[Economic Report of the President (2004)]
[Administration of George W. Bush]
[Online through the Government Printing Office, www.gpo.gov]


 
CHAPTER 12

International Trade and Cooperation


Since the end of the Second World War, international trade has
grown steadily relative to overall economic activity. Countries
that have been more open to international flows of goods, services,
and capital grew faster than countries that were less open to the
global economy. The United States has been a driving force in
constructing an open global trading system. A series of international
trade agreements has reduced barriers to trade in goods and services
and has been an important element in U.S. and global growth.

During this period, new types of trade emerged and delivered new
benefits to consumers and firms in trading countries. Growing
international demand for goods such as movies, pharmaceuticals,
and recordings offered new opportunities for U.S. exporters. A
burgeoning trade in services provided an important outlet for U.S.
expertise in sectors such as banking, engineering, and higher
education. The ability to buy goods and services from new places
has made household budgets go farther, while the ability of firms
to distribute their production around the globe has cut costs and
thus prices to consumers.

The key points in this chapter are:

 Trade has grown significantly since World War II.
The benefits from new forms of trade, such as trade
in services, are no different from the benefits of
traditional trade in goods.
 The benefits of integration are substantial.
 International cooperation is an essential part of
realizing the potential gains from international
trade.  A system through which countries can resolve
disputes can play an important role in realizing these
gains.


Increased Trade Flows: Facts and Trends

One way to measure the relative importance of international trade is
to compare the value of trade flows to overall economic activity.
In the latter half of the twentieth century and into the twenty-first,
growth in world trade has outpaced growth in world output
(Chart 12-1). As recently as 1950, the sum of merchandise exports
of all countries equaled only 8 percent of world GDP. In 2002, the
most recent year for which data are available, exports had increased
to 19 percent of world output. For the United States, the sum of
merchandise exports and imports rose from 7 percent to 18 percent
of GDP over the same period.



Increased trade has been accompanied by increased output growth,
which can be attributed, at least in part, to the opening of markets
and to the benefits derived from the international trading system.
The growth in world trade also reflects lower transportation costs,
which facilitate trade; new production processes, which allow
companies to produce and assemble goods in different countries;
and information technology, which facilitates communication between
buyers and sellers. These allow trading countries to take advantage
of variations in resource endowments and sectoral productivities
across countries.
The United States is the largest importer and exporter of goods and
services in the world, although its prowess at exporting is sometimes
less apparent to the casual observer than the country's demand for
imports. This is because many of the products that U.S. firms
export are capital goods used in production and are not sold at
the retail level to consumers (Table 12-1). The composition of
U.S. exports reflects its abundance of skilled labor and
high-technology expertise relative to other countries. This
relative abundance explains why the United States is more likely
to export aircraft and semiconductors and import footwear and
clothing.
U.S. export levels depend partly on the vitality of export markets.
When U.S. trading partners such as Europe and Japan experience slow
growth, as has occurred in recent years, they import fewer goods
from the United States. The developed countries of North America,
Europe, and Japan still account for roughly two-thirds of world
imports and exports of goods, and over 70 percent of world trade
in services.




The Benefits of Free Trade

The benefits of free trade are often misunderstood. Discussions of
the gains from trade often focus on the jobs created in industries
that export goods and services rather than the benefits to consumers
and producers from importing. The jobs created by exports are
important--indeed, some research suggests that workers in export
industries tend to have higher wages than those in other
industries. The benefits of trade, however, are much greater. In
fact, the claim that free trade is good mainly because it allows
us to export misses much of the story. Free trade is good not
just because it allows us to export, but also because it allows us
to import. Providing goods and services to people in other countries
is worthwhile because it allows Americans to consume the goods and
services made in other countries. This is analogous to why most
people work at their jobs--to earn the income with which to buy
goods and services. That is, people ``export'' the product of their
efforts and in return receive income with which to buy goods and
services made by other people.
The benefits of exports are similar. The advantage of selling goods
and services abroad is that U.S. exporters receive funds that can
be spent on imports for Americans to consume. Imports allow Americans
to purchase more varieties of goods and services at lower cost than
if the same items were obtained from domestic producers. These cost
savings free up resources to be used to produce other products. In
this way, imports raise the standard of living in the United States.


