[Senate Hearing 113-182]
[From the U.S. Government Printing Office]
S. Hrg. 113-182
REBALANCE TO ASIA IV: ECONOMIC ENGAGEMENT IN THE ASIA-PACIFIC REGION
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HEARING
BEFORE THE
SUBCOMMITTEE ON EAST ASIAN
AND PACIFIC AFFAIRS
OF THE
COMMITTEE ON FOREIGN RELATIONS
UNITED STATES SENATE
ONE HUNDRED THIRTEENTH CONGRESS
FIRST SESSION
__________
DECEMBER 18, 2013
__________
Printed for the use of the Committee on Foreign Relations
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COMMITTEE ON FOREIGN RELATIONS
ROBERT MENENDEZ, New Jersey, Chairman
BARBARA BOXER, California BOB CORKER, Tennessee
BENJAMIN L. CARDIN, Maryland JAMES E. RISCH, Idaho
JEANNE SHAHEEN, New Hampshire MARCO RUBIO, Florida
CHRISTOPHER A. COONS, Delaware RON JOHNSON, Wisconsin
RICHARD J. DURBIN, Illinois JEFF FLAKE, Arizona
TOM UDALL, New Mexico JOHN McCAIN, Arizona
CHRISTOPHER MURPHY, Connecticut JOHN BARRASSO, Wyoming
TIM KAINE, Virginia RAND PAUL, Kentucky
EDWARD J. MARKEY, Massachusetts
Daniel E. O'Brien, Staff Director
Lester E. Munson III, Republican Staff Director
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SUBCOMMITTEE ON EAST ASIAN AND PACIFIC AFFAIRS
BENJAMIN L. CARDIN, Maryland, Chairman
CHRISTOPHER MURPHY, Connecticut MARCO RUBIO, Florida
BARBARA BOXER, California RON JOHNSON, Wisconsin
TOM UDALL, New Mexico JEFF FLAKE, Arizona
EDWARD J. MARKEY, Massachusetts JOHN McCAIN, Arizona
(ii)
C O N T E N T S
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Page
Andersen, Hon. John, Principal Deputy Assistant Secretary for
Global Markets, International Trade Administration, U.S.
Department of Commerce, Washington, DC......................... 13
Prepared statement........................................... 14
Cardin, Hon. Benjamin L., U.S. Senator from Maryland, opening
statement...................................................... 1
Goodman, Matthew P., William E. Simon Chair in Political Economy,
Center for Strategic and International Studies, Washington, DC. 32
Prepared statement........................................... 34
Marciel, Hon. Scot A., Principal Deputy Assistant Secretary,
Bureau of East Asian and Pacific Affairs, U.S. Department of
State, Washington, DC.......................................... 5
Prepared statement........................................... 7
Rubio, Hon. Marco, U.S. Senator from Florida, opening statement.. 3
Scissors, Dr. Derek M., Ph.D., resident scholar, American
Enterprise Institute, Washington, DC........................... 39
Prepared statement........................................... 41
Additional Material Submitted for the Record
Prepared Statement of Walter Lohman, director, Asian Studies
Center, The Heritage Foundation, Washington, DC................ 54
(iii)
REBALANCE TO ASIA IV: ECONOMIC ENGAGEMENT IN THE ASIA-PACIFIC REGION
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WEDNESDAY, DECEMBER 18, 2013
U.S. Senate,
Subcommittee on East Asian and Pacific Affairs,
Committee on Foreign Relations,
Washington, DC.
The subcommittee met, pursuant to notice, at 10:06 a.m., in
room SD-419, Dirksen Senate Office Building, Hon. Benjamin L.
Cardin (chairman of the subcommittee) presiding.
Present: Senators Cardin, Murphy, Rubio, and McCain.
OPENING STATEMENT OF HON. BENJAMIN L. CARDIN,
U.S. SENATOR FROM MARYLAND
Senator Cardin. Good morning, everyone. It is my
understanding that Senator Rubio is on his way, so I am going
to get started and welcome everyone to this hearing of the
Subcommittee on East Asia and Pacific.
I want to thank Senator Menendez and Senator Corker for
their cooperation in the work of the subcommittee and
particularly thank Senator Rubio for his help and cooperation
as we have worked together to establish an agenda for the
subcommittee.
This is one of a series of hearings that we have held in
regards to the Rebalance to Asia, and we are going to focus
today on the economic engagement issues. Before we get started
in my formal comments, let me point out that this has been a
year of learning for me. My focus on foreign policy issues
previous to this term of Congress was mostly in Europe and
Central Asia in my role with the Helsinki Commission. I took on
this challenge because of the importance of East Asia and the
Pacific and also because of the rebalance programs.
I was aided in this by one of our fellows who come to us
from the executive agencies, Elise Mellinger. I mention that
because she started with me this year, she is an expert in this
area, and she did incredible work in helping us to prepare for
this responsibility. This will be the last hearing that she
will be attending. The sad news about these detailees is that
we lose them after a period of 1 year. I just want to publicly
thank her for her service to the United States Senate and to my
office. It is a particularly good day to do this because it is
her birthday.
So thank you.
Ms. Mellinger. Thank you.
Senator Cardin. Economic engagement is a critical part of
the rebalance program. It is critical to stability, it is
critical to prosperity, it opens markets to U.S. producers,
manufacturers, and farmers. It creates jobs for Americans. It
promotes private investment.
It was a major focus of my visit to the region earlier this
year and was a primary focus of Vice President Biden's trip
recently in his visit to China, Japan, and the Republic of
Korea. Secretary Kerry's trip to Vietnam underscored the
importance of economic engagement and also indicated that we
must use our economic engagement to promote human rights.
I think it is particularly important to underscore that
this week as we celebrate the life of Nelson Mandela. The
mineral wealth of South Africa only became unleashed as a
result of denying the government the opportunity for economic
engagement unless it changed its apartheid policies. That
policy worked. South Africa changed, with a minimal amount of
bloodshed.
I think it really underscores the importance of our
economic engagements to advance good governance and human
rights. The Secretary said in his recent trip to Vietnam: ``We
are working very closely with Vietnam and other regional
partners in order to complete the TPP negotiations as quickly
as possible, but to realize our potential as a partner and for
Vietnam to realize its potential as a thriving economy--and
this is something we talk about openly and frankly--Vietnam
needs to show continued progress on human rights and freedom,
including the freedom of religion, freedom of expression, and
freedom of association.''
So it is clear that we need to talk on the economic
engagement front as to the progress made in many countries on
labor rights, women's empowerment, and combating corruption,
promoting democracy, religious freedom, good governance, and
the list goes on and on and on and on.
I was pleased to see that Asia-Pacific Economic Cooperation
Forum goals included expanding economic opportunities for women
and combating corruption. The ASEAN adopted a declaration to
safeguard women and children from violence--an important basic
human right. And the East Asian Leaders summit included human
rights as a major focus. So we are making progress.
The United States and China share the goals of increasing
regional connectivity and prosperity in the Asia-Pacific
region. I believe it is in the United States interest for China
to be a prosperous, peaceful, and strong partner with respect
to its neighbors and international norms, laws, institutions,
and rules. I look forward to seeing more economic reform as
China recognizes the importance of halting currency
manipulation and creating home-grown innovations. I have talked
about this before. Currency manipulation is unacceptable, and
China needs to respect intellectual property.
Chinese initiatives like creating the new Shanghai pilot
free trade zone and granting more market access are steps in
the right direction. I was pleased to see that at the Third
Party Plenum in November China proposed reforms to boost
competition and economic efficiency. Implementing these reforms
will be the true test and this will require sincere commitment
from President Xi and other Chinese leaders. I hope that China
will quickly begin to implement these reforms and that they
will include a reduction in the role of government in promoting
state-owned enterprises.
However, as former Secretary of State Clinton has said,
over the long run you cannot have economic liberalization
without political liberalization. They are connected. And we
must emphasize this. I was encouraged to hear that at China's
Third Party Plenum the government announced its commitment to
``respect and protect human rights''--that is their quote--
prohibiting law enforcement authorities from extracting
confessions by torture, corporal punishment, or abuse, and
abolishing the tortuous reeducation through the labor system.
If properly implemented, these will be groundbreaking reforms.
These are signs perhaps that China realizes that its
authoritarian capitalism cannot be sustained over time because
the suppression of a country's people only creates the illusion
of stability. It does not keep a people from wanting the
freedom to express their own opinions without fear of being
jailed or killed and the freedom to live as they see fit.
Democracy remains the model which holds the most promise
for economic growth. We can see this idea taking hold
throughout the region from Burma to Timor-Leste.
So we come full circle at this hearing back to where we
started. The first hearing we held on the rebalance of Asia
dealt with good governance and we are back to that issue as we
tie it together through economic engagement. Discrimination
against women and minorities are contrary to economic
development goals. Markets cannot effectively operate unless
human rights and civil liberties, including freedom of speech,
association, and the press, are protected. Failing to protect
workers' basic rights undermines a nation's development and
violates internationally recognized human rights norms.
Finally, corruption is a critical issue which we must
tackle through cooperation in both the public and private
sectors. Corruption is the enemy of the rule of law. It
destroys public institutions meant to protect people, denying
them the justice and depriving them of their human rights.
Corruption in Asia is a drag on growing economies, draining
billions of dollars from economic development and the
livelihood of Asians. It is also a major obstacle to reducing
poverty in Asia. I am glad to see that APEC and ASEAN leaders
have recognized the importance of dealing with these issues.
I look forward to hearing from our witnesses about the
critical issues and the next step in the economic engagement
with the Asia-Pacific region.
With that, I would turn to my colleague and friend Senator
Rubio.
OPENING STATEMENT OF HON. MARCO RUBIO,
U.S. SENATOR FROM FLORIDA
Senator Rubio. Thank you. Thank you for holding this
hearing and all of you for being here. I think we are all well
aware of the challenges that we face in the region. Especially
the security challenges have been in the headlines over the
last few weeks. For instance, we have a dictator with nuclear
weapons who has just executed his uncle. We have seen China try
to assert its territorial claims in ways that jeopardize peace
with Japan, South Korea, and the entire region.
These are real threats. But there also are extraordinary
opportunities to which we need to pay close attention and
dedicate time, effort, and resources, not just to our security
interests there, but also to the real economic opportunities
that are a vital component of our own enduring prosperity.
I hope our goals will be ambitious in that regard. The
Asia-Pacific will not simply hold onto its current share of
global activity. It is actually going to expand. It is going to
grow, and I hope we will be an integral part of that growth.
For that reason, I think it is important to get the so-called
``rebalance'' right.
Asia today accounts for about 33 percent of U.S. trade.
China is our second-largest trading partner. Japan is No. 4. As
a block, the 10 nations in the Association of Southeast Asian
Nations would rank fifth. Meanwhile, the top four countries on
the 2013 index of economic freedoms are from the Asia-Pacific
region.
Therefore, I think the question is what more should we be
doing to ensure that the United States is continuing to succeed
economically, particularly in this vital region of the world.
The Trans-Pacific Partnership, which I know we will hear a lot
about today in both testimony and questions, can be an
important part of that effort and we should do all we can to
finalize those negotiations. I am very interested in the
testimony today to hear an update on where we stand with
regards to that.
It is also important to remember that, as Senator Cardin
pointed out just a moment ago, we are a nation that is built
around values, that we cannot leave by the wayside our
commitment to promote democracy, but also respect for human
rights. A proactive approach for these ideals has to go hand in
hand with everything we do everywhere in the world. This is
especially true in a region of increasing importance like the
Asia-Pacific region. These ideals, by the way, define who we
are as a people and as a nation, and they should continue to be
an integral part of our efforts overseas.
So I look forward to hearing from the witnesses today. I
hope to learn more about the specific initiatives that the
administration is pursuing and has in mind to address these
challenges and these opportunities. Mr. Chairman, thank you for
this hearing.
I would just ask that at the appropriate time the written
testimony of Mr. Walter Lohman, who is the Director of Asian
Studies at the Heritage Foundation, be included at an
appropriate place in the record.
I thank you, and I thank all of you for being here.
Senator Cardin. Without objection, it will so be included.
We now turn to our first panel. The Honorable Scot Marciel
is a well-known face before our committee. We welcome him back,
the Principal Deputy Assistant Secretary, Department of State,
Bureau of East Asian and Pacific Affairs. Secretary Marciel
began his term as Principal Deputy Assistant Secretary in
August 2013 after serving for 3 years as the U.S. Ambassador to
the Republic of Indonesia. Mr. Marciel previously served as the
Deputy Assistant Secretary of East Asia and Pacific Bureau,
responsible for relations with Southeast Asia, and the
Ambassador to ASEAN Affairs.
Our second witness is the Honorable John Andersen, who is
the Principal Deputy Assistant Secretary for Global Markets at
the Department of Commerce in the Office of International Trade
Administration. He is responsible for overseeing both market
access and commercial issues. Previously he was the Principal
Deputy Assistant Secretary for Market Access and Compliance,
and prior to that the Senior Director for Western Hemisphere
Affairs in the International Trade Administration.
We welcome both to the committee, and we will start with
Secretary Marciel.
STATEMENT OF HON. SCOT A. MARCIEL, PRINCIPAL DEPUTY ASSISTANT
SECRETARY, BUREAU OF EAST ASIAN AND PACIFIC AFFAIRS, U.S.
DEPARTMENT OF STATE, WASHINGTON, DC
Ambassador Marciel. Chairman Cardin, Ranking Member Rubio,
thank you very much for the opportunity to appear today before
you on the economic aspects of the Asia rebalance. I would like
to thank the committee for its leadership in supporting our
engagement with the East Asia-Pacific region.
Recognizing that America's future prosperity and security
are intertwined with the prosperity and security of the East
Asia-Pacific region, President Obama made a strategic
commitment when he came into office to rebalance our interests
and investments to the region. He set out a clear objective for
the United States to sustain a stable security environment and
advance a regional order rooted in economic openness, peaceful
resolution of disputes, and respect for universal rights and
freedoms.
The administration remains committed to this objective. The
President himself has hosted seven Asian leaders this year,
including six visits to the Oval Office. The Vice President, as
you mentioned, was recently in the region. Secretary Kerry is
just returning from his trip, his fourth trip this year, and
many other Cabinet members have traveled to Asia this year.
Our economic engagement is aimed at creating jobs and
opportunities for the American people, as well as shared
prosperity in the region, and reinforcing our longstanding
engagement in the region. The past few generations have
produced an extraordinary period of prosperity in the East
Asia-Pacific region. Tapping into this economic dynamism is
important for our interests. Even as we continue to lay the
foundation for future economic ties, we are already seeing
progress in many areas.
For example, U.S. goods and services exports to the region
totaled nearly $555 billion last year, which is up 31 percent
from 2008, and were estimated to have supported as many as 2.8
million jobs here in the United States. Our companies are the
leading investors in the region, with cumulative investment of
over $600 billion in 2012. Meanwhile, foreign investment from
the region to the United States has also sharply increased,
again up about 31 percent since 2008.
But we want to do more. We are using a whole of government
effort in close partnership with the private sector, the
business community. We are advocating for U.S. businesses,
working to attract foreign investment and tourism, reduce trade
and investment barriers, and promote prosperity. Secretary
Kerry is personally advancing the U.S. economic agenda in the
region through his
active engagement with regional leaders, business leaders, and
entrepreneurs.
Our embassies and consulates are key partners in this
effort. Most of them have established interagency task forces
within the embassies to provide economic, commercial,
agricultural, and trade services to promote exports and
advocate on behalf of U.S. companies. We are very actively
engaged, working with our colleagues from the Commerce
Department, in commercial advocacy at the highest level on
behalf of U.S. firms. In fact, just a few weeks ago the State
Department worked with the Department of Commerce to launch the
Select USA summit, which over 170 companies from East Asia-
Pacific region attended.
Beyond this, we are also laying the policy groundwork for
expanded trade and investment. We have a number of bilateral
free trade agreements in the region, including recently with
Korea, and are now in the final stages of Trans-Pacific
Partnership negotiations. As Secretary Kerry noted recently,
``A shared commitment to economic growth and innovation is part
of why the Trans-Pacific Partnership agreement is a cornerstone
of the President's economic policy in Asia. This partnership
will drive growth and create jobs across the Asia-Pacific
region and the United States.''
APEC also remains a key forum in which we are able to
advance efforts to reduce barriers to and facilitate trade and
investment, promote growth, and strengthen economic
integration. APEC is effective in providing a formal role for
the private sector and we collaborate closely with the U.S.
business community to achieve tangible, useful outcomes.
The TPP negotiations themselves are an important outgrowth
of the trade and initiative liberalization agenda of APEC.
We are also increasing our economic engagement with ASEAN
and bilaterally throughout the region, including intensive
bilateral engagement with key economies in the region such as
China, Japan, and Korea, working on things like IPR protection,
resolving commercial disputes, expanding market access.
Very importantly, we are also working to do what we can,
including with our USDA colleagues, to promote inclusive,
sustainable growth in the region so that these markets grow.
These markets which are so key to our future continue to grow,
creating prosperity there, but also opportunities there. That
is why we continue to provide a lot of assistance, with the
support of the committee and Congress, supporting this
inclusive growth framework.
I would like to conclude by underscoring the fundamental
point that the peaceful and prosperous East Asia-Pacific
benefits the people of the United States and the region. The
State Department is totally committed to the Asia rebalance and
in particular is dedicated to ensuring that our economic
engagement continues to be strong and focused on creating
prosperity for East Asia and for the United States.
Thank you very much.
[The prepared statement of Ambassador Marciel follows:]
Prepared Statement of Scot A. Marciel
Chairman Cardin, Ranking Member Rubio, and distinguished members of
the subcommittee, thank you for the opportunity to appear before you
today with Department of Commerce Principal Deputy Assistant Secretary
John Andersen to testify on the Economic Aspects of the U.S. Rebalance
to the Asia-Pacific. I would also like to thank the committee for its
leadership in supporting and promoting engagement with the East Asia-
Pacific region and advancing U.S. interests there. The Department of
State looks forward to working with you and other Members of Congress
to continue to build on our current efforts in the region.
Recognizing that America's future prosperity and security are very
much intertwined with the prosperity and security of the East Asia-
Pacific region, President Obama made a strategic commitment when he
came into office to rebalance our interests and investments to this
region. The President set out a clear, overarching objective for the
United States in the region to sustain a stable security environment
and advance a regional order rooted in economic openness, peaceful
resolution of disputes, and respect for universal rights and freedoms.
The administration remains committed to this objective and is
building an increasingly active and enduring presence in the East Asia-
Pacific region, including through our economic engagement. President
Obama has hosted seven Asian leaders in 2013 alone, including six
visits to the Oval Office; Vice President Biden traveled to Japan,
China, and Korea in early December; and in addition to Secretary
Kerry's four trips to the region since assuming office, other Cabinet
members including Secretary Lew, USTR Froman, Secretary Pritzker,
Secretary Hagel, Secretary Jewell, Secretary Sebelius, Secretary Moniz,
and EPA Administrator McCarthy have all traveled to Asia in 2013.
We have made significant progress on the rebalance in a number of
areas--modernizing our alliances, deepening our engagement with
emerging powers such as China, strengthening regional institutions, and
promoting democracy and human rights. But, during his first major
speech on the rebalance to the Australian Parliament in 2011, President
Obama framed the rebalance by emphasizing that the Asia-Pacific is
critical to achieving his highest priority--creating jobs and
opportunity for the American people. For this reason, the economic
pillar of the rebalance is paramount and will have widespread and
significant positive impacts at home and in the region for many years
to come.
The past few decades have produced an extraordinary period of
prosperity in the East Asia-Pacific region. It has lifted hundreds of
millions out of poverty across the entire region and fostered dynamic,
innovative economies that today are fueling global growth. The World
Bank recently projected that the East Asia-Pacific region will
contribute 40 percent of global growth this year, and some forecasters
expect that nearly 50 percent of world growth over the next two decades
will be generated in this region, yielding hundreds of millions of new
middle-class consumers.
Tapping into the economic dynamism of the East Asia-Pacific is
vitally important for U.S. interests. Even as we continue to lay the
foundation for future economic ties, we are already seeing progress in
many areas. For instance, trade with the East Asia-Pacific region grew
by 22 percent between 2008 and 2012, far outpacing the 13-percent
growth in global U.S. trade. In 2012, U.S. exports of goods and
services to the East Asia-Pacific region totaled nearly $555 billion,
an increase of 31 percent since 2008, which supports an estimated 2.8
million U.S. jobs.
Direct investment in both directions has also helped to solidify
our bond with the region and demonstrates the lasting commitment of
U.S. businesses to the region's development and economic integration.
The United States is by far the leading foreign investor in the East
Asia-Pacific region with the stock of U.S. foreign direct investment
(FDI) standing at around $622 billion in 2012, up 35 percent from the
U.S. investment position in 2008, with nearly one-third located in
ASEAN member countries. Investment into the United States from
economies of the East Asia-Pacific is also growing, increasing by 31
percent since 2008 to reach $422 billion by the end of 2012. Between
the major investments made by our private sector and the potential for
U.S. industry to tap the region's growing consumer base, American
businesses recognize that the future economic growth of the Asia-
Pacific region and our increasing economic ties with the region are
centrally important to economic growth and job creation in the United
States.
While the East Asia-Pacific region offers enormous opportunities,
there are certainly critical challenges as well. We have clear shared
interests to address these challenges by working together toward
greater energy and environmental security. For example, rapid economic
and population growth has created enormous strains on the region's
food, water, forest, marine, and energy resources. In many areas, the
increased use of fossil fuel for industries and transportation has
resulted in dangerous levels of pollution that in turn pose dangers to
people's health and accelerate climate change. On the political and
security fronts, the resurfacing of longstanding territorial disputes
threatens the stability of the region. How we respond to these
challenges will determine our long-term ties to the region, as well as
the region's future. The Department recognizes that U.S. economic ties
to the region are the fundamental underpinning of our relationship and,
for the overall rebalance to be successful, we must get the economic
component right.
I would like to emphasize that to get it right requires a whole-of-
government effort in close partnership with our private sector. Here in
Washington, we need to work on policy formulation and coordination, and
in the field, the various agencies within the U.S. missions in the
region need to work effectively as teams to implement our programs,
initiatives, and policies and to advance U.S. interests. For our part,
the Department is dedicating diplomatic, public diplomacy, and
assistance resources to the region in a way that is commensurate with
the truly comprehensive nature of our engagement. And we are broadening
our focus to elevate issues of economic development (including energy,
environment, health, and education), commercial diplomacy, and
entrepreneurship. I want to emphasize that in Washington and through
our embassies, we strive to work very closely with the U.S. business
community. This partnership is essential to our collective success.
Secretary Kerry is personally committed to and actively involved in
the U.S. economic agenda for the region. For example, he undertook
extensive engagement with regional leaders, business CEOs, and young
entrepreneurs at the Asia-Pacific Economic Cooperation (APEC) Leaders'
Week in Indonesia, the East Asia summit in Brunei, and the Global
Entrepreneurship summit (GES) in Malaysia in October. Secretary Kerry
is just now returning from visits to Vietnam and the Philippines in
which we bolstered our bilateral economic partnerships. Economic,
energy, and climate issues figured prominently during Vice President
Biden's recent trip to the region as well. While trade and investment
with the region have increased, we understand there is potential for
greater growth, and the State Department, in conjunction with the
interagency team, has stepped up economic engagement across the board,
through regional economic initiatives and bilaterally.
trade and investment promotion
The State Department and the U.S. missions in the region are
dedicated to advancing the President's National Export Initiative in
support of U.S. jobs. Our missions have established Interagency
Commercial Task Forces to provide economic, commercial, agricultural,
and trade services in the most efficient and productive manner possible
and, where other agencies are not present, our economic sections are on
the front line of export promotion. We are actively engaging in
commercial advocacy on behalf of U.S. firms. In addition to the
advocacy our Ambassadors conduct on a routine basis, we raise
commercial concerns with foreign governments on the margins of various
fora, such as the U.N. General Assembly and APEC.
