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Changing the Trade Debate: Will the U.S. and the EU Lead?
Address by Klaus Kleinfeld, President and Chief Operating Officer, Alcoa Inc to 1st Transatlantic Economic Dialogue Conference
Washington DC, March 4, 2008
First, on behalf of Alcoa, let me say thank you for the opportunity to speak here today. And thanks to the BMW Foundation and SAIS for organizing this conference. The U.S.-EU economic relationship is one of the cornerstones of the global economy – yet is often overlooked.
As I was looking at the guest list for this conference today, I realized there are a lot of trade policy experts in this crowd. I’m not a policy wonk. But I hope that I can offer some thoughts from the front lines of international trade. With 97,000 employees in 34 countries, Alcoa is very much impacted by the decisions you and your colleagues in government make every day.
It’s Time to Change the Trade Debate
So here we are in Washington, DC, in an election year – on an election day, in fact – talking about promoting trade. Are we completely divorced from reality? I don’t think so, but we do need to recognize that most Americans and Europeans are not listening to us. They are listening to Lou Dobbs and Richard Quest. They are caught up in trade issues that are highly publicized, but often times have very little impact on business or workers.
There is a popular mood shift against trade and globalization. I know you are seeing it in this country. Trade was a major topic leading up to today’s elections in Ohio and Texas. If there is one thing we can learn from that debate, it is this: An aggressive trade agenda is simply not possible unless we reshape public opinion. Our policy is way out in front of our politics.
So what do we do? I think there are two key issues.
First, all of us – government and business – must take this message beyond the world’s political and financial capitals. The debate that matters is not in Washington and Brussels, or even New York and Frankfurt. We need to be talking to people in Wichita, in Bastogne, in Newcastle.
This message needs to be conveyed to workers, to local media, and to a deeply skeptical public. Support for trade and global growth needs to be rebuilt from the ground up. I guarantee you that politicians are hearing from trade opponents when they go home to their constituents. Too often, it’s a one-sided message.
Our own message must relate to the real world. Repeating that “a rising tide lifts all boats” does not work. People cannot relate to statistics… or economic trends... or abstract notions that trade is good for the economy as a whole.
I’ll give you one example from our own experience. Alcoa is a major supplier to both Boeing and Airbus. We realized that the production of the new Airbus A380 was an opportunity to motivate our workers and communities about an exciting new product. We also knew it presented a tangible example of the importance – and complexities – of international trade.
Aircraft production is incredibly complicated: thousands of components manufactured in dozens of countries. Components which are then exported to another country to create a product that is then exported again. And each step of this process creates and sustains high-paying jobs.
That is the story of international commerce. And it’s an important story for policymakers to understand. In the case of the A380, components using Alcoa materials are manufactured throughout the United States – in California, Iowa, and Michigan. We hosted Members of Congress at each of those facilities so they can better understand Alcoa’s role in – and reliance on – the free flow of trade.
But the story of international trade is also important for workers to understand. I talk to so many workers whose jobs literally depend on imports and exports. But they are skeptical of globalization and what it means for them. We need to do a better job of connecting their work to the bigger picture. In the case of the A380, we asked one of Alcoa’s workers to travel on the inaugural flight and share his experiences through a blog. It created a real excitement throughout the company.
This is a simple example – but it’s important. I’ve talked to many of Alcoa’s workers who now have a better appreciation of how their job connects to a complex policy issue. It was not that hard to do, it does require effort. It’s an effort we all need to make.
If the first solution to changing the trade debate is to better connect workers to trade policy, the second solution may be the reverse of that: connect trade policy to business. In other words, focus on trade policies that produce real opportunities and jobs.
For business, some of the most important progress comes from changes that are behind the scenes, and not very glamorous: Streamlining customs rules, launching sectoral initiatives, improving how we resolve trade disputes.
Look at the growth of the EU over the past decade. Much of that growth has really been spawned by harmonization of rules and standards. It’s easier to do business across different markets. It’s easier for people to move and work in other countries.
Now, I’m a realist. I appreciate that “Standardization” and “Harmonization” are not exactly topics that grab headlines. Sectoral initiatives don’t usually create major policy fights, and they don’t lead to big signing ceremonies.
And perhaps that’s exactly the point. As we rethink how we are going to make progress on trade in the next few years, we need to rededicate ourselves to the core issues – issues that grow business and create jobs, but issues that have a better chance of gaining political support.
The Role of the U.S. and EU
With that as background, let me turn to the title of this conference, “A declining regime? America and Europe in the Multilateral Trading System”. It sounds a bit ominous – but it is worth answering very clearly. The influence of America and Europe is not declining, nor is the critical nature of the WTO.
We’ve asked these questions before. In the 1980s, everyone talked about the rise of Japan, and the parallel fall of the U.S. and Europe. In the 1990s, it was the Asian Tigers. Now it’s China and India.
But the importance of America and Europe has remained constant throughout the decades, and will continue. The U.S. and EU continue to drive the world’s economy. They are leaders in research, innovation, and technology.
Together, the U.S. and EU make up almost 60% of the world’s GDP. The so-called “BRIC” countries – Brazil, Russia, India, and China – together account for about 12%. Even with dramatically different growth rates, the EU and U.S. will continue to be the engines of the world’s economy for many years.
Of course, these numbers are not meant to dismiss the world’s rising economies. Their growth is reshaping the global economy. But rather than fear this change, we should see their development as a major opportunity. All of us in business who spend so much time in China and other dynamic markets are adapting our efforts to grow with these economies.
The challenge for government and trade officials is comparable: How do we change our trade institutions and the approach to liberalizing trade? How do negotiators maintain progress in global trade talks? Outside of the WTO, how can there be continued progress on other important trade issues? How do we change the debate among an increasingly skeptical public, in a constantly changing political landscape? Let me offer three ideas.