Comparative Advantage

Free trade does not require that one country gains at another
country's expense. Free trade is win-win. Just as the United States
benefits from goods produced more cheaply abroad, other countries
benefit from goods built more efficiently here. Each country gains
from these exchanges because each has different capabilities. Free
trade encourages countries to specialize in what they do best. Such
a division of tasks raises economic well-being around the world,
just as the specialization of individual workers into different
jobs makes a company more productive.
Free trade also pushes American businesses to become as efficient
as possible by exposing them to competition from foreign firms. For
example, foreign competition over the past several decades has
spurred improvements on the part of U.S. automakers. American firms
and workers responded to the challenge of international competition
by improving American cars and making them less expensive. American
consumers are better off as a result of increased choice and better
value.
Barriers to trade, in contrast, tend to help a relatively small
number of firms and their workers at the expense of harming a much
larger number of consumers who pay more for their goods as a result
of protection. Each consumer might pay only modestly more while
the beneficiaries of the protection gain substantially. The total
financial costs of protection borne by consumers, however, are
typically larger than the benefits that accrue to producers and
workers.
The effects of trade policy on economic growth and the mechanisms
by which trade affects growth have been controversial. In part,
this is because it is difficult to disentangle the effects of
trade liberalization on economic growth from the effects of the
multitude of other policies that countries adopt. As late as the
1950s and 1960s, the idea that open markets spur economic growth
was somewhat unconventional. The more common belief was that
developing countries should close their borders to imports in
order to support and encourage the growth of their own firms. This
approach became known as ``import substitution'' because countries
sought to develop home industries in place of imports. This was
believed to be particularly important for the manufacturing
sector. Advocates of this view pointed to positive past experiences
with protection among currently developed countries. Developing
countries that followed this strategy and tried to substitute
domestic production for imports often found initial success, but
subsequently encountered serious economic difficulties.
Broad comparisons of countries' experiences support the assessment
that openness to trade is significantly correlated with economic
growth. One study examined the experience of 133 countries from
1950 to 1998. Countries' annual real incomes per capita grew about
1/2 percentage point faster after liberalizing trade policies than
under their closed regimes. Further, the income gains from opening
up to free trade have become increasingly significant; countries
that removed trade barriers in the 1990s raised their growth rates
2-1/2 percentage points, an additional 2 percentage points per year.
While the results of these cross-country studies are not
irrefutable, their findings are bolstered by studies of individual
countries' problems with trade protection and successes with
liberalization.


Assisting People and Communities
Affected by Free Trade

Although openness to trade provides substantial benefits to the
Nation as a whole, foreign competition can require adjustment on
the part of some individuals, businesses, and industries. To help
workers affected by trade develop the skills needed for new jobs,
the Administration has built upon and developed programs to assist
workers and communities that are negatively affected by trade.
The Administration has reformed existing programs to make them
more responsive and flexible. For example, the long-standing Trade
Adjustment Assistance program offered training and income support
to workers directly hurt by greater imports. This program was
significantly enhanced by new legislation signed by the President
in 2002 to extend eligibility to workers indirectly affected, such
as upstream suppliers of the firms hurt by imports. The new
legislation also expanded the benefits to include a health insurance
tax credit and a wage supplement for older workers who found new
jobs that did not pay as well as the jobs they had lost. This
assistance, which will total $12 billion over 10 years, helps ease
the adjustment for displaced workers and helps them move into jobs
where they are most needed. In addition, the President has proposed
a pilot program for Personal Reemployment Accounts, which would
offer an innovative approach to worker adjustment. These accounts
would provide unemployed individuals funds they can use for
training, for job-search assistance, or as a cash reemployment
bonus if they find new work quickly.
The creation and destruction of jobs is part of the way in which
people and materials move from less-productive to more-productive
functions in a free-market economy. Businesses fail and jobs are
lost for many reasons; for example, changes in technology or new
domestic competition can shake up industries and communities. In
the 1980s, 70 percent of the changes in employment in U.S.
manufacturing resulted from less demand for relatively low-skilled
workers and greater demand for high-skilled workers within the
same industry. This indicates that the job losses in the 1980s
were not primarily due to foreign trade pushing workers out of a
sector, but to the changing nature of manufacturing. Import
competition, however, often receives a disproportionate share of
the blame. This may be because there is less that can be done to
prevent the dislocations associated with technological change.


New Facets of Trade

The nature of U.S. trade has changed dramatically over the last
several decades. Whereas the United States once would have exported
your father's Oldsmobile in exchange for foreign-made food or
clothing, the United States is now as likely to export financial
or educational services, Hollywood blockbusters, or life-saving
medicines. The United States still imports food and apparel, but
it also imports components that go into sophisticated products
(such as computer hard drives). This section explores several
ways in which modern trade has evolved from the classic exchange
of manufactured and agricultural goods.


