
investment and economic growth. While some of the United States'
trade partners may be small now, over time they will mature into
larger, more sophisticated markets more closely integrated with the
U.S. economy. As these economies develop, they will demand more and
more U.S. products. As the data demonstrate, America has
experienced growth in trade with all of the countries with which it
has formalized free trade agreements.
As of the beginning of 2008, the U.S. has 11 FTAs with 17
countries. Congress has approved free trade agreements with Israel;
Canada and Mexico (North American Free Trade Agreement, or
NAFTA); Jordan; Singapore; Chile; Australia; Morocco; the
Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras
and Nicaragua (DR-CAFTA); Bahrain; Oman; and, most recently,
Even though the agreements with Oman and Peru have not yet been
fully implemented, the U.S. has already seen impressive results
from the bilateral trade deals. In 2007, the FTAs in force
accounted for more than $1 trillion in two-way trade, which is
about 34 percent of the total of U.S. trade with the world. Along
with the economic benefits of the agreements, the FTAs have also
strengthened the political relationships that the U.S. shares with
strategic allies around the world.
In the first year of the U.S.-Singapore FTA, America's trade
surplus with that country more than tripled, growing to $4.3
billion. Just four months after the U.S.-Australia FTA was
implemented, America's trade surplus with Australia grew almost 32
percent to more than $2 billion. Exports to Chile and Singapore
expanded by $4 billion in the first year after implementation of
free trade agreements with these countries.
Benefits of International Trade
Increased trade is just part of the gains stemming from free
trade agreements. Economy-wide, the net number of jobs displaced
each year by international trade is estimated to be no more than a
relatively small 3 percent of the workforce. Far more important in changing the
composition of America's workforce have been improvements in
technology and shifts in consumer preferences. The combined impact
of innovation and reduced barriers to trade has served to help the
economy, not harm it. Today, more than 57 million Americans are
employed by firms that engage in international trade--roughly 40
percent of all non-farm jobs.
Any negative impact that freer trade may have on job numbers is
mitigated by the benefits that trade brings to the economy as a
whole. While production may fall in less competitive
industries, exporters and domestic producers that use
lower-cost imported inputs gain a competitive boost that
promotes investment, productivity, and growth in these
industries. Lower prices for imported goods also help households to
stretch their incomes, enabling them to buy more of everything,
including goods and services that are produced domestically. With
freer trade, resources flow from less competitive uses to more
competitive and efficient uses, creating opportunity and bolstering
long-run economic growth and job creation.
U.S. FTAs generally strengthen the transparent and efficient
flow of goods, services, and investments between member
countries. Trade agreements open markets, protect investors,
and increase economic opportunity and prosperity. In short, free
trade agreements serve to promote U.S. interests, not to weaken
them or to place an unfair burden on Americans.
In 2007, the enacted budget authority for the Trade Promotion
Coordinating Committee was $1.37 billion. These taxpayer dollars go
toward the financing of numerous endeavors aimed at boosting U.S.
exports, including education, data collection and dissemination,
international trade missions, business services, and market
research. While some of these activities certainly add value, much
of what is being accomplished can be and is being done better by
trade associations, business coalitions, and private business.
In fact, the importance of the private sector in enabling the
national export-promotion strategy is stated time and again
throughout The 2007 National Export Strategy. The "Strategic
Partnership Initiative" is designed to enhance cooperation
between the private sector, exporters, and government at all
levels. Recognizing that "the Federal government simply lacks the
resources, marketing channels, and points of contact with
businesses to reach most companies," the Partnership will ideally
lead to a phaseout of government involvement in many of these
The Overseas Private Investment Corporation (OPIC) and the
Export-Import Bank of the United States (Ex-Im Bank) may not
directly cost U.S. taxpayers as much as other export-promotion
programs do today; however, they do impose significant
indirect costs on the economy as a whole and run the risk of
costing taxpayers in the future. Both programs should be
OPIC. First established in 1971, OPIC today provides U.S.
government-backed loans, loan guarantees, and investment insurance
to U.S. businesses that invest around the world. Today, according
to its mission statement:
The Overseas Private Investment Corporation's (OPIC)
mission is to mobilize and facilitate the participation of
United States private capital and skills in the economic and social
development of less developed countries and areas, and countries in
transition from nonmarket to market economies.
OPIC's rationale rests on the perception that it can help fill
the demand for international financing that the private sector is
unwilling to chance, while at the same time boosting U.S. exports.
Although it may have been the case that financial markets and
financial instruments were less able to fulfill development
requirements in the 1970s, today's markets are far more robust.
