Ambassador Portman spoke at length about the upcoming world trade talks on the Doha Development Agenda in Hong Kong next month and their implications for U.S.-China trade relations. I want to follow up by focusing more specifically on how we can keep our economic relations moving forward.
When President Bush comes to China next week, he will be coming with a positive and open mind. He rightly describes the U.S. relationship with China as cooperative, constructive, and candid. We saw this at work last week when our negotiators in Geneva reached an agreement on textiles. It was an important compromise demonstrating what can be achieved when China and the U.S. work together.
With China emerging as a major player on the world stage, our relations are growing more complex. We are managing a broad range of bilateral, regional, and global strategic and economic issues.
I’ve been in economic policymaking for most of my life … first as the head of economic development in Arlington, Texas … then for the state of Texas … and most recently as the Assistant Secretary for Economic Development at the U.S. Commerce Department. One of the first things I learned is that no matter where it takes place … China, Brazil, India or the U.S. … economic development has many inherent challenges.
But China is overcoming many of those challenges. In the 27 years since China opened its doors to the global economy and began market reforms, hundreds of millions of people have climbed out of poverty. In the 1970s, the private sector accounted for virtually none of China ’s GDP. Now the private sector accounts for over half of China’s GDP, according to the OECD.
On my last visit to China this past January, I went to China ’s northeast to talk with local government officials in Shenyang and Dalian about the transformation of their local economies. I was greatly impressed by the efforts government officials are making to improve the lives of China’s citizens.
Positive results China’s rapid economic development has had a positive impact on our trade relationship as China makes real progress in opening up its economy Since joining the WTO in 2001, China’s average tariffs have dropped from 41 percent to approximately ten percent. Other trade barriers have fallen. At the same time, U.S. exports have grown over 80 percent, thanks to these reduced tariffs as well as virtual elimination of import licenses and quotas, relaxed ownership restrictions for American companies in China, and opening up of certain economic sectors.
China is now the sixth largest market for U.S. exports, and America’s third largest trading partner overall. Last year, U.S. companies exported $42 billion worth of merchandise and services to China.
China’s growth is creating jobs and opportunities in the U.S. New partnerships are growing between U.S. and Chinese companies. And American workers are benefiting from the increased purchasing power of China’s 1.3 billion consumers.
China recently took an important first step toward a flexible, market-based currency. While this was just the first step, Chinese authorities have said that they intend to continue these reforms.
This July, China made very specific commitments to protect intellectual property rights. When President Hu met with President Bush this September, he reaffirmed these commitments. He pledged that China would step up its efforts to protect intellectual property, and enhance enforcement efforts.
The Bush Administration has taken action on important issues for U.S. companies and workers — and China is responding. President Bush has said the best policy is engagement — engagement over protectionism.
We often see the relationship described in one-dimensional terms, with people focusing on the U.S. trade deficit. But many forget about the huge investments our companies are making in China , investments that now total $50 billion. And they don’t realize the positive impact China trade is having on the bottom line of American businesses.
The U.S. China Business Council, in a new survey of its members found, that companies are making a profit in China. Some two-thirds said their China revenues increased in 2004, and expect increases again in 2005. Over 70 percent said that China is either their top global business priority, or in the top five. And three-quarters say they plan to raise their resource commitment to China this year.
To be sure, China has become a tough competitor. The global economy is driven in large part by the dynamic growth in China. And integrating China, as well as India and the former Soviet bloc, is helping hold down inflation, a salutary effect on both the U.S. and the global economy.
But the U.S. remains the fastest growing and strongest industrialized economy in the world. We have a long history as innovators, inventors, and entrepreneurs. American brands are known and demanded the world over: Coke, Ford, Dell, Apple, Motorola... the list is endless.
So the question before us today is: How do we take the relationship to the next level? How do we build on what two great economic powers have already achieved? How do we become better partners? Four core U.S. trade principles At the Department of Commerce, we follow four core principles in assessing trade initiatives and making policy.
First , there should be equal market access. When companies take risks overseas, they must be able to trust that commitments to reduce trade barriers are honored. And when disputes arise, as they inevitably will, they should be dealt with in transparent ways.
Second, laws and regulations must promote fair competition between domestic and foreign participants, and they must be enforced. This is at the heart of our efforts to combat intellectual property piracy.
Third, economic decisions within a country must be driven by free market forces. Private enterprises should rely on private investment, not government subsidies. And monetary policy should respond to market forces, not political considerations.
And fourth, countries should be governed by the rule of law. Clear rules and effective enforcement of those rules is essential.
