TradeRoots International Trade Best Practices Summit Keynote Luncheon Address

Coral Gables, Florida
February 7, 2007

Thank you. Good afternoon, ladies and gentlemen. It's a great pleasure to be in Miami. I just wish I had arrived a few days earlier to have seen my NCF champion Chicago Bears play in the Super Bowl – despite the outcome.

I have a great amount of appreciation and admiration for what you all do. As trade facilitators and promoters, you help companies recognize and capitalize on the tremendous opportunities available to them overseas.

I share your enthusiasm and dedication to expanding international trade and investment. One of my top priorities as chairman of the Chamber is to be an outspoken advocate for free trade agreements and the elimination of all trade barriers.

Let's face it – it's not an easy time for supporters of free trade. We hear from many of our lawmakers and the media that globalization kills jobs and is harmful to the U.S. economy.

The natural response by many of our elected officials in Washington to the changing global economy is isolationism and protectionism.

What I hear them saying is that they have no confidence in America's workers and companies to compete globally.

I say the opposite – given a level playing field, with the same access to foreign markets that other countries have here, I have no doubt that American companies and their workers can compete and win in the global economy.

I know that to be because I work for a company that is thriving today not because it has survived globalization, but because it has embraced it.

I'd like to talk about how a company headquartered in Peoria, Illinois—in the heartland of America…a place where I've lived for 40-some years—can become a leading net exporter and a major contributor to the health and strength of the U.S. economy.

People ask me all the time how Caterpillar is successful in an industry—manufacturing—that is facing extreme overseas competition. Manufacturing in America was supposed to disappear. Remember the bumper stickers in the 1980s – "will the last one to leave turn off the lights?"

Well, Caterpillar is proving the critics wrong.

Caterpillar anticipated changing economic conditions and increasing global competition long ago. Beginning in the 1950s, the company began building plants in regions of the world that it wanted to serve. The theory was simple – to cultivate a larger customer base, we had to go to where the customers were.

We can't avoid the fact that 95% of the world's population lives somewhere other than the United States – if Caterpillar had focused only on the 5% of the population that lives here, it probably wouldn't be in business today.

We operate more than 100 production facilities in 40 countries. This presence around the world is largely responsible for the growing demand for our products, many of which continue to be made right here in the United States.

Let me give you an example of what I've talking about. Over the past few years, Caterpillar has more than doubled its Chinese workforce.

The critics might hear this and say, "There goes Caterpillar, sending U.S. manufacturing jobs overseas."

But understand this – as we have increased our presence in China, we have increased our U.S. exports to that country by 40% - helping to create some 5,000 new production jobs here in the United States. Caterpillar exports to China about four times as much as we import from them.

More than half of all Caterpillar products made in the United States are shipped to overseas customers.

In 2005, we exported more than $9 billion in products from the U.S. Last year, our exports increased to more than $10.5 billion.

This level of domestic production provides jobs for 48,000 Caterpillar employees domestically, 17,000 of them in the Peoria area. These are good-paying jobs, with good benefits and training programs.

Caterpillar's continued success in the 21st century will be highly dependent on having equal and fair access to export markets around the globe.

In many markets, our company must overcome high tariffs and other trade barriers – even as some of our foreign competitors compete under more favorable terms because of agreements their governments have negotiated.

In markets where the United States has secured free trade agreements, Caterpillar is enjoying tremendous growth. Let me give you a couple of examples.

Three years ago, the United States implemented a free trade agreement with Chile. Now when you think about important U.S. trading partners, Chile doesn't come to most people's minds.

However, with most tariffs completely eliminated under the terms of the deal, and with increased demand from higher commodity prices, Caterpillar has nearly doubled its U.S. exports to Chile. In fact, Chile has become Caterpillar's fifth largest U.S. export market.

We're seeing similar results from the free trade agreement with Australia that took affect in 2005. Caterpillar's U.S. exports to that country are up 26%.

We anticipate significant growth from the more recent free trade agreement with Central America and the Dominican Republic.

Before DR-CAFTA, the duty on a U.S.-produced Caterpillar off-highway truck entering Guatemala was 5 percent; in the Dominican Republic, the duty was 8 percent. And in Costa Rica, it was a whopping 14 percent.

These trade barriers have discouraged economic growth and dissuaded our customers from buying our products. That has not been good for them – and it's not been good for us. Fortunately, that is all changing with DR-CAFTA.

Total U.S. exports to the CAFTA countries are up 21 percent since the agreement was signed into law last August.

We must aggressively push forward with new free trade agreements. To its credit, the administration is doing an admirable job of forging ahead.

When President Bush took office in 2000, the United States had just three bilateral free trade agreements. We're now up to 13, with Congress set to consider three more this year – with Peru, Colombia and Panama.

