Remarks by U.S. Assistant Secretary of State for Economic and Business Affairs E. Anthony Wayne

Posted on Nov 18, 2004

At a reception hosted by the U.S. Consulate in Guangzhou
November 10, 2004

Consul General Dong, thank you for your introduction. It is a great pleasure for me to visit Guangzhou. I am especially pleased to join all of you this evening. Coming from the business community, the media, academia, and NGOs, you represent the best of those working to develop South China.

I have come to Asia for the third time this year to help further economic ties between this region and the United States. I had the pleasure to meet Executive Vice Governor Tang Bingquan (phonetic: bing-chuan) this afternoon after I arrived. In our meeting, I raised a full range of bilateral and multilateral economic and trade issues.

Today I'd like to focus on the U.S. global economic engagement strategy with a particular emphasis on U.S.-China relations. Our bilateral relationship is important not only to the United States and China but also to Asia and the world. The global economy grew by almost 5% during the past year, its fastest pace in two decades. The twin engines of America and China together accounted for almost half of that global growth. This is evidence that, if we manage our relationship well, the world as a whole benefits.

The Four Pillars of America's Economic Policy

The world today, and the United States, face major foreign policy challenges: war, proliferation of weapons of mass destruction, terrorism, and how to respond to genocide and famine. Yet, economic issues and policies are always close to the top of the agenda of America's diplomats and government leaders.

Four pillars – broad economic policy priorities – reflect our core national interests:

• First, we try to assure our economic security;
• Second, we promote global growth to help ensure economic health at home and abroad;
• Third, we promote sustainable development – we do our best to ensure that poor nations participate fully in the rising tide of prosperity;
• Fourth, we advance global prosperity by expanding opportunities for international trade and investment.

In applying these four pillars, we understand that we must carefully manage our vitally important bilateral relationship with China. This means staying engaged in all areas – political and economic, bilateral and multilateral – so that problems in one area do not block progress in another. Dialogue with China involving our most senior leadership has been nearly continuous in the past years and has yielded gains for both sides.

Economic Security

As we pursue economic security, our goal is to make the U.S. and world economies more resilient in the face of economic shocks, and – especially these days – safer from the risks of terrorism. We have four main tasks: first, cutting off financing for terrorists; second, bolstering the stability of key allies; third, developing and maintaining diversified and reliable supplies of energy; and fourth, facilitating safe and secure international transportation of people and goods.

International cooperation is key in the fight to prevent terrorists from obtaining money and resources. American diplomats play a leading role in developing and sustaining a global coalition to identify and disrupt terrorist financing networks in every region of the world. We use a variety of tools and collaborate internationally through the Paris-based Financial Action Task Force (FATF) to reach this objective. We want to strengthen our cooperation with Chinese officials in this key area.

To help countries threatened by both terrorism and economic and financial instability, we work actively with other governments, the International Financial Institutions and the private sector to prevent financial crises and to more effectively resolve debt and foreign exchange crises when they occur. One key focus for the State Department is to help fulfill the President's commitments to assist reconstruction in Iraq. We have worked to lift UN sanctions on Iraq, rebuild its oil industry, and transfer frozen Iraqi assets back to the people of Iraq. We are also working with Iraq’s other creditors, including China, to craft a solution this year to reduce Iraq’s external debt to a level that ensures sustainability, and we are confident the 'Paris Club' of creditors will produce such an outcome this year.

Reliable energy supplies remain a vital economic interest for the United States and for our friends and allies. The world faces strong global oil demand growth at a time of concerns over supply stability and a very slim margin of spare capacity. World economic growth and prosperity will require new sources of oil and gas, and the use of other traditional sources of energy, like coal, more efficiently and with less impact on the environment. We will have to make greater use of nuclear energy and renewable energy sources as we develop new energy technologies for the future.

