Annapolis, Maryland -- The reform programs and emergency loans proposed by the International Monetary Fund offer countries affected by the Asia finance crisis a chance to restore short-term confidence, according to U.S. Trade Representative Charlene Barshefsky.

"They will address the long-term causes of the crisis through fundamental economic reforms which can lead to greater transparent and competitive economies," she said. "And they will help these countries become more open to trade."

In a speech at the U.S. Naval Academy April 14, Barshefsky said: "The causes of the Asian financial crisis are complex, and are not identical in every country. But across Asia the basics are often similar. They begin with excessively close ties between governments, banks and corporations; which led to inadequate supervision of financial institutions; and as a result, speculative real estate and equity booms. The process was quite similar, although in Asia on a much larger scale, to that which created our own savings and loan crisis ten years ago. In some countries, a deep-seated resistance to competition and free trade and investment added another dimension which further worsened the situation."

U.S. Government agencies, the IMF and the World Trade Organization, will monitor these reforms in these countries closely, as well as pursuing bilateral trade agendas, Barshefsky said. But stopping the crisis and establishing the conditions under which stable exchange rates can be maintained is just the foundation, she said.

"As we work to end the Asian financial crisis; as we push for openness, deregulation and growth in Japan; as we work with China on its WTO accession and all the other items on our agenda; we are working toward that larger goal. Step by step, issue by issue, toward stability, shared prosperity and better lives."

"This year," she said, "our agenda -- agreed upon in principle by the APEC Ministers -- is to eliminate tariffs and expand trade across $1.5 trillion in global trade, including medical equipment, environmental services and technology, energy equipment and services, forest products and telecommunications."

"And as we look ahead," Barshefsky said, "with these agreements and more in the future, we can imagine a future in which all the Pacific nations are more prosperous. In which the quality of life for ordinary people rises along with the Gross Domestic Product of nations. In which peace, anchored as always by our commitment to a strong defense and a strong U.S. Navy; but also by strong ties of mutual interest, is more stable than ever before."

Following is the text of Barshefsky's remarks, as prepared for delivery:

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Good morning. I offer my very sincere thanks to Cynthia Frederick for that kind introduction; to Admiral Larson and the U.S. Naval Academy for inviting me to speak with you today; and to all of you here today at the "Asia Rising?" conference.

U.S. Interests in Asia

Let me begin by saying that trade policy in Asia is inextricably involved with security, and in particular with the U.S. Navy. As Alfred Thayer Mahan, who gave his name to this hall, wrote:

"the sea power of the country in peaceful commerce is the matter upon which alone, it cannot be too often insisted, a thoroughly strong navy can be based."

Those of us concerned with trade policy might put it the other way -- that the development of commerce and prosperity depend on a strong defense. And the truth is that they both depend upon one another.

That has been true for 165 years, ever since Ambassador Edmund Roberts sailed in the USS Peacock to negotiate our first trade agreement in Asia: the Treaty of Amity and Commerce with Thailand. Since then our trade with Asia has grown from a few wooden ships making uncertain voyages across the Pacific, to tens of thousands of containers, airplanes and electronic business deals landing at every port on our Pacific Coast and computer terminals all over the country; but the U.S. Navy remains the guarantor of peace, stability and open sea lanes in the Pacific.

That shows something important. Times may change. Politics, technology and trade may become more complex. But America's basic interests are consistent and simple. Peace and stability. Prosperity and better lives for our people. And Asia is crucial to both.

On peace and security, remember that in the past century, our country fought seven foreign wars. Five of them -- the Spanish-American War, whose centennial we will mark next week; the "Philippine Insurrection" which followed it; the Second World War; Korea; and Vietnam -- took place in part or in whole in countries affected by this year's financial crisis. And their size, proximity to sea lanes, and friendly governments make their fate as critically important to our country today as it was throughout the century.

With respect to jobs and prosperity at home, the Asian market includes half the world's people and some of its fastest-growing economies. Last year, we exported $194 billion worth of goods -- more than a quarter of all our exports -- to East Asia. Exports of services totalled over $73 billion in 1996, the last year for which we have figures available. These exports, although limited by pervasive trade barriers in many Asian economies, supported over three and a half million U.S. jobs.

And the future -- if, as the question mark in our conference title indicates -- Asia continues to rise, could be better still. As the President said in his address to the first Asia Pacific Economic Cooperation leaders summit in Seattle, in November of 1993:

"Imagine an Asia-Pacific region in which robust and open economic competition is a source of jobs and opportunity without becoming a source of hostility and instability, a source of resentment or unfairness. Imagine a region in which the diversity of our economies remains a source of dynamism and enrichment, just as the diversity of our own people in America makes our nation more vibrant and resilient. Imagine this region in which newly emerging economic freedoms are matched by greater individual freedoms, political freedoms and human rights."

