Emerging market downturn to have rising impact in U.S.

Emerging market downturn to have rising impact in U.S.

WASHINGTON (Bloomberg): The financial downturn that has spread
from Asia through Russia and into Latin America will have a
rising impact on U.S. economic growth as exports slow and
confidence sags, U.S. Trade Rep. Charlene Barshefsky said
Wednesday.

The widening recession in emerging market nations constitutes
"the most dangerous financial crisis the world has faced in 50
years," Barshefsky told the annual meeting of the National Assoc.
of Business Economists (NABE), echoing a message U.S. President
Bill Clinton has delivered in recent weeks.

While the flight of investment capital from Asia and other
emerging markets is "obviously devastating for the countries
directly affected ... we will see here an exacerbation of the
current trend" of slowing exports and faltering confidence in
financial markets and the business environment, Barshefsky said.

"Two out of five cargo containers leaving the Port of Los
Angeles leave empty," highlighting sagging demand for U.S.
manufactured exports, Barshefsky said. Overall U.S. exports fell
US$14 billion in the first 8 months of this year, from the same
period last year. Exports to Japan are down 12 percent and
exports to Indonesia have fallen 70 percent, she noted.

A casualty is "rapidly declining" farm incomes in the U.S.,
where farmers count on international markets for 25 cents of
every dollar of income. U.S. farm exports to Asia in the year
ended Sept. 30 fell 17 percent to $19.6 billion from $23.8
billion in the year ended Sept. 30, 1997.

In this context, the administration's top priority must be to
persuade Congress to approve the $17.9 billion requested by the
Clinton administration to fund the International Monetary Fund,
the lender of last resort to economies in crisis, Barshefsky
said. "It is critical that Congress approves the president's full
request to re-fund the IMF."

Heat on Japan

While the U.S. has an urgent role to play, Japan, the world's
second largest economy, has an "equally important" task in
boosting the world economy, she said. That refrain has resounded
in conference rooms and corridors of power here this week amid
the annual meetings of the IMF and World Bank.

"Japan must apply sustained and substantial fiscal stimulus
for domestic demand, it must clean up its banking system ... and
deregulate and open its markets," so it can play a vital role as
the economic engine that pulls Asia from recession, Barshefsky
said. "If Japan does not recover, Asia does not recover."

As the U.S. trade deficit mounts -- and it's on track to hit a
record $158.6 billion this year -- "we must refuse to panic, we
must refuse to cut ourselves off" from the global system of free
trade, she said. To throw up protectionist barriers at this
stage, Barshefsky said, would be to invite "global depression."

Rather, she said, the U.S. must continue to lead in forging
new market-opening agreements with its trading partners,
including a proposed Free Trade in the Americas Agreement that
would extend the North American Free Trade Agreement (Nafta) to
Latin America.

The U.S. also hopes to forge new agreements to open markets
for energy, telecommunications and medical equipment, among other
goods, within the Asia-Pacific Economic Cooperation forum,
Barshefsky said. APEC trade ministers meet next month in Kuala
Lumpur, Malaysia.

Fast Track

To complete any new trade accords, President Bill Clinton will
need special "fast track" trade negotiating authority that
Congress has twice refused to give him. Fast track, rejected last
month in the House, gives the president the power to negotiate
trade accords that can be rejected, but not amended, by Congress.

Fast track opponents, including big labor groups and many
environmental organizations, want any such legislation to mandate
that U.S. trading partners adhere to high labor and environmental
standards. Without those protections, U.S. businesses operate at
a competitive disadvantage, they argue.

The Clinton administration chose not to lobby for fast track
this fall because it saw the push for passage as a political show
designed to divide and embarrass Democrats before November
elections. Democrats count labor and environmental groups as
major allies.

The administration has vowed to push for passage early next
year, and Barshefsky said she hopes the debate can resume in
January.

Other challenges facing the U.S. include extending
intellectual property protections to new technology, insuring
that Internet commerce remains "duty-free and fighting off
attempts to block free trade in bio-engineered products, she
said. That effort means ensuring that "sound science is always
the test, not political expedience."