The United States is a world leader in transportation security. We have worked successfully with foreign governments and international organizations to ensure the safety of passengers and cargo. To protect our ports and seaways, we have expanded the Container Security Initiative (CSI), launched in 2002. At 32 foreign ports handling U.S.-bound cargo, all containers – 100% – identified as posing a terrorist risk are inspected using x-ray scans and radiation detection equipment. Hong Kong has been an operational CSI port since March 2003 and serves as a model of how we would like to see other CSI operations work. We look forward to the ports of Shenzhen and Shanghai becoming operational soon.

Global Growth

Our second pillar, growth, is essential for the health of the global economy. Clearly, the U.S. economy remains an engine for worldwide growth, and China is rapidly becoming another major locomotive; we hope recoveries in Europe and Japan will soon augment global growth prospects. The IMF forecasts world growth will be 5% in 2004 and 4.3% in 2005.

The countries most able to benefit from this growth will be those that pursue open, transparent trade, as well as monetary and investment policies that seek to reduce structural impediments to growth. We have been encouraging China, our third largest trade partner, to press ahead with its ambitious program of economic reform. We also encourage China to adopt its WTO commitments fully and on time. We believe gaining greater access for U.S. products and services to China’s markets will help resolve our large and growing trade imbalance. U.S. companies, including our financial and insurance firms, have been able to move into new areas as a result of WTO openings, and we also hope to see smooth implementation of China’s commitments in distribution rights coming before the end of this year. China could benefit from a wave of exports of U.S. equipment and expertise into China's growing logistics and distribution sectors.

As China meets its WTO commitments, we look for improvements in China’s protection of intellectual property rights, which is probably the number one concern of our business community. We all know that the Pearl River Delta and the rest of China face massive piracy and counterfeiting problems. Although Chinese government officials have started to crack down on this problem, they face a long, slow, uphill battle. We encourage them to take a page from Hong Kong’s experience of the past several years, during which Hong Kong made the transition to being a model of effective enforcement against optical disc pirates and counterfeiters. I hope the business community will continue to work vigorously with us to support rapid progress in this critical area.

We are using one key bilateral mechanism, the Joint Commission on Commerce and Trade (JCCT), not only to discuss IPR issues but also to encourage China to achieve greater transparency in the issuance of new regulations and standards. This is particularly important in the vital areas of high-tech agriculture and industrial products including high-valued added genetically-enhanced crops and wireless networking equipment.

Another key U.S. goal is to help China to move towards a flexible, market-based exchange rate in a reasonable timeframe, a goal recently publicly reaffirmed by Premier Wen Jiabao. China would enjoy sizable benefits from a more free-floating arrangement. If the RMB should strengthen, the stronger currency would reduce the costs of imports for Chinese consumers and manufacturers. This could be important especially now in a time of very high oil costs.

Development

The third of our four pillars is development. Expanding the circle of prosperity is critical to our own national security and well-being, since we understand that poverty, weak institutions, and corruption can turn nations of great potential into breeding grounds for terrorists. The United States provides more assistance to developing countries than any other country in the world, and we are firmly committed to partnership with developing countries to increase opportunities for all of us. Nonetheless, we recognize that private sector resources play the most important role in encouraging prosperity in countries around the world, dwarfing more traditional forms of development assistance. We note Chinese firms have been active and increasingly significant investors around the world, especially in Africa, creating new jobs and export opportunities.

Trade and Investment

Our fourth pillar is building a strong and dynamic international economic system based on free trade and investment – the fastest and surest way to move from poverty to prosperity. The President said, “Open trade fuels the engines of economic growth that create new jobs and new income. It applies the power of markets to the needs of the poor. It spurs the process of economic and legal reform. It helps dismantle protectionist bureaucracies that stifle incentive and invite corruption. And open trade reinforces the habits of liberty that sustain democracy over the long term.”

Trade is now woven into the fabric of the U.S. economy as never before. Total trade is now equivalent to more than a quarter of U.S. output, up from 10% in 1970 – the largest such increase of any developed economy over this period. Trade has also been a vital component of U.S. job creation; exports supported seven million American workers a decade ago; that number is now 20 million.