Intellectual Property

The kinds of goods that have been traded for centuries, such as wine
or clothing, have two important attributes: the value of the good
is linked to the physical object, and it costs roughly the same to
produce the second unit of the good as the first. Many of the goods
in which the United States now excels--movies, books, music, software,
and pharmaceuticals--are dramatically different from traditional
goods. The value of a book, movie, or computer software program
lies in the ideas contained within, more than in the paper and
binding or disk. The cost of producing the first book includes
not just the paper and ink, but the intellectual contribution of
the author. To produce the second copy of the book, however, only
the raw materials are required, which makes it significantly less
expensive. As discussed later in the chapter, trade in goods with
valuable intellectual property raises different policy questions
than does more-traditional trade.


Services

Services trade is growing in importance in the world economy
(Chart 12-2). The services sector, for trade purposes, includes
travel and transportation-related services, royalties and license
fees, and other private services, such as finance, insurance and
telecommunications. The service-providing sector is the largest
component of the private economy in the United States, providing
more than 86 million jobs in 2003 and accounting for over half of
total GDP. In 2002, the United States exported services worth
almost $300 billion, about 30 percent of total exports of goods
and services.
Worldwide services trade totaled $1.5 trillion in 2002, compared
to goods trade of over $6 trillion, but services trade has been
growing faster. Unlike



goods trade, in which a product can be
loaded on a ship at one port and off-loaded anywhere in the world
with little need for the exporter and importer to interact,
services trade generally requires extensive interaction. Some
services can be provided at a distance, such as software services.
For others, such as tourism, the customer must come to the location
of the service provider. For others, such as some consulting work,
the service provider must come to the customer. The liberalization
of services trade involves the movement of individuals as well as
the regulation of investment and other business activity. For
American banks to sell many of their services abroad, they must
open branches in their target markets (Box 12-1). As a result,
negotiations to liberalize trade in services have moved beyond
border measures such as tariffs (taxes on imports) to deal with
subjects that have traditionally been the domain of domestic
regulation.
One facet of increased services trade is the increased use of
offshore outsourcing in which a company relocates labor-intensive
service industry functions to another country. For example, a U.S.
firm might use a call-center in India to handle customer
service-related questions. The principal novelty of outsourcing
services is the means by which foreign purchases are delivered.
Whereas imported goods might arrive by ship, outsourced services
are often delivered using telephone lines or the Internet. The
basic economic forces behind the transactions are the same,
however. When a good or service is produced more cheaply abroad,
it makes more sense to import it than to make or provide it
domestically.


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Box 12-1: Trade in Financial Services

The United States is the world's top producer and exporter of
financial services, with exports of roughly $16 billion in 2002.
Foreign clients rely on U.S. firms for financial advice, fund
management, credit-card services, credit-rating services, and
housing finance. In developing countries that suffer from a
shortage of capital or qualified human resources, foreign-provided
services can offer vital support for economic development. Financial
services can introduce new technologies, promote better business
practices, and provide access to the global capital market.
The experience of foreign financial services firms in Mexico provides
an example of the benefits of trade in financial services.  In the
aftermath of the peso devaluation in 1994, thousands of business
went bankrupt. As a result, a number of Mexican banks failed and
the government was forced to purchase $100 billion worth of
nonperforming loans to prevent a systemic banking crisis. The
Mexican government also encouraged foreign banks to invest in
Mexican banks.  The government hoped that foreign banks would
inject much-needed liquidity into the financial system. U.S. and
other foreign financial service companies are credited with helping
to stabilize Mexico's financial sector. Together, foreign firms now
manage a significant fraction of the assets of the Mexican banking
system.
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Intra-industry Trade and Intermediate Products

In classical descriptions of trade, a country with abundant land
sends corn to a country with abundant capital in exchange for
automobiles. In modern trade, it is common for two countries to
send machine tools back and forth to each other. While the items
traveling in both directions might all be machine tools, they are
distinct products that draw on similar production capabilities.
Even when a country is technologically capable of producing all
varieties of a product, it is cost-effective to specialize in
producing particular varieties and then trade with partner
countries to obtain other types of the product. This type of trade
is referred to as intra-industry trade.
Modern trade also differs from classical trade because the
production of any given product may be spread across several
countries. Final assembly might occur in the United States, for
example, using parts (intermediate inputs) that were built in
Canada and Brazil. In fact, a good deal of U.S. trade involves
flows of intermediate inputs used for domestic production. This
kind of trade can have very different economic effects. In the
conventional trade model, an increase in imports would drive out
domestic production and jobs in the import-competing sectors.
Evidence indicates, however, that increases in imports are
correlated with increases in domestic employment in the same
product category. One explanation for this result is that when
production is integrated across countries, an increase in demand
can stimulate both domestic and foreign production.