Our missions abroad also have been actively promoting investment
and tourism. With respect to tourism, our recent reciprocal visa waiver
agreement with Taiwan and significant reductions in visa interview wait
times in China have spurred tourist as well as business travel to the
States.
On investment, our Ambassadors are hosting investment promotion
seminars, talking to business leaders around the region to encourage
them to consider job-creating investments in the United States, and
working with American service providers to help educate potential
investors about how to comply with U.S. laws and regulations. FDI into
the United States from economies in the East Asia-Pacific region is
already growing, but we cannot rest on our laurels. Just over a month
ago, the State Department worked with the Commerce Department to launch
the SelectUSA summit. As a result, over 170 companies from the East
Asia-Pacific region attended and received the message that the United
States is ``open for business.''
In announcing an expansion of SelectUSA during the summit, the
President noted there would be an enhanced role for U.S. embassies and
consulates around the world to attract investment into the United
States. We are committed to build on past success in promoting inward
investment from the East Asia-Pacific region; however, we recognize
this may pose resource challenges as we strive also to maintain efforts
to promote U.S. exports, assist U.S. companies with commercial deals
and disputes, monitor and report on economic conditions, and engage
host governments on economic and commercial policy. While we can help
identify business opportunities and facilitate information sharing, in
the end, decisions on trade and investment transactions are and should
be made by companies on business grounds. The United States must
continue to be competitive. To do so, in part, means fully resourcing
the State Department, the Office of the U.S. Trade Representative, the
Foreign Commercial Service, U.S. Export-Import Bank (EXIM), the
Overseas Private Investment Corporation (OPIC), and the U.S. Trade and
Development Agency (USTDA).
trade and investment liberalization-enabling environment
While the promotion of exports sales and investments provide
immediate, tangible results for U.S. businesses and, by extension, the
country, the Department also understands the importance of laying the
policy groundwork on which the East Asia-Pacific region and the United
States can continue to grow with shared prosperity. Even before the
rebalance, we were actively promoting a more open trade and investment
environment in the East Asia-Pacific through our collaboration with
economies of the region in APEC, and through the full implementation of
free trade agreements with Singapore, Australia, and the Republic of
Korea (ROK).
These efforts have paid off. Our economic relationship with
Singapore is flourishing, with bilateral trade having increased almost
60 percent and U.S. exports by 85 percent since the United States-
Singapore FTA entered into force in 2004. While Singapore is host to
almost 2,000 U.S. companies, it also accounted for $26 billion in
foreign direct investment stock in the United States at the end of
2012. The United States-Australia Free Trade Agreement has also led to
increased trade and investment. The United States is Australia's
leading investment partner, with $132 billion of U.S. investments in
Australia and bilateral trade in goods and services has nearly doubled
since 2004, topping $64 billion in 2012.
The United States-Korea Free Trade Agreement, or KORUS FTA, is
already providing tangible benefits for U.S. manufacturers, workers,
and farmers. It is expanding one of the most vibrant trading
relationships in the world, one that topped $130 billion U.S. dollars
in goods and services in 2012. We believe that more benefits await. By
January 1, 2016, Korean tariffs on over 95 percent of exports of U.S.
industrial and consumer goods to Korea will have been eliminated.
We are working closely with the Korean Government to ensure that
the FTA is implemented smoothly and fully and that American companies
can take full benefit of the trade pact.
We have also continued to build on our past successes within APEC.
The U.S. Senior Official to APEC is a part of the Bureau's team. We
coordinate and collaborate with interagency colleagues and the U.S.
business community to advance a robust work program within the 21-
member APEC to address various economic issues of interest to the
United States in the region. In the past year, the U.S. interagency
APEC team worked with our Indonesian APEC hosts and other APEC members
to achieve meaningful results for our stakeholders: (1) advancing
cooperation on combating illegal trade in wildlife as well as illegal
logging and associated trade; (2) promoting cross-border education
opportunities; (3) improving supply chain performance in the region;
(4) agreeing on alternative ways to promote job creation and
competitiveness without implementing local content requirements; (5)
promoting greater regulatory coherence in APEC economies; (6)
implementing APEC members' commitment to reduce tariffs on
environmental goods; and (7) establishing a public-private dialogue to
address non-tariff measures impacting trade in environmental goods and
services. The U.S. private sector is heavily involved in APEC, and we
collaborate closely with the U.S. business community to achieve
tangible, useful outcomes in that forum. We are currently consulting
with the U.S. private sector and with other U.S. agencies to develop a
comprehensive agenda for the 2014 APEC year, which China will host.
The United States must engage fully both to tap the growth in the
region and to ensure that our exports maintain a strong market share in
the coming years in light of the rising number of bilateral and
regional free trade agreements in the East Asia and Pacific region. As
Secretary Kerry noted recently in his October 18 op-ed, ``A shared
commitment to economic growth and innovation is part of why the Trans-
Pacific Partnership (TPP) agreement is a cornerstone of the President's
economic policy in Asia.'' The 12 current TPP partners account for
nearly 40 percent of global GDP and one-third of world trade. The
agreement will provide the United States with greater access to some of
the most important markets in the world, including Japan, which has the
world's third-largest economy and is our fourth-largest trading
partner.
The TPP agreement, an important outgrowth of the APEC trade and
investment liberalization agenda, will drive growth and create jobs
across the Asia-Pacific region and the United States. Substantial
progress was made by USTR Froman and his counterparts during the TPP
Ministerial in Singapore December 7-10, generating positive momentum on
the remaining negotiating issues. The TPP trade ministers will meet
again early next year. We believe this work can move ahead swiftly, but
at the same time have been clear that substance will drive the
timetable. Looking down the road, we see the TPP agreement not just as
an important vehicle to boost U.S. exports, but also as a compelling
platform for regional economic integration as the economic benefits of
its high standards become apparent and its membership expands over
time.
The Association of Southeast Asian Nations (ASEAN) is also an
increasingly important U.S. economic partner. Collectively, these 10
countries (Brunei Darussalam, Burma, Cambodia, Indonesia, Laos,
Malaysia, the Philippines, Singapore, Thailand, and Vietnam) have a
market of approximately 600 million consumers, GDP of more than $2.2
trillion, and economic growth that has been faster than the world
average for the past decade. Last year, in Phnom Penh, President Obama
and the leaders of the ASEAN states welcomed the launch of the Expanded
Economic Engagement (E3) initiative. The E3 is a framework for economic
cooperation designed to expand trade and investment ties between the
United States and ASEAN and to lay the groundwork for ASEAN countries
to prepare to join high-standard trade agreements like the TPP. As part
of the E3 initiative, the Department funded the travel of ASEAN
Economic Ministers to the United States in June 2013 to meet with
business leaders in IT, health care, innovation, and logistics. We
expect Commerce Secretary Pritzker will lead a trade mission to the
region in 2014, and we'll continue to look for opportunities to support
U.S. businesses in this dynamic region.
I would like to take a moment to cite our growing relationship with
Burma as an example of how we have opened new markets for U.S. business
and done so in a responsible manner and consistent with supporting our
broad-based human rights agenda. Since 2011, the Burmese Government has
undertaken a series of political and economic reforms, and, as a
result, relations between our two countries have changed dramatically.
In that time, the United States has not only eased economic sanctions
on Burma, we have worked collaboratively with the Burmese Government to
strengthen the country's regulatory environment, provided technical
assistance to facilitate its reentry into the world economy, and helped
advise and encourage American businesses to enter the Burmese market in
a manner supportive of Burma's reform efforts. As American businesses
have entered Burma, they have brought their corporate best practices
with them, including those on labor rights, environmental protection,
transparency and corporate social responsibility. This is a great
example of our government and private sector complementing each other
to help fundamentally transform the Burmese economy.
Through October of this year, U.S. exports to Burma reached over
$124 million, already far exceeding the combined annual exports of 2011
and 2012. Burma will chair ASEAN in 2014 for the first time and has
requested U.S. assistance in fulfilling that role, including support
for highlighting a key policy theme for its chair year, environment and
climate change.
The United States also maintain an intense level of engagement with
China in keeping with the priorities that President Obama set with
President Xi at Sunnylands in California earlier this year--notably on
the agreement to collaborate to phase-down the use of potent greenhouse
gasses known as HFCs. We have emphasized practical cooperation to avoid
the trap of strategic competition. Our Rebalance to Asia is not meant
to contain China as part of a zero sum game, but rather to build a
foundation of long-term mutual understanding and respect. At the same
time, we continue to press China on issues of significant concern, such
as human rights. In the economic sphere, we call on China to strengthen
household consumption, allow the renminbi exchange rate to be
determined by market forces, protect intellectual property rights
(including trade secrets), liberalize factor prices, expand market
access, adopt greater regulatory transparency, and establish a level
playing field in its markets for private and foreign-invested
companies.
We engage China in high-level dialogues, including the Strategic
and Economic Dialogue (S&ED), which State and Treasury cochair, as well
as the Joint Commission on Commerce and Trade (JCCT), which USTR and
Commerce colead. These dialogues provide opportunities to raise our top
priorities and concerns with the Chinese leadership as well as in
comprehensive working-level discussions. Although strictly bilateral,
we engage at these dialogues on some of the Asia-Pacific region's most
dynamic issues, global challenges, such as energy, climate change,
financial stability.
Through these bilateral dialogues and through other engagements
with China, we have made progress that dovetails with our engagement in
the region. At the S&ED in July, China committed to negotiate a
bilateral investment treaty (BIT) that would include the key concepts
of establishing protections at the market access phase and negotiating
any exceptions in advance in the form of a ``negative list.'' Although
much negotiation still remains, the BIT commitment deepens China's
participation in the global rules-based economic system. Such bilateral
progress does not preclude multilateral advances, but rather
strengthens them by raising the bar for everyone in the region.
We are also partnering with the U.S. private sector and governments
in the region to build essential entrepreneurship skills. Since
President Obama hosted the first Global Entrepreneurship summit (GES)
in 2010--as an outcome of his 2009 Cairo speech--the United States has
expanded programs and built a broad coalition of governments, business
people, civil society, investors, and academics to educate and support
entrepreneurs around the world. This year, the Government of Malaysia
hosted GES 2013, widening the focus from Muslim-majority countries to a
greater cross-section of entrepreneurs, including from the East Asia-
Pacific. The event brought together over 3,000 entrepreneurs,
investors, academics, startup organizers, business people, and
government officials from over 100 countries. In his remarks at the
summit, Secretary Kerry highlighted the central role of
entrepreneurship for economic development and growth and areas of U.S.
collaboration.
sustainable growth--creating shared prosperity
The East Asia-Pacific region is poised for economic growth that
will make it an even more attractive market for U.S. exports, but for
that growth to truly transform the region it must be responsible and
sustainable. To promote environmental sustainability, we have advanced
work in APEC to improve energy efficiency, increase transparency and
reporting of subsidies for inefficient fossil fuels, promote greener
standards of building construction, combat illegal logging, and reduce
wildlife trafficking. To address the economic dimensions of human
security in the region we support work in APEC to promote sustainable
health systems, build resiliency in supply chains to natural disaster,
and address food security. To build up human resources and expand
economic opportunities, we are working to connect SMEs to global value
chains, increase mobility of university students, and promote women's
economic empowerment.
Given the impact a natural disaster can have on a country's
economy, let alone its people, the State Department recognizes the
importance of humanitarian assistance and disaster relief. The U.S.
Government responded to Typhoon Haiyan by quickly deploying military
personnel and a USAID Disaster Assistance Response Team and by
arranging airlifts and providing other emergency services for American
citizens. In the Philippines today, the Secretary of State announced an
additional $24.6 million in humanitarian assistance, bringing the total
to about $86 million. We are also working hard to facilitate public-
private partnerships that will help with the recovery effort. We have
also provided support to Palau in the wake of Typhoon Haiyan damage
there and continue to look at ways we can assist in rebuilding in that
country. As a Pacific nation, the United States is committed to helping
our neighbors cope with and recover from such disasters.
Energy is a key component of U.S. economic engagement with the
Asia-Pacific, and we are pleased to welcome Singapore and Vietnam to
cochair the U.S.-Asia Pacific Comprehensive Energy Partnership
(USACEP). Through this Partnership we hope to bring cleaner and more
secure energy to the region and supply electricity access to many of
the 387 million people in Asia without power. Given the region's
estimated $9 trillion needed for investment in electricity alone over
the next 20 years, the potential for energy cooperation is substantial.
Our work is to help U.S. businesses tap into that potential. Through
efforts by the State Department, the Commerce Department, EXIM, OPIC,
and USTDA, we are working with U.S. companies to develop potential
smart grid, wind, solar, biomass, and geothermal energy projects
throughout the region. We have also worked with the Energy Department,
Commerce Department, and USTDA to promote the development of China's
shale gas sector so that U.S. companies may have new opportunities to
invest, apply their expertise, and help China meet its energy needs
with cleaner-burning natural gas.
As part of this effort, EXIM and OPIC have made available $6
billion in financing resources to support the deployment of American
clean energy technology, services, and equipment to the region. The
State Department, OPIC, and USTDA have also announced the creation of
the Asia-Pacific Clean Energy Program, a one-stop shop in Embassy
Bangkok that will provide financing and technical support for energy
companies seeking to do business in the region. We are confident that
this support will produce results throughout the region as OPIC and
EXIM have worked with the private sector to provide over $1.2 billion
in financing support for renewable energy and energy efficiency
globally last year.
President Obama's FY 2014 budget request to Congress provides $1.2
billion in State-USAID funding for East Asia and the Pacific. It is
essential that funding continue to reflect the priority of the
rebalance policy. For instance, the State-funded and USAID managed
U.S.-APEC Technical Assistance to Advance Regional Integration (US-
ATAARI) program is integral to our efforts within APEC to build
members' capacities in areas such as trade and investment
liberalization, domestic regulatory environments, and human security.
In July 2013, State and USAID launched the 5-year ASEAN Connectivity
Through Trade and Investment (ACTI) technical assistance program, which
complements E3 activities and aims to help ASEAN achieve its goal of
forming an ASEAN Economic Community by 2015. The Lower Mekong
Initiative is a State- and USAID-funded partnership between the United
States, Cambodia, Laos, Burma, Thailand, and Vietnam that fosters
integrated subregional cooperation in the areas of education, health,
environment and water, connectivity, agriculture and food security, and
energy security.
The State Department, USAID, and other interagency partners such as
the Millennium Challenge Corporation (MCC), are also working
bilaterally to consolidate economic reforms and competitiveness in
countries that are emerging in the lower middle-income bracket, and
help the poorest EAP nations reduce poverty. In the Philippines, under
the Partnership for Growth framework, the United States is addressing
the most binding constraints to broad-based economic growth and
investment, including helping to promote broad-based, inclusive, and
sustainable growth, and improve peace and stability in the conflicted
areas in Mindanao. Although Indonesia has experienced robust growth, 50
percent of its population still lives at or below the poverty line.
Therefore, U.S. assistance to Indonesia encourages policies that
increase competitiveness across a number of sectors and encourage
labor-intensive economic activities. Programs in Vietnam have promoted
judicial reform and the implementation of its World Trade Organization
commitments. In Mongolia, our programs promote private sector
competitiveness, financial sector growth, and mining industry reforms.
These regional and bilateral economic development programs are designed
to work in tandem to help build the economic foundation and
capabilities needed to support regional economic integration and
facilitate increase bilateral trade opportunities for American
businesses.
The United States remains a key partner for Pacific nations in
development and addressing global threats like climate change. Since
2010, the U.S. has provided climate change assistance for the Pacific
Islands. At the Pacific Islands Forum in Majuro, Secretary of the
Interior Jewell announced that USAID has launched the Pacific-American
Climate Fund, a grant-making facility to provide and monitor grants for
climate change adaptation measures in the Pacific Islands region.
The Department of Treasury's Office of Technical Assistance (OTA)
also has a significant presence in the region. ASEAN represents one of
OTA's largest investments of technical assistance resources, with 19
projects in six countries (Burma, Cambodia, Indonesia, Philippines,
Thailand, and Vietnam) emphasizing five core areas: budget policy and
accountability, banking and financial services, government debt
issuance and management, financial crimes, and revenue policy and
administration. OTA's recently initiated engagements in Burma focus on
(1) helping the Burmese authorities to build a transparent,
accountable, and fair revenue administration system and (2) developing
an effective antimoney laundering and counter financing of terrorism
(AML/CFT) regime. OTA also supports the Partnership for Growth
initiative with the Philippines, and Treasury negotiated Tropical
Forest Conservation Act debt for nature swaps with the Philippines and
Indonesia.
Another very important tool for the reduction of poverty and for
fostering good governance and sound economic policies in the region is
the MCC Compact agreements. The MCC Compacts have delivered solid
results for a number of countries in the Asia-Pacific region, and we
are currently implementing compacts in Indonesia and the Philippines.
I would like to conclude by underscoring the fundamental point that
a peaceful and prosperous Asia-Pacific benefits the peoples of United
States and of the region. The Department of State is totally committed
to the Asia-Pacific rebalance and, in particular, is dedicated to
ensuring that our economic engagement with the region continues to be
robust and reflects that overall commitment.
Senator Cardin. Thank you for your testimony.
Secretary Andersen.
STATEMENT OF HON. JOHN ANDERSEN, PRINCIPAL DEPUTY ASSISTANT
SECRETARY FOR GLOBAL MARKETS, INTERNATIONAL TRADE
ADMINISTRATION, U.S. DEPARTMENT OF COMMERCE, WASHINGTON, DC
Mr. Andersen. Chairman Cardin, Ranking Member Rubio, thank
you for the opportunity to speak before you today on the
Department of Commerce's engagement in the East Asia-Pacific
region. I also want to thank my State Department colleague,
Principal Deputy Assistant Secretary Scot Marciel, for his
leadership and dedication to advancing U.S. interests in the
region.
In 2011 President Obama stated that deepening trade and
investment ties between the United States and Asia was critical
to our long-term economic expansion and job growth. The
Department's International Trade Administration is responsible
for strengthening U.S. competitiveness, promoting exports,
ensuring compliance with our trade agreements, and enforcing
U.S. trade laws. As such, ITA plays a key role in the Asia
rebalance, and our efforts are driven by the needs of our
primary constituency, the U.S. business community.
The EAP region contains seven of our top 21 priority export
markets. These 35 economies account for nearly 28 percent of
U.S. goods and services, totaling roughly $612 billion. ITA
staff in 100 locations across the country and in over 70
markets around the world is dedicated to helping companies
enter new markets and expand in current ones.
Areas where we are seeing the most opportunities in the EAP
region are in health care, energy, and infrastructure sectors.
To meet these opportunities in the region, ITA began
redeploying its overseas resources. As a result, over the last
3 years our regionally based staff increased from 210 to almost
300.
Doing business internationally can be risky and the EAP
region comes with its fair share of challenges and rewards.
For example, China, our second-largest trading partner,
presents an extremely complex market. To assist U.S. companies
in navigating it, ITA has devoted 14 percent of its overseas
resources, representing the largest footprint of any ITA
operation outside of the United States. Moreover, in our recent
consolidation we created a separate unit to focus greater
attention on China's commercial challenges and opportunities.
Beyond China, we are working within ASEAN and APEC. In
October, Secretary Pritzker traveled to Indonesia, Singapore,
and Malaysia to participate in the APEC CEO summit and to
advance U.S. commercial interests. Additionally, ITA also plays
the lead role in APEC's small- and medium-sized working group
and has hosted capacity-building workshops on ethical business
practices for SMEs, energy efficient building standards, and
good regulatory practices.
Our FTA's with Australia, Singapore, and South Korea have
also helped expand commercial ties with the EAP. While we did
not conclude the TPP negotiation during this month's round of
meetings, we are closing in on an ambitious next generation
comprehensive trade agreement that reflects U.S. economic
priorities and values.
In addition, ITA's advocacy and inward investment
activities enhance its mission to promote U.S. exports and
contribute to U.S. job creation and economic growth. ITA's
Advocacy Center, which coordinates all U.S. Government
commercial advocacy, helps U.S. companies win government
contracts. For 2013, client companies reported wins estimated
at over $12 billion in the EAP region.
To encourage inward investment, the Obama administration
created Select USA in the Commerce Department, the only U.S.
Government-wide program to attract, retain, and grow business
investment in the United States. In 2012 the Asia-Pacific
region's stock of foreign direct investment in the United
States totaled roughly $424 billion. Six weeks ago we hosted
the first Select USA investment summit, a completely sold-out
event, with more than 1,300 participants, including
international and domestic firms and more than 200
representatives from 48 States, 4 territories, and the District
of Columbia. As my colleague Principal Deputy Assistant
Secretary Marciel indicated in his remarks, it was a whole of
government exercise.
ITA is also responsible for administering U.S. antidumping
and countervailing duty laws. We currently have 162 orders in
place against countries in the EAP region, most of which
originate in China. In some circumstances, we can refer cases
to the U.S. Trade Representative's Office or the recently
created Inter-Agency Trade Enforcement Center, the ITEC. The
ITEC provides critical research, analysis, translation, and
support for a number of our ongoing disputes.
As I noted, the EAP's growing importance is reflected in
ITA's mission. ITA staff will continue to participate and
support USTR during the TPP negotiations. Today Secretary
Pritzker is in China getting ready to begin the 2013 JCCT high-
level meeting. In 2014, Commerce will lead two executive trade
missions to the Singapore Air Show and to Japan, Korea, and
Taiwan to promote the United States travel and tourism
industry.
Thank you for the opportunity to speak with you today and I
welcome any questions.
[The prepared statement of Mr. Andersen follows:]
Prepared Statement of John Andersen
introduction
Chairman Cardin, Ranking Member Rubio, and members of the
committee, thank you for the opportunity to speak about the Department
of Commerce's role in promoting U.S. businesses abroad, and in
particular, our engagement in the East Asia and Pacific (EAP) region.
In 2011, President Obama acknowledged that the Asia-Pacific region
is critical to achieving his highest priority, that of creating jobs
and opportunities for the American people. To support the President's
objectives of advancing economic prosperity by expanding exports and
deepening trade and investment ties between the United States and Asia,
Secretary of Commerce Pritzker traveled to Indonesia, Singapore and
Malaysia in October, to participate in the APEC CEO summit meeting and
to advance U.S. trade priorities, including pressing for the conclusion
of the negotiations for a Trans-Pacific Partnership Agreement as soon
as possible.
