Foster Development through Trade and Aid

With most of the world’s population and economic growth squarely centered in the developing world, U.S. companies are increasingly reliant on emerging economies. In fact, over half of U.S. merchandise exports now go to developing countries.

Accordingly, the U.S. business community has lent growing support to a broad-based development agenda that fully leverages both trade and aid programs. The U.S. Chamber strongly supports a robust international affairs budget, often referred to as the “Function 150” account.

Representing about 1% of the federal budget, the international affairs budget provides the U.S. government with the basic tools to meet the economic, diplomatic, and humanitarian challenges of the 21st century. The Chamber is a proud supporter of the U.S. Global Leadership Campaign, a broad-based national coalition of businesses, humanitarian organizations, and community leaders that advocates for a strong U.S. international affairs budget.

The international affairs budget is a critical tool, first and foremost, to ensure America’s national security. Many programs funded by the international affairs budget prove the old adage that an ounce of prevention is worth a pound of cure. These initiatives are designed to stabilize weakened states, deter threats before they reach the United States, strengthen international anti-terrorism coalitions, combat weapons proliferation, and fight global crime and narcotics trafficking.

Second, the international affairs budget underscores America’s humanitarian values. It does so by supporting global health initiatives, alleviating poverty around the world, and strengthening democratic institutions. This includes the U.S. President’s Emergency Plan for AIDS Relief (PEPFAR) to combat HIV/AIDS globally — a highly successful program the Chamber has supported from its inception.

Third, the international affairs budget plays a key role advancing U.S. economic interests overseas. This part of the federal budget helps increase economic opportunities through trade, promote U.S. business interests around the world, and create U.S. jobs through increased international trade and investment. The “Function 150” account funds U.S. export promotion agencies such as the Export-Import Bank and the Overseas Private Investment Corporation, advocacy overseas for U.S. businesses, and efforts to build safe, stable, and open international markets.

One area where the international affairs budget and the American trade agenda intersect is in programs dubbed “trade capacity building” or “aid for trade.” Trade capacity building is development assistance that builds the necessary capacity—from improvements in infrastructure and customs administration to enforcement of labor and environmental laws—that allows developing countries to take advantage of open markets.

The United States is the largest single-country donor of this kind of assistance. Between 1999 and 2010, the U.S. government obligated nearly $14 billion for trade-related assistance to developing countries, and the majority of this — $10 billion — was provided after 2005. These funds are coordinated with other donors through the WTO, the World Bank, and other multilateral development banks. The U.S. Agency for International Development plays a central role in U.S. “aid for trade” efforts, and working through over 70 missions around the world, has dramatically increased the percentage of trade-related assistance that is provided to developing countries in recent years.

Trade capacity building is a priority for the U.S. business community, which believes success in this area is more likely when a true public-private partnership is in place. In Guatemala, for example, express delivery companies worked through CLADEC Guatemala, their local association, to help Guatemala’s customs authorities retool their express clearance procedures.

The upshot was that clearance times were reduced from days to hours, with significant benefits for Guatemala’s international competitiveness. The U.S. and Canadian governments and the World Bank and the World Customs Organization provided technical assistance, but funding and a great deal of know-how came directly from the private sector and Guatemala’s tax agency. Clearly, the best model for trade capacity building brings together government, business, and often academia to implement best practices.

Finally, it’s worth noting the important role trade preference programs play in U.S. efforts to foster development globally. Approximately 150 developing countries around the world enjoy preferential access to the U.S. marketplace through trade preference programs, which continue to enjoy broad bipartisan support.

The largest of these programs is the Generalized System of Preferences (GSP), which was launched in 1976. Additional programs extend preferences to specific countries in Africa (the Africa Growth and Opportunity Act, or AGOA), the Andean region (the Andean Trade Preference Act, or ATPA), and the Caribbean (the Caribbean Basin Initiative, the Caribbean Basin Trade Partnership Act, and the Haitian Hemispheric Opportunity through Partnership Encouragement Act).

These trade preferences offer benefits to both developing economies and the United States. In the Andean region, for instance, ATPA has been perhaps the single most effective alternative development program, sustaining 1.5 million jobs in Colombia and Peru before bilateral trade agreements came into force. By providing local citizens with long-term alternatives to narcotics trafficking and illegal migration, ATPA helped governments isolate violent extremist groups, restore economic growth, and increase investment in education, health, and infrastructure.

Moreover, trade preferences also boost the competitiveness of U.S. manufacturers and lower the cost of consumer goods for American families. According to a U.S. Chamber study, the GSP program keeps U.S. manufacturers and their suppliers competitive. Approximately three-quarters of U.S. imports using GSP are raw materials, parts and components, or machinery and equipment used to manufacture goods in the United States.

Moving GSP imports from the docks to the retail shelves supports approximately 80,000 U.S. jobs, according to the U.S. Chamber’s study. GSP is particularly important to U.S. small businesses, many of whom rely on the program’s duty savings to compete with larger companies. American families also benefit directly from GSP: Finished consumer goods sold by U.S. retailers account for about 25% of GSP imports. The products coming in under GSP generally do not compete with U.S.-made goods in any significant way.

Despite these successes, U.S. preference programs are in need of reform. Many of the world’s poorest countries are currently left out of preference programs, and some existing programs exclude many countries’ key export products. Short-term extensions of preferences and complex eligibility rules limit the benefits for U.S. importers and exporters in developing countries. The U.S. Chamber supports reforms to address these shortcomings. At the same time, we believe countries that fail to comply with GSP’s conditions relating to respect for intellectual property should be denied its benefits.

In the long run, the American public has made clear its preference for fair trade based on reciprocal market openings. Bilateral and regional trade agreements can unleash growth and development in ways that unilateral trade preferences cannot. But while the United States pursues reciprocal trade accords, we should continue to secure the benefits of these longstanding preference programs.

Chamber Recommendations

• Congress should fund the international affairs budget at a robust level to ensure the federal government can meet today’s diplomatic, humanitarian, and economic challenges.
• As a critical part of U.S. development assistance, trade capacity building programs should be funded at a significant level to help U.S. workers and companies tap the full benefits of international business opportunities.
• While reciprocal trade agreements offer greater benefits for U.S. workers, elected officials should work to enhance the benefits of unilateral trade preference programs through program reform.