In fact, the U.S. is already the largest source of foreign
direct investment (FDI) worldwide and has more than $585 billion in
direct investment located in developing and other non-OECD
(Organization for Economic Cooperation and Development)
countries. In 2006, the level of total FDI grew
$248.5 billion from the previous year, with $87.1 billion of the
increase occurring in developing countries. In the same year,
OPIC projects amounted to just over $1.9 billion in total finance,
insurance, and investment fund activity--a relatively small
fraction of the total amount of U.S. investment that has
flowed to developing countries without the assistance of the U.S.
The impact on development itself is also questionable.
Because OPIC effectively transfers the risk of an investment
venture from the company involved to taxpayers, commercial
investment levels will be higher than would otherwise be the
case based on market conditions alone. While this seems to support
the development component of OPIC's mission, it in fact promotes
the continuation of poor economic policymaking in developing
countries. Investment that effectively promotes long-term
development occurs as a consequence of sound economic reform, not
as a reward for poor economic management.
The Export-Import Bank. Much like OPIC, the Ex-Im Bank
was designed to provide financial services when private trade
financing is unavailable to support an international transaction.
It was created in 1934 as America's official export credit agency,
and its mission is to provide working capital guarantees,
export credit insurance, and loan guarantees and direct loans to
support U.S. exports. Also like OPIC, the rationale for the Bank's
ongoing role in facilitating international trade by providing
subsidized export credit has weakened as private
financing sources have developed. The Ex-Im Bank reports that
it authorized more than $12 billion in loans in support of an
estimated $16 billion in U.S. exports in 2007--a fraction of the
$1.16 trillion in total exports the U.S. reported in the same
Government subsidies promote neither U.S. exports nor effective
economic development. When the government shifts labor and capital
from the economy through taxation and then gives it to
specific private companies in the form of export or
foreign direct investment subsidies, it does so at the expense
of the economy as a whole. Rather than flowing toward the most
efficient activities as determined by the market, these
resources are instead redirected to boost output in less efficient
sectors. In the somewhat dated but still very accurate words of the
Congressional Research Service, there is "little theoretical
support or empirical evidence that supports claims that
subsidizing exports or overseas investment offers a positive net
gain in jobs to the U.S. economy."
Both OPIC and the Ex-Im Bank date from a time when the United
States economy was far more insular than it is at present--a
time when foreign investment and foreign trade were truly
exotic and potentially high-risk undertakings. In the age of
globalization, the exotic has become commonplace, and the risks of
exports and foreign investment, while perhaps not quite the same as
operating in the United States, are both known and manageable.
If we have learned anything from the recent crisis in the
sub-prime lending markets, it is that risk needs to be fully
accounted for, and fully acknowledged, in pricing investment
options. U.S. government programs that subsidize risk offer
above-market returns, in effect privatizing gains while potentially
socializing losses. They are not an efficient or necessary use
of taxpayer resources.
In general, policymakers looking to bolster U.S. trade should
consider advancing policies aimed at eliminating costly barriers to
trade and investment, subsidies, and government-run activities that
are better provided by the private sector. While it is tempting to
embrace subsidies as a means to promote U.S. exports and jobs,
in fact the cost of those subsidies on the economy as a whole will
be less than the benefit that might accrue to the firms receiving
Instead, the following recommendations embody some of the more
important elements of a successful U.S. export-promotion strategy
that bolsters both long-term growth and economic opportunity.
- Advance freer trade policies. Advancing freer trade
through a comprehensive and substantive conclusion to the Doha
Round of trade negotiations and ratification of the three pending
free trade agreements with Colombia, Panama, and South Korea would
promote both U.S. prosperity and economic development abroad.
- Colombia. The U.S.-Colombia Trade Promotion
Agreement was signed in November 2006 and later amended to include
provisions stemming from the Bipartisan Agreement on Trade. While
more than 90 percent of Colombian exports enter the U.S. duty free
under the Andean Trade Preference Act (ATPA) and the Generalized
System of Preferences (GSP), U.S. agricultural, manufacturing,
and services exports to Colombia face tariffs and other
barriers to trade. The U.S.-Colombia Free Trade Agreement will
promote a more balanced economic relationship in which, upon
entry into force of the agreement, over 80 percent of U.S.
manufacturing exports to Colombia will enter duty free immediately.
An additional 7 percent will be duty free within five years, and
all remaining tariffs will be eliminated within 10 years.
U.S. agricultural exports will benefit from the agreement as well:
More than half of current U.S. farm exports to Colombia will become
duty free immediately, and remaining tariffs will be phased out
within 15 years. Fully implementing the agreement
would boost U.S. exports overall by an estimated $1.1 billion.
