VI. Ignite a New Era of Global Economic Growth through Free Markets and Free Trade

A. Summary of National Security Strategy 2002

Promoting free and fair trade has long been a bedrock tenet of American foreign policy. Greater economic freedom is ultimately inseparable from political liberty. Economic freedom empowers individuals, and empowered individuals increasingly demand greater political freedom. Greater economic freedom also leads to greater economic opportunity and prosperity for everyone. History has judged the market economy as the single most effective economic system and the greatest antidote to poverty. To expand economic liberty and prosperity, the United States promotes free and fair trade, open markets, a stable financial system, the integration of the global economy, and secure, clean energy development.

B. Current Context: Successes and Challenges

The global economy is more open and free, and many people around the world have seen their lives improve as prosperity and economic integration have increased. The Administration has accomplished much of the economic freedom agenda it set out in 2002:

Seizing the global initiative.  We have worked to open markets and integrate the global economy through launching the Doha Development Agenda negotiations of the World Trade Organization (WTO). The United States put forward bold and historic proposals to reform global agricultural trade, to eliminate farm export subsidies and reduce trade-distorting support programs, to eliminate all tariffs on consumer and industrial goods, and to open global services markets. When negotiations stalled in 2003, the United States took the initiative to put Doha back on track, culminating in a successful framework agreement reached in Geneva in 2004. As talks proceed, the United States continues to lead the world in advancing bold proposals for economic freedom through open markets. We also have led the way in helping the accessions of new WTO members such as Armenia, Cambodia, Macedonia, and Saudi Arabia.

Pressing regional and bilateral trade initiatives. We have used FTAs to open markets, support economic reform and the rule of law, and create new opportunities for American farmers and workers. Since 2001, we have:

• Implemented or completed negotiations for FTAs with 14 countries on 5 continents, and are negotiating agreements with 11 additional countries;
• Partnered with Congress to pass the Central America Free Trade Agreement – Dominican Republic (CAFTA-DR), long sought by the leaders of El Salvador, Honduras, Guatemala, Nicaragua, Costa Rica, and Dominican Republic;
• Called in 2003 for the creation of a Middle East Free Trade Area (MEFTA) by 2013 to bring the Middle East into an expanding circle of opportunity;
• Negotiated FTAs with Bahrain, Jordan, Morocco, and Oman to provide a foundation for the MEFTA initiative;
• Launched in 2002 the Enterprise for ASEAN Initiative, which led to the completion of a free trade agreement with Singapore, and the launch of negotiations with Thailand and Malaysia;
• Concluded an FTA with Australia, one of America’s strongest allies in the Asia-Pacific region and a major trading partner of the United States; and
• Continued to promote the opportunities of increased trade to sub-Saharan Africa through the African Growth and Opportunity Act (AGOA), and extended opportunity to many other developing countries through the Generalized System of Preferences.

Pressing for open markets, financial stability, and deeper integration of the world economy. We have partnered with Europe, Japan, and other major economies to promote structural reforms that encourage growth, stability, and opportunity across the globe. The United States has:

• Gained agreement in the G-7 on the Agenda for Growth, which commits member states to take concrete steps to reform domestic economic systems;
• Worked with other nations that serve as regional and global engines of growth – such as India, China, the ROK, Brazil, and Russia – on reforms to open markets and ensure financial stability;
• Urged China to move to a market-based, flexible exchange rate regime – a step that would help both China and the global economy; and
• Pressed for reform of the International Financial Institutions to focus on results, fostering good governance and sound policies, and freeing poor countries from unpayable debts.

Enhancing energy security and clean development. The Administration has worked with trading partners and energy producers to expand the types and sources of energy, to open markets and strengthen the rule of law, and to foster private investment that can help develop the energy needed to meet global demand. In addition, we have:

• Worked with industrialized and emerging nations on hydrogen, clean coal, and advanced nuclear technologies; and
• Joined with Australia, China, India, Japan, and the ROK in forming the Asia-Pacific Partnership for Clean Development and Climate to accelerate deployment of clean technologies to enhance energy security, reduce poverty, and reduce pollution.