International Cooperation and Disputes

Countries can benefit from cooperation that increases trade. This
has always been true for the shipment of goods across borders, but
it is even more essential for the new types of trade described
above. Trade in services and goods with high intellectual-property
content often requires a deeper involvement on the part of the
exporter in the importing country, as in the case of U.S. bank
branches overseas.


Why Is There a Need for Cooperation?

Even if a nation understands and accepts the benefits of importing,
there may still be an incentive to intervene in trade through
policies such as tariffs. Countries that are large enough to affect
world prices can potentially benefit by limiting their demand for
imports and moving the terms of trade (the relative price of exports
to imports) in their favor. If two large countries try to do this
to each other, however, they can make their situations worse than
under free trade.
One reminder of this lesson was the aftermath of the Smoot-Hawley
Tariff Act of 1930. Though the United States had a trade surplus
before 1930, the pressures of the nascent Great Depression led
Congress to raise tariffs in an ill-conceived attempt to protect
American jobs. Trading partners around the world responded by
raising their own trade barriers. This was an important factor
in the ensuing breakdown of international commerce, contributing
to lower employment worldwide.
Many of the post-World War II international economic institutions
established under U.S. leadership, such as the World Bank and the
International Monetary Fund, were responses to perceived failures
in international economic policy in the prewar period. The plan
under which these two institutions were created also included a
proposal for an organization, the International Trade Organization
(ITO), to oversee cooperation in international trade. The ITO was
never established due to political disputes.
For more than four decades the trading system was governed instead
by a series of agreements known as the General Agreement on Tariffs
and Trade (GATT). GATT only became part of a formal organization,
the World Trade Organization (WTO), in 1995. Despite the absence
of a standing international body, substantial progress was made in
global trade liberalization.
In the first GATT negotiations in the late 1940s, a relatively
small group of countries, including the United States, looked
for opportunities in which they could all benefit from reciprocally
lowering barriers. This gathering to seek mutual gains from
cooperation was known as a ``round.'' The current multilateral trade
talks were launched by well over 100 countries in Doha, Qatar, in
2001.
Early trade talks were primarily devoted to cutting tariffs. This
era of import liberalization coincided with and contributed to an
era of rapid worldwide economic growth. While tariff cuts could be
painful for industries that faced new competition from imports, the
United States gained better market access for exports, while
consumers and firms benefited from lower prices of imports. At a
practical level, tariff cutting was relatively easy. If the
United States and France each had 40 percent tariffs in sensitive
sectors, they could agree to cut those tariffs to 20 percent.
Because of this simplicity, as well as the limited number of
participating countries, the early GATT trade rounds were brief.
Over time, however, GATT negotiations became more comprehensive
and more complex. The negotiations were held less frequently and
lasted much longer. Nonetheless, a good deal of progress was made
in liberalizing world trade. Among developed countries, successive
tariff cuts on manufactured goods lowered average tariff levels
to below 5 percent. Barriers remained higher in developing countries.
Nontariff barriers to trade remain, but they are often more difficult
to address. For example, countries' policies on protecting
intellectual property can constitute a nontariff barrier with
important trade consequences (Box 12-2). Other types of regulations
could, if misused, also constitute a barrier to trade. For example,
``sanitary and phytosanitary regulations'' are rules designed to
protect the health of people, plants, and animals. A foreign
government seeking to block competition in a sensitive agricultural
sector could seek to ban imports on the basis of a product-safety
claim that is without a sound basis in science. The standard that
was agreed upon in the Uruguay Round of trade talks in 1994 was
that such claims must be based on sound scientific evidence. What
constitutes such evidence has been the subject of dispute. This
circumstance poses a challenge: trade restrictions based on sound
science must be allowed and claims not founded on sound science
must be avoided or dismissed, but determining the difference is
frequently not an easy process.

