Ambassador
"Competition and Innovation: Building Our Future through Trade"
Speech by Ambassador Cain to Dansk Industri
DI Headquarters, Copenhagen
October 7, 2005
Thank you very much for that kind introduction.
As you may know, I presented my credentials as Ambassador of the United States to Queen Margrethe less than one month ago. What you may not know, is that before I became Ambassador, I was a businessman. I am proud to say that I have personally started twenty different businesses.
Thirteen of them failed.
Now, I know what some of you are saying. You're hoping I make a better diplomat than I did a businessman!
I will talk about the concept of failure later in my remarks. But my point in telling you this about my background is to show you that I understand, in a serious way, the challenges that confront all of you as business leaders. And as a diplomat representing the United States in Denmark, I recognize the global issues that add to those challenges.
Today, I am pleased to have the opportunity to visit with you about some of those challenges and those global issues.
In the first part of my remarks, I'll focus on the opportunities of globalization. Those opportunities are linked to a strong system of agreements concerning trade, which I will also discuss. I'll talk a bit about America's relationship with the European Union. Finally, I'll close with a few words about risk, competition and innovation.
Since I arrived, I have met with many leaders of government, business, media, culture, and education. I have attended a Danish national team football game, and I have eaten smoerebroed. I have been touched by the warm reception my family and I have received here in Copenhagen, and more broadly in Denmark. My only regret is that I have not, during this beautiful "Indian summer" had the opportunity to enjoy one of your 155 great golf courses!
I recognize how popular golf is in Denmark. One of my new Danish friends was telling me the other day he was recently paired up with a stranger at a golf course. As they were teeing off on the second hole, which was next to the highway, they saw a funeral procession go by. Instead of teeing off, the stranger took off his golf cap and placed it on his chest until the funeral procession had passed. My friend said, "You know, that was the most touching thing I've ever seen." The guy answers back to my friend, "Well, I was married to her for 15 years. It was the least I could do!"
I'm delighted that my first official speech as ambassador should be here at the Confederation of Danish Industries. I am also pleased to be able to share the stage with such distinguished speakers this morning.
We all know this is a world of constant and accelerated change. You see it in the papers and on the news every day. Markets move; sometimes bad things happen; sometimes new opportunities arise. In this world of change, we must reform and adjust our economies to make them resilient and flexible, to enable us to make it through the tough times and to take advantage of new opportunities.
All countries face the same stark choice as they fight to stay competitive in the global economic arena. Will they revert to fear, stagnation and protectionism? Or will they embrace the 21st century, and its imperatives of open markets, transparency, and free competition?
After almost two months here, I think I know where Denmark is heading on this question. I can see it in the dynamism of the young people I have met, in the commitment of the country's business leaders and in your growth and your employment statistics. And if I had any doubts, they were completely erased by an article in Jyllands-Posten August 18 (my first day on the job). This article announced the definitive scientific experiment, just recently completed, on the crawling habits of European babies.
The experiment proved once and for all that Danish babies crawl faster and farther than any other European babies - and much faster than babies from Great Britain and France! I am quite confident that those self assured and adventurous Danish babies are going to grow up to be the most successful entrepreneurs and innovators in Europe. It's our responsibility to create an international economic environment where those young people can succeed. And trade is a key to that responsibility.
When I met with Prime Minister Rasmussen after I presented my credentials, we talked about his landmark Globalization Council, which is examining the challenges and opportunities of today's international marketplace. The prime minister understands that trade helps to build international understanding, cooperation, and mutual respect. Strengthening world trade is a fundamental necessity in fighting terrorism, reducing poverty and unemployment, and improving prosperity. Young people with jobs and hopes for a bright future are less likely to be drawn into the evil designs of those who organize acts of terror.
It's useful to take a minute to examine the long-term economic shifts of the last two decades. China, India, Latin America, and parts of Africa opened their economies, reduced state controls, and privatized. The absolute poverty rates for developing countries fell sharply.
The number of people in the global marketplace exploded from one billion to six billion. Old barriers to the movement of ideas, information, capital and production have fallen. Commerce has changed, with just-in-time manufacturers and retailers building production and sales networks that weave around the globe.
These shifts have had a huge effect on my country. Total U.S. trade as a percentage of overall output has grown from around 10 percent three decades ago to around 30 percent today. Our 500-plus billion-dollar trade deficit, however, has led some to complain that those shifts in trade have hurt America. In my own home state of North Carolina, with our historical job base in textiles, furniture and agriculture, we lost more jobs in the last 10 years than any state in the country. In the period from 2001-2003 alone, manufacturing employment losses in North Carolina totaled 102,000 jobs.