Several challenges remain:

• Protectionist impulses in many countries put at risk the benefits of open markets and impede the expansion of free and fair trade and economic growth.
• Nations that lack the rule of law are prone to corruption, lack of transparency, and poor governance. These nations frustrate the economic aspirations of their people by failing to promote entrepreneurship, protect intellectual property, or allow their citizens access to vital investment capital.
• Many countries are too dependent upon foreign oil, which is often imported from unstable parts of the world.
• Economic integration spreads wealth across the globe, but also makes local economies more subject to global market conditions.
• Some governments restrict the free flow of capital, subverting the vital role that wise investment can play in promoting economic growth. This denies investments, economic opportunity, and new jobs to the people who need them most.

C. The Way Ahead

Economic freedom is a moral imperative. The liberty to create and build or to buy, sell, and own property is fundamental to human nature and foundational to a free society. Economic freedom also reinforces political freedom. It creates diversified centers of power and authority that limit the reach of government. It expands the free flow of ideas; with increased trade and foreign investment comes exposure to new ways of thinking and living which give citizens more control over their own lives.

To continue extending liberty and prosperity, and to meet the challenges that remain, our strategy going forward involves:

1. Opening markets and integrating developing countries.

While most of the world affirms in principle the appeal of economic liberty, in practice too many nations hold fast to the false comforts of subsidies and trade barriers. Such distortions of the market stifle growth in developed countries, and slow the escape from poverty in developing countries. Against these short-sighted impulses, the United States promotes the enduring vision of a global economy that welcomes all participants and encourages the voluntary exchange of goods and services based on mutual benefit, not favoritism.

We will continue to advance this agenda through the WTO and through bilateral and regional FTAs.

• The United States will seek completion of the Doha Development Agenda negotiations. A successful Doha agreement will expand opportunities for Americans and for others around the world. Trade and open markets will empower citizens in developing countries to improve their lives, while reducing the opportunities for corruption that afflict state-controlled economies.
• We will continue to work with countries such as Russia, Ukraine, Kazakhstan, and Vietnam on the market reforms needed to join the WTO. Participation in the WTO brings opportunities as well as obligations – to strengthen the rule of law and honor the intellectual property rights that sustain the modern knowledge economy, and to remove tariffs, subsidies, and other trade barriers that distort global markets and harm the world’s poor.
• We will advance MEFTA by completing and bringing into force FTAs for Bahrain, Oman, and the United Arab Emirates and through other initiatives to expand open trade with and among countries in the region.
• In Africa, we are pursuing an FTA with the countries of the Southern African Customs Union: Botswana, Lesotho, Namibia, South Africa, and Swaziland.
• In Asia, we are pursuing FTAs with Thailand, the ROK, and Malaysia. We will also continue to work closely with China to ensure it honors its WTO commitments and protects intellectual property.
• In our own hemisphere, we will advance the vision of a free trade area of the Americas by building on North American Free Trade Agreement, CAFTA-DR, and the FTA with Chile. We will complete and bring into force FTAs with Colombia, Peru, Ecuador, and Panama.

2. Opening, integrating, and diversifying energy markets to ensure energy independence.

Most of the energy that drives the global economy comes from fossil fuels, especially petroleum. The United States is the world’s third largest oil producer, but we rely on international sources to supply more than 50 percent of our needs. Only a small number of countries make major contributions to the world’s oil supply.

The world’s dependence on these few suppliers is neither responsible nor sustainable over the long term. The key to ensuring our energy security is diversity in the regions from which energy resources come and in the types of energy resources on which we rely.