The Department of Commerce's International Trade Administration
(ITA) is one of the primary agencies responsible for strengthening the
competitiveness of U.S. industry in the global market, promoting U.S.
exports, monitoring compliance with U.S. trade agreements, and
enforcing U.S. trade laws. ITA's efforts are driven by the needs of our
primary constituency--the U.S. business community. In 2013, 7 of our
top 21 priority export markets were located in Asia and 41 percent of
the clients we counseled worldwide, were interested in doing business
in the EAP region. There is little doubt that Asia is a growing market
for companies looking to expand their business and ITA continues to
engage aggressively on this front.
the importance of east asia and the pacific
The 35 EAP \1\ economies constitute a total population of more than
2.2 billion people with a combined GDP of $24.5 trillion in 2012.\2\
This dynamic region represents 29 percent of global GDP. The Asia and
Pacific region \3\ is a major market, accounting for 28 percent of U.S.
goods and services exports in 2012. Among U.S. merchandise exports,
manufactured goods such as electrical machinery, machinery, and
aircraft are among the leading products the U.S. exports to EAP
countries. Aside from manufactured goods, oil seeds such as soybeans
are a major export to the region, most of which go to China.
A priority for Department of Commerce in the region is to build
partnerships and institutions across the Pacific capable of meeting
21st-century challenges and ensuring market access for U.S. firms.
Through deeper trade and investment ties we intend to contribute to the
peace, security, and prosperity of the region as a whole. The United
States relationships with Japan, the Republic of Korea, Australia, the
Philippines, and Thailand form a natural cornerstone of our strategic
position in the Asia Pacific and complement our multilateral efforts to
ensure regional prosperity and development at a time of evolving
challenges. At the same time, a key element of our rebalance policy is
to continue pursuing a positive, comprehensive, and cooperative
relationship with China.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
supporting u.s. companies
ITA currently has staff in over 100 cities in the United States and
73 markets around the world, whose goal is to help U.S. companies enter
new markets and expand in current ones.
ITA understands the EAP region's growing demand for U.S. goods and
services and the needs of American companies doing business there. In
fact, in 2006, ITA began redeploying its resources from other regions
to Asia. From 2010 until 2013, our staff increased from 210 to 299 in
EAP. In this time of fiscal constraint, ITA repositioned staff from
other parts of the world to take into account the growth in
opportunities in Asia. The President's FY 2014 budget requests
additional funds to support adding more staff to the region.
While ITA does not have sufficient resources to place staff in all
EAP countries, we are maximizing regional coverage in partnership with
other agencies. For example, ITA has a formal relationship with the
State Department whereby our staff provides guidance and assistance to
the State Department in locations where ITA is not present. Our offices
in Bangkok, Singapore, Beijing, and Sydney support State Department
staff in Burma, Laos, Brunei, Mongolia, Cambodia, and Fiji. This
partnership is an important component of our strategy and efforts to
leverage resources across the Federal Government. This relationship has
also allowed us to maintain staff at the Asian Development Bank (ADB)
in the Philippines where we provide information to U.S. companies on
projects funded by the ADB.
ITA also runs the Advocacy Center which helps U.S. companies--
small, medium, and large enterprises in various industry sectors win
government contracts across the globe. Last December, the President
established an Interagency Commercial Task Force on commercial advocacy
in order to better coordinate U.S. Government efforts and better
support U.S. firms competing for foreign project or procurement
opportunities. The most active sectors which have requested commercial
advocacy include: aerospace, defense, energy and power, health care,
infrastructure, computers/IT/security, and telecommunications. The
Advocacy Center coordinated the U.S. Government strategy across the
Executive branch (Departments of Commerce, Defense, Energy, State and
Transportation) for U.S. exporters during interactions with relevant
members of foreign governments. As of September 30, 2013, client
companies reported 10 wins with estimated contract values of $12.4
billion and U.S. export content of $8.4 billion. In addition, the
Advocacy Center is managing 207 cases in the EAP region worth
approximately $70 billion in proposed contracts.
Whether it is educating companies on how to take advantage of
growing commercial opportunities in the region, enforcing existing free
trade agreements (FTAs) or working more generally to improve the
region's business climate, ITA's goal is to ensure U.S. companies have
the tools necessary to compete on a level playing field. ITA helps
level the playing field by monitoring foreign governments' compliancy
with their trade agreement obligations, and by enforcing U.S. trade
laws.
meeting the challenges of doing business
Doing business internationally can be risky and confusing for
companies, particularly small- and medium-sized enterprises that are at
the core of ITA's mission. ITA's policy efforts are geared toward
improving short-, medium- and long-term successes in international
commerce. We do this in three ways: (1) providing direct support to
U.S. companies, using existing tools and relationships to help resolve
commercial problems; (2) opening markets and improving the business
climate: and (3) by representing U.S. industry interests during trade
negotiations.
ITA provides direct support for real-time business needs. Its goal
is to ensure that trading partners in the EAP region implement their
trade and investment agreement obligations and otherwise afford market
access for U.S. exports. Within the EAP region, the United States has
FTAs in effect with Australia, Singapore, and the Republic of Korea. In
order to monitor implementation of these agreements, ITA uses its close
relationship with U.S. industry, as well as its understanding of the
region and its presence overseas to ensure that these countries are
fulfilling their obligations under the FTAs. ITA's network of foreign
and domestic commercial officers, locally employed staff, and industry
experts in Washington, DC, and trade specialists around the country
work closely with U.S. firms to help them overcome barriers to doing
business in foreign markets.
Let me highlight a few key EAP markets and regional associations
where ITA plays a critical role helping U.S. companies:
China
ITA's presence in China, with a total of five posts (Beijing,
Chengdu, Guangzhou, Shanghai, Shenyang) and a staff of over 130
representing several ITA units and other Commerce Bureaus, gives us the
largest footprint of any ITA operation outside the United States. Our
Commercial Service staff in China has seen the highest number of state-
supported trade missions since the inception of the State Trade and
Export Promotion program over a year ago. In fact, given the growing
importance and sophistication of the Chinese market, ITA, as part of
its recent consolidation, created a separate unit to focus greater
attention on the Chinese economic area.
China is our second-largest trading partner and the relationship
continues to grow. In 2012, we exported $110.5 billion worth of goods
to China, with agriculture and transportation equipment representing
the largest export sectors. Demand for U.S. goods and services
continues to grow in China, however, there are many issues that U.S.
companies need to be aware of and vigilant about before attempting to
enter the Chinese market. These include registration and protection of
intellectual property rights (IPR), due diligence on potential clients
and partners, and administrative licensing. In addition, China often
lacks predictability in its business environment, and its legal and
regulatory systems can be opaque, inconsistent, and often arbitrary.
The U.S. Government uses two main bilateral venues for addressing
challenges that U.S. companies face in China: the U.S.-China Joint
Commission on Commerce and Trade (JCCT) and the U.S.-China Strategic
and Economic Dialogue (S&ED).
The JCCT is the primary forum for addressing bilateral trade and
investment issues and promoting commercial opportunities between the
United States and China. The Secretary of Commerce and the U.S. Trade
Representative cochair the annual U.S.-China JCCT forum. ITA serves as
the lead bureau for Commerce's participation in the JCCT. At last
year's JCCT meeting, the United States made progress in addressing key
concerns in our bilateral trade relationship including: protection and
enforcement of IPR; localization of intellectual property and
technology; certain tax provisions; government procurement practices;
regulatory obstacles; regulatory data protection for pharmaceuticals;
and market access for U.S. companies in China's strategic emerging
industries.\4\ The next JCCT High-Level Meeting is scheduled for
December 19-20.
For the S&ED, the Commerce Department plays a leading role in the
Trade and Investment Session of the Economic Track of the dialogue. The
S&ED met this past July and made concrete progress toward expanding
U.S. export and investment opportunities in China. Most important, the
Chinese Government committed to enter into substantive bilateral
investment treaty negotiations with the United States to provide
greater protections for U.S. investments in China. China also agreed to
prioritize enforcement against the theft of trade secrets, to submit a
new and improved offer to accede to the World Trade Organization (WTO)
Agreement on Government Procurement in 2013, and to adopt new
disciplines on state-owned enterprises (SOEs), which would help level
the playing field for U.S. companies competing against SOEs.
Japan
Japan is the world's third-largest economy and our fourth-largest
trading partner. The United States exported $70 billion in goods to
Japan in 2012. Responding to an economic recovery package introduced by
new Prime Minister Shinzo Abe, Japan has shown steady economic growth
and its Nikkei stock market has increased over 50 percent this year. On
July 23, 2013, Japan formally joined negotiations for the Trans-Pacific
Partnership (TPP) during the 18th round of negotiations in Malaysia
after working out a robust package of actions and agreements with the
United States. TPP participation creates for Japan a tremendous
opportunity to stimulate domestic economic reform and continue on the
track toward sustained economic growth. The participation of Japan, a
major U.S. trading partner, as well as close U.S. ally, raises the
economic significance of a TPP Agreement. With Japan's entry, TPP
countries account for nearly 40 percent of global GDP and about one-
third of all world trade. Japan's TPP participation, its nascent
economic recovery, and prospect for domestic structural reforms create
new opportunities for American exporters and investors. Japanese
companies are also key partners for U.S. firms in major sectors,
including civil aviation and defense.
Since the March 2011 accident at Fukushima Dai-ichi Nuclear Power
Plant, U.S. firms have assisted Japan in various ways including
monitoring at the damaged plant, nuclear waste water treatment,
decontamination work, and support of integrated dose reduction
planning. U.S. firms have the expertise and technology to assist with
continued cleanup at the plant (decommissioning, water treatment),
remediation of the area outside the exclusion zone surrounding the
plant, and waste management. In October 2013, Japan informed the United
States of its plans to ratify within the coming year the Convention on
Supplementary Compensation for Nuclear Damage (CSC), an agreement that
establishes an international framework for nuclear liability. In its
official announcement, Japan noted that ratifying CSC would help to
facilitate the participation of foreign companies in nuclear
decommissioning and contaminated water management at Fukushima.
Commerce is working with Japan to facilitate partnerships between U.S.
and Japanese firms to best assist with the recovery. In February 2014,
Commerce is organizing a business to business forum which will promote
these partnerships.
Lower Mekong Initiative
The Lower Mekong Initiative (LMI) is a multilateral partnership
effort initiated by the United States in 2009 for promoting cooperation
in the Mekong subregion (Burma, Cambodia, Laos, Thailand, and Vietnam)
in the areas of education, health, environment and water, connectivity,
agriculture and food security, and energy security.
Under the LMI Connectivity Pillar, ITA is working with other U.S.
Government agencies to develop workshops for the health, information
and communication technology, aviation, and energy sectors. The
workshops will provide an opportunity for the LMI countries to
highlight numerous active and potential infrastructure projects. These
workshops will also allow the LMI governments and the U.S. Government
agencies to develop successful methods of incorporating private
investment into infrastructure development through the use of public-
private partnerships. The workshops will take place in the LMI
countries over the next few years.
Using Existing Tools and Relationships
ITA is actively engaged with both the Association of South East
Asian Nations (ASEAN) and the Asia Pacific Economic Cooperation (APEC)
on a variety of economic issues. U.S. engagement within these fora
focuses on making improvements in the region, including by addressing
trade and investment barriers.
ASEAN \5\
As part of the rebalance, President Obama announced the Expanded
Economic Engagement (E3) initiative with leaders of the 10 ASEAN
countries in November 2012. The Commerce Department plays a key role in
this initiative, particularly on standards development and practices;
small and medium-sized enterprises, and trade and the environment. In
addition, ITA works with ASEAN to create an environment that enables
and encourages U.S. exports by addressing market-access issues,
ensuring nondiscrimination against foreign firms, improving investment
protections, increasing transparency and promoting responsible business
activities. This past summer, ITA working with the United States Trade
Representative (USTR) and State organized roadshows to Los Angeles, San
Francisco and Washington, DC, for the ASEAN Economic Ministers. These
events allowed companies and policymakers to discuss opportunities and
policies aimed at expanding trade and investment. Further, Commerce
leads cooperation between the United States and ASEAN on standards and
related issues. Together, we introduced initiatives on green buildings,
food safety, medical devices, dietary supplements, green chemistry, and
electrical and electronic products. Standards, as a core element of
U.S. cooperation with ASEAN, were highlighted this year during the
ASEAN Ministers Road Show and the recent ASEAN summit in Brunei.
APEC \6\
Within APEC, ITA spearheaded efforts to implement voluntary codes
of business ethics for the medical device, biopharmaceutical, and
construction and engineering sectors through public and private
organizations. Each of these initiatives was developed in conjunction
with U.S. associations and companies to help ensure a more business
friendly environment for their industries. ITA also plays a lead role
in the APEC Small and Medium-sized Enterprises (SME) Ministerial, which
focuses on ways to empower SMEs so they can enter international
markets. SMEs comprise the majority of businesses in all 21 APEC member
economies, so building the capacity of SMEs to engage in international
commerce is a key component of U.S. Government efforts to bolster trade
and investment linkages across the Asia-Pacific region.
ITA has also hosted capacity-building workshops on ethical business
practices for SMEs, energy-efficient building standards, and good
regulatory practices. ITA is opening these workshops to Burma,
Cambodia, and Laos so as to further integrate these economies into the
global market. Given that APEC and ASEAN have designated energy as a
priority sector, it is important to mention that the United States and
Indonesia cohosted a regional natural-gas event which was jointly
endorsed by APEC and ASEAN. This event focused on the changing global
gas markets and the development of unconventional gas. In August, ITA
led a trade mission to Thailand, Malaysia, and the Philippines focused
on renewable energy equipment, smart grid and green-building
technology, water treatment and emissions control, and natural gas
exploration and development.
Representing U.S. Industry Interests
ITA is ensuring that U.S. industry's interests are taken into
account and reflected in Trans-Pacific Partnership (TPP) negotiations
which will help U.S. companies better compete in the region. The TPP is
the focal point of U.S. Government economic policy in the region, and
seeks to build on trade agreement advances made in the United States-
Korea Free Trade Agreement (KORUS FTA).
TPP
The TPP agreement is both the economic cornerstone of the Obama
administration's rebalance toward the Asia-Pacific, as well as a
reflection of the President's commitment to a 21st century trade
agenda, including with our NAFTA partners. USTR is the lead U.S.
Government agency negotiating the TPP agreement, with extensive
assistance from the ITA. Together, we are advancing the U.S. trade
agenda, through intensive cooperation preparing for and conducting the
TPP negotiations and bilateral meetings with our counterpart ministers
from TPP member economies. In doing so, ITA works closely with the U.S.
business community to ensure that its interests are fully reflected in
the TPP agreement. ITA seeks input from the private sector both
informally through its network of business contacts and U.S. offices
and more formally through the Industry Trade Advisory Committees
(ITAC). The ITACs are composed of private sector representatives
covering all sectors of the U.S. economy, as well as important
functional priorities, and provides advice to the Secretary of Commerce
and the U.S. Trade Representative on the negotiation and operation of
trade agreements, as well as development, implementation, and
administration of U.S. trade policy.
At a meeting of TPP Ministers in Singapore (December 7-10),
considerable progress was made across a wide range of areas. On
December 10, the TPP Ministers announced substantial progress had been
made toward completing the agreement, with progress identified for the
majority of key outstanding issues in the text. Negotiators will
continue their intensive work during the coming weeks. Following that,
Ministers intend to meet again early in the coming year.
Trade Promotion Authority (TPA)
For over 30 years, Congress has enacted laws providing TPA to guide
both Democratic and Republican administrations pursuing trade
agreements that support U.S. jobs, eliminate barriers in foreign
markets and establish rules to stop unfair trade. TPA provides special
procedures for congressional consideration of legislation approving and
implementing those agreements. TPA is a critical tool to keep the
United States competitive and is connected to the progress that is
being made on TPP. Having TPA will help bring home a trade agreement
that includes some of the fast-growing economies of Asia Pacific. Since
TPA's last renewal in 2002, hundreds of trade agreements between other
countries have entered into force and several more are currently being
negotiated. While these agreements are not the high-standard,
comprehensive trade agreements the United States negotiates, they do
offer foreign companies better and cheaper access to these markets.
This places U.S. workers, businesses, and farmers at a comparative
disadvantage. In fact, China is currently negotiating agreements with
other Asia-Pacific partners that could displace U.S. goods, services,
and agriculture products and set standards that exclude U.S. exports
from these countries' markets. We need TPA to stay competitive. The
administration supports TPA and looks forward to continuing to work
with Congress on its renewal.
U.S.-Korea Free Trade Agreement (KORUS)
The Republic of Korea (ROK) is currently our seventh-largest
trading partner with approximately $101 billion in total (two-way)
goods trade during 2012. Since entry into force of the KORUS on March
15, 2012, trade data shows that KORUS has bolstered U.S. exports to the
ROK. In fact, exports of U.S. manufactured goods to the ROK from
January-October, 2013, the latest data available, are 1.6 percent
higher than in the same period of 2011, before the FTA. U.S. exports of
motor vehicles to the ROK in the first 10 months of 2013 are also 54
percent higher than in the same period in 2011, pre-FTA. Other
industrial goods have also seen notable increases, such as
pharmaceuticals and electrical equipment. Services exports for the
first two quarters of 2013 are 21 percent higher than in the same time
period in 2011 (pre-FTA), and 5.4 percent higher than in the same
period last year. Using the same time periods, the U.S. trade surplus
in services with the ROK has grown by 52 percent compared to 2011 and
by 21 percent compared to last year.
linking u.s. business with buyers overseas and
attracting investment back home
ITA provides numerous tools to help U.S. companies learn more about
the EAP markets, and meet potential clients, distributors, and
partners. ITA organizes trade missions and trade events, and provides
market research and export counseling in the markets of interest.
As demonstrated in the chart below, each year ITA's customers are
reporting more export successes to the East Asia and Pacific region.
[GRAPHIC(S) NOT AVAILABLE IN TIFF FORMAT]
An example of the growing interest in this area is how the ASEAN
team in Singapore, in collaboration with numerous ITA domestic offices,
provided over 150 Gold Key services in 2013. A Gold Key service is a
custom-tailored approach to supporting a company interested in doing
business in a specific country and sector. This service includes
arranging one-on-one meetings in-country with potential customers or
partners. With an average of five appointments per Gold Key Service,
this translates to more than 750 direct engagements for U.S. companies
looking to do business in the region.
ITA annually hosts a large trade event called Trade Winds. Trade
Winds is a multicountry trade mission that takes U.S. companies to a
key export market where they meet local companies and attend business
conferences to learn about doing business in the region, accompanied by
an optional spinoff trade mission with visits to additional markets.
This past May, Trade Winds was held in Seoul and was the largest-ever
U.S. trade event in the Republic of Korea. Seventy-two U.S firms
participated in the event and over half took part in spinoff trade
missions to Hong Kong, Japan, the Philippines, and Taiwan.
ITA prides itself on helping SMEs. For example, ITA's Baltimore
staff provided market research to identify opportunities and a
financial background report on prospective partners for Haemo-Sol
International, LLC, a small manufacturing company with less than five
employees headquartered in Maryland. Haemo-Sol International exports
specialized cleaning agents and was struggling to break into new
markets and to increase sales in existing markets. The Baltimore staff
suggested the company participate in the ExporTech exporter education
program. ExporTech is a collaborative program between ITA's domestic
field offices and the National Institute of Standards and Technology's
Manufacturing Extension Partnership Program to provide export training
to U.S. manufacturers. Through ExporTech, Haemo-Sol attended two trade
missions to Asia which resulted in forging new partnerships. The
company has increased sales and acquired new customers in Japan and
China, and has seen the export portion of its sales grow from 50 to 66
percent of total revenue since participating in its first trade mission
in 2010.
Foreign Direct Investment (FDI)
While our trade promotion activities are pivotal to improving the
U.S. economy, inward investment also contributes significantly to job
creation and economic growth. ITA is seizing this potential and has
been working diligently around the world to let investors know that the
United States is open for business. In total, U.S. subsidiaries of
foreign companies accounted for one-fifth of total U.S. exports,
showing the important relationship between trade and investment. In
2012, the Asia and Pacific region's stock of FDI in the United States
totaled roughly $424 billion, led by investment in manufacturing,
wholesale trade and information and telecommunications.\7\
Additionally, U.S. FDI in the region exceeded $623 billion.\8\
While the EAP region is not our largest source of FDI, it has great
potential. As it stands, approximately 16 percent of FDI in the United
States originates from Asia in comparison to over 60 percent
originating from Europe. In terms of average annual growth over the
past 5 years, China is the fastest-growing source of FDI in the United
States. Many of the fastest-growing sources of FDI in the United States
are located in the EAP region.\9\ Japan and Australia both rank among
the 10 largest sources of FDI.
The United States is the world's largest free and open market with
a longstanding open-investment policy. SelectUSA is the federal-level
resource for firms and U.S. economic development organizations (EDOs).
SelectUSA is the only U.S. Government-wide program to attract, retain,
and grow business investment in the United States. On October 31 and
November 1, 2013, the Department of Commerce and its SelectUSA program
hosted the SelectUSA summit. The event was a huge success and was
completely sold out. The summit connected 1,300 participants, including
456 foreign or multinational firms, with more than 200 EDOs from 48
states, four territories and the District of Columbia. In addition,
over 650 prearranged matchmaking meetings occurred and a number of
impromptu meetings took place during the 2-day conference.
SelectUSA, while relatively new, has proven to be a successful
program. In July 2011, RPB Safety Ltd., headquartered in Christchurch,
New Zealand, contacted ITA's staff for information on setting up a
manufacturing plant in Michigan. RPB Safety is a manufacturer of
respiratory protective equipment and was already distributing products
via its Michigan office. SelectUSA supplied the company with initial
information on establishing a business in the United States and the
contact details at the American consulate general in Auckland to assist
in the visa process. On August 28, 2012, RPB Safety Ltd. publicly
announced its purchase of a new manufacturing facility in Michigan and
is now investing more than $4 million into the commercial venture, with
plans to create 30 jobs over the next 3 years.
enforcing domestic trade laws
ITA is also in charge of enforcing certain trade laws, including
the application of antidumping duty (AD) and countervailing duty (CVD)
laws.\10\ ITA also monitors and works with USTR to ensure foreign
government compliance with trade agreements to counter foreign trade
barriers and unfair trade practices to support the competitive strength
of American industry.
With respect to the administration of the U.S. trade remedy laws,
as of October 31, 2013, ITA maintains the following AD and CVD orders
and ongoing investigations.
ITA also helps U.S. businesses, especially small ones, overcome
foreign government-imposed trade barriers to gain access to and fair
treatment in foreign markets in Asia, as well as the rest of the world.
ITA monitors foreign governments' compliance with trade agreement
obligations and engages with these governments when problems arise. An
example is when ITA worked with Navistar Inc. from Lisle, IL.
Navistar's heavy-duty trucks encountered entry issues when the ROK's
Ministry of Environment (MOE) issued a ruling that Navistar's open
crankcase engines were noncompliant with the ROK emissions regulations.
This determination would have limited Navistar's ability to fully
access the Korean market. ITA worked with MOE to resolve this issue and
to get Navistar an unconditional certification from the agency showing
that Navistar's engines were compliant with ROK emissions standards.
Navistar projects that sales to the ROK in 2014 will reach 100 units,
including spare parts, totaling US$15 million. These exports will
support several thousand unionized jobs in Illinois and in Ohio.