That is the opportunity before us: a Pacific Community. Stretching from China's Western Desert to the Atlantic shores here in Annapolis, and from New Zealand and Australia across the equator to the Arctic Ocean, this community would join the world's three largest economies; half the world's people; some of its fastest-growing traders; and some of its most advanced scientific and technological powers. It would be an enormous source of wealth and creativity for the entire world, and an unmatched guarantor of peace. And today I would like to speak about how our trade policy will help make this vision reality.

Asian Financial Crisis

We must begin with our approach to the immediate challenge to stability and prosperity in the Pacific: the Asian financial crisis.

For the past two decades, Asia was the world's fastest-growing economic region. But after last July, when Asian currency values began to fall, Asian economies began to slip into recession. Unemployment has grown rapidly' Indonesia, for example, expects that 20 million of its 90 million workers will be unemployed this year. And it is not impossible that prolonged recession and high unemployment could lead to social and political instability.

In our own country, an Asian recession combined with lower currency values, will hurt American exporters. We cannot sell to the region if consumers are out of work, companies go bankrupt, and governments out of revenue. Already we note that our goods exports to Korea last January, for example, fell by nearly a billion dollars from the level they reached in January of 1997. At the local level, we see stories about a Dresser Industries plant on Maryland laying off 50 people because of lost exports. Semitool in Montana laying off 85. Boeing calculating on selling 60 fewer planes in 1999 and 2000. Motorola losing cellular phone sales and debating whether to cut jobs or shorten work weeks. And as the year goes on, we expect to more of this -- slipping exports, higher trade deficits, and potentially lower rates of growth and job creation.

And so, in addition to its importance for political stability and a peaceful Pacific, the international effort to restore economic and financial stability to the region is the single most important trade policy objective we have today.

Trade Provisions of IMF Programs

The causes of the Asian financial crisis are complex, and are not identical in every country. But across Asia the basics are often similar. They begin with excessively close ties between governments, banks and corporations; which led to inadequate supervision of financial institutions; and as a result, speculative real estate and equity booms. The process was quite similar, although in Asia on a much larger scale, to that which created our own savings and loan crisis ten years ago. In some countries, a deep-seated resistance to competition and free trade and investment added another dimension which further worsened the situation.

The reform programs and emergency loans proposed by the International Monetary Fund offer these countries a chance to restore short-term confidence. They will address the long-term causes of the crisis through fundamental economic reforms which can lead to greater transparent and competitive economies. And they will help these countries become more open to trade.

Thailand will restructure public enterprises and speed up privatization of energy, transportation, utilities and communications. In Korea, the restructuring of the financial and corporate systems to make them more sound, transparent, and efficient already will address the systemic problem of government-prompted loans to non-economic uses, including those to the chaebols. Korea will also speed elimination of trade-related subsidies; accept a binding World Trade Organization commitment on financial services reform; and reform its import licensing and certification, which should ease entry and distribution for agricultural commodities, food, distilled spirits, autos, pharmaceuticals, and cosmetics.

Both of these countries have worked very hard to implement the reforms, and are seeing good results as market confidence and investors return. The financial situation remains precarious and we are not out of the woods. But some economists already predict a shorter, less severe recession in these countries than they had expected just a few months ago. And as Thailand celebrated its New Year festival yesterday, its people had the right to look-ahead with hope.

Indonesia has agreed to eliminate special tax, customs and credit privileges granted to the "National Car" project, abolish any budgetary and extra-budgetary support and credit privileges for the "strategic" national aircraft project, reduce tariffs and border non-tariff measures on both imports and exports, including agricultural and food products, deregulate its domestic sugar, wheat, wheat flour, soybeans and garlic markets, and abolish cartels in a number of other industries. We anticipate that as Indonesia implements these reforms and the other provisions of its new agreement with the IMF, it will also see good results.

We at the U.S. Trade Representative's office, along with the Treasury Department, the Commerce Department, the IMF and the World Trade Organization, will monitor these reforms closely as well as pursuing our bilateral trade agenda.

But stopping the crisis and establishing the conditions under which stable exchange rates can be maintained is the foundation, as is ensuring continued US participation in IMF funding. We are very pleased by the 84-16 vote in the Senate in support of the US contribution to the IMF, and hope to see the House act on it soon without attaching unrelated issues.

Japan

Neither we in America nor the affected countries, however, can solve this crisis alone. Others also have responsibilities, and I would like to cite Japan in particular.

The US cannot be the only engine of global growth or the sole buyer of goods to absorb the tremendous productive capacity of Asia. While we expect our trade deficit to increase as a consequence of the lower currency values in Southeast Asia and Korea, it is neither fair nor politically acceptable for the United States to be the only country buying their exports. So we look to Japan, the world's second largest economy, to play a central role in resolving this crisis.

Japan's policies must ensure not only effective market access for US goods and services, but also for the goods and services of the Asia-Pacific region. We need action in three areas, and Japan's own business leaders agree that it must come soon.

First, Japan must aggressively deregulate its economy and increase market access for foreign goods and services. Second, Japan must enact meaningful fiscal stimulus to support Japan's economy and make Japanese growth a source of confidence rather than gloom for the region. Third, it is crucial for Japan to act clearly and decisively to strengthen its financial system.

