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Remarks by Ambassador Michael Froman at Stanford University

Remarks by Ambassador Michael Froman at Stanford University 
“Shaping the Global Trading System in the 21st Century”

Stanford, CA
February 16, 2016

*As Delivered*

Thank you, Mike. It’s a privilege to be here with you and Karl today. One foot in academia and, the other in the world of policy, you too are a rare and valuable breed. Thank you for your public service and for being such positive models here for students.

Speaking of role models, America’s first minister to Russia had also been a professor. His name was John Quincy Adams.  He went on to a rather distinguished career in public service as well.  Around the same time he was returning to the United States, in 1814, there was a competition in Eurasia that was heating up between two empires. The Russians called it the “Tournament of Shadows.” The British called it the “Great Game.”  This is something that Karl knows a bit about as well, having served as both a general and diplomat in Afghanistan.

When it comes to trade, we may not be engaged in anything quite as dramatic as the Great Game, but we are engaged in an important effort to promote our ideas about how the global trading system should evolve, how it can best take into account the changing nature of the global economy, and how best to promote growth, development, innovation and jobs – in a manner consistent with our interests and our values.

It’s easy to take the global trading system for granted today, but in historical terms, today’s openness is a relatively recent achievement, and a significant one at that. Since World War II, trade liberalization has added about $13,000, on average, to each American household’s annual income.  And it’s helped lift more than 1 billion people out of extreme poverty. Not many public policies can claim that kind of impact.

But the system that has delivered so much is now bending under the strain of seismic shifts and competing approaches. In recent years, a series of forces -- globalization, technological change, and the rise of emerging economies -- have reshaped, and continue to reshape, the international landscape. As President Obama has said, “just as the world has changed, this architecture must change as well.”

The Trans-Pacific Partnership (TPP), signed earlier this month, is a critical part of that architectural effort.  It involves bringing together 12 countries comprising about 40 percent of the global economy – countries large and small, advanced and developing – to define high-standard rules of the road for the next chapter of the global economy. 

It updates our trade policies to reflect today’s economic realities. For example, it the first trade agreement that sets comprehensive rules to ensure that the Internet remains open and free and to ensure state-owned enterprises compete fairly when they compete against private firms. It strengthens intellectual property protections, which are critical to innovation, while helping to ensure access to the benefits of that innovation.  It embodies the highest enforceable environmental and labor standards of any agreement in history. As Secretary Kerry likes to say, this isn’t your grandfather’s trade deal.

Americans will benefit from all these advances. By tearing down barriers and raising standards in other markets, we will see an estimated $350 billion per year increase in U.S. exports – manufactured goods, agricultural products and services.  And we know that businesses that export tend to grow faster, hire more, pay their employees more and are more resilient. So by removing foreign barriers to American exports abroad, TPP will support more of those high-paying jobs here at home, jobs that pay up to 18% more on average than non-export-related jobs. And by raising standards abroad we can level the playing field for our businesses and workers, giving them a fair shot to compete and positioning them to excel in many of tomorrow’s most promising growth areas, including the digital economy.

TPP will raise national income not only for the U.S. and other TPP members, but on net for the rest of the world as well. During a time of global economic uncertainty, TPP can provide a boost to global growth. As Christine Lagarde, the Managing Director of the IMF, has said, TPP is part of the solution for avoiding a “new mediocre” in the global economy. 

But TPP isn’t just about promoting higher growth.  TPP is focused on the quality of growth.  It is focused on new and emerging issues in the global economy and setting high-standard rules of the road that will bring the greatest benefits to the largest number of people, ensuring growth is sustainable and inclusive.

To understand how far-ranging the consequences could be, one need only consider the alternatives. In today’s fast-changing world, the choice is not between TPP and the status quo.  It’s between TPP and alternative approaches being put forward -- models that do not necessarily reflect the high standards embodied in TPP, models based on more mercantilist visions for trade and investment than the open, rules-based system that has been so enormously beneficial over the last several decades.

In these alternative approaches, the state is often absent where it should be present, and present where it should be absent. Rather than promote fair competition and combat corruption, they are rooted in excessive and unfair subsidies. Instead of recognizing that labor and environmental protections are essential for balanced and sustainable growth, these alternatives sacrifice long-term interests for short-term gains. Instead of building bridges to unlock innovation, they raise national walls to block the flow of ideas. 

Consider the Internet. I don’t have to tell people around here how revolutionary the Internet has been in terms of promoting growth, development and innovation around the world.  It has also had a transformative effect on global trade by creating a modern ecosystem in which goods can be sold, services can be provided and supply chains can be integrated across borders – dramatically expanding and democratizing international trade. 

However, the ecosystem that has allowed the Internet to prosper thus far should not be taken for granted. We cannot afford to be complacent.

