Letters & Speeches
Ambassador's Remarks to the European Chamber of Commerce Session "Future of Global Trade & Investment Climate & Trends: Focus on Sri Lanka!"
Thursday, March 19, Palm Lounge, Gall Face Hotel, 5:30pm
Good evening and thank you for the invitation to speak with you tonight.
First, congratulations on organizing this very timely forum. No matter where I go in Sri Lanka, I am asked by businesspeople and policy makers about my country’s perspectives concerning the global economic crisis. The question that I most often hear, especially when I’m visiting with Sri Lankans whose livelihood depends on exports, is “will the United States turn inward and adopt protectionist trade policies as a result of the current recession?”
Today I’d like to answer that question and also place the issue of free trade in a broader context on how the United States and other governments can help bring an end to the global economic downturn. As your discussion focuses on trade issues, I also would like to comment on our bilateral trade relationship and how I think it can become stronger and thereby benefit both Sri Lanka and the United States.
I tend to look at the positive, despite the current situation, rather than the negative. Yes, the global economy is bad; however, to take a new twist on the words of the American author Mark Twain, the rumors of the death of the global economy are greatly exaggerated. With the right policies and approaches in the United States and abroad, we can and will weather the storm and move economic growth back into a positive direction. The result will be that the fundamentals of our economies will be stronger and more stable than what existed before the downturn.
Let me first briefly discuss how the United States is tackling the global economic crisis. President Obama has outlined a three prong approach, or as he characterizes it, three legs to a stool with each component vital to propping up and maintaining the stability of the economy.
The first leg is the economic stimulus package that President Obama, supported by the U.S. Congress, signed into law one month ago. Much has been reported on the plan, so I won’t go into great detail. But, in brief, the plan totals roughly $780 billion and aims to provide short-term support to the economy while laying the groundwork for sustained economic growth. Its components include plans to boost employment; provide support for the unemployed; increase funds for environmentally-friendly technologies; and provide investments in infrastructure.
The stimulus package will help to get people back to work and add a macroeconomic jolt to the economy. However, compounding U.S. -- as well as global -- economic problems is the lack of liquidity in the banking sector. Thus, the second leg is support for the banking and credit system. As U.S. Federal Reserve Chairman Ben Bernanke said in a television interview last weekend, “The lesson of history is that you do not get a sustained economic recovery as long as the financial system is in crisis.” The Federal Reserve, the Treasury Department, and other U.S. Government agencies have employed a variety of instruments to ensure the financial system is solvent, that banks are strong, and that sufficient credit is available to businesses and consumers. Among the actions already taken:
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Last autumn, to shore up the stability of the banking system, the U.S.Congress passed a law giving the Treasury Department authority to purchase or insure $700 billion of troubled assets.
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The Federal Reserve has lowered the federal funds interest rate—the rate which banks lend to each other---to near zero percent---the lowest level on record.
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Earlier this month, the Federal Reserve and the Department of the Treasury announced a new program to provide up to one trillion dollars of new lending to support car, student, and small business loans.
And just yesterday, the Federal Reserve announced a $1.2 trillion program to buy long-term government bonds and mortgage backed securities in the hopes that such action will make it easier for individuals to obtain mortgages and consumer loans. With these two components, the United States has taken an aggressive approach to tackle the economic crisis. But there is a third leg of the stool that is vital for reenergizing economic growth in the US and around the world: international coordination and cooperation. The actions of one country are not enough, as bold as they may be. As it is a global problem, the economic crisis requires a global response. Governments must act together to provide a macroeconomic stimulus to the global economy that is strong and timely. This component is vital to ensuring that the economic crisis is short-lived and that the global economy emerges in a more fundamentally sound and sustainable manner. We must also work together to get credit flowing and international financial institutions must also target substantial support to emerging markets and developing countries most affected by the crisis. U.S. Treasury Secretary Tim Geithner spelled out these principles during last week’s G-20 summit of Finance Ministers. Secretary Geithner and other G-20 Ministers also highlighted the need for reforms of the international financial system that would allow greater oversight and transparency in order to minimize the risk for a future financial crisis like the one we’re facing.