A famous British historian wrote “free trade, one of the greatest blessings which a government can confer upon a people, is in almost every country unpopular.” The barriers faced by U.S. exports around the world provide an excuse to those who argue that we should not reduce our remaining barriers.
The world’s most rapidly growing markets – especially in Asia and Latin America – have barriers three or four times higher than U.S. levels. But in the long run, America’s farmers, workers, and families stand to gain much from new negotiations. Given that U.S. tariffs are already low, new negotiations should bring other countries’ tariffs closer to ours. We need Denmark and the EU's help to bring down those barriers.
Benefits from trade are not just about money. Open trade advances political reform, swells the ranks of independent businesses, and reduces the level of government intervention in national economies throughout the world. It rewards governments for pursuing tough economic reforms. It also signals potential investors that nations have agreed to abide by good, common rules.
Doha Development Agenda
As we focus on the benefits of open trade, we must examine the priorities of the Doha Development agenda. A few weeks ago at the United Nations, President Bush said, "Under a successful Doha Round, every nation will gain, and the developing world stands to gain the most. We need to ensure," the President said, "that developing nations have the same opportunities to pursue their dreams, provide for their families, and live lives of dignity and self-reliance."
The President also pledged to "eliminate all tariffs, subsidies, and other barriers to the free flow of goods and services, as others do the same." Ensuring opportunity for the developing world is an American priority. That's why my first opinion-editorial, published on September 13th in Berlingske Tidende, addressed the role of aid in boosting economic development in poor countries. We are proud that Denmark joins us in that priority.
The United States and the EU are both directing aid to assist trade. Last year, the United States devoted $921 million to build the developing world’s capacity for trade. Our next opportunity lies ahead at this December's WTO Ministerial meeting in Hong Kong. Studies by the World Bank say 300 to 500 million people could be pulled out of poverty if we could eliminate all barriers to trade.
Liberalizing agricultural trade is almost certainly the single most important way that the Doha round can help developing countries. U.S. agricultural tariffs average about 12 percent while those of the EU are at 31 percent. The global average is 62 percent. The U.S. is prepared to reduce tariffs further, but to level the playing field, the EU must agree to substantial tariff cuts.
My grandparents were farmers. Our family farm no longer exists, but farm subsidies are an area in need of and ready for reform. The EU is currently allowed to pay farmers approximately $80 billion dollars in support, while the limit for the U.S. is approximately $19 billion. America is prepared to cut, but the EU needs to cut more and diminish this gap.
We welcome the EU’s commitment to end agricultural export subsidies, since they heavily distort agricultural markets. There are other forms of export competition we need to address. However, we strongly oppose rules that would limit food aid to “cash only.” Such rules could mean shortages in the supply of food for humanitarian emergencies.
On market access for non-agricultural goods, we would like to see more ambitious liberalization in sectors such as chemicals, electronics, environmental goods, and pharmaceuticals.
We would like to see more openness throughout the world to trade in services, which provides nearly two-thirds of U.S. economic output and around eighty percent of American jobs.
Transatlantic Trade and Investment
We all are familiar with the unending stream of news reports about the next crisis in U.S.-EU trade relations. But the real story, however, is about the greatest trade relationship the world has ever known. Our two-way trade easily tops one billion dollars every day. This transatlantic trade, combined with the flow of investment, exceeded 1.3 trillion dollars in 2004.
As important as our trade relationship is, our investment relationship is even more significant. Despite investments in China, India, and elsewhere, more than half of America's overseas investment is in Europe. Europe is also the biggest investor in the United States.
I mentioned earlier the number of jobs lost in North Carolina over the last ten years. There is a happy ending to that story. During those same years we actually had a net increase in jobs in North Carolina, with technology, pharmaceuticals, agricultural science and health care leading the way. Over 50,000 of those new jobs were created through foreign investment. This number includes almost 2,000 jobs by Danish-owned companies that have chosen to set up research and development and manufacturing operations in North Carolina. So I know first hand the benefits of globalized investment.
Yet, even within the greatest trade relationship on earth, sometimes we have disputes that require the use of the WTO settlement mechanism. I will comment briefly only on two of these today – the Foreign Sales Corporation case and the Airbus case.
The European Commission won the Foreign Sales Corporation case at the WTO. Because of the domestic tax implications, an enormous political effort was required to pass the American Jobs Creation Act in Congress. The Act allowed grandfathering for up to two years of tax benefits under the old Foreign Sales Corporation provisions, under certain circumstances. These limited grandfathering provisions are a standard feature of U.S. tax legislation. The provisions in question are valued at about 75 million dollars a year -- in contrast to the four billion dollar per year Foreign Sales Corporation program they phased out. The acceptance by EU member states of the Commission's desire for an automatic trigger on renewed sanctions is very disappointing. It can only damage our relations and create bitterness among Congressional leaders who worked so hard to get the new legislation passed.