When ITA is unable to resolve cases, they may be referred to USTR
or to the recently created Interagency Trade Enforcement Center
(ITEC)--which serves as the primary forum within the Federal Government
to coordinate enforcement of U.S. trade rights under international
agreements and enforcement of domestic trade laws--for further research
and evaluation for action. ITEC provides critical research, analysis,
translation and support for a number of ongoing WTO disputes. These
disputes include: China Raw Material Export Restraints, China's Autos
and Auto Parts Export Bases, and Indonesia Import Licensing, to name a
few.
conclusion
The United States remains actively engaged in the East Asia and
Pacific region. Secretary Pritzker and Ambassador Froman are on their
way to Beijing, China, for the JCCT Ministerial meeting. In addition,
our TPP negotiators are working to substantially conclude this historic
agreement early next year that, once finalized, will significantly
support economic and job growth here in the United States.
Secretary Pritzker, at the President's request, will also lead a
CEO delegation to Southeast Asia, including Burma, next spring and, in
early 2014, Commerce will lead two executive trade missions. In
February, we will take U.S. companies to the Singapore Airshow, and in
March, we will take U.S. travel and tourism industry representatives to
Japan, the Republic of Korea, and Taiwan.
As you can see, the EAP region is growing and there continues to be
an incredible amount of opportunities for U.S. businesses in the
region. The Commerce Department and ITA stands ready to help these
companies wherever it can.
----------------
End Notes
\1\ East Asia and Pacific economics include: China, Hong Kong,
Macau, the Democratic People's Republic of Korea--North Korea, Taiwan,
Japan, Mongolia, the Republic of Korea (ROK-South Korea), Brunei,
Cambodia, Indonesia, Laos, Malaysia, Myanmar, Philippines, Singapore,
Thailand, Timor Leste, Vietnam, Australia, Cook Islands (Realm of New
Zealand), Federated States of Micronesia, Fiji, Kiribati, Nauru, New
Zealand (MNNA), Niue (realm of New Zealand), Palau, Papua New Guinea,
Republic of the Marshall Islands, (The Independent State of) Samoa,
Solomon Islands, Tonga, Tuvalu and Vanuatu.
\2\ International Monetary Fund, World Economic Outlook Database
October 2013, Gross domestic product based on purchasing power parity
(PPP) valuation of country GDP. Country population and GDP data are
unavailable for the Cook Islands (may be included in New Zealand
totals), Macau (may be included in China totals), the Democratic
People's Republic of Korea, Nauru, and Niue.
\3\ Goods and services trade data is limited and only available for
the ``Asia and Pacific'' region as defined by the Bureau of Economic
Analysis. This region includes: China, Hong Kong, the Republic of
Korea, the Democratic People's Republic of Korea, Macau, Taiwan,
Thailand, Mongolia, Japan, Brunei, Burma (Myanmar), Cambodia
(Kampuchea), Indonesia, Laos, Malaysia, Philippines, Singapore, East
Timor, Vanuatu (New Hebrides), Vietnam, Australia, Cook Islands, Fed
States of Micronesia, Fiji, Kiribati (Gilbert Island), Nauru, New
Zealand, Niue, Marshall Islands, Palau, Papua New Guinea, Solomon
Islands, Tonga, Tuvalu, and Western Samoa.
\4\ In 2010, China announced its strategic emerging industries
(SEI) industrial policy initiative to propel Chinese companies into
leading positions in emerging technologies and to drive its economy in
the next decade. These seven industries include biotechnology, new
energy, high-end equipment manufacturing, energy conservation and
environmental protection, new energy vehicles, new materials, next-
generation IT.
\5\ ASEAN Economies: Brunei, Cambodia, Indonesia, Laos, Malaysia,
Myanmar (or Burma), Philippines, Singapore, Thailand, and Vietnam.
\6\ APEC Member Countries: Australia, Brunei, Canada, Indonesia,
Japan, Republic of Korea, Malaysia, New Zealand, Philippines,
Singapore, Thailand, Taiwan, Hong Kong, China, Mexico, Papua New
Guinea, Chile, Peru, Russia, Vietnam and the United States.
\7\ Information as an industry includes: data processing, hosting
and related services; broadcasting (expect Internet); motion picture
and sound recording industries; newspaper, periodical, book, and
database publishers; software publishers; other information; and
telecommunications.
\8\ U.S. Bureau of Economic Analysis, ``U.S. Direct Investment
Abroad: Balance of Payments and Direct Investment Position Data''
(accessed September 30, 2013).
\9\ In 2012, growth rate of Chinese FDI in the United States by
Ultimate Beneficial Owner (UBO) was 70.82 percent, Indonesia's was
38.05 percent, Malaysia's was 26.37, the Republic of Korea's was 14.86
percent, New Zealand's was 8.05 percent, Japan's was 6.80 percent and
Australia's was 5.51 percent.
\10\ U.S. trade remedy cases are governed by U.S. laws and
international obligations, which require fair, objective, and
transparent factual determinations. Consistent with these laws and
obligations, U.S. AD and CVD proceedings are open, transparent and
afford all interested parties involved the opportunity to participate
and defend their interests. Strong enforcement of the AD and CVD laws
plays an important role in supporting the USG's goal of advancing a
progressive trade agenda. With respect to the administration of the
U.S. trade remedy laws, as of October 31, 2013, ITA maintains the
following AD and CVD orders and ongoing investigations.
Senator Cardin. Well, we thank both of you for your
testimony.
Both of you have mentioned that the United States has been
pretty active in East Asia this fall, with so many meetings
focused on economic dimensions. You mentioned the APEC meeting
in Indonesia. We had the ASEAN, the U.S.-ASEAN summit. It was
followed by the East Asia summit in Brunei. Then we had the
global entrepreneurship summit in Malaysia.
So we participated in a lot of meetings. What got done?
Ambassador Marciel. Chairman, that is a good question,
because the meetings themselves, wonderful as they are, it is
important that we have concrete outcomes. I think in the
meetings themselves, I would say two things from the State
Department perspective. The meetings themselves, for example
the APEC meeting, there were some very substantive things done,
which I will list in just a second.
I would say the other thing we really try to do is use
these meetings and use these visits as action-forcing events.
For example, Secretary Kerry's visit just this week I think was
key to getting a long-pending $90 million wind turbine deal
with the Vietnamese done. I think without his--we effectively
used his visit to get that finalized. It may have happened
anyway, but it probably would have taken much longer.
In terms of APEC itself, there were several outcomes I will
just go through briefly. There was a lot of focus on improving
supply chain management, in other words working with countries
to try to figure out how to reduce barriers to getting the
various inputs in place, including the setting up of a fund to
support that way, agreement to implement the agreed-upon
reduction in tariffs on environmental goods, the APAC
environmental goods list, establishing a public-private
dialogue to address nontariff measures, and promoting cross-
border education, which as you know is not only good for the
education, but also there is a lot of----
Senator Cardin. Let me just comment. I know you will go
through the list and we will ask you to supply that. As you
point out, these meetings are important and the active U.S.
participation is very important. But results are needed and
progress needs to be made, and then you have to implement to
make sure it is done after the meetings are over.
I would hope that we have a pretty aggressive strategy. You
talked about additional commitments of resources to Asia. We
should be evaluating our own progress and be pretty transparent
about that, so we know whether progress is being made.
I appreciate your keeping us informed on all of those
issues. I want to get to TPP, in a couple different contexts.
First, it could be perceived to be in competition, particularly
with China, with the Regional Comprehensive Economic
Partnership, which the United States is not participating in.
So I would appreciate your giving us your best information as
to how these two initiatives either complement each other or
work in cross-purposes.
Then secondly, in your response if you could give us an
update. We know that the negotiations have not been completed.
There is great concern whether we are going to lower the bar on
a trade agreement to accommodate countries that have had very
difficult records on human rights--Vietnam and Malaysia. We
know that Vietnam enacted labor rights, but we also know that
they have not implemented those reforms.
So can you at least give us the politics of what is
happening between China and TPP and the other regional
discussions and whether we are going to insist and are making
progress on basic good governance with all of the countries,
but particularly those countries who have a record of not being
strong in those areas?
Ambassador Marciel. Chairman, maybe I can start and John
Andersen will, I am sure, want to add some thoughts. On the
question of whether the TPP is in competition with the Regional
Comprehensive Economic Partnership, or RCEP, our view is that
we do not see that these various multilateral efforts are
mutually exclusive. We see them really as complementary efforts
to promote regional economic cooperation and hopefully both
serving as building blocks toward an eventual free trade area
of the Asia-Pacific. We of course favor the TPP because it does
set very high standards, which we think is very important.
On the question about lowering the bar and how we deal with
issues like human rights and labor standards, certainly in TPP,
the free trade agreement, labor standards are a key part of
that. I know there has been intensive discussions between USTR,
particularly with the Vietnamese, and others, but particularly
with the Vietnamese, on labor standards. I think everyone is
very focused on that.
More broadly on human rights----
Senator Cardin. Well, what progress is being made?
Ambassador Marciel. The negotiations have been ongoing for
quite a while----
Senator Cardin. Can you assure us that we will insist upon
minimum standards in this agreement and that--worse than
failing in TPP would be to negotiate an agreement that does not
meet minimum standards.
Ambassador Marciel. I think we are very committed to
meeting those minimal standards, Senator, absolutely.
Senator Cardin. And that is not changing? We have a pretty
firm grip----
Ambassador Marciel. It is not changing. It is not changing.
Senator Cardin. A lot of us will be watching closely.
Ambassador Marciel. I understand. As you have noted,
Secretary Kerry raised this, not only labor standards but human
rights, not only publicly, but quite directly in his meetings
with the Vietnamese Prime Minister, party General Secretary,
and Foreign Minister, and highlighted the connection, not only
human rights in general, but the connection to things like TPP
and other things. So he was very direct in his conversations.
Mr. Andersen. I would just like to add, in Singapore, while
we made substantial progress and we had obviously hoped to
conclude before the end of the year, and that was where we were
moving, we did make significant progress in a number of areas.
We also narrowed the differences in some of those areas where
we recognized the need to make some additional progress.
Negotiations are going to begin again early in January, at
which point, as I said in my written statement, I think we are
closing in on a high value, high quality agreement.
I would second what Principal Deputy Assistant Secretary
Marciel said on labor standards. While I have not actively
participated in the negotiations, I have been part of many of
the other free trade agreement negotiations that we have
negotiated over my 30 years, and high quality labor standards
have always been a key part of that.
Senator Cardin. I have been in Congress now for 27 years,
voted on many trade agreements, been on the Finance or Ways and
Means Committee most of my career. I must tell you, I do not
feel that we have had the open dialogue with Congress which
instills confidence in these areas. We are conducting trade
negotiations without trade promotional authority. I know that
the administration will be seeking that. But I will just tell
you this. There has got to be a transparent process with
Congress, particularly with TPP, because it involves so many
different countries.
I agree with Senator Rubio. A successful TPP offers
incredible hope, but it is not going to happen unless there is
a close working relationship between Congress and the
negotiators.
Senator Rubio.
Senator Rubio. I would defer to Senator McCain if he wants
to go first on your questions.
Senator McCain. Well, I thank the witnesses. I thank the
chairman.
It is a bit of a microissue as compared to the macroissues
that we are talking about. But I do not know if you are aware
or not. I could ask either one of the two witnesses. The 2008
farm bill proposed and established a $30 million USDA Catfish
Inspection Office. The catfish has been called wasteful and
duplicative by the GAO. GAO recommended that Congress repeal
the office. The President's fiscal year 2014 budget proposed to
eliminate it. I have read reports that the Catfish Office would
be a violation of our WTO obligations because it places trade
barriers on catfish imports from Southeast Asia, particularly
Vietnam.
Could you comment on the harm this Catfish Office poses to
our Southeast Asia relationship and the administration's views
on the issue?
Ambassador Marciel. Senator McCain, yes, I am familiar with
the issue. When I was in Vietnam last month, my Vietnamese
friends reminded me of it pretty much every 5 minutes. So they
are very focused on it and have pointed out--and I believe they
raised it with Secretary Kerry on this trip as well when he was
in the Mekong Delta, which of course is a big area of growing
catfish for them. So they certainly see it as very negative and
very harmful.
I apologize, but I do not actually know if we have taken an
official position on this. If we could----
Senator McCain. I think the administration has made it very
clear. Our friends from a certain part of the country allege
that this catfish is not a catfish, which is one of the more
fascinating and entertaining aspects of the marine life in the
world that I have encountered. It is clearly just a blatantly
protectionist measure.
As you mentioned, it has now taken on a dimension which is
far in exception--it seemed to me far in excess of the issue
itself. But it really is--when we complain about discrimination
against our products and then we see this calling a catfish a
vasa, I think is what they called that catfish which is grown
in Vietnam--but I am kind of interested that that is such a
high-level issue with our Vietnamese friends. I hope that in
response that maybe we said, we agree with you on that issue.
But there is still significant persecution of minorities,
of Buddhists, of Christians, in Vietnam that, as the chairman
pointed out, really are not acceptable human rights abuses, and
we had expected a lot more of the Vietnamese than what they
continue to do, which actually saddens me a great deal.
Do you have any comment?
Ambassador Marciel. Well, Senator McCain, I know how much
you know about Vietnam. What I would say is you are right,
there are still significant human rights problems as well as
religious freedom problems in Vietnam. We raise these
constantly with the Vietnamese. I would say that from my
experience, having lived there 20 years ago and now, there are
some areas where it has gotten better and other areas where it
really has not. The areas where it has gotten better I would
say is, for example, increased space for people to have
conversations and offer comments in the blogosphere and these
sorts of things, as well as on religious freedom some specific
improvements like more increased registration of churches and
these sorts of things.
That said, there still remain significant problems both on
the religious freedom side, as you have said, and of course
with continued imprisonment of dissidents, which Secretary
Kerry raised very specifically on his trip.
Senator McCain. Thank you.
Mr. Chairman, I know it sounds like a small item, catfish.
But it is really just a case of blatant discrimination to call
a catfish not a catfish and spend $30 million of taxpayers'
dollars to set up a, ``Catfish Office.'' A lot of people I talk
to, they think I am making it up. So I think that we ought to
really at some point maybe even enact a repeal of the funding
for the ``Catfish Office.''
I thank the witnesses and I hope--maybe you could give us a
written response on this issue.
I thank you, Mr. Chairman.
Senator Cardin. Senator McCain, it is my understanding that
the repeal is included in the House version of the farm bill.
So this might be an issue that we can act on in conference on
the farm bill. I do not know. I am not a member of the
Agriculture Committee and I have not talked to Senator Stabenow
about this. But I think the point that you raise, that in the
context of our multilateral negotiations there are issues where
the United States needs to change. Change is not just one way;
and issues concerning the safety standards, where in this case
it was one agency--I think it was the Agricultural Department
was doing the safety standards and there had been no
complaints, and the cost issues were much less than the change
that was made to the other agency--does raise questions as to
whether it is a nontariff barrier to free access to trade, and
the United States also needs to self-evaluate its practices.
So I thank the Senator for raising those issues. On the
human rights matter, you know very well that, as one of the
strongest proponents in the United States Senate to advance
human rights, you know that these subjects do not get attention
unless there is something else on the table. So now we have an
opportunity to expand economic trade, which is great. We are
all for it. But it also is an opportunity to advance human
rights, which is critically important to economic growth.
So I appreciate both issues that Senator McCain raised on
these matters.
Senator Rubio.
Senator Rubio. Thank you.
I will begin by prefacing my question. When I look toward
my first trip to the region next month, where I will be
visiting Japan, South Korea, and the Philippines, my view is
that the region has really benefited from a post-World War Two
order characterized by freedom of commerce and navigation and
also by an expansion of political rights.
We have seen these benefits in places like Japan, clearly
the best example of how those two things have benefited a
people. In South Korea, a nation whose economy expanded as a
result of free enterprise, trade, commerce, and has gone from
being a recipient of aid to a donor; and beyond that other
places have had similar success. Taiwan, a small place, but
again a place with real success stories.
This is an order that I think has benefited not just these
countries, by the way, but the Chinese people, for whom access
to the American marketplace has really expanded economic
opportunity.
But while open trade has benefited the Chinese people, the
Chinese Communist Party is not all that enthusiastic about
expanding civil liberties, and in fact is challenging the
established principles of freedom of navigation and of
commerce. As a result, you have seen some of the moves they
have recently made, and I want to ask you about that in a
moment.
So, I would preface my questions by saying that the United
States obviously needs to be economically engaged in the
region, but you can see how our security assurances and our
security arrangements are also critical to, for example, enable
freedom of commerce and navigation, and how our allies look up
to our partnership to assure those.
By the way, in my recent trip to London a number of
policymakers there were very complimentary of the
administration's decision to place Marines in Australia as a
major step forward in terms of reassuring our allies about our
commitment in the region.
But let me just ask you this. I would start with you,
Secretary Marciel. I would like to get your thoughts on the
implications of China's unilateral announcement of an air
defense identification zone over territory that the United
States recognizes as under the administration of Japan and also
overlapping Korean air space.
Does the United States recognize this announced ADIZ?
Ambassador Marciel. Senator Rubio, thank you for that
question. No, we have told the Chinese--we have said publicly
and we have told the Chinese, including during the Vice
President's recent trip, that we do not recognize----
Senator Rubio. Have we asked them to retract it?
Ambassador Marciel. What we have told them is we do not
recognize it, it is unhelpful, they should not implement it. It
has been a consistent message. We have also said that it is
extremely unhelpful, it is adding to tensions in the region.
Some of this was the way it was done, some of the language that
went with it, et cetera, and the fact, as you said, Senator,
that it extended over an area that we recognize as
administratively controlled by Japan.
So for all these reasons we found it very unhelpful,
causing tensions and we have continually repeated--Secretary
Kerry either today or yesterday again repeated in the
Philippines that this was very unhelpful, we do not accept it,
we will not abide by it.
Senator Rubio. Well, thank you for that statement. I would
just add, you said a moment ago that some of it is the way it
was done. I would imagine that even if they had said it in very
diplomatic and rosy language we would still be opposed to it,
right?
Ambassador Marciel. Senator, there were so many problems
with it. There is a whole host of reasons that we oppose it. It
was not just the language.
Senator Rubio. Explain for a moment the guidance we have
given civilian aircraft with regards to reporting in? What is
the thought process behind that guidance and how does that
contradict or complement the official position you have stated
here today?
Ambassador Marciel. Right. So the position, as I said, is
we do not accept this, we reject it, it will not change the way
the U.S. Government, the U.S. military, operates in the region.
I want to be careful not to speak for FAA, which of course has
the regulatory authority over the airlines. My understanding is
that they did not issue specific instructions to the airlines
on the Chinese announcement of the air defense identification
zone. They did, however, remind airlines that the expected
practice, the normal practice, standard practice, what have
you, around the world is that airlines will follow notice to
airmen around the world.
Senator Rubio. But again, our official policy is we do not
recognize the zone and by and large we are going to ignore it?
Ambassador Marciel. That is correct, Senator.
Senator Rubio. Secretary Andersen, I wanted to ask you.
Earlier in the year the administration had stated it hoped to
conclude TPP by the end of this year, which is 10 days. So can
you just provide an update on the timeline, including the
congressional aspect of fast track and so forth?
Mr. Andersen. Yes. Thank you for that question, Senator. As
I indicated earlier, we did make substantial progress in
Singapore in narrowing differences and coming to agreements in
some of the areas. Unfortunately, we were not able to conclude,
as we had hoped to, before the end of the year. But what we
have agreed to do is set forward and begin again early in
January.
I would point out that we were not able to conclude,
because there were still some areas where we were not achieving
what we had hoped for, particularly in some of the market
access areas. As we have stated many times in many agreements
over the years, we are not just going to negotiate just to
negotiate. We are going to negotiate to get a high quality,
high standard agreement, and that is what we are still after
and that is what we hope to achieve some time early next year.
Senator Rubio. What about on the congressional side? What
do you anticipate will be the asks here? What are the existing
ones? How is that working through?
Mr. Andersen. Well, as we indicated, the ask that we are
working with now is enactment of trade promotion, reenactment
of trade promotion authority. It will be critical to bringing
home and implementing this agreement once it is finally
negotiated.
Senator Rubio. Would you just comment on how do you think
that not having trade promotion authority would slow or
undermine the process?
Mr. Andersen. It does not undermine the process with
respect to our ability to negotiate. What it does is make it
difficult to actually implement. It will be critical when we
get to the implementation phase.
Senator Rubio. Does that process and the fact that you need
to seek congressional approval from a body that has gone
through some friction here over the last couple months, for
lack of a better term, does that come up in the negotiations?
Are potential partners aware of how that could slow down the
process a bit? Is that in any way a factor in terms of how they
are approaching these things?
Mr. Andersen. Good question, Senator. Not to my knowledge
has it come up. But then again, I have not been directly
involved in those day-to-day negotiations. I know it has come
up in previous negotiations.
If I may go off a little bit from some of my previous
experience, I was part of the team that negotiated with Chile,
the first time we announced that Chile was going to be a free
trade agreement member. Once we lost fast track negotiating
authority, those negotiations were put on hold for a number of
years. But I cannot speak specifically to where or how that is
affecting TPP.
Senator Rubio. Is it safe to say, does it help?
Mr. Andersen. It certainly does not. It certainly does not
help.
Senator Cardin. I have one additional question, Mr.
Andersen. That is, two of the critical nontariff barriers in
Asia that affect U.S. access to markets would be currency
manipulation and protection of intellectual property. Can you
just give me an update as to whether we have made progress on
these issues during some of the discussions? I am not talking
necessarily TPP. I am talking broader than that, obviously, in
these two areas.
Mr. Andersen. Well, I cannot speak in detail about currency
manipulation, Senator. As you know, that is----
Senator Cardin. The Secretary of the Treasury. Everybody
bounces that issue from one agency--we are well aware of that.
But I find it hard to believe that you are not engaged in the
impact of currency manipulation for market access for American
companies.
Mr. Andersen. But I can speak a bit more with respect to
intellectual property rights. It is, as you said, one of the
three major areas where we do get concerns from U.S. companies
about doing business in the Asia-Pacific. We at the Department
of Commerce have an Office of Intellectual Property Rights that
is there to specifically help U.S. companies overcome and deal
with those issues as they arise. In fact, we have a Web site--
stopfakes.gov--that is very active and very much geared toward
helping especially small- and medium-size companies deal with
those issues.
We have dealt with intellectual property rights in the
JCCT, have made some progress. It is an area, as you can
imagine, that is foremost on the negotiations as we move
forward.
Senator Cardin. Thank you.
Mr. Marciel, since Mr. Andersen did not want to take the
currency one, I assume that you will give us the answer on
currency?
Ambassador Marciel. I am searching desperately--Mr.
Chairman, I am searching desperately in my long book for a
better answer. Unfortunately, I find the same one. But it is
really a Treasury issue. I have to defer to Treasury.
Senator Cardin. Well, you know, we hear that frequently,
and of course when Treasury is here they say it is in context
to all the diplomatic problems and bilaterals and trade issues.
So everybody seems to bounce it.
But the pace of reform has been slow. At one point in
globalization, America was strong enough to be able to deal
with currency manipulation. Today we need to have a level
playing field for American companies to compete. The currency
issue is a huge matter. It involves more than just one country.
There are other countries in Asia, other than China, that are
also involved in currency manipulation. It is a matter that
needs to be on the radar screen of everyone engaged in regional
economic discussions.
So I appreciate the fact that Treasury has the lead on
this, but I would just urge you to be prepared to answer
questions as we deal with the economic integration within Asia,
that currency is a matter that is going to be brought up as
well as intellectual property.
