Summary of Discussions of October 3, 2012, Meeting of the Advisory Committee on International Economic Policy
The meeting was open to the public; however, participants’ statements, other than those cited, are not for attribution. The meeting room was at capacity with individuals from the membership, general public and media.
Committee Chairman Theodore Kassinger of O’Melveny & Myers, LLP, opened the meeting of the Advisory Committee on International Economic Policy (ACIEP) and welcomed members and other participants. Chairman Kassinger reminded participants that the Chatham House Rule applied and emphasized that comments were not for attribution.
The meeting focused on “Economic Statecraft—Using Diplomacy to Meet Our Economic Goals” and also covered the regional topic “U.S.-Egypt Relations.” Assistant Secretary of State for Economic and Business Affairs (EB) Jose W. Fernandez ("A/S Fernandez" or "the Assistant Secretary") led the discussion of the Economic Statecraft Initiative. A/ S Fernandez mentioned that in the U.S.-Egypt relations portion of the meeting, he would provide comments about his participation on a U.S. Government (USG)-U.S business delegation to Egypt, and that the Deputy Assistant Secretary (DAS) for the Bureau of Near East Affairs Lawrence Silverman would join him in discussing Egypt. He also noted that EB Deputy Assistant Secretary Bill Craft would join the meeting via teleconference from Morocco and provide additional information about his meetings in that country and in Egypt. This meeting was the Assistant Secretary's second opportunity for the Department to engage the entire ACIEP on the Secretary of State's Economic Statecraft agenda, which Secretary Clinton announced in October 2011.
A/ S Fernandez underscored that the State Department has placed economics at the center of United States foreign policy, and that this is reshaping the United States' foreign policy, priorities, tools, and perceived interests to succeed in a world where states increasingly exercise power in economic terms. He stated that the State Department also was strengthening the domestic economic foundations of America's leadership and influence around the world.
He summarized several of his recent trips, which he identified as part of the Economic Statecraft Agenda, and which demonstrated how diplomacy can be a tool for economic growth. Comments related to the following countries/territories: Hong Kong; Taiwan, which he identified as having an excellent economic relationship with the USA, and which recently again allowed imports of U.S. beef; Indonesia, which has high growth rates, but investment disputes with the USA; the Czech Republic, to continue talks on a possible new Bilateral Investment Treaty (BIT); Panama to discuss the Free Trade Agreement, which the USG has ratified, but which the Government of Panama has not yet implemented; and El Salvador, noting that El Salvador is only one of four countries with which the United States has entered into the" Partnership for Growth Initiative," but also that the high crime rate there has dissuaded foreign investment by adding 10 percent to the costs of doing business.
A/S Fernandez will travel during the second week of October to Brazil, with which trade relations are excellent, to meet with Brazilian government officials and business representatives to discuss Domestic Finance for Development (DF4D) at a two-day conference. Representatives from Guatemala, Angola and El Salvador will attend the conference. He will also travel to Turkey for a dialogue on pharmaceuticals and other issues of interest to the United States.
The Assistant Secretary discussed his focus on institutionalizing the use of diplomacy to promote economic growth, and highlighted the Secretary's Global Travel and Tourism Conference, held October 2, 2012, the third in a series of conferences that bring private sector talent and resources to the USG to address key economic and diplomatic challenges. He noted that following September 11, 2001, the USA’s market share of global tourism declined from 17 percent to 11 percent, and commented that the USA’s share is now at 12 percent, due to recent measures to minimize barriers for tourists, particularly from Brazil and China, who spend approximately $6,000 per capita when visiting the USA. Delays and other factors related to the processing of visas have been hurdles for tourists seeking to visit the USA, but there is now a “24/7” visa service at the U.S. Embassy in Beijing, which has expedited the processing of 47 percent more visas from Chinese citizens than in the past. He also mentioned using “Brand USA” as an official tourism marketing initiative for the USA.
A/ S Fernandez further stated that the State Department’s focus on economic policy and diplomacy has guided the nation’s response to developments in the Middle East/North Africa.
An ACIEP member wanted to know whether the Economic Statecraft Agenda had specific objectives. The Assistant Secretary said that the objective depends on the country and industry sector, with all USG agencies operating under the National Export Initiative, and the State Department’s role to facilitate the ”opening of doors” for US.-based companies for investing and operating abroad. Another member asked whether there were concerns about institutionalizing the Economic Statecraft Agenda. The Assistant Secretary said that historically the State Department separated economic and political diplomacy. He noted ways that this Administration and EB are breaking down this divide, for example through the “Direct Line” program (www.facebook.com/EconBizEngage) that provides a unique opportunity for American businesses to engage directly via teleconference with U.S. ambassadors around the world. The State Department is taking these and other steps to institutionalize Economic Statecraft regardless of the results of the 2012 presidential elections.