In the absence of rules ensuring that the Internet remains open and free, there is a significant risk of states erecting multiple barriers to its operation.  Barriers to cross-border data flows and data localization requirements.  Tariffs on digital products, such as apps.  Requirements that companies transfer proprietary technology, hand over their source code to state-owned competitors, adopt a particular technology standard or form of encryption in order to serve a market.  Rules favoring one type of content over another, where websites are widely blocked and governments control content.

These are not hypothetical risks. They are real policies being implemented in countries around the world. If left unchecked, these trends could effectively balkanize the Internet, threatening not only the promising future of the digital economy, but the very architecture of the Internet. Imagine the impact that would have not only on our economic interests – curtailing innovation, stifling creativity, and restricting commerce – but also the democratic values of free speech and expression that we stand for.

TPP takes a stand against these policies.  It’s the first trade agreement to comprehensively take on the issues of the digital economy. TPP promotes the free flow of data across borders and prohibits forced localization of digital infrastructure.  No national clouds or regional internets.  It prohibits tariffs on digital products, eliminates tariffs on information technology products, prevents forced technology transfer and includes provisions to combat the theft of trade secrets, including by cyber theft.  It ensures access to networks and to the services needed to conduct e-commerce.  And it requires countries to create transparent regulatory processes that allow for input from stakeholders, both domestic and foreign, and to adopt and maintain enforceable consumer protections, including for privacy.

When confronted with competing visions for the future of global Internet governance – the borderless and open Internet on the one hand, or a fragmented Internet defined by national borders on the other – TPP presents a clear choice about the future.  We call this set of rules the “Digital Two Dozen,” and we are releasing a summary of them here today.

The impact of this choice will be felt as acutely by the startup entrepreneur in Silicon Valley as the one in Singapore. The benefits of the Internet stem from its openness and the ability to connect people and move information freely. At a time when those underlying principles are at risk, TPP will help strengthen the coalition that defends them, and in turn, the integrity of the Internet itself.

This is a time of dynamism in the international trading system.  Through TPP, we brought together a diverse group of economies at various stages of development to define a set of high-standard rules.  That was not an accident, but was by design – to demonstrate that the TPP model can work for a broad range of countries, that it can serve as a template for future agreements. We’ve united TPP countries around higher standards, and that leadership is already having a magnetic effect. We’re already hearing from others who are interested in raising their standards, including Korea, the Philippines, Indonesia, Taiwan, and others.

There are a number of other regional initiatives underway:  Russia has its Eurasian Economic Union.  China has its One Belt-One Road Initiative and the Regional Comprehensive Economic Partnership – a 16-country trade negotiation spanning India to Japan.  The EU is negotiating a free trade agreement with Mercosur, Africa is working on a Continental Free Trade Area, and there are countless bilateral negotiations underway.  Unlike the Great Game, this is not a zero-sum competition.  All of these arrangements can co-exist, but it is very much in the interest of the United States and other countries that share our interests and our values that we continue to engage, take the field and lead a race to the top.  Otherwise, we might well find ourselves in a race to the bottom than we cannot win and should not run.

That is why TPP is so important – not just for the growth it promotes, the rules it sets, and the values it embodies, but for how it reinforces U.S. leadership around the world. Our leadership in TPP has catalyzed progress in our negotiations with the European Union toward a Transatlantic Trade and Investment Partnership, or T-TIP, at a time when Europe faces significant challenges from within and without.

And as we demonstrated progress on TPP and T-TIP, we have caught the attention of major emerging markets, developing countries, and least developed countries who do not wish to be left behind.

That has mobilized an effort – together – to revitalize the broader global trading system.  After 15 years of deadlocked negotiations, we have managed to achieve multilateral agreements on trade facilitation and agricultural export subsidies.  We reached agreements to eliminate tariffs on over $1 trillion of information technology products and are now working to do the same on environmental goods.  We are making progress in liberalizing trade in services around the world and, for the first time, a diverse group of countries – large and small, developed and developing – are having serious discussions about new ways to resolve historic issues and about new issues the multilateral trading system ought to take on. 

I do not mean to suggest that we have reached a new global consensus on trade policy.  But in a world of competing approaches, we have articulated a clear and compelling vision. A vision embodied by agreements like TPP and T-TIP. A vision that embraces all countries, developed and developing alike, and embeds them in a framework of rules that will promote economic growth and opportunities for our citizens, spur development around the world, and advance a set of common values that can endure long after the ink on these agreements dries. And as we demonstrate that this vision can succeed, we can build towards a new global consensus.

This might not be as riveting as the Great Game, but it’s a pretty darn good one – and the long-term stakes – economic and strategic – are even higher.

Thank you.  I look forward to the conversation.