Senator Rubio.
Senator Rubio. No.
Senator Cardin. So let me thank both of you again for your
testimony. More importantly, thank you for your service. We
look forward to continuing to work with you.
Mr. Andersen. Thank you.
Senator Cardin. We will now go to our second panel. As they
are coming to the table here, let me welcome Mr. Matthew
Goodman, who holds the William E. Simon Chair in Political
Economy at the Center for Strategic and International Studies.
He has extensive experience in three different government
agencies and in the private sector. At the White House, Mr.
Goodman served as the Coordinator for Asia Pacific Economic
Cooperation, APEC, in the East Asia Summit; Director for
International Economics on the National Security Council Staff;
and Director for Asian Economic Affairs on the staff of the
National Security Council.
Let me also welcome Mr. Derek Scissors, who is a resident
scholar at the American Enterprise Institute, where he studies
Asian economic issues and trends. In particular, he focuses on
the Chinese and Indian economies and U.S. economic relations
with China and India. He is also an adjutant professor at
George Washington University, where he teaches a course on
Chinese economy.
We will start with Mr. Goodman.
STATEMENT OF MATTHEW P. GOODMAN, WILLIAM E. SIMON CHAIR IN
POLITICAL ECONOMY, CENTER FOR STRATEGIC AND INTERNATIONAL
STUDIES, WASHINGTON, DC
Mr. Goodman. Thank you, Mr. Chairman, Mr. Ranking member.
Thank you for this opportunity to offer my thoughts on U.S.
economic engagement in the Asia-Pacific region.
Economics is at the heart of U.S. involvement in the Asia-
Pacific region. This statement is as true today as it was in
1784, when the first U.S. merchant ship bound for Canton set
sail from New York. Trade, investment, and other economic ties
across the Pacific today are measured in the trillions of
dollars, support millions of American jobs, and underpin our
national security.
Like administrations before it, the Obama administration
has put economics at the center of its Asia-Pacific strategy.
But it has arguably raised the stakes by making the overall
success of its rebalancing to Asia contingent on a successful
economic strategy, in particular completion of a high standard
Trans-Pacific Partnership trade agreement, which I will come
back to.
The economic leg of the rebalance is driven by three broad
objectives: promoting growth in jobs, upholding and updating
the rules of the international economic system, and supporting
America's long-term presence in the region. It is important to
note that these objectives get to both sides of the coin
regarding the relationship between economics and foreign
policy, that is using diplomatic tools to support better
economic outcomes, like growth and jobs, and, arguably more
challenging, using economic tools in a strategic way to support
foreign policy objectives, such as strengthening the rules and
supporting our presence in the region.
In pursuit of these objectives, the Obama administration
has used a multilayered approach to economic engagement in the
Asia-Pacific. This has bilateral, regional, and global strands
from the strategic and economic dialogue with China, to TPP and
APEC, to the G20, half of whose members are Asia-Pacific
economies. And it encompasses all aspects of economic policy,
not just trade but also promotion of strong domestic demand-led
growth in large Asian surplus economies like China and Japan,
negotiation of bilateral investment treaties, and strategic use
of development assistance.
But trade and TPP in particular is the sharp end of the
spear when it comes to Obama economic strategy in Asia. Through
TPP, the administration seeks to advance all three objectives I
mentioned, with an accent on updating the rules. TPP aims to
establish disciplines on an array of behind-the-border
impediments such as excessive or nontransparent regulation,
preferences for domestic, especially state-owned, enterprises,
and inadequate intellectual property protection.
I believe the administration's aim is to make a successful
TPP the driver and de facto template for a new multilateral
system of rules. Failure to reach a TPP deal at this month's
ministerial meeting in Singapore was disappointing, but not
fatal. Trade talks are always darkest and noisiest before the
dawn as differences are narrowed to the most politically
contentious issues. I remain optimistic that a basic TPP deal
can be reached by the time of President Obama's planned trip to
Asia next April.
The stakes could not be higher for the White House.
Conclusion of TPP is the sine qua non of success for the Asia
rebalancing strategy. In addition to its economic benefits, a
successful agreement would anchor the United States more firmly
in the Asia-Pacific and bolster American leadership there.
Without TPP the rebalance would contain little of substance
that is new and would be perceived in the region as driven
primarily by military considerations.
I will end by highlighting three ways in which I believe
Congress can play a vital role in supporting the economic leg
of the rebalance. First, enacting trade promotion authority
legislation would give the administration the guidance and
certainty it needs to close a high standard TPP deal. Without
TPA, it is difficult to see how USTR can persuade its
counterparts that it can fulfill its end of the bargain.
Second, Congress should insist that the administration
allocate sufficient senior-level staffing and policy attention
to Asian economic issues and should provide adequate funding
for these activities. In particular, I believe the White House,
including both the NSC and USTR, as well as the State
Department, do not have sufficient resources or share of mind
devoted to Asian economics.
Third, Congress can help explain to the American people
that the United States is a Pacific power with deep and
enduring economic interests in the region. A successful
economic strategy in the Asia-Pacific is essential to
sustaining American growth and jobs into the 20th century. It
is also essential to our efforts to remain a champion of the
global rules-based order and it underpins America's long-term
presence in the region, which in turn is critical to the
region's security and prosperity.
Thank you for your attention.
[The prepared statement of Mr. Goodman follows:]
Prepared Statement of Matthew P. Goodman
Mr. Chairman, Mr. Ranking Member, members of the subcommittee,
thank you for this opportunity to offer my thoughts on U.S. economic
engagement in East Asia and the Pacific.
Economics is at the heart of U.S. involvement in the Asia-Pacific
region. This statement is as true today as it was in 1784, when the
first U.S. merchant ship set sail from New York bound for Canton; or in
1853, when Commodore Perry arrived in Tokyo Bay in his ``black ships''
seeking refueling rights for the American whaling fleet. Trade,
investment, and other economic ties across the Pacific today are
measured in the trillions of dollars and are critical not only to U.S.
growth and jobs but also to our national security.
The Obama administration has put economics at the center of its
Asia-Pacific strategy. Indeed, the overall success of the
administration's policy of ``rebalancing,'' or ``pivoting,'' to Asia
rests on its ability to carry out a successful economic strategy in the
region, in particular completion of a high-standard Trans-Pacific
Partnership (TPP) trade agreement.
the economic pull of asia
U.S. economic engagement in Asia is driven by the numbers. The 21
member economies of the Asia-Pacific Economic Cooperation group (APEC)
account for roughly 55 percent of global gross domestic product
(GDP).\1\ The region contains the world's three largest countries by
GDP--the United States, China, and Japan--and half of the top 20
economies. Moreover, according to the International Monetary Fund in
its most recent outlook, the Asia Pacific is the fastest-growing region
of the world, with real GDP growth in developing Asia expected to
average 6.3 percent in 2013.\2\
The APEC region also accounts for 44 percent of world trade, with
nearly $10 trillion worth of goods and services flowing around the
Pacific last year.\3\ U.S. exports to APEC economies totaled nearly
$1.2 trillion in 2011, accounting for over half of total U.S.
exports.\4\ Our exports to the Asia Pacific have more than doubled over
the past decade, and 6 of our top 10 trading partners are in APEC.
Financial flows across the Pacific in the form of both direct and
portfolio investment are also substantial. The stock of U.S. direct
investment in Asia totaled nearly $600 billion at the end of 2011 and
grew some $45 billion that year.\5\ In the same year, nearly $20
billion worth of foreign direct investment flowed into the United
States from Asia-Pacific countries, adding to an accumulated stock of
over $400 billion invested here.\6\ Meanwhile, China and Japan each
hold over $1 trillion of U.S. Treasury securities,\7\ and Asians and
Americans have trillions of dollars invested in each other's stock
markets and other private financial instruments.
This enormous volume of economic activity across the Pacific
translates into jobs for Americans. According to one estimate, roughly
1.2 million American jobs were supported by exports to Asia in 2012.\8\
Asian companies investing in the United States directly employed some
900,000 Americans in 2011, with many more jobs supported indirectly by
these operations.\9\
Our economic engagement with Asia also poses challenges. We have
large and persistent trade imbalances with a number of major Asian
countries, including a $315 billion deficit with China in 2012.\10\
American companies face an array of barriers both at and behind the
border in these countries, and unfair trade practices in the region
burden both our businesses and workers. In addition, macroeconomic
imbalances--including an excess of savings in many Asian economies--
produce large financial flows from Asia to the United States that bring
near-term benefits but may pose longer term risks to the U.S. economy.
These challenges require active U.S. policy engagement in the region.
policy objectives in asia
Against this backdrop of tremendous opportunities and challenges,
U.S. economic policy toward the Asia-Pacific region over the past
several administrations has been driven by three broad objectives. The
first is growth and jobs. As described above, the Asia-Pacific region
is one of the world's largest and fastest-growing economic areas,
making it an increasingly important source of demand for the U.S. (and
global) economy. Among other benefits, stronger demand and growing
purchasing power in Asia mean more U.S. exports, which in turn are a
vital source of growth and jobs at home.
The second broad objective is upholding and updating the rules of
the international economy. The open, rules-based system of trade and
investment championed by the United States since World War II has
produced broad benefits not only for this country but for the rest of
the world. But the prevailing rules are increasingly out of step with
the realities of today's global economy, which is characterized by
integrated value chains and digital connectivity; Asia is at the center
of these trends. As discussed further below, TPP is designed to address
this gap by establishing ``21st-century'' rules governing not only
tariffs and other border measures but also behind-the-border issues
such as intellectual property protection, regulatory transparency,
labor and environmental standards, and the investment climate.
The third objective of U.S. economic strategy in the Asia Pacific
is supporting America's long-term presence in the region. The United
States is a Pacific power by nature and necessity (i.e., geography as
well as the pull of historical, security, and economic forces) but also
by design. Successive administrations since World War II have worked
deliberately to embed the United States in the Asia Pacific through an
array of political, security, and economic arrangements. The network of
U.S. alliances with Japan, South Korea, Australia, and others, and the
troops and ships deployed in the region, are the most visible
manifestation of that policy. Binding trade arrangements like the U.S.-
Korea free trade agreement (KORUS FTA) and TPP can be seen as the
economic equivalent of America's security alliances in the region. That
is, they enmesh the country in regional affairs and give all Asia-
Pacific countries an increased stake in each other's prosperity and
security.
how the united states engages
In support of all three objectives described above--growth, rules,
and presence--recent U.S. administrations have pursued a multipronged
approach to economic engagement in the Asia-Pacific region. For more
than 30 years, Washington has worked to promote strong domestic-demand-
led growth in large Asian surplus economies. Japan, then the world's
second-largest economy, was the initial target of this policy in the
1970s and 1980s, but attention has broadened in recent years to other
large, growing economies with persistent current-account surpluses,
notably China. With U.S. and European consumers and governments alike
forced to borrow less and export more in the wake of the 2008-09
financial crisis, Washington has argued that large surplus economies
need to consume and import more, or global growth will suffer. This is
why the Obama administration has made ``strong, sustainable, and
balanced growth'' the mantra of its policy engagement with China and
other large Asia-Pacific economies in both the G20 and bilateral
channels.
U.S. trade policy has also supported the macroeconomic growth
agenda. Recent administrations have pursued an active trade agenda in
the region, including President George W. Bush's initial negotiation of
the KORUS FTA and the Obama administration's launch of the TPP
negotiations. Enforcement of existing trade agreements has also been an
increasingly important feature of trade policy in the past two
administrations. All of these efforts have been designed to reduce
barriers to U.S. exports, enhance America's own competitiveness, boost
growth and jobs, and reinforce the rules of the international trading
system.
TPP is part of a broader strategy pursued by Presidents since
George H.W. Bush to tap into and shape aspirations in the Asia Pacific
for regional economic integration. Bush's Secretary of State, James
Baker, embraced his Australian counterpart's proposal to create APEC in
1989 as a venue for foreign ministers from the region to discuss trade
and investment liberalization and capacity-building. President Bill
Clinton invited his APEC counterparts to a summit on Blake Island off
Seattle in 1993, giving top-level political imprimatur to the forum's
economic integration mission.
Washington's approach to regional economic integration has been
marked by two key characteristics that distinguish it from approaches
championed by other countries in the region: it is trans-Pacific rather
than Asia-centric; and it emphasizes high standards of liberalization
and rulemaking.
The first characteristic is, of course, largely driven by the fact
that the United States is a Pacific but not an Asian country. But
higher level policy considerations also play a part. In promoting APEC,
Secretary of State Baker was clearly animated by concerns about East
Asian aspirations for community-building that would exclude the United
States; he later noted that such efforts would ``draw a line down the
middle of the Pacific.'' \11\
In addition, strategic considerations in the Western Hemisphere
have played a part in U.S. insistence on including Pacific-facing Latin
American countries in regional economic integration efforts. President
Clinton invited the Mexican President to the Blake Island summit and
soon after championed Chile and Peru's membership in APEC. It is no
coincidence that the TPP negotiations include all five APEC economies
in the Western Hemisphere: Canada, Chile, Mexico, Peru, and the United
States.
The second distinguishing feature of the U.S. approach to regional
economic integration is a preference for comprehensive trade and
investment liberalization and high-standard rules of the road. This has
inspired Washington's approach to APEC since the inception but took on
new substance with the launch of ``21st-century'' treaty negotiations
with Korea and the TPP partners. The George W. Bush and Obama
administrations have insisted on the broadest and deepest possible
liberalization, as well as state-of-the-art disciplines on trade and
investment-related policies both at and behind the border. By contrast,
Asia-only integration initiatives, including bilateral and subregional
FTAs, have generally covered only border measures and included numerous
exceptions to full liberalization.
A mix of economic and political considerations lies behind this
second feature of U.S. regional integration policy. Removing most
impediments to trade and investment and imposing tough rules of the
road maximize economic efficiency and growth.
Washington believes that the narrower and ``shallower'' agreements
reached to date in Asia have done little to improve efficiency and may
pose a threat to U.S. competitiveness. As U.S. Trade Representative
Michael Froman said in a recent interview, ``A race to the bottom is
not a race we can win.'' \12\ Moreover, congressional support for trade
agreements increasingly hinges not only on breaking down barriers to
U.S. exports but also on advancing other American policy objectives
such as labor rights, environmental regulation, and intellectual
property protection; hence the emphasis on these issues by U.S.
negotiators in TPP and other recent trade talks.
the ``rebalance'' to asia
The Obama administration's economic strategy in the Asia Pacific is
broadly consistent with the traditional objectives and approach
discussed above. But the stakes have been raised by the
administration's strategy of ``rebalancing'' to this important region
of the world.
From its earliest days in 2009, the administration has put the Asia
Pacific at the center of its foreign policy. This can be seen on three
levels: symbolism, including Hillary Clinton's decision to make her
first overseas trip to the region as Secretary of State; rhetoric,
notably a prominent Clinton article in the fall of 2011 in which she
first articulated the administration's strategy of shifting resources
and attention from the greater Middle East to the Asia Pacific; \13\
and substance, with the decisions to join a second regional leaders'
forum alongside APEC, the East Asia summit, and to embrace TPP as the
centerpiece of the administration's trade policy in the region.
Economic engagement is critical to the overall rebalancing
strategy. In addition to its intrinsic value, it helps balance the
military and diplomatic elements and thus bolster the strategy's
credibility both in the region and at home. While most of the focus has
been on TPP, the Obama administration has, in fact, pursued a
multipronged economic policy in the region, covering three levels of
interaction.
Bilaterally, the administration has engaged with most of the major
economic powers of the region, in a variety of formats. With China, it
reconfigured a high-level forum created by the Bush administration and
established the Strategic & Economic Dialogue (S&ED). Along the S&ED's
economic track, the administration has sought to encourage more
balanced growth in China, to promote financial liberalization and
movement to a more flexible currency system, and to advance a bilateral
investment treaty (BIT). Meanwhile, engagement with Japan has been
focused on encouraging Tokyo to restructure its economy to generate
sustainable growth, including through the decision earlier this year to
bring Japan into TPP. Renegotiating, passing, and implementing the
KORUS FTA has been the organizing principle for U.S.-Korean economic
relations, while the administration has had active bilateral dialogues
with other important regional players such as Australia and Indonesia.
Engagement at the global level is another implicit element of the
administration's Asian economic strategy. Largely in recognition of the
increasing weight of large emerging countries, including China and
India, in the global economy, the administration embraced the G20 as
the premier forum for international economic cooperation in 2009 and
has worked within that group to encourage strong, stable, balanced
growth in Asian economies. The administration has also worked in other
international institutions, such as the World Trade Organization and
the World Bank, to more deeply embed China and other leading Asian
countries in the global rules-based system.
A principal focus of Obama administration economic strategy in the
Asia Pacific has been at the regional and subregional level. While the
President himself has not attended the last two APEC leaders' meetings,
the administration has remained actively engaged in that forum,
including as host in 2011. In 2012, the administration launched a so-
called ``Enhanced Economic Engagement (E3)'' initiative with the
Association of Southeast Asian Nations (ASEAN); this initiative is
ultimately designed to bring all 10 members of that group into high-
standard trade arrangements with the United States. Meanwhile, TPP has
been the sharp end of the spear when it comes to Obama economic
strategy in Asia.
the trans-pacific partnership
TPP was conceived in the waning days of the Bush administration,
when the White House notified Congress in late 2008 of its intention to
negotiate a trade agreement with four small APEC economies--Brunei,
Chile, New Zealand, and Singapore--that had already reached their own
deal 2 years earlier; Australia, Peru, and Vietnam soon joined the
effort. The Obama administration embraced TPP in late 2009, and
negotiations among the eight original countries began in March 2010.
Malaysia joined the talks later in 2010, Canada and Mexico in 2012, and
Japan in the summer of 2013, bringing the total number of participants
to 12.
TPP illustrates the objectives and characteristics of U.S. economic
strategy enumerated earlier. Its three-part purpose is to stimulate
American growth and jobs, strengthen the rules of the regional (and
global) trading system, and lock the United States more deeply into
regional affairs. As its name and membership suggest, it is trans-
Pacific in nature, incorporating North and South American as well as
Asian countries. And it is explicitly designed to produce, as President
Obama said in announcing his embrace of TPP in late 2009, ``the high
standards worthy of a 21st-century trade agreement.'' \14\
In addition to lowering border barriers such as tariffs, TPP aims
to establish disciplines on an array of behind-the-border measures that
impede trade and investment such as excessive or nontransparent
regulation; preferences for domestic, especially state-owned,
enterprises; and inadequate intellectual property protection. The hope
is that, if successful, TPP will become the driver and de facto
template for a new multilateral system of rules.
As I have argued elsewhere, a number of myths cloud regional
perceptions of TPP.\15\ One is that the negotiations are ``splitting
Asia,'' since not all Asian economies are eligible to join, while those
that are eligible must choose between joining TPP, viewed as led by the
United States, and an alternative track preferred by China, the
Regional Comprehensive Economic Partnership (RCEP). Yet in principle,
TPP is open to any APEC economy willing to strive for high-standard
rules; indeed, U.S. strategy from the outset was to begin the
negotiations with a small group of ``like-minded'' countries and to
incentivize others to join over time--a strategy that is ostensibly
working. Conceptually there is no reason that even non-APEC economies
like India and Myanmar should forever be excluded; indeed, the logic of
the E3 initiative is to help all ASEAN countries meet the high
standards being sought in TPP.
As for having to ``choose'' between TPP and RCEP, the seven Asian
countries participating in both negotiations clearly view the two
approaches as compatible. Moreover, TPP and RCEP could one day converge
in a regionwide agreement, or at least become interoperable, with
potential annual gains to world income as high as $2.4 trillion by
2025.\16\
Another myth that until recently was popular in Beijing is that TPP
is part of an effort by Washington to ``contain'' China. Yet no Asia-
Pacific country wants to exclude China from regional integration; on
the contrary, all want to deepen their economic ties with that country.
True, one goal of TPP is to create a level playing field that, among
other things, will allow other countries to better compete with China,
but this is a far cry from ``containment.'' Over the past few months,
elite opinion in Beijing has shifted substantially from rejecting TPP
outright to seeking a better understanding of it; indeed, there are
some signs--such as Beijing's willingness to negotiate a comprehensive
BIT with the United States on American terms, as well as the recent
launch of the Shanghai Free Trade Zone--that China's leadership is
preparing the ground for eventual membership in a high-standard
regional agreement.
A third myth is that the high standards Washington is espousing in
TPP are too ambitious for Asia. Yet all participants--including less
advanced members like Vietnam--have made clear that they believe there
are substantial welfare gains to be had from a high-standard agreement
that opens up new market opportunities and helps each country address
structural impediments in its own economy. Moreover, participating
countries understand the political dynamics in Washington that,
alongside the economic benefits, drive U.S. ambition in the talks. And
most welcome an active U.S. role in championing high-standard rules and
norms in the region.
With the failure to reach agreement at this month's ministerial
meeting in Singapore, it is now clear that the TPP negotiations will
not be concluded by the self-imposed deadline of the end of 2013.
Although most of the agreement's 29 chapters have reportedly been
closed, significant differences among the parties apparently remain on
a number of challenging issues, notably intellectual property,
competition, and environmental standards, as well as the market-access
provisions. Moreover, in the absence of trade promotion authority (TPA)
from Congress, the Obama administration has struggled to persuade TPP
partners that it can ultimately deliver on U.S. commitments in the
talks.
However, the ministerial statement from Singapore reflects a shared
sense of determination to complete the agreement as soon as possible.
Trade negotiations are always darkest--and noisiest--before the dawn,
as differences are narrowed to the most politically contentious issues.
But insofar as they involve political rather than technical decisions,
the final deals can be done quickly if the will is there. Thus a basic
accord in the next few months--perhaps by the time of President Obama's
planned trip to Asia in April 2014--remains within reach.
The stakes could not be higher for the Obama White House.
Conclusion of TPP is the sine qua non of success not only for the
administration's regional economic policy but arguably for the entire
Asia rebalancing strategy. In addition to its economic benefits, a
successful agreement would anchor the United States more firmly in the
Asia Pacific and bolster American leadership there. Without TPP, the
``rebalance'' would contain little of substance that is new and would
be perceived in the region as driven primarily by military
considerations.
conclusion
America's interests in the Asia Pacific are broad, deep, and
enduring. None is more important than the U.S. economic stake in the
region. As Hillary Clinton explained in laying out the rationale for
the rebalancing strategy, ``Harnessing Asia's growth and dynamism is
central to American economic and strategic interests and a key priority
for President Obama. Open markets in Asia provide the United States
with unprecedented opportunities for investment, trade, and access to
cutting-edge technology. Our economic recovery at home will depend on
exports and the ability of American firms to tap into the vast and
growing consumer base of Asia.'' \17\
Even beyond near-term recovery, a successful economic strategy in
the Asia Pacific is essential to sustaining American growth and jobs
into the 21st century. It is also central to Washington's efforts to
remain a champion of the global rules-based order. And it underpins
America's long-term presence in the region, which in turn contributes
importantly to the region's security and prosperity. For all these
reasons, the United States is likely to remain an active--even
impatient--participant in the economic affairs of the Asia-Pacific
region.
Thank you for your attention.
----------------
End Notes
\1\ U.S. Department of State, ``21st Annual APEC Economic Leaders'
Meeting Fact Sheet,'' October 8, 2013, http://www.state.gov/r/pa/prs/
ps/2013/10/215195.htm.