The agreement would help lock in Colombia's continued economic
reform and development and promote investment--essential for the
U.S.-Colombia relationship to reach its full long-term economic
potential. Moreover, by forging stronger economic ties with U.S.
allies in Latin America, America strengthens its strategic
position vis-à-vis countries in this important but
turbulent region while promoting economic prosperity and
- Panama. The U.S.-Panama Trade Promotion Agreement
was signed in June 2007. Like Colombia, Panama enjoys preferential
access to U.S. markets via the Caribbean Basin Initiative and GSP,
with approximately 96 percent of Panama's exports entering
The U.S.-Panama TPA will open Panamanian markets to U.S. firms and
farmers: More than 88 percent of U.S. manufacturing exports will be
duty free immediately upon entry into force of the agreement, with
remaining tariffs phased out over 10 years. More than 60
percent of current U.S. agricultural exports to Panama will receive
duty-free treatment, and remaining tariffs will phase out
within 15 years.
Approval of the U.S.-Panama trade deal would also support further
improvements in Panama's economic development and help keep the
momentum behind economic reforms high. Panama is yet another
important ally in the Americas--one that is more than worthy of a
trade deal that advances a deeper relationship with the U.S.
- South Korea. The KORUS (Korea-U.S.) FTA was
signed in June 2007. Given the significant levels of trade and
foreign investment already occurring between the U.S. and South
Korea, a bilateral trade agreement is a natural and logical step to
further strengthen economic and political relations between
the two countries. The U.S. International Trade Commission has
estimated that the impact of the trade pact would result in
U.S. gross domestic product increasing by $10 billion-$11.9 billion
and result in a significant expansion of two-way
manufacturing, agriculture, and services trade.
In general, U.S. exports to Korea face higher tariffs and tariff
rate quotas than do Korean exports to the U.S. The agreement will
eliminate all industrial tariffs in the United States and
Korea within 15 years of implementation, with most tariffs phased
out within 10 years. More than 80 percent of U.S. industrial
exports by value to Korea will receive duty-free treatment
immediately upon implementation of the agreement. U.S. agricultural
exports will also benefit: Almost two-thirds of Korean imports of
U.S. farm products will become duty free immediately upon entry
into force of the agreement. A trade pact would
generate significant economic gains and would be the
second-largest free trade area for the United States, in terms
of dollar value, after NAFTA.
By formalizing bilateral economic ties with South Korea through an
FTA, America also solidifies its ties to Northeast Asia through
international trade, providing a counterbalance to China's growing
economic influence in the region. The FTA would reinforce the
strong and mutually beneficial economic and strategic
relationship that exists between the U.S. and South Korea and
ultimately serve both countries' national interests.
- Continue to promote trade capacity building and
facilitation, as well as regulatory improvements. Of the
various activities advanced in The 2007 National Export
Strategy, member agency efforts focused on providing technical
assistance to developing countries to enhance trade capacity and
improve the practices and policies supporting international
trade in these countries are in line with advancing development
goals. As developing countries are able to better engage
global goods and services markets, the real potential for
trade expansion around the world is improved. U.S. organizations,
such as the Millennium Challenge Corporation, which ties investment
to proven progress in economic and other important reforms,
play an important role in advancing this objective.
- Continue to work through multilateral and other channels to
address anti-competitive and protectionist policies that limit
trade flows, with the aim of eliminating such practices rather than
relying on retaliation. Claims that U.S. organizations
like OPIC and the Ex-Im Bank play a role in counteracting other
state-sponsored financing by "leveling the playing field" for U.S.
firms ignore the fact that these subsidies are not beneficial to
the economy as a whole. Instead of adopting the same "unfair"
practices as a response to real or perceived inequities across
countries trading in the world's markets, the better approach is to
work to dismantle inefficient and anti-competitive programs in the
The TPCC's 2007 National Export Promotion Strategy
illuminates some of the best and worst of America's policy approach
to promoting trade, growth, and jobs. Policymakers should
objectively assess the merit of the various member agencies'
activities, especially in light of the evolution of private markets
to address the "market failures" of the past. Wherever possible,
government endeavors should be phased out in favor of more
efficient private-sector approaches to facilitating
international trade and investment.
Ultimately, the best export-promotion strategy is one that
fosters ever freer trade. More than half a century of gradual trade
liberalization has helped to raise U.S. living standards and has
led to America's economic preeminence around the world.
Congress should take steps to keep the momentum behind
dismantling trade and investment barriers moving forward.
Daniella Markheim is
Jay Van Andel Senior Trade Policy Analyst in the Center for
International Trade and Economics at The Heritage Foundation. These
remarks were given April 24, 2008, before the U.S. House of
Representatives, Committee on Foreign Affairs,
Subcommittee on Terrorism, Nonproliferation, and Trade.