Thank you, Mr. Herlyn, for the kind introduction.

Thank you, Ms. Matuschka.

Thank you all for the invitation to meet with you today.

Today I would like to discuss a few of the most important issues driving German-American economic relations. Bilateral investments by U.S. companies here in Germany and German companies in the U.S. - and their business partners - are of enormous importance to that relationship. U.S. firms, for example, represent the largest group of foreign investors in the New States. Furthermore, Germany and the United States need to work closely together to promote liberalization of global trade, which is essential to our prosperity on both sides of the Atlantic. So I am also looking forward to hearing what you have to say.
Minister Aller, I am particularly interested in your comments.

Recession & Recovery

By now, we have all noticed that economic forecasters are no longer debating the extent of the recession in the U.S. The debate is now about the speed and extent of the recovery.

That turnaround is good news - because when the economy picks up, it's good for everyone: the work force, management, investors, and governments not only in the U.S. but abroad as well. Consumers and businesses alike are becoming more confident. Moreover, the upturn in the U.S. is infectious, because our economies are so interconnected, and this could well contribute to improvements in other economies as well.

The recovery is also good news because it has demonstrated the ability of the American economy to withstand major shocks, including:
- a severe decline in equity asset values,
- a sharp cutback in capital spending, and
- a terrorist attack that targeted some of the most important symbols of our market economy.
Fortunately, these setbacks seem to have been only temporary. Federal Reserve Board Chairman Alan Greenspan recently noted that the U.S. "experienced a milder downturn than the long history of business cycles would have led us to expect."

The most important short-term reason the economy has recovered so quickly is the pro-growth policies of the Bush Administration, policies such as:
- the President's tax reduction plan, and
- new spending focused on economic response to terror attacks -- along with:
- sharp monetary easing by Federal Reserve.
But Chairman Greenspan has also described two other reasons for the turnaround.
First, business decision-makers now have much better access to real-time information. This allows them to address economic imbalances more rapidly than in the past. But I am sure that most of you here today are more versed in the virtual and real-time use of business indicators than I.

Secondly and perhaps most importantly, is the extraordinary flexibility of the U.S. economy -- a flexibility set in motion by deregulation in various industrials sectors in the past 25 years.

This combination of innovation and deregulation has helped to make the U.S. economy very resilient, more resilient than we sometimes think. Three examples:
1) Air transport: Although the terrorist attacks hit airline industry especially hard, deregulation more than 20 years ago helped to cushion the shocks and to restore a sense of normalcy by increasing choice and flexibility.
2) Enron: The collapse last year of Enron, the largest bankruptcy in U.S. history, had virtually no effect on natural gas and electricity supplies. Deregulation led to much more competition, efficiency, and flexibility in the energy sector and staved off what might have turned into a crisis.
3) The "California energy crisis:" We draw different lessons from this than many Europeans. To us, the main "lesson of California" is that markets can be liberalized either well or poorly. California is an example of the latter. Pennsylvania is an example of the former. California showed that deregulation does not work when its is haphazard, inconsistent and with too many political compromises. Pennsylvania showed that it works when it is done properly.
The remarkable resiliance of the US economy shows up, in the end, in the growth of productivity. Remarkably, productivity growth in the final quarter of last year exceeded 5 per cent, and it appears to have sped up even more during the first quarter of this year.

Economic Policy & International Security

A strong economy is the foundation of international security. When countries promote free trade and foster global growth, their economies grow and prosper. And countries that enjoy healthy, growing economies are usually stable.

The international coalition that rallied to fight the war against terrorism is complemented by an international coalition to fight for economic growth. As President Bush has said, "Poverty doesn't cause terrorism. Being poor doesn't make you a murderer.... Yet persistent poverty and oppression can lead to hopelessness and despair. And when governments fail to meet the most basic needs of their people, these failed states can become havens for terror."

U.S.-Germany: Joint Leadership In The Global Economy

The United States and Germany -- as the world's first and third largest economies, and the top two exporters -- are natural partners for joint leadership in the global economy and have a special role to play, both individually and collectively. There has been a concerted transatlantic effort to give all a stake in the global economy by favoring trade and development, thereby enhancing peace and security.

Joint leadership is called for in restoring global economic growth, expanding trade and investment, and promoting development in poorer countries. In each of these areas, much progress has been made, but challenges remain

Promoting Economic Growth

Germany and the United States have a critical common interest in restoring sustained economic growth. This is not a zero-sum game. Germany and Europe have taken steps to restore growth. Tax cuts have helped cushion the blow of the slowdown and will lay basis for long-term growth. The European Central Bank (ECB) has reduced interest rates.