\2\ International Monetary Fund, ``World Economic Outlook
Database,'' October 2013, http://www.imf.org/external/pubs/ft/weo/2013/
02/weodata/index.aspx.
\3\ WTO, ``World Trade 2012, Prospects for 2013,'' April 10, 2013,
http://www.wto.org/english/news_e/pres13_e/pr688_e.pdf.
\4\ U.S. Department of State, ``21st APEC Fact Sheet.''
\5\ Bureau of Economic Analysis, ``Balance of Payments and Direct
Investment Position Data,'' U.S. Department of Commerce, http://
www.bea.gov/iTable/index_MNC.cfm.
\6\ Ibid.
\7\ U.S. Department of the Treasury, ``Major Foreign Holders of
Treasury Securities,'' August 2013, http://www.treasury.gov/resource-
center/data-chart-center/tic/Documents/mfh.txt.
\8\ East-West Center, ``Asia Matters for America,'' http://
www.asiamattersforamerica.org/overview.
\9\ Organization for International Investment, ``Insourcing
Facts,'' August 2012, http://www.ofii.org/resources/insourcing-facts.
Estimate based on Asia's share of overall U.S. inbound FDI.
\10\ Bureau of Economic Analysis, U.S. Department of Commerce.
\11\ Cited in Claude Barfield and Philip I. Levy, ``Tales of the
South Pacific: President Obama and the Transpacific Partnership,''
American Enterprise Institute, December 2009, http://www.aei.org/files/
2009/12/18/09-IEO-Dec-g.pdf.
\12\ ``U.S. to China: Play by our Economic Rules,'' The Atlantic,
November 13, 2013, http://www.theatlantic.com/china/archive/2013/11/us-
to-china-play-by-our-economic-rules/281433.
\13\ Hillary Clinton, ``America's Pacific Century,'' Foreign
Policy, November 2011, http://www.foreignpolicy.com/articles/2011/10/
11/americas_pacific_century.
\14\ White House, ``Remarks by President Barack Obama at Suntory
Hall,'' news release, November 14, 2009, http://www.whitehouse.gov/the-
press-office/remarks-president-barack-obama-suntory-hall.
\15\ Matthew P. Goodman, ``Global Economics Monthly: Five Myths
about TPP,'' CSIS, April 30, 2013, http://csis.org/publication/global-
economics-monthly-five-myths-about-tpp.
\16\ Peter Petri, Michael G. Plummer, and Fan Zhai, ``The Trans-
Pacific Partnership and Asia-Pacific Integration: A Quantitative
Assessment,'' Peterson Institute for International Economics, November
2012.
\17\ Clinton, op. cit.
Senator Cardin. Thank you very much for your testimony.
Dr. Scissors.
STATEMENT OF DR. DEREK M. SCISSORS, PH.D., RESIDENT SCHOLAR,
AMERICAN ENTERPRISE INSTITUTE, WASHINGTON, DC
Dr. Scissors. Thank you, Mr. Chairman.
I am going to start with something we all know, but I think
it is a useful reminder. We certainly need to more effectively
engage the Asia-Pacific on human rights. It seems by recent
events we need to do so on security. It may be that the public
dimension of our economic engagement, the government dimension,
needs to be improved. But the private sector does not need to
rebalance to Asia. It does not need to pivot to Asia. It never
left Asia and it is doing extremely well.
I will give you a quantitative example and a qualitative
example. Quantitatively, U.S. total trade has gone from $2.3
trillion in 2004 to $3.9 trillion in 2013, as we near the end
of the year, and the Asian share is the same. Over that same
period, we have seen a deepening intensification, greater
sophistication, and greater value in the supply chains that run
through Asia.
So when we are talking about rebalancing, thankfully for
us, the private sector leads our economy, and the private
sector does not need to rebalance. It is doing fine. I want to
remind everyone that we have a lot of strengths as well as
weaknesses in our engagement in Asia that we should recall.
I want to do some quick run-through of countries that have
been mentioned by the committee and one that has not that I
would like to emphasize. In doing that, I want to make the
point that I think several members of the committee have
already made, which is that economic engagement is going to
strengthen the security cooperation and security environment in
the region and that is a crucial part of the reason for
engaging economically.
The country I want to start with is Japan. Japan is
obviously engaged in something of a security standoff at the
moment and what they need in the long term to strengthen
themselves in a variety of ways is economic reform. That is not
happening. Japan has talked about economic reform. They are not
implementing it.
A useful tool to spur them that the United States is
involved in is in fact the Trans-Pacific Partnership. We want
things from the Japanese. We have for a long time on the
economic front. The TPP makes that possible. It will also help
Japan economically and in terms of security.
My comment on China is that the key element in dealing with
the Chinese both indirectly and directly is to deal with state-
owned enterprises. It is something that the Congress has
brought up before, absolutely correctly. Therefore the
negotiations in the Trans-Pacific Partnership concerning
competitive neutrality, which is a way of handling state-owned
enterprises, are a vital element of our long-term engagement in
Asia and with China. We are also going to have to bring up
state-owned enterprises bilaterally. This is not an easy issue.
Happy to talk about it more in Q and A. But it is vital.
Another country I think is very interesting that has been
brought up by Senator Rubio is the Philippines. The Filipino
economy is doing better now than it has for some time. It is
not a proven, sustained, and durable expansion, but it is an
expansion that may make them more amenable to economic
engagement with the United States and with the world. They have
a large labor force that they are going to need to find
employment for. This is a good time for us to engage the
Philippines and they may be falling below the radar a little
bit.
Similarly, Senator McCain brought up Vietnam. He made a
very interesting point about catfish. I would say that textiles
are similar in some ways to the catfish issue, but multiplied
by a thousand. When we are asking for human rights reform in
Vietnam, which the Communist Party is very reluctant to give
us, textiles are a lever in which we can make progress on that
issue because it is so important to the Vietnamese that they
get better access to the United States market.
The last country I want to bring up is Taiwan, which has
not been mentioned, partly because there is a very sensitive
security situation. They are also not very cooperative economic
partners in some cases. But I will say that, for both security
and economic interests--because, for example, on human rights
Taiwan is an excellent, excellent partner of the United
States--we need to not wait for the international environment
to be right. We need to take the initiative, push ourselves and
push the Taiwanese. That would be another dimension of American
engagement I think that could be improved.
I have two themes that I want to close with. One is really
directed toward the executive branch, and I will agree with the
chairman that the executive branch's cooperation with Congress
has been lacking. I do not know why TPA is coming up this late.
TPP is almost done and now we are going to get TPA guiding on
the negotiations of TPP--does not make a lot of sense to me.
So my advice to the executive branch is that: focus on
countries that are ready to make internal reform. Japan seems
like it might be ready. The Philippines, given their economic
situation, might be ready. There are other countries that are
not ready, and simply negotiating with them endlessly when they
are not ready to make those changes is not a good use of
American resources in engaging Asia.
My advice to the Congress is that priorities need to be
set. I will give a concrete example. It is only one. It is just
an example. I do not think currency manipulation is an issue
for the Trans-Pacific Partnership. I do not have a problem with
Congress saying it is. If Congress says this is an important
issue, that is fine. What I want is priorities to be set. It
cannot be everything. We have--this is true on China, it is
true in the TPP. I know the members are very well aware of it.
We have a lot of groups demanding this issue and that issue and
the other issue. One thing Congress has to do through TPA and
informally is guide the administration: These are where the
buck stops, these two, these three things. That would be very
helpful in the United States engagement of Asia.
Thank you.
[The prepared statement of Dr. Scissors follows:]
Prepared Statement Dr. Derek M. Scissors
It does not, in fact, ``take money to make money.'' Ideas and
innovation can make money, so can rich land and skilled labor,
especially when these are combined with protection of private property
and the willingness to compete.
To successfully engage Asia economically, which will enhance
prosperity both at home and for American partners, the U.S. does not
need to pour in either financial or human resources. Those are
luxuries. Our wealth, technology, natural resources, skilled labor,
and--making these much more valuable--our willingness to conduct free
and open exchange have shaped Asia in the post-war area. If we act
wisely, they will do so for decades to come.
It is certainly true that the U.S. must be consistently involved in
the institutions (acronyms) that matter to Asia, from the Association
of South East Asian Nations (ASEAN) and the East Asia Summit (EAS) to
the Trans-Pacific Partnership (TPP) and Asia-Pacific Economic Community
(APEC).\1\ So a bit more funding for plane flights, hotel stays, and
specialists at the office of the United State Trade Representative and
elsewhere would be useful. But U.S. economic openness will count far,
far more than any combination of government programs and personnel.
The core of engagement with Asia should be to guarantee to maintain
and extend that openness, in exchange for steps by our partners to
better protect property rights and enhance competition in their
markets. These steps will vary by country and characterizing each
situation is a book-length endeavor. A partial list of American
priorities includes: (i) accepting in policy terms the benefits of
imports and the costs of export subsidies; (ii) quickly concluding a
strong TPP to boost regional economies, especially Japan's, and (iii)
with more difficult partners, matching the level of ambition in
bilateral talks to the extent and direction of internal reform.
what matters most
Our economic engagement in the Asia-Pacific rests on more than six
decades of access to the U.S. market. This access was transformative in
post-war Japanese economic reconstruction and in the development of
Korea and Taiwan. It was transformative in the expansion of the Chinese
economy.\2\ It could yet prove transformative in the development of
India and Vietnam. Of course, these countries primarily needed, and
still need, to make wise policy decisions concerning savings and other
factors but they frequently make them in order to take advantage of the
indispensable American market.
The reference point for understanding the American economic role in
Asia, both for the U.S. and the region, is our imports from Japan. From
zero in 1945, these reached $69 billion in 1985. This was almost
exactly the same as American imports from Canada (our largest trade
partner for nearly all of our history) and the equivalent of 5 percent
of Japanese GDP, which was then second-largest in the world and fast-
rising.\3\ American capacity and willingness to import in these
quantities was highly visible and highly sought by others.
South Korea did not have Japan's prewar legacy of development. In
1960, it was comparable in wealth to countries in sub-Saharan Africa
and exports to the U.S. were negligible. By 2000, its exports to the
U.S. exceeded $40 billion, or 7.5 percent of GDP, and South Korea was
well on its way to being a rich nation.\4\ In 1960, Taiwan was only
modestly richer than Korea at the time and exports to the U.S. were
negligible. In 2000, exports exceeded $40 billion, 12 percent of GDP,
and Taiwan was solidly upper middle-income.\5\ These facts were well-
appreciated for decades but now sometimes seem to be forgotten on both
sides of the Pacific.
Chinese development was not initially linked to the U.S. However,
the second wave of Chinese reform, starting in late 1992, improved
corporate efficiency and prepared the way for WTO accession, an
accession driven by Sino-American agreement.\6\ From 1992 to 2012,
Chinese exports to the U.S. increased by a factor of 17, or $400
billion. In 2012, they were the equivalent of 5 percent of China's GDP,
which is second-largest in the world and fast-rising.\7\ The parallel
to Japan is striking.
In light of the Chinese experience, another obvious candidate to
walk this path is India. There is little sign of India being willing to
undertake fundamental reform in order to sell on a large scale to the
American market, but this was also true in China in 1991. Smaller but
still notable in size is Vietnam. Through its negotiations in the TPP,
Vietnam is attempting first and foremost to win market access to the
U.S. and follow the path of its neighbors.\8\
Investment has been much less important than trade in Asia-American
economic relations and can play a larger role. Japan is by far the
largest Asian investor in the U.S., while flows from Korea and Taiwan,
as well as Australia, are inconsistent in size. Chinese money goes
overwhelmingly into low-yield bonds.\9\ Drawing steadier investment
from the richer countries and more productive investment from China
does not require financial incentives--American respect of property
rights, huge consumer market, and natural resources are more than
enough incentive. All that is needed is information from local
governments and a timely, transparent approval process at the federal
level.
Some of the implications
The matter of open American markets to many Asian countries, and
the lack of reciprocal openness in some cases, has been subject to
extensive political debate in the U.S. In one important respect, the
debate is misguided: the large trade deficits the U.S. runs with Asia
as a whole, and China in particular, do not necessarily represent lost
American jobs.
Imports from Asia-based producers, even improperly subsidized
imports, benefit consumers and thus strengthen the American economy.
They can even create jobs directly here, in offloading, transportation,
sales and so on. It is no surprise that the sharp downturn in 2009 saw
the U.S. trade deficit with our top six Asian trade partners at $290
billion while the recovering economy of 2012 saw the deficit exceed
$430 billion.\10\ At the same time, subsidized American exports are a
type of income redistribution program--taxpayer money going to certain
exporters--and do not benefit the country as a whole.
It is certainly true that many Asian policymakers have shown
mercantilist tendencies over the years, inhibiting American exports and
denying the associated benefits to American workers and companies.\11\
Congress has struggled to influence these policies without resorting to
denial of access to the U.S., which would harm both trade partners and
American interests. The solution is to continue to leverage our open
market.
Leveraging has already occurred--despite domestic political
dissatisfaction, American demands for open trade have powerfully shaped
Asia compared to the pre-WTO era. More recently, China joined the WTO
to protect its access to the U.S., signing up for rules put in place at
America's behest.\12\ Japan, Vietnam, and Malaysia are willing to go
beyond the WTO and join the American-led TPP for the same reason. The
institutional engagement with ASEAN and, to a lesser extent at the EAS
and APEC, offers additional opportunities.
In contrast, a protectionist turn by the U.S. would be destructive
for the region and our role in it. A truly closed American market,
featuring high tariff walls imposed for political reasons, would
shatter the Sino-American relationship and alienate other countries
which are not treaty allies. It would leave the U.S. with an unpleasant
and possibly untenable role as security guarantor, only, in an
economically damaged and increasingly hostile region.
While withdrawal is not on the table at the moment, fortunately,
there is also risk from the failure to engage. If restrictive rules of
origin in the TPP make it more like a bloc than the core of an Asia-
Pacific free trade zone, it will force countries to decide to be ``with
us or against us.'' This may lead to one of the regional endeavors,
such as ASEAN+3, becoming a counter-bloc. Even if nothing so dramatic
happens, the absence of American economic leadership will almost surely
lead to more mercantilist competition within the region, which already
lingers just below the surface in exchange rate policy.\13\ The region
will see more political tension and offer less in the way of benefits
to the U.S.
u.s policy tour
Writing about Asia is similar to trying to plan a trip to Asia:
there are too many places to go. The economic kingpins, Japan and
China, naturally merit the most attention. There are also particularly
interesting American choices to be made with regard to Taiwan, India,
the Philippines, and Indonesia. All involve leveraging the U.S. market
and other economic strengths to drive Asian policy choices.
The large economies
The TPP is not the only game in town but it is the biggest one. It
became the main event when Japan joined and Tokyo now very much needs a
good TPP.
Prime Minister Abe's program to end the long period of economic
stagnation has begun to founder on delays in much-touted structural
reform.\14\ The TPP could deliver the painful changes necessary while
allowing Abe to claim they are not his doing, but rather unavoidable in
light of the economic importance of the TPP group as well as Japan's
current standoff with China. Agriculture reform in particular would
improve Japan's land usage, which constitutes a fundamental shift, and
is a high American negotiating priority.\15\ A TPP which both helps
reinvigorate Japan's economy and improves access for goods and services
in which the U.S. has a comparative advantage would be the single
biggest accomplishment of the Asia pivot.
As ever, China's impact is multifaceted. In terms of the TPP, most
member states want China to be able to join. Several, including the
U.S., want China to be able to join if and only if it fulfills the
terms of a high-standard agreement. Negotiating with China will involve
the same issues as negotiating with other parties but one stands out as
more pointed: the treatment of state-owned enterprises (SOEs). This is
being done in the TPP through a chapter on ``competitive neutrality.''
The idea behind competitive neutrality is SOEs should not be
granted competitive advantages over private firms. But existing
versions of competitive neutrality, such as Australia's, were
formulated for countries that wish to limit SOEs. It is not clear
Singapore and Vietnam qualify and it is entirely clear China does not
qualify.\16\
So this is a two-stage process. First, TPP talks must yield a strong
version of competitive neutrality that binds hesitant countries.
Second, the TPP grouping must become a sufficiently powerful lure for
China to meet the obligations.
Beyond the TPP, Asian countries understand that Chinese policy is
based essentially on convenience, while American economic policy is
based on principle. China welcomes foreign commodities and other goods
and services that it considers valuable at the time, the U.S. welcomes
foreign goods and services that offer quality and low prices. This
provides the U.S. with a major diplomatic advantage and counterweight
to Chinese practices. At the bilateral level, the record shows that
negotiating change from outside does not work.\17\ Internal Chinese
reform must precede an investment treaty, it will not come about from
an investment treaty.
Pivotal smaller economies
A challenge of a different sort for U.S. policy involves Taiwan.
With only 23 million people, Taiwan remains in the top 13 of American
trade partners. This impressive performance is also a vulnerability: to
remain prosperous, Taiwan must remain in the forefront of global trade
evolution. This has been extremely difficult due to Chinese
intimidation of much of the world with regard to Taiwan's signing
bilateral and some multilateral trade agreements.\18\
Offering Taiwan economic alternatives is just as important as the
American security commitment in ensuring the island's citizens can
choose their own destiny. Given regional politics, the U.S. must either
lead a multilateral effort to engage Taiwan or work toward purely
bilateral accords. While Taiwan-U.S. economic negotiations have
sometimes been unpleasant, American shale shipments could have
extremely high value to Taiwan and enable needed improvements in the
treatment of agriculture products.\19\
Other difficult economic negotiations have involved India. To be
the kind of economic and, ultimately, security partner the U.S. wants,
India must fundamentally liberalize rural land ownership, manufacturing
labor laws, and economic exchange across its own states. Yet the India-
U.S. bilateral economic relationship is shaky and India is often
constitutes the chief obstacle to progress at the WTO Doha round.\20\
The best--perhaps the only--place to make progress may be in forums
with Asian countries that have successfully liberalized. These have
adopted a number of principles India has repeatedly infringed, for
example with regard to taxation and intellectual property. Progress may
be elusive, but it will certainly damage the relationship and encourage
more disruptive Indian behavior in the WTO and elsewhere if the U.S.
starts closing the door to Indian workers. Taxing Indian labor to pay
for internal American programs, as in early 2011, is harmful in this
regard.\21\
Two members of ASEAN not currently involved in the TPP and
therefore not receiving much American policy attention are Indonesia
and the Philippines. The latter is, of course, a U.S. treaty ally. It
boasts an economy where household spending has accelerated to better
than 6 percent growth annually and manufacturing and services are now
far outperforming the traditional sector leaders agriculture and
mining.
To maintain this performance and create the jobs necessary to
absorb more than 10 million unemployed will require promarket
reform.\22\ With reform and given the large Filipino labor force, a
maturing industrial sector would become quite competitive on world
markets, making this the most promising time yet to enhance the
Philippines-U.S. economic relationship. The security relationship means
American political support for closer economic ties is high, the
question of whether a bilateral or multilateral approach is superior
should be answered by internal Philippines politics.
Indonesia is the largest ASEAN member, with a population about
equal to that of the U.S. in 1989. It also has a growing labor force
and, unlike some of its neighbors, has shown no particular tendency to
run large trade surpluses. Indonesia's policy record, though, is uneven
at best. It is contemplating a year-long ban of unprocessed ore
exports, which would be illegal under the WTO, and a mercantilist turn
that could have a considerable impact in the region.\23\ It is not
clear how best to engage Indonesia economically and the obstacles and
potential in doing so are perhaps the best justification for active
American participation in the EAS.
recommendations
The U.S. has already changed Asia, especially East Asia, for the
better with our openness. The ideal course is to continue to do so.
Economic engagement of Asia should be based on, but not limited to, the
following guidelines:
(1) Do not treat imports as if they automatically cause job losses
here. Do not treat subsidized exports as contributing to national
prosperity.
(2) For foreign investors, provide information rather than opaque
or politicized review processes.
(3) Ensure the competitive neutrality provisions in the TPP tightly
constrain countries that continue to seek to subsidize their state-
owned enterprises.
(4) Quickly conclude a strong TPP that offers Japan benefits in
autos and elsewhere in exchange for better access to the Japanese
agriculture and services markets.
(5) Do not move forward on a bilateral investment treaty with China
until it is clear that relevant internal reform is under way there.
(6) In the trade and investment framework talks with Taiwan, bundle
two key commodities: Taiwan can be treated as free trade partner in oil
and gas if it is also one in agriculture.
(7) Treat India as a vital but long-term partner. Negotiate under
the bilateral economic dialogue for basic reform and do not punish
Indian services firm for the failure of their government.
(8) Be quick in seizing an unprecedented opportunity to engage the
growing but fragile economies in the Philippines and Indonesia either
on a bilateral basis or through the TPP.
The U.S. does not need a large commitment of resources to
successfully engage Asia economically. We just need the willingness to
maintain and extend our openness.
----------------
End Notes
\1\ ``Asia-Pacific Economic Cooperation'' is grammatically
irritating.
\2\ See, respectively, Aaron Forsberg, ``America and the Japanese
Miracle: The Cold War Context of Japan's Postwar Economic Revival,
1950-1960,'' (Chapel Hill: UNC Chapel Hill Press, 2000), Charles Harvie
and Hyun-Hoon Lee, ``Export Led Industrialization and Growth--Korea's
Economic Miracle 1962-89,'' (working paper series, University of
Wollongong, 2003), http://ro.uow.edu.au/cgi/
viewcontent.cgi?article=1066&context=commwkpapers; Robert E. Baldwin,
Douglas Nelson, ``The Political Economy of U.S.-Taiwanese Trade and
Other International Economic Relations,'' in Trade and Protectionism,
ed. Takatoshi Ito and Anne O. Krueger (Chicago: National Bureau of
Economic Research, 1993) http://www.nber.org/chapters/c8079; and Thomas
I. Palley, ``External Contradictions of the Chinese Development Model:
export-led growth and the dangers of global economic contraction,''
Journal of Contemporary China Volume 15, Issue 46, 2006, pg. 69-88.
\3\ ``Foreign Trade: U.S. Trade in Goods by Country,'' United
States Census Bureau, Department of Commerce, http://www.census.gov/
foreign-trade/balance/index.html and ``GDP (current US$),'' World
Development Indicators, The World Bank, http://data.worldbank.org/
indicator/NY.GDP.MKTP.CD?page=2.
\4\ Dani Rodrik, ``Getting interventions right: how South Korea and
Taiwan grew rich,'' Economic Policy Volume 10, No. 20, 1995, http://
isites.harvard.edu/fs/docs/icb.topic442978.files/
Rodrik%20_%20How%20Korea%20and%20Taiwan%20grew%20rich.pdf and Charles
R. Frank Jr., Kwang Suk Kim, and Larry E. Westphal, ``Economic Growth
in South Korea since World War II,'' in Foreign Trade Regimes and
Economic Development: South Korea (Chicago: National Bureau of Economic
Research, 1975), http://www.nber.org/chapters/c4063.pdf; ``Foreign
Trade: U.S. Trade in Goods by Country,'' United States Census Bureau,
Department of Commerce, http://www.census.gov/foreign-trade/balance/
index.html, and ``GDP (current US$),'' World Development Indicators,
The World Bank, http://data.worldbank.org/indicator/NY.GDP.MKTP.CD?
page=2.