South China knows this story well. As manufacturing employment moved across the border from Hong Kong to China in the 1980s and 1990s, Hong Kong’s service sector jobs expanded rapidly. Hong Kong’s economy is now more than 87% service-based. In addition, Hong Kong firms in the Pearl River Delta have expanded operations to provide employment opportunities not only to the supporting services sector workers in Hong Kong but also to more than 10 million workers in China.

Trade NegotiationsM

Strengthening the world trading system is key to America's broader objectives. Fighting terrorism, reducing poverty, improving prosperity – all of these issues are linked to expanding world trade and the prosperity for people it brings.

In the WTO, the United States has stepped forward with bold and sweeping market-opening proposals to liberalize trade in both agricultural and non-agricultural goods. We are also pressing forward on liberalization of financial services, aviation, telecommunications, agricultural biotechnology, and government procurement. China has recently been helpful in encouraging other developing countries to think about how to compromise on thorny issues.

Along with our WTO efforts, we are also pursuing trade liberalization through bilateral free trade agreements – or FTAs. We have concluded and are negotiating trade agreements that set new high standards for protection of intellectual property rights, open markets for services, ensure government transparency, provide effective labor and environmental enforcement, and provide mutual access for services, government procurement, e-commerce, and investment. The CEPA (Closer Economic Partnership Arrangement), between Hong Kong and China, is an example of how FTAs can, as we wait for more WTO liberalization, provide broad gains for everyone.

Investment

Openness to private investment is also key to building a modern economy. Investment into China continues to grow, despite the decline in global foreign direct investment (FDI) felt virtually everywhere else since 2000. China was the number one destination in the world for FDI inflow in 2003, attracting $53 billion. Foreign-invested companies now produce 55% of China’s exports, but China’s domestic market is increasingly a target for foreign enterprises. Experts expect to see this domestic-focused investment grow as China opens its internal distribution sector in December as it committed to when joining the WTO.

That does not mean China’s investment climate is ideal. While many foreign firms place high priority on their investment programs in China, they regard China’s regulatory environment as one of the top challenges to doing business here. China has made great progress on its WTO commitments, but there is still significant work to be done to:

• Make the regulatory process more transparent;
• Improve IPR protection, especially applying criminal penalties to IPR offenders; and
• Base technical standards on internationally-accepted technical standards.

We have discussed these issues candidly with Chinese policy makers, and they understand the importance of continuing to attract high-quality direct investments. We look forward to continued reform to improve China’s investment climate.

Labor Rights

Finally, free trade is not only about business. A world that trades freely will grow in prosperity, in security, and in freedom. As Secretary of State Powell noted recently: “…Economies only flourish when people flourish – when corruption is rooted out and the spread of disease is stemmed, when education is strengthened and basic human rights are protected by the rule of law. So as we work to encourage economic growth, we must also work to develop the social and political conditions of prosperity. We must make investments in people and communities, as well as in goods and services.”

With China's integration in the global trading system comes new international scrutiny of the conditions of China's workers. We have a full agenda with the government of China on labor rights issues, and we are pleased that China has publicly committed to reforms intended to improve working conditions, fight poverty and unemployment, and improve workers' legal protections.

Annually since 1998, the State Department has been pleased to present the Award for Corporate Excellence (ACE) to those companies that employ exemplary business practices and demonstrate the deep commitment to community that reflects the American spirit. A key ACE criterion regarding exemplary employment practices includes "observance and promotion of the ILO-recognized fundamental worker rights including the right to organize and to engage in collective bargaining, non-discrimination in employment and occupation, and the absence of child labor and forced or compulsory labor." This is a cornerstone to our labor rights strategy worldwide and certainly to our efforts in China. We are working with U.S. corporations invested here to adopt codes of Corporate Social Responsibility that reflect this principle.

Conclusion

We face the challenge of building a more stable, prosperous, and safer world. We do so in the face of unprecedented opportunities as well as serious threats. We who execute our economic policy do so mindful that the economic landscape will have an enormous long-term effect on global security and prosperity. And we look forward to working with an increasingly-important China as we address these crucial global issues.

Thank you again for joining me today. I'm pleased to take a few minutes to answer your questions.