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Box 12-2: International Cooperation on Intellectual Property Rights

The protection of intellectual property is an important new trade
issue. The United States has worked to ensure that copyrights,
trademarks, and patents given to authors, companies, programmers,
or other inventors are protected in other countries.
One implication of the high development and low production costs
of goods with high intellectual property content is that they are
relatively easy to steal. While it may cost $80 million to create
a feature film, the blank videotape or DVD used to copy that film
may cost just a few dollars. It is a fairly straightforward matter
for the United States to prevent other countries from taking U.S.
wheat without paying. It is more difficult to prevent an exported
copy of a movie, recording, or drug from being reproduced, though
the loss to the United States in forgone exports would be just as
significant. These losses can occur not only through unauthorized
duplication, but also through foreign government policies such as
controls on drug prices. These price controls reduce the return
that U.S. producers can earn from abroad and shift the burden of
paying for development costs to the American consumer.
As trade in goods embodying valuable intellectual property has grown,
the protection of intellectual property has emerged as an important
policy concern. In the Uruguay Round of trade talks, which concluded
in 1994, participating countries agreed to adopt high standards of
intellectual property protection in the accord on Trade-Related
Aspects of Intellectual Property Rights (TRIPS). Some have
misconstrued it as preventing developing nations from addressing
health emergencies such as the spread of AIDS in Africa.  At Doha
in 2001, WTO members agreed that the TRIPS Agreement does not and
should not prevent members from taking measures to protect public
health. Furthermore, in 2003, the United States and other WTO
members agreed that developing countries that lack domestic
manufacturing capacities in the pharmaceutical sectors should be
able to override patent rights to import needed medicines from
abroad in order to deal with domestic health problems.
The Administration has actively pursued measures in trade agreements
to ensure the security of U.S. intellectual property rights. The
inclusion of these measures in trade agreements illustrates a new
way in which international cooperation benefits the United States.
If countries are found to be in violation of their obligations
under a trade agreement, the United States could retaliate against
those countries across the entire range of transactions covered by
the agreement.
----------------------------------------------------------------------


The Benefits of Dispute Settlement

Another issue that arises with international cooperation in trade is
the need for some way of solving disagreements among trading
partners.  Disputes might occur when one country disregards a
commitment it made in negotiations, or when there is a disagreement
over the interpretation of an agreement.
If one WTO member has a complaint about the behavior of another
member, there is an established process for addressing the concern.
First, the two countries are required to consult and determine
whether the dispute can be resolved amicably. If this is not
possible, a dispute settlement panel is established at the WTO.
This panel consists of experts, generally selected from countries
not involved in the dispute, who hear evidence from the complaining
and responding countries and then issue findings. The panel
determines whether a country has failed to follow through on
commitments previously made in its trade agreements. Panel findings
can be appealed to a standing body, which issues its own report and
findings on the issues on appeal. Panel and Appellate Body reports
are then submitted to the Dispute Settlement Body (DSB), also a
standing body, for adoption. Once adopted, these findings become
DSB recommendations and rulings.
After the conclusion of the dispute process, the difference between
the WTO system and the domestic legal system becomes apparent. All
WTO members have agreed that when a country loses a dispute
settlement case at the WTO, the first preference is to bring the
domestic law into compliance with the DSB recommendations and
rulings. However, if the losing country chooses to maintain its
initial policies, it must either negotiate compensation to the
complaining country or else the complaining country can get
authorization from the WTO to retaliate by withdrawing concessions
of comparable value. If the latter happens, the net effect is the
unwinding of the reciprocal liberalization that the countries had
undertaken.
The virtue of an orderly dispute-settlement system that has the
confidence of all participants is that the unraveling of cooperation
is limited. Parties not involved in the dispute handle the facts
and interpretation of the dispute, reducing the scope for
disagreement over whether retaliation is legitimate.
The United States has had much success in complaints it has
initiated against other countries' trade practices. As of September
2003, the United States had filed 63 complaints against other
countries. Of the 39 that have been resolved through panel
proceedings, the United States lost only 3 in litigation. In turn,
the United States was a respondent in 77 cases over the same time
period and successfully defended its practices in 4 of the
resulting 38 panel proceedings. These statistics suggest that WTO
complaints are not brought frivolously, in the sense that
complaints, whether by or against the United States, have a high
probability of success.
An effective dispute-settlement mechanism that has the confidence
of all participants is an important part of the cooperative trading
system. A dispute-settlement system can help to ensure that all
parties to trade agreements receive the benefits on which they agreed.