• The Administration will work with resource-rich countries to increase their openness, transparency, and rule of law. This will promote effective democratic governance and attract the investment essential to developing their resources and expanding the range of energy suppliers.
• We will build the Global Nuclear Energy Partnership to work with other nations to develop and deploy advanced nuclear recycling and reactor technologies. This initiative will help provide reliable, emission-free energy with less of the waste burden of older technologies and without making available separated plutonium that could be used by rogue states or terrorists for nuclear weapons. These new technologies will make possible a dramatic expansion of safe, clean nuclear energy to help meet the growing global energy demand.
• We will work with international partners to develop other transformational technologies such as clean coal and hydrogen. Through projects like our FutureGen initiative, we seek to turn our abundant domestic coal into emissions-free sources of electricity and hydrogen, providing our economies increased power with decreased emissions.
• On the domestic front, we are investing in zero-emission coal-fired plants; revolutionary solar and wind technologies; clean, safe nuclear energy; and cutting-edge methods of producing ethanol.

Our comprehensive energy strategy puts a priority on reducing our reliance on foreign energy sources. Diversification of energy sources also will help alleviate the “petroleum curse” – the tendency for oil revenues to foster corruption and prevent economic growth and political reform in some oil-producing states. In too many such nations, ruling elites enrich themselves while denying the people the benefits of their countries’ natural wealth. In the worst cases, oil revenues fund activities that destabilize their regions or advance violent ideologies. Diversifying the suppliers within and across regions reduces opportunities for corruption and diminishes the leverage of irresponsible rulers.

3. Reforming the International Financial System to Ensure Stability and Growth

In our interconnected world, stable and open financial markets are an essential feature of a prosperous global economy. We will work to improve the stability and openness of markets by:

• Promoting Growth-Oriented Economic Policies Worldwide. Sound policies in the United States have helped drive much international growth. We cannot be the only source of strength, however. We will work with the world’s other major economies, including the EU and Japan, to promote structural reforms that open their markets and increase productivity in their nations and across the world.
• Encouraging Adoption of Flexible Exchange Rates and Open Markets for Financial Services. The United States will help emerging economies make the transition to the flexible exchange rates appropriate for major economies. In particular, we will continue to urge China to meet its own commitment to a market-based, flexible exchange rate regime. We will also promote more open financial service markets, which encourage stable and sound financial practices.
• Strengthening International Financial Institutions. At the dawn of a previous era 6 decades ago, the United States championed the creation of the World Bank and the International Monetary Fund (IMF). These institutions were instrumental in the development of the global economy and an expansion of prosperity unprecedented in world history. They remain vital today, but must adapt to new realities:
  • For the World Bank and regional development banks, we will encourage greater emphasis on investments in the private sector. We will urge more consideration of economic freedom, governance, and measurable results in allocating funds. We will promote an increased use of grants to relieve the burden of unsustainable debt.
  • For the IMF, we will seek to refocus it on its core mission: international financial stability. This means strengthening the IMF’s ability to monitor the financial system to prevent crises before they happen. If crises occur, the IMF’s response must reinforce each country’s responsibility for its own economic choices. A refocused IMF will strengthen market institutions and market discipline over financial decisions, helping to promote a stable and prosperous global economy. By doing so, over time markets and the private sector can supplant the need for the IMF to perform in its current role.
• Building Local Capital Markets and the Formal Economy in the Developing World. The first place that small businesses in developing countries turn to for resources is their own domestic markets. Unfortunately, in too many countries these resources are unavailable due to weak financial systems, a lack of property rights, and the diversion of economic activity away from the formal economy into the black market. The United States will work with these countries to develop and strengthen local capital markets and reduce the black market. This will provide more resources to helping the public sector govern effectively and the private sector grow and prosper.
• Creating a More Transparent, Accountable, and Secure International Financial System. The United States has worked with public and private partners to help secure the international financial system against abuse by criminals, terrorists, money launderers, and corrupt political leaders. We will continue to use international venues like the Financial Action Task Force to ensure that this global system is transparent and protected from abuse by tainted capital. We must also develop new tools that allow us to detect, disrupt, and isolate rogue financial players and gatekeepers.