First, and most obviously, we must continue to support the global trade talks. I think almost everyone who speaks over the next two days will echo this sentiment.
America and the EU have worked together for five decades as both originators and drivers of the global trading system. Our governments must continue to press in the WTO negotiations. Alcoa is actively supporting these negotiations, and I hope other companies continue their support.
For business, the importance of a rules-based global trading system cannot be overstated. The diversity of international trade issues for our company alone is staggering. We care about issues ranging from tariff reduction to foreign investment; from intellectual property protection to the free movement of people.
And we’re not just focused on a few markets. We have operations in nearly three dozen countries. And from a customer standpoint, we are interested in almost every market on the planet. So a trading system that harmonizes the rules and creates mechanisms to settle disputes means certainty for international business. Only the WTO has that scope.
The rules-based system of the WTO also creates the best opportunity to positively impact growing economies like China. Bringing China into the WTO as an active participant was one of the single most important international developments in the last ten years. As Chinese companies integrate with other markets and develop their own technology, we’ll see many changes. Chinese innovation will drive Chinese officials to police patent infringements. They will use and respect the rules system. That’s good for everyone.
So how do we continue to make progress in the WTO? As I said before, I’m a businessman, not a policy wonk, so I’ll let the policymakers sort that out. But all of us need to push legislators and trade negotiators around the world to start making tough choices. That means drilling down on issues like agriculture and market access.
Second, we can’t lose sight of other opportunities.
While strengthening our commitment to the WTO must be the first priority, it cannot be the only priority. I know that some today will argue that any negotiations outside of the WTO will only serve to undermine the WTO. That may or may not be true – but I think it’s somewhat beside the point. The bottom line is: we simply have no guarantees that the WTO talks will succeed, and we can’t be held hostage to the whims of a few countries or a few special interests.
WTO talks involve more than 150 countries and dozens of issues. Decisions are driven by consensus, which means a single country can stop progress. This is not a system that was designed for speed or certainty.
The reality is, when it comes to the global trade talks, we have already picked a lot of the low-hanging fruit. So we must be pursuing parallel tracks. We should consider whether there are ways we can make progress on a smaller subset of issues within the WTO framework. Maybe we need to re-examine the way we are negotiating.
At the same time, we should be putting more effort into other opportunities: Regional agreements, including broader integration through APEC or the U.S.-EU Transatlantic Dialogue; sectoral agreements that focus on one issue or industry at a time; standardization; harmonization.
These agreements and these efforts may not be as sexy, and may not grab big headlines – but they can produce tangible results for companies and workers in the short term.
Third, we must also continue to focus on what the U.S. and EU can do together – through the Trans-Atlantic Business Dialogue or through other means.
This U.S.-EU effort has natural advantages: both a common history and a shared set of values and expectations.
So, how can we build on this natural relationship and develop areas where the U.S. and EU share advantage and potential? How can we build on our strengths to seek opportunities for jointly developing the next major growth engines of our economies? How can we use the strength of our economies to drive change in other markets?
One thing is clear. We don’t have unlimited time. We must align the U.S. and EU on innovation, and create the standards for the world. If we don’t, others will. Today, when it comes to new products, it is probably the case that China creates them using standards developed by the U.S. or EU. But unless the U.S. and EU work together to create the next set of technology standards, others will step in to replace us.
New challenges are creating new opportunities.
Look at healthcare. Right now, most people think of healthcare as simply a cost, both for our companies and societies. But there are major opportunities to create efficiencies: by establishing standards for electronic patient records worldwide; through R&D and new technologies; through new high-level service jobs. This will be a major area of job creation – and one where the U.S. and the EU are poised to lead the way.
Energy efficiency and environmental technology is another obvious example. There are few more pressing issues than climate change. For Alcoa, the issue of sustainability is a core value. We have been taking a lead on this issue since the early 1990s. We established a target of reducing greenhouse gases by 25% below 1990 levels. Our target was 2010. Instead, we achieved that goal in 2003, seven years ahead of schedule. And we have maintained those reductions despite continuous growth.
Alcoa has been recognized as a role model in sustainable business practices. We have been named one of the Global 100 Most Sustainable Corporations in the World for four straight years. We have been listed on the Dow Jones Sustainability Index for 6 years.
We know it’s not enough to take action on your own. So one year ago, we joined nine other companies and four environmental organizations in creating the U.S. Climate Action Partnership. Together, we are pushing a legislative agenda to reduce greenhouse gas emissions.
Why do we do this? Well, first, it’s just the right thing to do. But let’s face it. The world is changing. And companies who do not address sustainable growth will be left behind.
Environmental issues are front and center. And environmental technology is the next generation of business. There are major opportunities in efficient energy production, green buildings, and advanced transportation – for example, lighter and more energy efficient cars.
Here again, the U.S. and the EU are in the pole position. Our companies and workers are already leaders in innovation. Our base of consumers still shapes the world’s economic decisions. But as the world continues to flatten, and the middle classes in developing countries continue to grow at astounding rates, our ability to dictate change will decline.
This is a major window of opportunity for us. It is not a time for talking down the TransAtlantic economic relationship. It is a time for taking full advantage of its potential.
The TransAtlantic economic relationship has been critical for setting the basis for global growth and prosperity in the past. The TransAtlantic economic relationship is centrally important today.
And, the TransAtlantic economic relationship will be critical for global growth and prosperity into the future.
There is a window of opportunity for us to use the TransAtlantic economic relationship to set the standards for that future global growth. It is a window of opportunity which presents itself now-but may only be open to us for the next few years. Let’s not lose that opportunity by sitting around just talking.
Our time to lead is now
Thank you again for your hospitality. I look forward to hearing from all of you over the next two days.
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