To expand on President Obama’s metaphor of a stool---if each of the components I just spoke about represent the three legs of a stool (macroeconomic stimulus, support for credit and banking markets and international coordination), there is another component that is a critical rung of the stool---that is international trade. Maintaining a global commitment to fair, open and transparent rules-based trade is essential to reinvigorating global economic growth. Open world markets provide incentives for people and capital to move from less productive to more productive jobs and uses. This process ultimately stimulates higher wages and innovation, while lowering prices for consumers. However, trade does not lift everyone up in the short-run, and there can sometimes be painful adjustments. Some -- economic nationalists -- argue that turning inward is the best way to minimize exposure to economic downturns. The World Bank has already noted that since the global slump began, 17 of the G-20 countries have implemented some kind of trade restrictions.
History itself has taught us that protectionism only worsens an economic downturn. In the wake of the stock market crash in 1929, the U.S. succumbed to protectionist temptations and enacted tariffs and other barriers to slow down the import of foreign goods. A global trade war ensued, thus deepening and prolonging the economic crisis. President Obama has made clear that he wants to grow trade, not contract it. In the recently released 2009 Trade Policy Agenda, the Administration has reaffirmed America’s commitment to a rules-based trading system that advances the well being of the citizens of the United States and our trading partners and, among other things, also upholds our commitment to be a strong partner to developing countries. In its words: “If we work together, free and fair trade, with a proper regard for social and environmental goals and appropriate political accountability will be a powerful contributor to the national and global well being.”
Thus, working against a trend of economic nationalism is key for both the United States and Sri Lanka. Sri Lanka has robust international trading relationships as well as Free Trade Agreements with several countries. Sri Lanka and the U.S. have an active trading relationship. In 2008, our bilateral trade was valued at USD $2.25 billion, $1.96 billion of which was exports to the U.S. from Sri Lanka. We would like to see that grow, on both sides. Although it is likely that 2009 will show a decline in trade, it is important that we start looking now for not only ways to maintain our existing bilateral economic relationship, but for new opportunities to grow it.
The U.S. and Sri Lanka have signed a Trade and Investment Framework Agreement (or TIFA). The purpose of the TIFA, which was established in 2002, is to provide a forum -- formally and informally -- for our countries to examine ways to expand bilateral trade and investment. Part of TIFA discussions focus on increasing commercial and investment opportunities by identifying and working to remove impediments to trade and investment flows. This goal, while always important, is even more key in the current global environment. Ensuring trade flows, rather than restricting them, will help ease the effects of this global recession.
Of course, equally important is ensuring that governments have the right policies and practices in place to attract investors. Sri Lanka's Board of Investment has been active in offering incentives that help to attract investors. Good incentives -- while important -- are not enough. For example, I think we can all agree -- in light of the recent turbulence in the financial sector in my and other countries -- that governments need to strike the right balance between ensuring that the private sector has the freedom it needs to grow while also ensuring that it is properly regulated. We continue to work on that, as do other countries.
But investment is not only about regulations that might apply to your own specific sector. Confidence in a market, in a country, is key. Thorough investigations into bribery and corruption allegations help attract businesses because they feel confident they can compete fairly in a market. Consistent and equal implementation of obligations under the WTO and other international agreements, as well as judicial independence, also helps to foster international investment and enhanced trade relationships because companies feel certain they know what to expect from operating in such an environment.
So in conclusion, to return to where I began, it’s not time to write off the world’s economy; it’s not time to turn inward and abandon important principles like free trade. It is, however, time for the United States and other countries to work together to adopt policies and approaches that will help us recover from the current economic downtown. If we act wisely, we will develop policies that will create a global economy that is more transparent and more resilient than what existed before the crisis. We will be sitting on a strong and sturdy stool.
I’m also positive about our bilateral trading relationship. We’ve long been important trading partners and I expect that strong relationship will continue, despite the economic challenges in both of our countries, as long as we resist the temptation to fall victim to economic nationalism.
Thank you again for this opportunity.