\5\ Dani Rodrik, ``Getting interventions right: how South Korea and
Taiwan grew rich,'' Economic Policy Volume 10, No. 20, 1995, http://
isites.harvard.edu/fs/docs/icb.topic442978.files/
Rodrik%20_%20How%20Korea%20and%20Taiwan%20grew%20rich.pdf and Robert E.
Baldwin, Douglas Nelson, ``The Political Economy of U.S.-Taiwanese
Trade and Other International Economic Relations,'' in Trade and
Protectionism, ed. Takatoshi Ito and Anne O. Krueger (Chicago: National
Bureau of Economic Research, 1993) http://www.nber.org/chapters/c8079,
``Foreign Trade: U.S. Trade in Goods by Country,'' United States Census
Bureau, Department of Commerce, http://www.census.gov/foreign-trade/
balance/index.html and ``GDP, current prices,'' Econ Stats, World
Economic Outlook data, International Monetary Fund, http://
www.econstats.com/weo/V004.htm.
\6\ Harry G. Broadman, ``China's Membership in the WTO and
Enterprise Reform: The Challenges for Accession and Beyond,'' (working
paper series World Bank, Washington, DC, United States, 2000), http://
papers.ssrn.com/sol3/papers.cfm?abstract_id=223010 and ``Bilateral
Agreement on China's Entry into the WTO Between China and the United
States,'' Ministry of Foreign Affairs of the People's Republic of
China, 2000, http://www.fmprc.gov.cn/eng/ziliao/3602/3604/t18051.htm.
\7\ ``Foreign Trade: U.S. Trade in Goods by Country,'' United
States Census Bureau, Department of Commerce, http://www.census.gov/
foreign-trade/balance/index.html and ``GDP (current US$),'' World
Development Indicators, The World Bank, http://data.worldbank.org/
indicator/NY.GDP.MKTP.CD?page=2.
\8\ Derek Scissors, ``What Indian Economic Reform Could Mean for
the U.S.,'' (Washington, DC: Heritage Foundation, August 18, 2011),
http://www.heritage.org/research/reports/2011/08/what-indian-economic-
reform-could-mean-for-the-us and ``U.S.-Vietnam basic accord clears
major hurdle to TPP deal,'' Kyodo News International, September 14,
2013 http://www.globalpost.com/
dispatch/news/kyodo-news-international/130914/us-vietnam-basic-accord-
clears-major-hurdle-tpp-deal.
\9\ ``Foreign Direct Investment in the U.S.: Balance of Payments
and Direct Investment Position Data,'' Bureau of Economic Analysis,
U.S. Department of Commerce, http://www.bea.gov/international/
di1fdibal.htm and ``Foreign Portfolio Holdings of U.S. Securities,''
Department of the Treasury, Board of Governors of the Federal Reserve
(Washington: 2013), http://www.
treasury.gov/resource-center/data-chart-center/tic/Documents/
shla2012r.pdf.
\10\ Derek Scissors, Charlotte Espinoza, and Ambassador Terry
Miller, ``Trade Freedom: How Imports Support U.S. Jobs,'' (Washington,
DC: Heritage Foundation, September 12, 2012),
http://www.heritage.org/research/reports/2012/09/trade-freedom-how-
imports-support-us-jobs and ``Foreign Trade: Top Trading Partners,''
United States Census Bureau, Department of Commerce, http://
www.census.gov/foreign-trade/statistics/highlights/top/index.html.
\11\ ``The Real Asian Threat: Mercantilism,'' Bloomberg
BusinessWeek, April 14, 1996, http://www.businessweek.com/stories/1996-
04-14/the-real-asian-threat-mercantilism.
\12\ DG Supachai Panitchpakdi, ``American Leadership and the World
Trade Organization: What is the Alternative?'' (speech at the National
Press Club, Washington, DC, February 26, 2004), http://www.wto.org/
english/news_e/spsp_e/spsp22_e.htm.
\13\ Derek Scissors, ``Rules of Origin Can Make or Break the Trans-
Pacific Partnership,'' (Washington, DC: Heritage Foundation, August 27,
2013), http://www.heritage.org/research/reports/2013/08/rules-of-
origin-can-make-or-break-the-trans-pacific-partnership and Vidya
Ranganathan, ``Korea becomes the red flag for Asia's currency war,''
Reuters, January 31, 2013, http://www.reuters.com/article/2013/02/01/
markets-currency-war-idUSL4N0B01SL20130201.
\14\ Alexis Xydias, ``Abenomics to Fail Without `Third Arrow,'
Allianz Global,'' Bloomberg, November 12, 2013, http://
www.bloomberg.com/news/2013-11-13/abenomics-to-fail-without-third-
arrow-allianz-global.html.
\15\ ``TPP or no, aging farm sector needs true reform,'' The Japan
Times, March 26, 2013, http://www.japantimes.co.jp/news/2013/03/26/
business/tpp-or-no-aging-farm-sector-needs-true-reform/#.Uqp8EtJDtac.
\16\ Derek Scissors, ``Why the Trans-Pacific Partnership Must
Enhance Competitive Neutrality,'' (Washington, DC: Heritage Foundation,
June 6, 2013), http://www.heritage.org/research/reports/2013/06/why-
the-trans-pacific-partnership-must-enhance-competitive-neutrality.
\17\ ``Shade of Grey,'' The Economist, December 10, 2011, http://
www.economist.com/node/21541408.
\18\ Mac William Bishop, ``Taiwan's free trade troubles,'' Asia
Times Online, July 14, 2004, http://www.atimes.com/atimes/China/
FG14Ad05.html.
\19\ ``After five years, Taiwan-US trade talks resume,'' Taiwan
Insights, March 27, 2013, http://www.taiwaninsights.com/2013/03/27/
after-five-years-taiwan-us-trade-talks-resume/ and Song Yen Ling,
``Taiwan keen to import US LNG from shale gas-fed projects: report,''
Platts, June 6, 2013, http://www.platts.com/latest-news/natural-gas/
singapore/taiwan-keen-to-import-us-lng-from-shale-gas-fed-27050534.
\20\ Peter Alford, ``India cripples World Trade Organization's Doha
Round hopes,'' The Australian, December 4, 2013, http://
www.theaustralian.com.au/news/world/india-cripples-world-trade-
organisations-doha-development-round-hopes/story-e6frg6so-1226775236139
and Doug Palmer, ``U.S. trade chief urges India to heed to U.S.
companies' complaints,'' Reuters, July 12, 2013, http://in.reuters.com/
article/2013/07/12/usa-india-trade-chidambaram-idINDEE96B01J20
130712.
\21\ ``Ignoring India's concerns, Obama signs 9/11 health care
bill,'' The Economic Times, January 3, 2011, http://
articles.economictimes.indiatimes.com/2011-01-03/news/28430935_1_obama-
signs-health-and-compensation-act-health-care.
\22\ ``Philippine Economy posts 7.0 percent GDP growth in Q3
2013,'' National Statistical Coordination Boar, Republic of the
Philippines, November 28, 2013, http://www.nscb.gov.ph/sna/ and Poverty
Reduction and Economic Management Unit, ``Philippine Economic Update:
Accelerating Reforms to Meet the Jobs Challenge,'' The World Bank, May
2013, http://www.worldbank.org/content/dam/Worldbank/document/EAP/
Philippines/Philippine_Economic_
Update_May2013.pdf.
\23\ ``Foreign Trade, Export by Month, Year 2013,'' Badan Pusat
Statistik, Statistics Indonesia, http://www.bps.go.id/eng/exim-
frame.php?kat=2, ``Indonesia Economic Quarterly, Policies in focus,''
The World Bank and Bank Dunia, December 2012, http://www.worldbank.org/
content/dam/Worldbank/document/IEQ-DEC-2012-ENGLISH.pdf and ``Go-Ahead
for Indonesia's Controversial Ban on Unprocessed Mineral Exports,''
Indonesia Investments, December 7, 2013, http://www.indonesia-
investments.com/doing-business/business-columns/go-ahead-for-
indonesias-controversial-ban-on-unprocessed-mineral-exports/item1397.
Senator Cardin. Well, thank you both for your testimony.
Dr. Scissors is absolutely correct. Congress has to set
priorities. If an agreement is negotiated and we do not have
TPA, there will be 535 priorities. The good thing about doing
TPA first is that collectively we can determine the priorities
before the fact rather than after the fact.
So it is a little frustrating to many of us that we have
not seen the TPA bill and that there has not been a more
transparent process. It is not just TPP, there are a couple
other agreements that are floating around, one for Europe
particularly that is also very, very important. I also
appreciate your comments about leveraging for change and
seeking the priorities to do that.
So let me talk about China just for one moment and what is
happening. China is the largest authoritarian, one-party
regime. It has been slow to change its ways, but it has made
some reform, most recently announcing that the reeducation
camps are going to be ended, that they are progressing on some
of their human rights issues. In my visit to China, you can see
that there has been change in this country, there is no
question about it.
So is there enough internal reasons for change in China
that it is going to happen? Yes, we should try to work on
leveraging issues of priorities to us. But what is your
assessment of the pace of reform and whether there is hope that
the country will become a much more open society in the decades
to come?
Dr. Scissors. Thank you, sir. If you had asked me that
question 2 years ago, I would have said it is just hopeless,
just forget it, that we had a government in charge that was in
charge for 10 years, that had taken the country backward
economically, that had no interest in useful foreign policy
engagement as far as I was concerned and was not improving the
human rights situations of its people.
As you have said, we now have a new government. We now had
a major meeting a month ago where they talked about a number of
reforms. That is a good sign. It is certainly better than where
we were before. Otherwise, it is far too soon to tell. I remain
deeply suspicious, perhaps scarred by the last 10 years.
But for example, the Chinese are treating foreign companies
worse than they were 2 years ago. That is not the only issue.
It is not maybe the most important issue. But it is not an
encouraging sign. The air defense zone is not an encouraging
sign.
So I would say you are right, sir, we should watch the
reform promises. But at this moment I am suspicious and I think
of China as a place where we are going to have a lot of
difficulty making progress on the things we care about.
Senator Cardin. Mr. Goodman, let me let you elaborate on
that, but if you would focus on one area that is a particular
concern to me in China. That is the relationship between the
local government and the national government. As a
businessperson, you would need to deal with local governments,
and the inconsistency among local governments and the amount of
corruption is legendary.
How do you see that changing and what can we do so that
businesses' access to China can be more consistent and without
the disadvantages brought on by corruption?
Mr. Goodman. Thank you, Mr. Senator. It is a good question.
The relationship between the center and the local governments
in China is one of the kind of enduring themes of Chinese
governance. It has been a sort of pull, tug, and force--a to-
and-fro between the center and local governments, including
over this 30 years of reform, but going back thousands of
years.
In order to really crack this reform nut, they are going to
have to find a way to both incentivize the local governments to
continue with the needed changes that they need to take to
promote more efficient markets and a more competitive playing
field, including for our businesses. At the same time, they are
going to have to crack down on corruption and they are going to
have to find a way to give the local governments the financial
resources they need to be able to engage in the kinds of
investments that are going to support this market-based reform
and not wastefully--well, first of all, seize land and seize
assets from farmers in order to generate revenues and then to
spend the money wastefully.
So it is a huge challenge for the central government and
one of the reasons that I think I share Derek's skepticism, or
at least caution, about whether they are going to be able to
follow through on this reform. I think the good news is that,
like an alcoholic, the first step to recovery is acknowledging
you have a problem, and I think they have acknowledged that
they have a problem and that is I think the most important
first step.
But following through and implementing, including on these
issues of getting the incentives right with local governments
so they will do the market-based reform, cut down corruption,
but make the kinds of investments they need, that are efficient
and support a market-based system, I think is going to be the
real challenge going forward and one of the things that we are
going to be watching very closely.
Senator Cardin. Well, Dr. Scissors, mentioned the fact of
leveraging, which I strongly support. It is in our interest, it
is in the interest of the region, it is in the interest of
China that they move ahead with these reforms, that they deal
with the problems of local government and corruption, that they
deal with state-owned enterprises. You are absolutely correct
about that issue. That is a huge problem that confronts China
and other countries in Asia.
What leverage do we have and how can we advance these
issues in a more urgent manner?
Mr. Goodman. I think, look. On one level I would say that
it is up to the Chinese to figure out how to do this, and we
are going to have on one level a limited amount of leverage and
we have to I think accept that on one level. On the other hand,
there are a lot of things they want from us.
They want our large market. They want our businesses. They
want our technology. They want our ideas and our experience
with reform.
I think it is very interesting that recently they announced
this opening of a free trade zone in Shanghai. That comes right
on the heels of the decision to expand TPP to include Japan and
I think there is a relationship there. I think they see the
competitive challenge from a TPP arrangement that includes high
standard rules and liberal markets in this large economic area
as a competitive challenge for them and they have to match it
in some way.
I think that that has provided some leverage that has
generated that change that I mentioned in Shanghai. Their
willingness to talk about a bilateral investment treaty with
the United States on the terms that we are seeking of
preestablishment, market access, and a negative list approach,
I think that all came in the wake of these developments
externally that we were very much a part of in our strategy on
TPP.
So I think we do have leverage. But in the end they have
got to figure this out for themselves.
Dr. Scissors. I completely agree with what Matt said.
I just want to add one thing. I have been following Chinese
outward investment, investment coming out of China, for 15
years and this is a booming area for them, and their preferred
destination, frankly, is the United States because we are big
and we have resources and we give investor protection. So one
discussion with them is: Hey, we want to give you good access
to the American market, that is part of our principles. But, by
the way, these things that you are asking for, we do not have
them in China.
That is not going to solve all of our problems. They are
not going to do everything we want in exchange for investment
access. But we can improve some of the business conditions for
U.S. firms operating in China on the basis of reciprocity. So
that is an area where we have some leverage.
Senator Cardin. Senator Rubio.
Senator Rubio. Thank you.
I wanted to explore first with you, Dr. Scissors, this
notion of free trade and in particular imports. So I get
resistance from people who believe that free trade is a
destroyer of American jobs. Obviously, free trade has to be
fair and there are rules that are important, because, as you
have just described, one scenario, not exactly on point, but
you have described a scenario that is a one-way street. Our
values of openness allow them to invest, the Chinese to invest
here, but when we try to reciprocate there are all kinds of
impediments to that.
That has always been a challenge to us on multiple fronts,
including on the trade front. But in specific on the issue of
imports, there is this idea that imports into the United States
in and of themselves destroy American jobs. But in your written
statement you have outlined why in fact that is not potentially
the case, that in fact there are also jobs created through
imports from offloading.
Can you just elaborate on that more, because that is an
issue I get a lot when I go out and talk about the need to
expand trade opportunities, not just with Asia but with the
entire world. Can you elaborate a little bit more on the
benefits that imports--obviously, we want to be able to export,
too, but the benefits that imports have for American jobs,
particularly stable middle class jobs?
Dr. Scissors. Yes, sir, I would be happy to. I think this
is an important point. This is not to say that unfair
competition does not exist and the Chinese do not subsidize
their firms and these are things we should not fight. But I do
think that the people forget that imports are good for us. They
are good for us in a number of ways.
I talked about the electronics supply chain. Not only do we
all have good quality phones in our pockets, hopefully turned
off, and some people have big flat-screen TVs at home that are
incredibly cheap. So that is nice for consumers. But it also
saves money, creating resources that are available for other
things in the American economy. Clothes used to be a big part
of Americans' budget. We are all old enough to remember that.
They are not any more. Consumer electronics are a declining
part of America's budget. That money goes for individuals and
for the country as a whole to other things, including job-
creating activities here.
So there is an indirect effect. When you do not spend as
much money and as many resources on things that you can import
well, you have those things, those resources, available for
what you do extremely well, which in our case is high-tech
manufacturing, agriculture, and so on.
There is also the direct effect that you referred to, which
is imports do not magically appear. You do not say some thing
is produced in China or elsewhere and now I have it in front of
me. It is shipped, it is offloaded, it is transported within
the country, it is sold, it is marketed. All those create jobs.
I will give you a specific example. We found that the
number of jobs that are supported just by shipments of clothing
from China is larger than the number of jobs supported by the
United States textile industry. So I understand people's
concern about unfair competition from countries. That exists.
There is no denying it. But it is not the case that imports
necessarily cost jobs. There are certainly examples where
imports in fact create jobs for the United States.
Senator Rubio. So just to describe the supply chain for
this phone for a second, it says here it was innovated and
designed in California, but assembled in China. Somebody built
this phone over there and then they had to ship it here. They
had to offload it at a port of entry. Those were American jobs.
Then it had to be transported from the port of entry to a
distribution center, again another set of American jobs. Then
from that distribution center--there were jobs there--they were
shipped out to the retailers, another group of American jobs.
Then at the retail level there is somebody selling it, another
set of American jobs at the retail level.
Then whoever buys these things is paying less than they
normally would, which means whatever money you are saving on
this, the difference between how much it would have cost to do
it somewhere else and do it where it is happening now and what
you actually paid, that difference is now available to spend
somewhere else because you did not spend it on this.
Is that an accurate description of how it plays out?
Dr. Scissors. A better one than the one I gave; yes, sir.
Senator Rubio. Well then, let me just ask one last one. I
do not know if you know the answer to this, but my guess is
that all of those jobs down that supply network that I have
described probably pay better than some of the people that are
building this.
Dr. Scissors. That is a good point to elaborate on. We have
kept the higher value-added jobs here. To even extend your
supply chain further, it does not--the design does not occur
here and then suddenly the phone is in China. We actually have
production that routes through Japan, Taiwan, Malaysia, Korea,
various of our Asian partners, and then the assembly occurs in
China.
The assembly of the phone is not such a great job and in
fact the Chinese have very significant labor problems connected
to some of those jobs.
Senator Rubio. Because their wages are increasing and it is
forcing it to go elsewhere?
Dr. Scissors. Because their wages should be increasing and
sometimes they are not, because the conditions are not very
good. The better jobs associated with consumer electronics, far
better than in China, are here. What we get is a trade number
that looks like we are running a consumer electronics deficit
with China, but we are getting better jobs than they are out of
it.
Senator Rubio. That is a good way to describe it.
Mr. Goodman, in your testimony you talked about something I
thought was interesting, and that is a notion that you said was
recently popular, until recently was popular in Beijing, that
TPP is part of an effort by Washington to contain China. But in
fact, if they decide not to participate in free enterprise and
free commerce and free navigation and the benefits of this sort
of barrier reductions, that is a decision they have made to
contain themselves, right?
I mean, this is not--my understanding of the region is that
most, if not all, of the countries would like stronger
integration with China, but on a set of rules based on freedom
and freedom of commerce and freedom of navigation and mutual
reciprocity on rules, et cetera, not on the set of rules that
China would like to impose. So really the ones--to the extent
that there is anybody excluding anyone, it is Chinese
policymakers that have decided to potentially exclude
themselves from this and other arrangements because they do not
like the rules. The rules they want are actually much more one-
sided, to the benefit of China and to the detriment of their
neighbors and perhaps the rest of the world.
Mr. Goodman. Thank you, Senator. That is I think absolutely
correct. I think that the notion of, first of all, of somebody
trying to contain China economically does not make any sense,
because everybody wants to engage with them. So I think there
was a misunderstanding.
In fact, TPP was designed to do the opposite of excluding
them, which is to pull them into this global rules-based order
and, frankly, make them follow the rules of the road that we
have helped champion for half a century. So this notion never
made sense in terms of U.S. strategy.
Yes, you are right, on China's own side, it was only about
a year ago that they were continuing to say: We do not want
these rules, we do not want to be part of this system. Then I
think what happened, as I say, I think the big change was Japan
joining TPP, because now you have got the third-largest economy
in the world, a major competitor for them economically and
strategically, joining this agreement, and it becomes suddenly
an agreement that has large heft and, frankly, is the place in
the world--frankly, I am sorry, but it is not Geneva--where the
rules are being written. It is in TPP where the rules of the
international trading system are being written.
China realized this and I think said: We have got to be
part of this rulemaking exercise whether we are in TPP, which
may be challenging, frankly--I am not sure they are ready to
reach the kind of standards that are being negotiated in TPP.
But if not, they need to find another way to match this, and
that is why I mentioned the Shanghai FTZ. That is why I think
it helped drive a very forward-leaning reform package at this
Third Plenum last month. It is why they are willing to talk
about a bilateral investment treaty, and it is why they are
talking more positively about TPP.
So I think, yes, I think they themselves were their own
worst enemies in this area, and I think they have figured out
that this is not the right approach and they have changed
course.
Senator Cardin. Senator Murphy.
Senator Murphy. Thank you, Mr. Chairman.
I want to continue to explore this question of where the
rules of the global economy are being set. You know, if we want
more transparency around these trade agreements or we want more
public debate, we should probably think about renaming them.
``TTP'' and ``TTIP'' creates a little bit of unnecessary
confusion out there amongst the public.
But as the chairman of the Europe Subcommittee, we hear a
fair bit of consternation in places like China and India that
TTIP is an effort between the United States and Europe to gang
up on the developing world, to set global standards for product
safety and financial instruments and food quality that the rest
of the world will have to live with.
Mr. Goodman, you are sort of saying the opposite. You are
saying that really if--or I heard you to say that the rules of
the road are being set not in Geneva, but in the negotiations
on TPP.
So I just would love for the two of you to sort of explore
the interaction on the beginnings of negotiation on a Europe
agreement coming on the heels of the negotiation with Japan and
others in TPP, and to what extent is it a fair characterization
of the Europe trade agreement that this is the United States
and Europe essentially trying to get together on standards
setting so that those standards are not set in Asia, or to what
extent--maybe you can continue upon what you began to talk
about with respect to the fact that maybe the game is not in
the Europe negotiations, the game is really in what comes out
of the TPP negotiations.
Mr. Goodman. Thank you, Mr. Senator. A good question, and I
am sorry that I was misleading before. What I meant was that
the place that these rules should be negotiated is Geneva in
the WTO. Everybody I think understands that you need a
multilateral framework of rules and that is the first best
solution.
But it is like trying to climb Mount Everest. We tried the
north face. We tried going up the multilateral route and,
frankly, with the exception of this latest thing in Bali, this
agreement on trade facilitation, which was encouraging but
quite small, we really failed and we have had to come back down
the mountain find another way around.
That other way around I think is TPP currently and TTIP,
the U.S.-EU negotiations.
So I would say the same thing about TTIP that I said about
TPP, that to the extent that is starting to gain momentum and
there is a real conversation about the rules, I think that is
where the action is. So it is TTP and TTIP. Ultimately I think
the idea and the strategy--it is maybe not stated quite this
clearly, but now that I am not in government I can say it a
little more clearly--I think this is a strategy of trying to
move from TPP through TTIP to establish de facto a multilateral
set of rules that covers at that point 90 percent of the world
economy, and the rest of the world economy I think will be
faced with a choice of trying to aspire and attain that level
of high standard rules or they are going to be left out of the
system. To date a lot of those countries that you mentioned
have been free riders on the system and if they are not willing
to negotiate and participate actively in these negotiations,
then I think this is the best second-best strategy.
Senator Murphy. I want to hear what you have to say, Mr.
Scissors, about this as well. But let me just follow up quickly
on that point. So you have got now two enormous sectors of the
global economy negotiating simultaneously. What are the
potential for inconsistencies in how those two regimes get
worked out that frankly will work at cross-purposes with the
very notion that you are suggesting as to an effective
replacement for the WTO?