The focus on economics in foreign policy has guided the USG responses to the transition across the Middle East and North Africa --where the United States is helping these countries lay the economic foundations for successful democracies through fiscal stabilization measures, jobs and skills training, and new incentives toward structural reforms. This focus is evidenced in the "Rebalance to Asia," where through efforts like the Trans-Pacific Partnership, APEC, and the strategic dialogues with China, India, and others the United States Government is establishing the United States not simply as a resident diplomatic and military power in Asia, but as a resident economic power. He also mentioned how Economic Statecraft has guided the USG's "New Silk Road" efforts in Afghanistan and Pakistan for creating economic and transportation links that will integrate Afghanistan into the thriving economies of South Asia.
At the same time, U.S. global leadership is critically linked to the vitality of the country's economy, including through actively supporting job creation and supporting economic recovery at home, including through attracting inward investment. Now more than ever, U.S. foreign policy must champion U.S. businesses abroad, such as through convening stakeholders to combat global intellectual property theft and leveling the playing field for U.S. businesses.
With the State Department's far-reaching platform of overseas missions and Washington-based expertise, the State Department is uniquely positioned to do so. Assistant Secretary Fernandez underscored that the State Department's commitment to economic issues as a core tool of United States foreign policy will not change regardless of the election results. This includes getting colleagues at other USG agencies to work with the State Department on Economic Statecraft.
One key refrain A/S Fernandez has heard is that the business community often had trouble finding the information it needed about doing business overseas. To address this, the State Department added a Business Tab to all its Embassy internet sites to put all that information in one place, standardizing the format across all of its missions. On the Business Tab businesses can find country investment climate reports, contact information for key officers at post, and even bidding opportunities and upcoming trade shows. This is very helpful for small companies that are not able to travel overseas to learn about these topics.
The Embassy economic teams are tireless advocates for U.S. exporters and investors. They open doors, promote policies and reforms that offer a fair shot to U.S. businesses in often unforgiving markets and climates. When appropriate, Embassy economic teams intervene to help resolve business disputes. Every overseas trip by senior Department officials now includes in the agenda a discussion of economic issues, which is an opportunity to advance U.S. economic priorities. Just three weeks ago, Deputy Secretary Nides led a productive trade delegation to Egypt, in which the Assistant Secretary participated. It included businessmen and women from 48 American companies (one of the biggest delegation of its type in history), including Fortune 500 companies such as Cisco, Cargill, Coca-Cola, and General Electric.
In addition to these recent changes, the State Department continues to utilize the benefits of programs with proven track records such as the Annual Award for Corporate Excellence, the "ACE," which is a visible and important element of the Department's support for Corporate Social Responsibility as a core component for implementing the Economic Statecraft agenda. A/S Fernandez mentioned that the ACE is a way the State Department recognizes corporate social responsibility as an enormous competitive advantage for U.S.-based companies. He noted that the 11 finalists for the 2012 ACE have been announced on the State Department’s website, and that all ACIEP members are invited to the Secretary of State’s ACE Ceremony to be held on November 28.
Investment Subcommittee co-chair Thea Lee discussed the subcommittee's plan to focus on State-Owned Enterprises in relation to Trans-Pacific Partnerships and Bilateral Investment Treaties, and in particular whether such enterprises are unfair to U.S. investors. She pointed out the possibility of SOEs in other countries becoming "funnels” for state subsidies that have a detrimental impact on U.S. businesses. Subcommittee co-chair Nelson Cunningham said that in a number of countries, SOEs are fully merged with those countries' government regulatory authorities, which impacts on the interest of U.S. companies to invest under such circumstances, and that this issue will have a major impact on USG discussions with India and China.
An ACIEP member wanted to know if the subcommittee’s work was helping or complicating efforts of the USG BIT negotiators, given that the USG has entered into only four BITS within the last few years. A/Secretary Fernandez said that this year the USG will have exploratory talks with China and India, which will include the issue of SOEs and BITs. He characterized the subcommittee's report on the issue of SOEs and BITS as very useful. The co-chairs also mentioned that they would speak after the ACIEP meeting with EB’s Office of Investment Affairs to determine ways the ACIEP could help improve embassy reporting through standardizing ways that economic officers at U.S. Embassies report on the investment climate in their respective countries. The subcommittee plans to address this project at its next meeting.
Economic Sanctions Subcommittee chair Barry Carter reported on the subcommittee’s meeting on July 24 with A/S Fernandez, Deputy Assistant Secretary Peter Harrell, and several ACIEP members of the sanctions team regarding changes in U.S. sanctions against Burma, as well as other developments in sanctions. The subcommittee expects to have another meeting in October on new sanctions against Iran and other developments.