Germany faces long-term growth challenges: stubbornly high unemployment, declining population, and slowing productivity growth. Germany's policy tools are limited. The ECB runs monetary policy, and EU constraints (deficit ceiling) limit the government's ability to stimulate the economy, if necessary. But Germany has scope for action on the structural side. These are areas where the EU has already committed to strengthen competitiveness under the Lisbon Process: make labor markets more flexible, product market reforms, reduce subsidies, reform shop-opening hours, reduce bureaucratic regulation. Structural reforms would promote investment, job creation and economic growth, enable Germany to make a larger contribution to global growth.

Expanding Trade and Investment

Trade also directly sustains economic growth. Free trade benefits us as consumers and our families, and is vital to generating jobs for our workers, opening markets for our products and services, and spurring economic growth. U.S. exports of goods and services last year accounted for eleven percent of our Gross Domestic Product (GDP). The jobs of one of every five U.S. manufacturing workers rely on exports. In 2000, sales of high-tech goods abroad accounted for 29 percent of America's merchandise exports. Despite last year's recession, US-German bilateral trade expanded slightly (+1.6%) in 2001, and exceeds $89 billion. German exports to the U.S. grew slightly.

But some industries, workers and communities, especially traditional manufacturing industries, cannot respond as quickly as one might wish to the changes of a fast-moving global economy. Some, and this includes the steel industry, may need some breathing space to adjust and regain their competitiveness.

Government intervention, subsidies and protection characterize the global steel sector as much as they do agriculture. These practices of foreign governments have hurt the U.S. steel industry for two reasons. The U.S. historically has not subsidized its domestic steel industry; and our market traditionally has been much more open than others.

Today, the U.S. steel industry is in crisis. Over a quarter of our industry is now in bankruptcy. Over 64 percent of our steel jobs have been lost in the last 20 years.

After a lengthy and thorough investigation of the causes of this crisis, the President in March announced temporary safeguard measures, which will help our steel industry to regain its footing.

The WTO Safeguards Agreement allows members, under certain conditions, to provide temporary relief to industries injured as a result of increased imports. We are confident that our steel safeguards meet all the conditions set out by the WTO.

Some of our trading partners do not believe that we have met these WTO conditions, and we respect their right to question our measures before a WTO dispute settlement body.

We are concerned, however, that the European Commission is also proposing other actions, which we believe are WTO-illegal and which, would take us down a dangerous path. Immediate retaliation by the EU against US safeguards would mark the first time any WTO member has retaliated in a safeguard case without a ruling on the merits by a dispute settlement panel. It would set the dangerous precedent by putting a WTO member in the roles of judge and jury of its own claim.

There also seems to be some confusion over compensation. WTO rules do not require parties to offer compensation. The US has reviewed carefully all 32 safeguard cases that have come to the WTO in the last 8 years. Compensation was not provided in any of them.

We know that Germany also has misgivings about immediate retaliation, and we appreciate this country's efforts to move the Commission to a less confrontational course.

Instead of compensation and retaliation, we should focus our efforts on the OECD process. Through the OECD we are seeking a long-term solution for the global steel sector tin the form of steel capacity reductions and the elimination of government subsidies.

According to the World Bank and International Monetary Fund, trade is the single most important channel affecting growth for developing countries. Globally, US-EU cooperation was vital to the successful launch of the Doha Development Round at the World Trade Organization ministerial meeting last November. The Doha consensus can translate into concrete results -- for example, in opening agricultural markets, maintaining protection for intellectual property while enabling access to drugs for public health emergencies, and promoting capacity building in developing countries. Doha engaged developing countries more directly as negotiating partners in the WTO.
But launching the Doha round is just the first step. We must move vigorously now to negotiate removal of trade barriers. This is a perfect area for US-German global leadership. Doha must achieve liberalization of agricultural trade. EU's Common Agricultural Policy (CAP) is outdated, restricts trade, and will be too expensive in an expanded EU. Doha offers a good opportunity to scrap it, and Germany should play a lead role. Germany should be a leader in the EU for trade liberalization.

And although the vast bulk of US-EU and US-German trade is conducted without problem, problems do remain:
- Biotech foods: EU policy unfairly restricts US exports, denies developing countries an important food source, retards development of the industry in Europe. Germany should lead in crafting a new science-based, pro-trade, future-oriented policy.
- We need to manage trade disputes (such as steel and FSC) to minimize disruption to broader trade relations, efforts to restore global economic growth.

On bilateral investment relations, most US investors here are satisfied, but there are important problems in "network industries" such as telecoms, multimedia, energy and postal services. Partial reforms have attracted many major US investors, who then have encountered deep and ingrained state preference for former monopolists. This does not send the best signal about the investment climate.