Mr. Goodman. Well, the good news is that we are on one side
of both of those agreements, and so we presumably are bringing
into TTIP the same kind of approach and principles that we
brought into TPP and have been pushing in TPP. Now, Europe is
different, and I used to work in Europe on some of these
regulatory issues when I was in the private sector and it is a
very different world view. Frankly, I think we are like Mars
and Venus on some of these regulatory issues with Europe.
I think in some ways that is going to be a much tougher
negotiation. It may not appear that way because of our shared
values and history and everything, but actually there are some
very tough differences on regulatory issues and GMO's and a
range of other issues.
But I think the fact that the United States is pushing a
similar approach with similar principles, similar standards,
means that there is less risk of fundamental inconsistency. But
of course each negotiation is going to be slightly different
and it may come out in a slightly different place.
Dr. Scissors. I think it is a big framing question you have
asked, which is what is the replacement U.S. strategy after the
WTO has stalled. I think I hate to use this phrase, but it is
appropriate: We are looking for coalitions of the willing, and
if we find a subset of countries in Asia, hopefully a very big
subset, hopefully eventually everyone, we are happy to deal
with them.
The way I see the trans-Atlantic negotiations is a little
bit more positive--of course, they have barely started, so it
is easy to be positive--a little bit more positive than you do,
which is we are going to use TPP as a base. We used KORUS as a
base for the TPP negotiations. We are going to use TPP as a
base for the trans-Atlantic negotiations. They are going to be
difficult in some respects. They may not work.
But hopefully they will go forward, and so we will start
with TPP and we will go beyond that in the trans-Atlantic
discussion. And if we cannot, then we should look toward Latin
America, and if we cannot do that we should look toward sub-
Saharan Africa. We should keep looking for partners who are
willing to sign these agreements.
One concrete benefit that I see here is, TPP is pushing the
boundaries or trying to push the boundaries on intellectual
property protection. It is still only going to be the first
step. We are not going to get top-notch intellectual property
protection on the first round from Malaysia. But we might get
it with Europe. So I think there is an opportunity there not to
have a conflict between the agreements, but to use them to
build on each other to get to those high standards in areas the
United States has been trying to get to for years.
Senator Murphy. I do not mean to sound pessimistic about
TTIP. I am actually optimistic about it, notwithstanding I
think the fact that it is going to operate on a very different
framework involving tradeoffs that are unfamiliar to a lot of
Members of Congress than what we have seen in agreements with
developing economies. But I have been a big supporter and
supportive of it both from an economic standpoint and a
geopolitical standpoint.
Thank you very much, Mr. Chairman.
Senator Cardin. Let me ask one additional question if I
might, and that deals with your recommendations of where
priorities should be placed for empowerment of women in Asia.
Land reform has been a major area of focus for us. I just would
like to get your advice as to where you think the most progress
can be made.
Mr. Goodman. Thank you, Mr. Senator. A very important issue
and one that is very much part of the conversation in our Asian
economic discussions. I think you mentioned that in APEC there
has been a women's empowerment initiative and a couple of,
maybe now three, summits that Secretary Clinton, former
Secretary Clinton, began. They have been talking about I think
some very specific ways in which women can be given more
opportunities to enter the work force, better conditions once
they are in the work force, a more inclusive approach to growth
strategies in the region. That is I think an important
initiative.
APEC is a good forum. I did not have the chance to say this
before, but APEC is actually a very good forum for this kind of
conversation, because it is nonbinding, it is consensual, it is
an opportunity to flesh out ideas and share experiences and
build capacity. So I would look to that negotiation or that
discussion as an important forum.
As you know, in Japan they are trying to empower women
because demographically they are shrinking, dying, frankly, as
a country. If they do not bring women into the work force, it
is going to be impossible for them to grow and thrive as a
country going forward. So there is a very active program that
Prime Minister Abe has announced.
Now, whether those things are going to--the problem is
these are very difficult issues of social mores and some of
these countries do not have traditions of empowering women in
this way, and I think it is going to take a lot of time and
working and conversation about these issues to change those
social mores. But I do think law and policy can contribute
importantly, as they have in this country, to social change,
and I think in a country like Japan we want to try to encourage
that conversation and legal and policy changes.
Dr. Scissors. I think this is an area where you need to use
carrots rather than sticks. I do not see how threatening
countries, even when they are doing things we really do not
like, is going to help the standards, living standards for
women in those countries. Just my opinion.
The carrots I see, we have a lot of carrots. We have a lot
of countries that want access to the U.S. market, better access
than they have now, protected access, especially in certain
areas. I mentioned Vietnamese textiles before as an example. I
can imagine that we can tie access to Vietnamese textiles in
the United States to working conditions for women in the
textile sector. It seems like a very natural link and it is a
very powerful lever on our part.
I would say, to echo Matt's point about Japan's demography,
it is not just Japan. Most of northeast Asia is getting older
and they are not utilizing women properly in their labor force.
So I would think that Korea and to a lesser extent China are
also going to be open to these kinds of initiatives for their
own reasons, not because they have suddenly seen the light and
have the same social view that we do, but because they are
going to need more contributions from women economically than
they have allowed so far. So I think we could make progress
here.
Senator Cardin. Thank you.
Let me thank both of our witnesses. This has been a very
helpful hearing and I appreciate your participation. With that,
the subcommittee will stand adjourned. Thank you.
[Whereupon at 11:36 a.m., the hearing was adjourned.]
----------
Additional Material Submitted for the Record
Prepared Statement of Walter Lohman, Director, Asian Studies Center,
The Heritage Foundation, Washington, DC
My name is Walter Lohman. I am director of the Asian Studies Center
at The Heritage Foundation. The views I express in this testimony are
my own, and should not be construed as representing any official
position of The Heritage Foundation.
I commend the subcommittee for taking such a concerted, detailed
look at America's interests and role--what, I would argue, should be
its continued leadership role--in the Asia-Pacific. You will find broad
agreement among the foreign policy community with the commitment to
Asia implied in the President's rebalance. There are disagreements over
the priorities of the commitment, whether ``rebalance'' is the most
constructive way to frame it, or whether enough resources are devoted
to it. Some would even question whether a rebalance is actually
underway.
It is important, however, for foreign audiences in particular to
understand that the American commitment to its interests in the Western
Pacific--what Chairman Royce has called America's ``near west''--is
very widely supported in Washington. As is the case with many national
priorities, the debates occur over how the commitment is put into
effect and which priorities constitute it.
strategic picture
America's commitment to the Western Pacific is both about the
challenge posed by China's rise, and about something much broader. It's
about China, yet it's not about China. In that conundrum may lay the
reason for confusion and misperceptions in Beijing and other Asian
capitals about the rebalance.
On the political and diplomatic side, America's Asia policy is
largely about China. This is because whatever may have been the
situation in the region more than 150 years ago, before China's
``century of humiliation,'' it is the U.S. and its allies who have
shaped today's regional order. That order is best characterized by the
pursuit of a secure liberal international order, characterized by such
things as freedom of navigation and commerce and promotion of political
liberty. It benefits China--if not always the Chinese Communist Party--
as much as it does any other country in the region. This is essentially
the same vision that the George W. Bush administration and many
administrations before it have pursued.
The problem is that Chinese Government does not necessarily see it
this way. It poses an alternative to this vision that seems more
tightly focused on China's narrowly drawn national interests.
The regional order established by the U.S. in the decades following
World War II was not just strategic and institutional. A concrete
geographical order accompanied it. It included Taiwan's de facto
independence, Japan's administration of the Senkaku Islands, and the
claims of Southeast Asian nations to land features in the South China
Sea. This is today's status quo. Awakened after 150 years, what the
Chinese call their core interests revolve around changing this status
quo, and not necessarily through means now acceptable to the rest of
the region. China's narrow interests are driving its disposition to the
broader order. Thus, much of the diplomatic and security side of
America's Asia policy requires pushing back against China and
channeling the conflicting interests into administration of established
institutions and norms, such as the peaceful settlement of disputes and
adherence to customary international law.
The Obama administration has sought to frame this effort by
appealing to an ASEAN-centric architecture, that is, a set of
institutions created by the Association of Southeast Asian Nations
intended to enmesh external regional powers in a web of interlocking
regional relationships. Involvement in these institutions, the East
Asia Summit, the U.S.-ASEAN Leaders Summit, and many others, is a good
thing. My only reservation is that the administration's approach seems
to underappreciate ASEAN's severe limitations in dealing with
contention. It also seems to either underestimate American power vis-a-
vis the ASEAN countries, or seeks to purposely blunt that power in the
cause of an amorphous accumulation of soft power. At its worst, this
amounts to serving ASEAN's interests in pleasing all comers and muting
differences among them--not necessarily American interests. America has
some very critical interests in Southeast Asia that in the absence of
heavy, uncomfortable pressure on ASEAN will not be served. Among them
are human rights and security issues, freedom of the seas being the
most important of the latter. At best, excessive deference to ASEAN's
sensitivities and mechanisms will result in an underutilization of
time, focus, and resources.
It should be noted that the Obama administration, as the Bush
administration before it, also believes that conflicts arising from
differences in U.S. and China world views can be ameliorated through
extensive direct contact with China on political and security issues.
The effectiveness of this set of tactics is a topic for another
hearing. Suffice it to say for purposes of today's hearing that the
effort, and especially the rhetoric representing it, contributes to the
perception of incoherence in the rebalance.
economic commitment to east asia and pacific
The economic side of the American role in Asia is very different.
It is not about China. And, there are overwhelmingly more advantages in
this engagement than risk. The challenge the U.S. faces lies in
simultaneously countering China in the diplomatic and security areas
while maximizing the upside of Asia's burgeoning economies, including
China. This can be accomplished with a principled clarity in America's
vision for the transpacific economy, robust bilateral and ad hoc
multilateral economic agreements, engagement of the region's economy-
focused diplomatic architecture, and the most effective use of other
tools available to American officials.
The vision is pure and simple: the promotion of a liberal economic
order. This should be the fundamental goal of our international
economic policy. It is not the success of American companies per se,
pursuit of which can produce misallocation of resources and
inefficiency. It is support for an open, rule-based economic
environment in which American companies can fully compete and the
market can determine winners and losers. This applies at home as well
as abroad. There is nothing of inherently greater value in exports than
in imports, and nothing inherently better about American investment at
home, than foreign investment here. Politically sensitive market
segments at home are not more justifiable objects of protection than
the protections of our trading partners. Both are distortions of the
market mechanism. Companies ought to be able to avail themselves of
international value chains and finance with as few restrictions as
possible. They should also bear the cost and risks.
free trade and the trans-pacific partnership
The first thing this economic vision means is energetic
presidential-level support for free trade, and in particular the
conclusion of a Trans-Pacific Partnership (TPP) that is no less open
and encompassing than the agreements that have come before it. The TPP
is today the explicit economic ``centerpiece'' of the administration's
rebalance. There are several key areas that free trade advocates will
be weighing in order to determine how free the agreement actually is.
In general, they will be judging it against the most recent trade
agreement the U.S. has struck in Asia, the Korea-U.S. Free Trade
Agreement. It was not perfect. It would be nice to see aspects of it--
like precedents in managed auto trade and exclusion of trade in rice--
rolled back. But at the very least, the TPP should not get worse in
terms of protection. It should also redress protectionist provisions in
previously concluded agreements, such as the U.S.-Australia Free Trade
Agreement, which retains restrictions on Australian access to the U.S.
sugar market.
Beyond this general guidance, however, the manner in which the
following several specific areas are addressed will determine the
nature, quality, and value of the TPP: State-owned enterprises (SOEs),
intellectual property rights (IPR), the services sector, and rules of
origin.\1\
First, SOEs. As former Heritage Foundation senior fellow Derek
Scissors has pointed out, there are two main issues involved in
consideration of SOEs in trade talks: definition of SOE and subsidies.
``Subsidies'' can come in many forms, from actual government budget
allocation to favorable access to credit to favorable regulatory
treatment. Several of the participants in the TPP talks have major
SOEs, especially Vietnam, but also Singapore and Malaysia. The U.S.
also has SOEs if one includes ``government sponsored enterprises'' like
Fannie Mae and Freddie Mac, and the precedents set for government
involvement in the private sector following the 2008 economic crisis.
The TPP ought to embrace the broadest possible definition of SOEs, and
get at the wide range of available subsidies by providing for true
competitive neutrality.\2\ This is one of the most difficult issues at
stake in the TPP negotiations. The very nature of state-ownership is
preferential and discriminatory. How it is dealt with in the TPP
negotiations has broad implications beyond the current participants.
Second, IPR. Poor intellectual property rights protection is
essentially a tax on innovation. It is a redistribution of resources
from the business that invests in research and development to the
business that steals the product. IPR is important to the U.S., as it
has a strong comparative advantage in innovation. But it should be
important to other economies as well. Some, like Japan, are in
desperate, structural need of more innovation. Others have interest in
attracting investments from world-class businesses and locking in rules
today that will benefit their own businesses in the long run.
Parties should be looking to a TRIPS-Plus approach (Trade-Related
Aspects of Intellectual Property Rights-Plus), that is, protection of
intellectual property that goes beyond the commitment that negotiators
have already made in the World Trade Organization (WTO), to include
among other things, data exclusivity and increased protection against
coercion of trade secrets. Trips-plus has been the standard in U.S.
negotiated FTAs. TPP is certainly not the time to back away from it.
Third, services. In services, negotiators should be looking to
apply a negative list--that is, creating a presumption of openness--on
both investments and services trade across borders. Open investment
regimes and ensuring free flow of data across borders are perhaps the
most important factors in maximizing services trade. TPP should also be
looking to enhanced liberalization and protection for investment in
financial services.
Fourth, rules of origin. The TPP countries are already tied up in a
number of free trade agreements (FTAs) among themselves: America's FTAs
with six of the TPP countries; the P-4 Agreement among Brunei, Chile,
New Zealand, and Singapore, which served as the launching pad for the
TPP; the ASEAN Free Trade Area (AFTA); and an ASEAN-Japan FTA, among
others. In rationalizing their rules of origin, the aim should be a
common set of rules that is as loose as possible across the board,
including for textiles and apparel. Rules of origin are extremely
important to determining the character of the final agreement. Closed
rules create a disposition toward trading blocs. Trading blocs by their
nature are predominantly political in purpose and therefore not
conducive to maximizing economic benefits. As such, tight rules of
origin detract from the broader, longer-term goals of global free
trade, and in their worst case implication, can lead to open conflict.
In the end, the traditional supporters of free trade, like analysts
at The Heritage Foundation, are going to be looking for a truly
economy-freeing agreement.
China ought to be permitted to join the TPP as long as it can
fulfill the provisions of the agreement, and as per the process, all
the currently participating countries agree to its participation. The
only stipulation on China's entry beyond technical compliance with the
agreement should be the extension of equal opportunity to Taiwan.
Similar arrangements were made for China's entry into the Asia-Pacific
Economic Cooperation (APEC) and the WTO. Taiwan's economy is larger
than most of those currently represented in the TPP. It would also be
among the more developed economies represented in the negotiations. The
prevention of its participation would be an artificial political
barrier. Taiwan has been generally neglected in the administration's
rebalance. Exclusion from the TPP would be a serious blow to its
efforts to fully and formally keep pace with the economic integration
taking place around it, and would leave it, by default, overly
dependent on China.
In lieu of China's inclusion in the TPP, the U.S. can engage China
in its free-market perspective through mechanisms such as the strategic
and economic dialogue (S&ED), the Joint Commission on Commerce and
Trade (JCCT), negotiation of a bilateral investment treaty, and global
forums like the WTO.
principled engagement of government-to-government architecture
In addition to ad hoc multilateral trade negotiations like the TPP
or bilateral trade talks, the U.S. can pursue its free trade vision
through the many pieces of architecture already in place. The TPP, and
the 16-member China-centric Regional Comprehensive Economic Partnership
(RCEP), have been formally identified by APEC leaders as building
blocks for an eventual APEC-wide free trade agreement, or a Free Trade
Agreement of the Asia Pacific (FTAAP).\3\ Continued leader-level and
robust participation in APEC is important to ensure that the FTAAP
tracks APEC's American-inspired vision for a ``comprehensive, high
quality agreement.'' APEC is important for other reasons besides. U.S.
participation in APEC is critical to its broader strategic position in
the region. In turn, an active, leader-oriented APEC is a pull on the
region to remain outwardly oriented--in this case, looking east across
the Pacific.
APEC could do more on this score by also reaching westward toward
India. The U.S. should encourage it to do so. APEC has already brought
India into its plans for the FTAAP by referencing RCEP negotiations as
a basis for its long-term vision for trade liberalization. (India is a
part of those negotiations.) If APEC is to maintain its dreams of an
FTAAP, it must begin to socialize India in the more routine details of
its mission. These include information-sharing on regulatory standards,
rules, procedures, capacity needs, and multilateral initiatives
conducted by member states outside its rubric, and voluntary
harmonization in the direction of freer markets.
The U.S. also has a critical role to play in helping ASEAN achieve
its goal of ``a stable, prosperous, and highly competitive ASEAN
Economic Region in which there is a free flow of goods, services and
investments, a freer flow of capital, equitable economic development
and reduced poverty and socioeconomic disparities.'' \4\ It can only do
that if it is at the table. Forums like the ASEAN Economic (Trade)
Ministers, the ASEAN Finance Ministers Meeting, and other sector-
specific meetings are useful venues for a free-market American message.
Regional economic integration is real. Most of it is organic, that
is, the result of millions of individual business decisions, and
unilateral government activity to facilitate them. The governments in
the region are pushing to formalize and expand integration. ASEAN
integration is the most formally developed. Completion of it will be
far from European Union-style integration, as ASEAN members have always
made abundantly clear. It is also behind schedule to meet its December
2015 completion deadline.\5\ Yet, given the size and diversity of the
ASEAN market, it will be a major achievement. The U.S. should help it
achieve its goal.
nuts and bolts of economic engagement
Because of ASEAN's consultative nature, the history of U.S.
economic policy toward it is replete with reference to new initiatives,
all essentially aimed at the same thing--building the capacity that
will help it achieve its integrated, free-market vision. The alphabet
soup of initiatives include the EAI (Enterprise for ASEAN Initiative);
the ACP (ASEAN Cooperation Plan); the ASEAN-U.S. Enhanced Partnership;
the U.S.-ASEAN TIFA (Trade and Investment Framework Arrangement);
ADVANCE (ASEAN Development Vision to Advance National Cooperation and
Economic Integration); and, now, at least two more, the E3 initiative
(U.S.-ASEAN Expanded Economic Engagement); and ACTI (ASEAN Connectivity
through Trade and Investment).
The U.S. has not lacked new initiatives--the latter two being
initiatives of the Obama administration. ACTI is essentially the
follow-on to the Bush-initiated ADVANCE program. Its most important
trade-enabling component is the assistance it provides to the ASEAN
effort to establish a single customs window, first at the national, and
then the regional level. In concept, ACTI is a very useful,
constructive program--as was ADVANCE before it. However, even at its
modest price ($18 million over 5 years) it must maintain a focus on the
intersection of America's and ASEAN's free trade visions in order to be
of most value.
Some in the business and strategic communities will bemoan the lack
of real U.S. investment in the development of ASEAN's infrastructure.
But the U.S. Government tinkering at the edges of ASEAN's
infrastructure needs--estimated by the Asian Development Bank (ADB) at
$8 trillion--is a distraction. If those needs represent opportunity for
American business, they will find their way to them. American
participation in ASEAN forums and the assistance that flows from it
should support the infrastructure of economic freedom. On an individual
country basis--still the much more relevant measure of economic
performance in ASEAN--the region lags significantly. Singapore has been
consistently ranked No. 2 globally in The Heritage Foundation's annual
``Index of Economic Freedom.'' The closest in the region after that in
the 2013 Index were Malaysia at No. 56, and Thailand at No. 61. Roads
and rail lines developed by the Japanese, Koreans, Chinese, or ADB are
public goods. To see them as an area of national competition that the
U.S. is losing is playing ASEAN's game to maximize the economic
contributions of all its interlocutors, not America's.
The E3 is also a useful initiative, to the extent it is used as a
path for lesser-developed economies, such as the Philippines and
Indonesia, to join the TPP. The administration's expressed intention to
use it to negotiate a U.S.-ASEAN Trade Facilitation Agreement and
regionwide bilateral investment treaty can help reach that goal.
However, if the E3 does not succeed in readying governments for
participation in the TPP, it will remain just another clever acronym in
the alphabet soup--doing good work, but marginal to achieving either
ASEAN's or America's economic vision.
conclusion
Criticism of the rebalance that it is overly focused on the
military is misplaced. Economic engagement for the U.S. is not a
government activity. This makes it different from some of the other
governments in the region. It is certainly much different from American
military engagement. If the Commander in Chief determines that a
carrier strike group should move from the Persian Gulf to the South
China Sea, it goes. If he determines that 60 percent of the U.S. Navy
will now be stationed in the Pacific, it happens. The Secretary of
State can make as many visits, and the U.S. Government can participate
in as many regional forums, as the Federal Government's budget can
support. At modest cost, the U.S. Government can initiate as many new
capacity-building programs as the region can absorb. It cannot compel
American business participation or even effectively lead it.
On the economic side of policy, what the government does best is
create opportunity for business through trade negotiations and
otherwise promoting a positive business environment. The TPP is the big
bang of America's current economic commitment to Asia. When complete,
it will encompass 40 percent of global GDP. However, it must truly be
the ``comprehensive, high standard'' agreement promised in order to be
a game-changer and garner the necessary support of real free-traders in
Washington.
America's commitment to Asia can both protect its political and
security interests vis-a-vis China, and encompass a broader economic
element. In order to do that, it must consistently articulate and
advocate its vision for, not just transpacific, but global, free trade.
If it does this effectively--particularly if it successfully concludes
the TPP--all the other pieces of America's economic statecraft in the
region will fall into place, and the other elements of the rebalance,
both political and military, will assume their proper perspective in
the strategy.
----------------
End Notes
\1\ Derek Scissors, ``What a Good Trans-Pacific Partnership Looks
Like,'' Heritage Foundation Backgrounder No. 2772, March 8, 2013,
http://www.heritage.org/research/reports/2013/03/what-a-good-trans-
pacific-partnership-looks-like (accessed November 17, 2013).
\2\ Derek Scissors, ``Why the Trans-Pacific Partnership Must
Enhance Competitive Neutrality,'' Heritage Foundation Backgrounder No.
2809, June 6, 2013, http://www.heritage.org/research/reports/2013/06/
why-the-trans-pacific-partnership-must-enhance-competitive-neutrality
(accessed November 17, 2013).
\3\ APEC, ``Pathways to FTAAP,'' November 14, 2010, http://
www.apec.org/Meeting-Papers/Leaders-Declarations/2010/2010_aelm/
pathways-to-ftaap.aspx (accessed November 17, 2013).
\4\ ASEAN, ``ASEAN Vision 2020,'' December 15, 1997, http://
www.asean.org/news/item/asean-vision-2020 (accessed November 17, 2013).
\5\ Asian Development Bank, ``Asian Economic Integration Monitor,''
October 2013, http://www.adb.org/sites/default/files/pub/2013/aeim-oct-
2013.pdf (accessed November 17, 2013).
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