For Caterpillar, the benefits of free trade agreement with these countries could be even more significant than the ones with Chile and Australia.

Peru and Colombia already are important Caterpillar export markets. Together, they are a larger export market than Brazil, the United Kingdom, Japan or Germany.

At a coal mine in Pribbenow, Colombia, 21 million tons of coal is mined annually with the help of more than 250 Caterpillar machines.

That includes 75 D-11 track-type tractors – the largest bulldozers in the world…all made in East Peoria, Illinois. The Pribbenow coal mine is the world's largest concentration of D11s at one site. By the way, President Bush took a spin in one of our big tractors when he visited that East Peoria facility last week. Thankfully, there were no fatalities.

At another coal mine in Colombia, 270 Caterpillar machines help mine 23 million tons of coal each year. Caterpillar off-highway trucks represent about half of the equipment at that work site, and all of them are manufactured in Decatur, Illinois.

Even with its strong presence in Latin America, Caterpillar isn't playing on an level playing field.

Peru maintains 12 percent tariffs, and some Colombia and Panama tariffs are as high as 15 percent on selected Caterpillar products.

The off-highway trucks I just mentioned – Colombia slaps a 10 percent duty on every single one that enters that country. That comes out to more than $200,000 per truck.

All tariffs on Caterpillar products would be eliminated immediately under the terms of the negotiated agreements with Colombia, Peru, and Panama.

Bilateral free trade agreements are essential to America's continued competitiveness. Forty-two percent of our nation's exports go to countries where the United States has a free trade agreement.

And most of these markets, it should be noted, are smaller in size. Just think about the potential for economic growth that additional FTAs with larger trading partners would bring.

While not losing its focus on trade agreements with individual nations, the United States must exercise strong leadership in global trade negotiations.

The Doha Development Round of World Trade Organization (WTO) negotiations aims to lower trade barriers around the world. But there's one problem: After six years, the talks have stalled. We need to help get them started again.

Doha's potential gains for our country and the world are huge. The University of Michigan has estimated that a one-third cut in international trade barriers could raise the income of the average American family by an additional $2,500 a year.

Another organization estimates that a successful conclusion to the Doha negotiations could lift more than 500 million people worldwide out of poverty.

Economists have found that during the 1990s, incomes grew three times faster in developing countries that lowered trade barriers than in developing countries that did not.

From Bono, the front man for the rock group U2, to the World Bank, experts on poverty agree that trade will be the 21st century's most powerful development tool.

Why are the talks failing? Two words—agricultural subsidies. They have become the tail wagging the dog in the negotiations.

While everyone is waiting for someone else to make the next move, Washington must issue a new offer to significantly cut its agriculture subsidies, even though we have already made tremendous concessions.

American farmers will still benefit handsomely from a Doha deal. Only half of U.S. farms receive any subsidies, and the lion's share of them go to the largest farms, not small family farms.

WTO negotiating rounds have a legacy of success. According to one study, the eight negotiating rounds since 1945 collectively pay an annual dividend of $1 trillion to the U.S. economy—or $9,000 per year for the average American household.

Breaking the WTO logjam this time around might require that some sacrifices be made by a small number of Americans.

Taking that step is the price of leadership, and it's a price we ought to pay.

There's another important trade policy priority for the United States this year – and that's renewal of trade promotion authority.

TPA, as it's often called, grants the president the authority to negotiate free trade agreements, subject to an up-or-down vote by Congress.

The key words here are "up-or-down." Congress cannot add amendments that could potentially poison an agreement the administration has negotiated.

Giving 535 members of Congress the power to rewrite trade agreements would severely diminish the president's negotiating leverage, and nothing would get accomplished.

Without continued trade promotion authority, the Doha Round and a number of U.S. bilateral trade negotiations already underway would likely fall apart. We can't afford to waste these opportunities.

I mentioned in the beginning that the public sentiment on trade in the United States has become more negative. Opponents of trade are successfully spreading fear, anxiety, and mischaracterizations.

The business community must rise to the challenge. We must do better telling the story of trade – trade as a creator of jobs, higher incomes, and new opportunities for American companies.

The U.S. Chamber of Commerce is stepping up its trade education efforts. We're on Capitol Hill, constantly reminding members of Congress and their staffs that many of the jobs back in their home districts are dependent on trade.

And, through TradeRoots, the Chamber is in communities nationwide, educating local and state officials and small businesses on the benefits of trade, and helping them access new overseas markets.

You've all heard the saying, "Does it play in Peoria?" It's a question marketers ask when testing a new product or idea.

Well guess what? Trade plays in Peoria – big time. And it plays in countless other mid-size and small towns across America.

Caterpillar and its employees believe in a strong America that will continue to lead in the global economy as long as other markets are open to us and we remain open to them.

Thank you very much.