Professor Carter indicated that the subcommittee expects to have a meeting in October or November on the recent easing of the sanctions against Burma and on additional new sanctions against Iran. A/ S Fernandez noted the helpful interaction between the State Department and the subcommittee members. ACIEP members asked about and commented on the Burma and Iran sanctions, and one member pointed to potential future tensions between the United States and European Union regarding some of the Iran sanctions.
ACIEP members opined about the appropriateness of loosening or tightening sanctions in relation to Syria, North Korea and Iran, and also noted that President Obama had loosened restrictions on travel and remittances to Cuba, but did not receive a positive response from that country's government.
Stakeholder Advisory Board (SAB) Subcommittee co-chair Owen Herrnstadt discussed the subcommittee's meetings on July 19 and September 18. He said that, in line with A/S Fernandez’s request to the SAB, the group has been meeting to gather information on three priority areas of the work of the U.S. National Contact Point (NCP) for the Organization for Economic Cooperation and Development Guidelines for Multinational Enterprises: promotional efforts, specific instance procedures, and the proactive agenda. Meetings to date have covered the first two subjects. Meetings will be scheduled shortly to discuss the third subject regarding the proactive agenda. At one of its recent meetings, the SAB heard from Ms. Meg Taylor, the Compliance Advisor Ombudsman of the International Finance Corporation (IFC), on the implementation of procedures in conjunction to the IFC's performance standards. Herrnstadt expected the SAB would provide an advisory report on its recommendations regarding the three issue areas to the ACIEP in June 2013, and that the SAB is fully committed to meeting that deadline.
A member asked whether the NCP office intended to find a second full-time staff member, given that the former NCP special advisor had recently taken another position elsewhere in EB. A/S Fernandez referenced budget constraints, and said that EB would continue to provide strong support for the NCP office and give the office the attention it deserved. He also noted the progress the office had made during the past year. Owen Herrnstadt said that it was critical for the NCP office to be adequately resourced and to establish continuity, because other countries look upon the United States as a role model for other NCPs. The U.S. NCP acknowledged the concerns raised, reiterated the NCP’s commitment to operate at the same level despite the departure of the special advisor, and pointed out the strong support the NCP was receiving from the SAB and members of the interagency working group on the OECD Guidelines.
The Subcommittee on Women co-chairs Judith Barnett and Jeffrey Volk were not present at the ACIEP meeting and had no new information to report.
Discussion on the Regional Theme: U.S.-Egypt Relations
A/S Fernandez and Acting DAS Secretary Lawrence Silverman of the Bureau of Near East Affairs discussed this topic and EB DAS Bill Craft participated via teleconference from the region.
A/S Fernandez briefly discussed his September 9-12 visit to Egypt as part of the U.S. Chamber of Commerce mission to Egypt, led by Deputy Secretary Nides and Steve Farris, Chairman of the U.S.-Egypt Business Council (USEBC) and chief executive officer of Apache Corporation. Other participants on the delegation included executives from 48 U.S. companies, as well as senior officials from the National Security Council, the Overseas Private Investment Corporation, the U.S. Trade Development Agency, and the Department of Commerce. The purpose of the delegation was to: identify business opportunities for American companies and demonstrate U.S. government and private sector support for Egypt’s democratic transition and economic development. It gave American business leaders unprecedented access to the new Egyptian government and offered that government a unique opportunity to signal its openness to trade and investment and commitment to economic and political stability.
Silverman noted that the delegation had been extremely important and would pay dividends for U.S. business interests and in meeting USG foreign policy goals. Silverman said that ACIEP members as well as all of corporate America are "corporate ambassadors" to the Middle East-North Africa countries, in particular through establishing corporate best practices. Silverman noted that he saw how this worked first-hand with U.S Steel Corporation's operations in the Slovak Republic; U.S. Steel won the ACE in 2003. In Egypt many local companies have been emulating U.S. corporate best practices. The future course of Egypt, in particular its democratic transition and ties with the United States, are a high priority of the Obama administration, as evidenced by public statements made by Secretary Clinton, Ambassador Patterson and Deputy Secretary Nides. Secretary Clinton had productive discussions with Egyptian President Morsi on economic reforms, the proposed International Monetary Fund assistance package, as well as relations between Egypt and its neighbors. Some of Egypt's most pressing challenges relate to economics, with economic opportunity a core demand of Egypt's revolution. U.S. Chamber of Commerce Business Delegation participants observed a commitment by Egypt's government to economic reform.