Promoting Third World Development

Between Doha, Monterrey and other global conferences this year, we are fundamentally reforming how we approach third world development. Essentially, we are winning global acceptance of the view that the most basic requirement for development is that the developing countries themselves adopt pro-market, pro-democracy, pro-growth policies. Rule of law, enforcement of contracts, elimination of corruption - these are vital preconditions to attract investment that creates growth. Foreign aid can help in some specific circumstances, especially in public sector activities like health and education. But prosperity grows from trade and investment; the inhabitants of a country must find it preferable to keep their own savings in their country, rather than send it to safehavens, and foreign investors must find it attractive to invest as well.

The UN Development Conference in Monterrey in March confirmed the importance of trade, investment, good governance and other factors in helping the world's poorer countries escape from poverty. At that conference President Bush also announced a 50 percent increase in our budget for development assistance - while noting that most of that money will be steered toward countries that adopt appropriate pro-growth policies.

Working with Germany and other countries, we will seek to advance further on this development agenda during the G-8 Summit in June in Canada, and the World Summit on Sustainable Development in August in South Africa.

The U.S. and Germany are already cooperating closely in reconstruction assistance for Afghanistan. Germany has long been active in humanitarian aid to Afghanistan and has responded in the latest crisis quickly and generously.

War on Terrorism

Perhaps more than at any other time in history, economic issues are an inextricable part of the international framework that binds nations. Despite differences of opinion on some issues, the United States and Germany share a true commitment to a world of greater peace and prosperity. September 11th made this commitment even more important.

Our programs and initiatives must work in concert, so that we can deal effectively with these and other issues on our common agenda. Revitalizing global economic growth is key to the goals of the coalition that rallied against global terror after September 11. In waging war together on terrorism, cooperation between the United States and Europe has grown stronger. European nations have moved swiftly to round up terrorists and improve law enforcement and aviation security cooperation. The arrests that were made in Germany in recent weeks were another important success in these efforts.

One of our highest priorities is combating terrorist financing. The United States has designated and blocked the assets of 192 organizations and individuals because of evidence linking them to international terrorism and frozen some $34 million in terrorists' assets. 150 nations are also taking action to prevent money from reaching terrorists and have blocked an additional $70 million.

And just last week negotiations were launched for a new U.S.-EU extradition and judicial-cooperation agreement.

Unilateralism

In closing, a few words about so-called "unilateralism." Despite the success of the broad international coalition against terrorism, many commentators here and elsewhere cannot resist calling American foreign policy "unilateralist." This has become a favored label to slap on U.S. policy, regardless of the facts.

Yes, there is indeed a new policy of clarity in American foreign policy. This is not, however, the same thing as unilateralism. Most governments act on their interests, and sometimes without obtaining the permission of other governments. That is sometimes called "leadership" or "national interest." Whatever you want to call it, it is something many European governments know well and still practice. Let's stop this simplistic fixation on "unilateralism" and focus more on where our common values and true interests lie.

President Bush has been forthright in defining the policies of his Administration. As a result:
· in the Middle East, countries are going back to the negotiating table,
· we have established a new relationship with Russia that promises to form the a new framework of constructive arms control agreements, and
· we are openly discussing the very real problems and the hard reality attached to the proliferation of weapons of mass destruction.
This new forthrightness is a pragmatic approach to policy making that is based on identifying problems and finding solutions that are compatible with our values and our goals.

Our friends and our allies may not always agree with us but they should have no doubt about U.S. policies or positions -- even as we continue to explore new forms of cooperation, and to explore more comprehensive solutions to the challenges that face us all. As Javier Solana wrote last week in the Wall Street Journal, on the eve of the US-EU Summit in Washington, "Our successes put our differences into perspective and remind us what can be reached when we act together."

I couldn't agree more. And Solana's viewpoint supports the principal aim of American foreign policy for the 21st century -- integration not unilateralism.
Integration is about bringing nations together by building structures for cooperation that promote global peace, prosperity and justice in a world consistent with the core values of liberty, democracy, respect for human rights and the rule of law. These are the values that underpin both the founding principles of the United States and European integration.

These same values underlie the challenges that Germans and Americans are facing at home. On many domestic issues, the U.S. and Germany are seeking answers to the same kinds of questions, questions regarding --
- an aging population and how we rethink and reform public pension and health care systems.
- growing shortages of skilled workers in some parts of the economy.
- retaining older experienced workers in the work force and providing opportunities for people of all ages to engage in "life long learning."
- the role immigration policy will play in providing the skilled workers we need in the coming years.
- and finally the youth of our two countries.

The tragedy that occurred the week before last in Erfurt reminds Americans of a similar experience. The reasons for what happened at Gutenberg Gymnasium in Erfurt or at Columbine High in Littleton, Colorado are impossible to fathom but both events tell us how important it is to focus on our young people and provide them with the guidance they need. Our thoughts are with the families that lost loved ones.

Meine Freunde, vielen Dank.