This Summer’s Feature: Heated Debates on Trade Policy –

Globalization is not only necessary, it is inevitable. New enabling technologies are coming along everyday, and they do not have national boundaries. Venture-backed companies generated around $1 trillion in revenue in 2000 worldwide. These companies are generally known for innovative technologies, productivity improvements and medical technology breakthroughs. Very few of these companies could be successful if their product or service did not have strong presence in world markets.

Congress will have several opportunities this summer to build on its pro-trade votes of last year and expand the opportunities in foreign markets for these companies. Votes expected in the coming months include: normal trade relations status with China; approval of the free trade agreements with Vietnam and Jordan; approval for the President Trade Promotion Authority (TPA) to complete negotiations on the Free Trade Agreement of the Americas (FTAA); as well as bilateral free trade agreements with Chile and Singapore.

Legislation

It is fair to wonder why Congress must vote on China’s trade status again since the entire technology community rallied successfully for permanent normal trade relations (PNTR) status just last year. The answer is that PNTR was conditional on China joining the World Trade Organization (WTO). And while negotiations are progressing in Geneva, they have not been completed before annual NTR expired.

President Bush submitted to Congress a determination extending normal trade relations status to China for another year on June 1. At the Los Angeles World Affairs Council on May 29, the President said: “Free trade supports and sustains freedom in all its forms . . . When we open trade, we open minds. Trade with China is not only good economic policy; it is good human rights policy and good national security policy.”

U.S. exports to China grew 24% last year to $16 billion and provided jobs or other direct benefits to 350,000 to 400,000 U.S. workers. American consumers benefited as well. In order to continue to encourage economic change, transparency, the rule of law and democratic forces in China, it is vitally important that Congress continue China’s NTR status.

Although a vote on China’s trade status will likely be contentious and involve highly inflamed rhetoric on both the far right and left, it will probably take a back seat to the even more controversial TPA legislation. The TPA ensures that Congress reviews trade pacts and votes on the final agreement without amendments. Furthermore, it signals to our trading partners that the U.S. is committed to global trade and market expansion. TPA was given to every president from 1975 to 1994. TPA procedures have been used to finalize the Tokyo Round of the GATT in 1979, U.S.-Israel Free Trade Agreement, U.S.-Canada Free Trade Agreement, NAFTA in 1994, and the Uruguay Round of the GATT in 1994.

The President has asked for TPA to complete the FTAA agreement by 2005. The FTAA will create the world’s largest free trade zone, joining together 800 million consumers and a market worth $13 trillion that covers nearly a third of the globe from Antarctica to Alaska. In Latin America tariffs are as high as 20% in many countries. Moreover, there are non-tariff barriers that require technology transfers, local content or investment restrictions.

Conversely, a lack of U.S. leadership will create a vacuum that could easily be filled by other powerful players such as Brazil who could overlook areas of interest to the U.S. such as intellectual property protection.

Growth in trade is vital to sustain our country’s successful economic growth strategy. Americans cannot be pro-growth without being pro-trade, for international trade now accounts for fully one-third of our economic growth and supports an estimated 12 million jobs. As the world’s richest country, largest exporter and most competitive national economy, we have the most to gain from opening new markets and enhancing a rules-based trading system. The creation of the FTAA presents one of the greatest opportunities to expand markets for American producers.

The U.S. high-tech industry accounted for 30% of real gross domestic product growth since 1995. The high-tech industry is the single largest merchandise exporter in the U.S. accounting for 29% of U.S. merchandise exports. Last year, the U.S. high-tech exported $222 billion worth of goods, that is more than triple the chemicals and agricultural sectors.

The venture capital industry – like the high-tech, and biotech industries in which it invests – is highly dependent on trade and open markets for its continued growth. In the first eight years of an average venture-backed company’s life, exports as a percentage of revenue grow from zero to 43%.

Conclusion

Maintaining China’s NTR status and granting trade promotion authority to the President, with all the opportunities on the international trade calendar including the FTAA and bilateral free trade agreements with Singapore and Chile, would be one of the surest ways to continue the impressive pace of technology-lead growth in this country.

Joe Aragona is one of the founders of Austin Ventures in Austin, Texas and has served as a General Partner since 1982. He focuses on the firm’s software and services investment area. Joe is also on the Board of Directors of the NVCA and chairs its Research Committee.