The USG is assisting Egypt in addressing pressing economic concerns including balance of payments, economic growth, high unemployment and small and medium size enterprise development. The Overseas Private Investment Corporation signed a $150 million regional loan guarantee facility and a U.S. Trade and Development Agency initiative totaling almost $1 million has been directed to support infrastructure, independent labor organizations and raising awareness about worker rights, economic capacity building for women and entrepreneurs, and start-up loans in Egypt's poorest areas. The State Department wants to work with Egypt's government and private sector to help support the agriculture and tourism sectors. The State Department is consulting with the U.S. Congress on economic support funds to stabilize Egypt's economy. The USG's partnership with Egypt on these economic-related issues can enhance security in the region, and as a major player in the region, the policies Egypt adopts will play a key role among its neighbors.
Silverman underscored that the USG wants to assist ACIEP members and the private sector generally in relation to economic opportunities in the Middle East-North Africa region. For example, the USG Foreign Commercial Service will bring 23 Egyptian entrepreneurs to trade shows in the United States. He described the future of U.S.-Egypt relations as "optimistic," and highlighted the USG's consultations with the European Union and other Middle East allies directed at "making Egypt a success."
DAS Bill Craft said that his current visit to Morocco and Egypt was a follow-on to the September business delegation trip. Craft met with Egyptian female entrepreneurs in relation to the USG's global entrepreneurship initiative, visited a Chrysler Jeep assembly plant, and discussed transparency and increasing foreign investment. He said the USTR-led delegation had made progress with the Egyptian government on trade facilitation, in particular the streamlining of Egypt's customs service, an investment principles paper focusing on transparency, and a document on information and communication technology and internet freedom. He underscored that despite the violent incident at the U.S. Embassy in Cairo on September 11, 2012, his visit to Egypt underscored that the USG is still making progress in cooperation with the Egyptian government and still working with U.S. businesses operating there.
One ACIEP member opined that the USG should use "soft power" to advance its relationship with the Egyptian public, after many years of USG support for non-democratic regimes, and thereby demonstrate that the United States "is on the side of" democracy, transparency and respect for Islam. Another ACIEP member questioned whether current USG assistance levels at around $200 million could adequately meet what has been projected as an amount of $18 billion to address the needs of Egypt's approximately 80 million people. DAS Craft and Assistant Secretary Fernandez replied that the State Department is aware that USG assistance cannot meet all of those needs. For that reason the USG strongly supports an International Monetary Fund program as a source of funds for Egypt, as well as encouraging the Gulf Cooperation Council and other countries to enhance their level of assistance contributions to Egypt.
Other ACIEP members asked that the State Department inform them in advance and invite ACIEP members, including representatives from organized labor and relevant NGOs, to future delegations similar to the September delegation to Egypt. A/S Fernandez said that the U.S. Chamber of Commerce had organized the September delegation, but he agreed that ACIEP members would be informed in advance of such delegations in the future. Another ACIEP member highlighted the importance of Egypt in the Muslim world and for the United States, referencing Al Azhar university and Egypt's educational legacy elsewhere in the region, Egypt's participation in many multilateral fora, its strategic role with regard to the Suez Canal, with 1/3 of oil destined for the European Union passing through the canal, and that the largest U.S. Agency for International Development mission in the world operates in Egypt. He opined that each of these factors is a key lever for U.S. Economic Statecraft interaction with Egypt.
One member opined that Egypt needs to develop further respect for the rule of law and an independent judiciary. Another stated that there are reports of increased violations of worker rights in Egypt, and that in that country's evolution toward democracy, the United States should look toward supporting independent trade unions as a force for stabilization and democratic transition. One member said that Egypt's demographic crisis, with the population currently doubling every 25 years, is one of that country's most critical challenges to economic development, and inquired whether the Morsi government and Muslim Brotherhood have a family planning strategy to address this problem.
Other ACIEP members referenced the importance to the Egyptian economy of remittances from Egyptian citizens working in Libya, as well as efforts to focus on employment of youth in Egypt. A/S Fernandez mentioned that there was future work to be done on bringing U.S. private sector investment to Libya and that the USG is developing an idea for U.S. -based companies to partner with Turkish and Emirati companies to operate in areas of the Muslim world where historically U.S.-based companies have not had much exposure. Another ACIEP member voiced his interest in learning more about how the State Department is institutionalizing Economic Statecraft. He recommended the following as means for such institutionalization: 1) training Foreign Service officers (FSOs) on macro-, micro-, and "profit-" economics-- to ensure that FSOs understand how businesses actually operate; 2) normalizing the relationship between business and government beyond co-participation in trade delegations.
At the conclusion of the Egypt-U.S. Relations discussion, ACIEP Committee Chairman Ted Kassinger thanked the participants and adjourned the meeting, noting that the next ACIEP meeting would be held on December 4, 2012.