We have learned from experience that U.S. businesses … in fact, all truly private enterprises … thrive in world markets that follow these core principles. Nowhere are these principles more important than in our relationship with China.
However, many people doing business in China and working on U.S.-China trade policy believe that China has yet to adequately embrace these principles, despite the responsibilities that go with China ’s rising position in the world economy.
While we want an equitable and fair relationship with China, there are concerns that non-market based policies are hurting the ability of our companies to compete in China. These concerns are real; many American companies are still shut out of the market, and this contributes to our trade deficit with China.
So, from the standpoint of the United States, the economic relationship with China needs improving. Without improvement, there is a risk of restrictions on commerce between our countries.
Tools that solve problems Fortunately, we have the tools to work on these problems. They are: high-level engagement, cooperation, and strong enforcement of our trade laws.
High-level engagement is vital. President Bush’s visit to Beijing is but the latest in a series of ongoing meetings. And the Administration is stepping up its engagement with the highest levels of the Chinese Government on economic issues. This includes the important decision by President Bush and Premier Wen (When) in December 2003 to elevate the level of participation in our annual U.S.-China Joint Commission on Commerce and Trade. Since Commerce Secretary Gutierrez took office in February, he has already visited China twice. His top priority is to ensure that American companies can compete on a level playing field to export more products and services to the China market. We also continue to emphasize to the Chinese leadership that market access reforms are in China’s best interest. Trade has never been a one-way street.
The U.S.-China Joint Commission on Commerce and Trade is now one of the most important venues for addressing trade issues, and is an effective tool for resolving commercial disputes. A number of commitments to improve market access for U.S. companies in China at the JCCT meeting in Beijing last July were a very positive result.
In particular, specific commitments were made on protecting intellectual property rights and opening China ’s market to American goods and services consistent with China ’s WTO commitments. President Hu and President Bush affirmed these commitments in September, agreeing that China will step up enforcement of intellectual property rights and work to continue China’s opening to foreign competition.
Let me explain why this issue is so important. Today as much as three-quarters of the value of publicly traded U.S. companies … some $5 trillion … comes from “intangible” assets, namely ideas … innovation … intellectual property. That’s up from 40 percent in the 1980s. Five trillion dollars is close to half the value of our entire economy. In short, innovation and new ideas are the driving force behind our economy.
And, while we recognize and appreciate the strong efforts by the Chinese leadership to attack the problem of rampant IP violations in China , we need to see results on this issue. As Secretary Gutierrez said when he visited China, rampant infringing of intellectual property rights is like counterfeiting currency-- a criminal activity that must be stopped. We look forward to seeing the significant reduction in infringing activities that the Chinese Government has assured us is our common goal.
The second tool at our disposal is cooperation. High-level dialogue is good but we need “neutral” forums such as this where we can discuss the issues openly and thoroughly.
In July, for example, I co-hosted with Vice Chairman Zhang from the National Development and Reform Commission an oil and gas industry forum on energy cooperation initiatives.
Similarly, the Department of Commerce is offering technical assistance and training to help China achieve its goal of becoming a full-fledged market economy that is transparent and respects the rule of law. We see this as a win-win for China and America. We’re working together a number of key areas, from anti-trust rules to anti-piracy law enforcement both inside China and around the globe.
One last comment on intellectual property theft: we believe global piracy and counterfeiting harms all nations. It costs American companies $250 billion per year in lost sales, and 750,000 jobs. Worldwide, including Chinese companies, the number explodes to $600 billion and countless jobs lost.
The last tool … in addition to engagement and cooperation … is that the U.S. will not shy away from the strong enforcement of our trade laws to protect American workers and their businesses. And we mean what we say. When we make a deal on textiles, computer chips, software or financial services, we expected it to be honored and we are prepared to take aggressive action if need be.
The Outlook In closing, let me stress that while serious problems remain, we see real progress in the development of our trading relationship. We’ve had our share of disputes over the years, most recently with respect to trade. And we see the forces of protectionism rising back home. But this isn’t new. We’ve seen the tug of war over engagement versus isolation throughout our history.
President Bush believes very strongly, as do I, that China and America can achieve more as partners than as adversaries.
We ask that China become a responsible stakeholder in the international economic system, by aligning its economy with market-based principles. We urge this because doing so is strongly in China ’s best interest. History teaches that healthy market economies offer the most effective means for creating jobs, lifting incomes, building wealth and improving standards of living.
So as we move ahead, let’s do our best to work government-to-government, industry-to-industry as partners to secure a safe and prosperous future for our citizens.
I look forward to a very stimulating and productive afternoon.
Thank you very much.
Source: U.S. Department of Commerce