On Airbus, Europe can no longer claim the need to subsidize an "infant industry." Over the last several years, the United States has tried to negotiate an end to these subsidies. Unfortunately, we have been left with no choice other than to proceed with a WTO case. We remain willing to settle the dispute with a new bilateral agreement that would end new subsidies to the manufacturers of Airbus. There is no link between these two cases and we will work to resolve them individually.
At the 2004 and 2005 U.S.-EU Summits, President Bush and EU leaders committed to finding ways to strengthen the transatlantic economic partnership. We are now working toward enhanced regulatory cooperation; increased integration of capital markets; more effective protection and enforcement of intellectual property rights; and the development and dissemination of energy efficiency technologies. Great partners do great things together, and these are areas where greatness is within our common grasp.
Let's savor for a moment a recent example in our transatlantic trade relationship where we worked through a tough issue to keep trade flowing smoothly. In September, the United States and the European Community reached agreement on wine-making practices and labeling. This agreement is a win-win result for U.S. and EU winemakers and consumers, helping to establish predictable conditions for our 2.8 billion dollar wine trade. Think of that the next time you enjoy a glass of California merlot, North Carolina chardonnay, or New York State Pinot Noir.
The greatest overarching challenge for the U.S. and the EU, however, is how we reinvent our societies and our economies to succeed in this new era. This brings me back to the themes of competition and innovation I referenced at the beginning of my speech.
Some of you know that I spent part of my career in sports, in the National Hockey League. In two years, we went from last place in the League to the Championship. That experience taught me a great deal about competition.
A prominent Danish government leader told me the other day that the world would be a much more competitive place if we could combine Danish egalitarianism with American dynamism. His comment reminded me of a dialogue I had two weeks ago, with four young student leaders at Aarhus University. The group included the president of the student council, members of the board of trustees and the head of the Student Union - a very bright group of young people.
At one point in our conversation I asked them to describe, in one sentence, their impression of America. They conferred for a moment and they said “land of opportunity.” When I asked them to contrast that with Denmark, they said “land of equality.”
Then I asked them, “If you were an Ambassador for a day and were meeting with the Prime Minister, what would you ask him?” They replied, “We would encourage him to be a champion of innovation.”
“Why?” I asked. “Because," they said, "that is what we young people have to become if we are going to compete in a globalized economy - innovative.”
So I asked the students at Aarhus, “How many people do you know who have taken an idea, created a business plan, raised money and started a business?” They said, “A small number, a few.” Then I asked, “How many people do you know who have started a business, failed, then pulled themselves up by their hair and started over again?” And they said “None.”
Their answer steered our conversation to the idea of America as the “land of opportunity.” You see, in America, we celebrate the effort, the mere fact of trying to succeed, of trying to improve your station in life, and your family's economic conditions -- even if that effort results in failure. Wilbur and Orville Wright, in North Carolina incidentally, failed 80 times to get their flying machine up in the air. Thomas Edison failed 970 times to invent the light bulb, but they each only had to succeed once!
The willingness to celebrate the attempt, and not to punish failure, is at the heart of the “Silicon Valley Model” of American business. It is a model that encourages small businesses and young entrepreneurs and that tolerates failure, as long as you don’t let that stop you from starting again.
Small businesses are a key to international trade. Did you know that in America, the net number of new jobs created by “big business” in the last ten years is almost zero? Yet America had a net gain in jobs of 14.8 million in the private sector. That means a lot of small businesses are creating jobs.
I was visiting recently the headquarters of one of the great success stories of Danish innovation. A company that sells cutting-edge technology to American companies, including to our Defense Department. The CEO, a man I have come to greatly admire, told me that they had succeeded in expanding their trading relationship with America “because we are small, we can do things faster, with shorter turnaround time on engineering, more efficient manufacturing, and more rapid delivery time.”
You see, this Danish company has retained the “small business” mentality -- even though between you and me, they are not very small -- they have around 1,000 employees and revenues in the neighborhood of 1.2 billion kroner.
So I finally told my young friends from Aarhus University -- who were certainly among the fast-crawling babies of their generation – "when you say you desire to be more innovative -- you don't have to look to America for inspiration. You have wonderful examples of that right here in Denmark -- where ideas are turned into action, and action is followed by results." And yes, occasionally those results may be bad and you may fail. Then you innovate again, and you start over. Because the next time there will be an even greater chance that your innovation will turn into a business, the business will turn into jobs, those jobs will turn into increased trade - and along the way you may just find a new cure for a disease, a new weapon to fight terrorism, or a new way to get food to the starving children of Africa.
Thank you for what you are doing to promote trade and to promote innovation. And thank you for inviting me to be with you today.