Progress Toward Free Trade

The United States has pursued trade liberalization through
negotiations at the global, regional, and bilateral levels. This
multipronged approach allows for continuing progress even when one
avenue for liberalization is blocked or stalled. Due to its global
reach, the broadest and most important forum for liberalization is
the World Trade Organization. This body now has 148 members. Among
the central principles of the WTO is the requirement that the
lowest tariff offered to one WTO member must be offered to all
members. This principle, known as most-favored-nation (MFN)
treatment, ensures that even if cooperative agreements are reached
among a smaller group of countries, those countries will extend the
benefits broadly to other WTO members. Although WTO rules permit
important exceptions to the MFN principle, such as allowing
countries to lower barriers with trade-agreement partners and as
part of trade preference programs for poor countries, when the MFN
principle is observed it creates a ``level playing field'' of equal
tariffs on all trading partners so that countries will buy goods
from the most-efficient producer.
The WTO encompasses agreements made under the GATT, as well as
agreements on trade in services, intellectual property, and other
issues. The WTO is driven by its members. It does not serve as a
legislative body and passes no laws. What the WTO provides is a
forum for countries to come together to negotiate. When there are
decisions to be made, they are reached by consensus of the members
rather than by majority vote. The principal task of the WTO
Secretariat is to support the work of member countries as they
pursue the goal of trade liberalization.
The Administration played a critical role in launching the Doha
Development Agenda negotiations in 2001, following the failure of
the 1999 Seattle ministerial meeting to initiate new multilateral
trade negotiations. Participating nations agreed that the
negotiations would focus on the needs of developing countries and
their integration into the global trading system. The United States
has put forward proposals for liberalization of trade in
agriculture, consumer and industrial goods, and services--the three
major areas for market access under negotiation. The Administration
is committed to a successful completion of the Doha Development
Agenda. This would substantially lower barriers to trade in all
countries and provide expanded market access for American goods
and services, while boosting economic prospects for developing
countries. One study estimates that removal of tariff barriers,
production subsidies, and export subsidies could raise annual
world income by over $355 billion by 2015. According to another
study, a successful round that lowered trade barriers around the
world could raise the level of U.S. GDP by $144 billion each year,
which translates into additional annual income of $2,000 or more
for a family of four.
The WTO operates by consensus, so it takes little to halt progress.
While the Administration seeks to continue work on global trade
negotiations through the WTO, it has also independently pursued
trade liberalization with developed and developing nations through
far-reaching bilateral and regional agreements (Table 12-2). These
free trade agreements (FTAs) remove substantially all barriers to
trade between participants and allow for cooperation in other
areas of concern, such as regulation of investments and the
protection of intellectual property, the environment, and labor
rights. Under WTO rules, countries may undertake preferential
liberalization in a free trade agreement, as long as the accord
is comprehensive and the liberalization is completed in a reasonable
period of time.



For each potential trading partner in a free trade agreement, the
United States assesses the economic benefits such an agreement would
bring to the United States, the extent to which the country is ready
to undertake free trade obligations, and the role that the agreement
would play in furthering the broader, worldwide trade-liberalization
agenda. Throughout the process of selecting and negotiating with
FTA partners, the Administration consults with members of Congress,
public-interest groups, and industry representatives. The
United States has demonstrated its willingness to liberalize trade
with countries from around the world, both developing and developed.
These agreements offer the benefits of trade and investment to the
United States and our partner countries and help build a coalition
of nations interested in achieving progress in multilateral talks.
The United States has worked to rapidly expand its set of FTA
partners, while maintaining low trade barriers to goods and services
from all countries through our global commitments.


Conclusion

The United States has benefited and continues to benefit enormously
from the international exchange of goods and services. Trade allows
countries to specialize in those activities that make the best use
of their skills and resources, as well as to reap the benefits in
terms of imported goods. These gains have increased as lower
barriers, better transportation, and easier communication have
expanded existing international markets and created new ones.
Another important but often overlooked benefit to the expansion of
free trade is the expansion of freedom and democracy. Involvement in
the global economy provides incentives for nations to ensure a degree
of transparency and stability in order to attract investors and
trading partners. It also encourages countries to embrace a more
democratic and less corrupt system of government. Economic freedoms
can lead to greater political freedoms.
As the complexity of international trade has increased, so too has
the complexity of the agreements that govern it. The
dispute-settlement mechanism in the WTO has been useful for
resolving disagreements between WTO members. The United States has
been challenged on certain trade practices, but in turn has used
the dispute settlement system to assert its rights and challenge
the practices of other countries.
The Administration is committed to an open and unfettered trading
system to promote economic growth in the United States and around
the world.