Last week, Prime Minister Hashimoto announced steps to stimulate the Japanese economy, including public works spending and tax cuts. We look forward to seeing the details. What is crucial is that Japan move quickly to put in place a strong and meaningful program.

At the same time, we will continue to enforce our thirty-four bilateral trade agreements with Japan, including our agreements on telecommunications procurement, autos and auto parts, insurance and glass. We will also monitor market access for photographic film and paper. And we will push for meaningful progress under the Enhanced Initiative on Deregulation and Competition Policy we and Japan announced last year.

This initiative addresses deregulation of financial services, telecommunications, housing, medical devices and pharmaceuticals. Decisive action on the part of Japan's government is needed, but we have not seen it yet. Japan's recent announcement of a new three-year deregulation program represents some progress, but is too vague on key issues and often delays implementation for several years. Japan can and must do better. It should fulfill its responsibility as the world's second largest economy, to open its markets for Americans and the world, and help to ensure the economic health of the Pacific.

China

Let me now turn to the largest Pacific nation: China.

China also has an important role to play in the Asian crisis. We welcome the commitment, both by China and the government of the Hong Kong Special Administrative Region, not to devalue their currencies. That is immensely important and has had good effects.

Looking further ahead, we face the enormous challenge of finding common ground and building a permanent, stable working relationship with China after the Cold War. In the long term, this is the most important task in our effort to ensure peace and prosperity in the region, and ultimately to build the President's vision of Pacific Community.

What we hope to see, in the coming decades, is a China fully integrated into the modem world. That helps to ensure peace and security, by working with us on the Korean peninsula, in Cambodia, and in other regional conflicts. That supports and augments the world's effort to prevent the spread of weapons of mass destruction. That accepts and helps to promote basic concepts of human rights. And that plays its rightful part in building prosperity for its own people and its neighbors.

It is fair to say that, since President Nixon's opening to China in 1972, we have come a long way toward that goal. Once a sponsor of revolutionary armies in Southeast Asia, China now seeks investment from Southeast Asian business magnates and contributes to the IMF rescue packages. Once racked at home by vast and destructive ideological campaigns, China now allows citizens at least the freedom to find their own jobs and careers. And once a great enemy of the free market, China is now negotiating to join the World Trade Organization -- the international symbol of free markets governed by the rule of law.

It is also fair to say that the journey is far from complete. We have serious concerns in a number of security areas. We seek a full commitment to international standards of human rights, and adherence to internationally accepted core labor standards. We hope to see a commitment to environmentally sustainable development. And we -- especially those of us concerned with trade policy -- recognize that China's economic system today keeps much of the Chinese economy closed to, the world and to us.

The President's policy aims to help China complete its vast transition. The Defense Department, and the Navy in particular, have opened a long-term program aimed at creating dialogue on military issues and finding confidence-building measures especially in the naval field. We continue vigorous advocacy of human rights. And we have a very ambitious, long-term approach to trade.

From China's point of view, the benefits of trade with the United States are enormous. China's $60 billion in exports to the United States, combined with direct U.S. investment in China -- have fueled modernization along China's coast, providing countless jobs, new technologies, and opportunities for ordinary Chinese to live better lives.

For the United States, the ability of such industries as telecommunications, aviation, the services trades and professions, our manufacturing industries and agriculture to reach their full potential depends on access to China -- a market that by 2010 may be the largest in the world.

United States policy in trade with China is to build on these mutual interests and encourage China's continued opening to the world through trade. Our agreements with China on market access and intellectual property rights are founded in specific and critically important American economic interests. But embedded in them are broader international standards. Transparency of laws and procedures. Access to administrative or judicial decision making. Curbs on the arbitrary power of the state. And the negotiations we are carrying out now, whether bilateral or on membership in the World Trade Organization, are also grounded in international norms, practices, rules and law.

The goal is neither simple nor easily reached. The WTO is a comprehensive arrangement covering most areas of modem trade. It includes traditional tariff and non-tariff barriers to trade. It also covers agriculture, intellectual property rights, and other areas including our most recent agreements on information technology, telecommunications and financial services. We expect China to live up to acceptable commercial standards in each of these areas and all the others -- just as we do.

And thus it is a slow, deliberate process. But the result will be worth the work. A fully normal trade relationship between two of the world's three largest economies. Direct benefits, in the form of job opportunities and new exports, for Americans; and new economic opportunities for Chinese. Growing personal contacts between ordinary Chinese and ordinary Americans. And as China completes its journey from isolation to full integration with the world, an enormous contribution to peace and stability in the 21st century.

Asia Pacific Economic Cooperation (APEC)

And that brings me back to where I began: the effort, begun by the President in 1993, to build a Pacific Community.

As we work to end the Asian financial crisis; as we push for openness, deregulation and growth in Japan; as we work with China on its WTO accession and all the other items on our agenda; we are working toward that larger goal. Step by step, issue by issue, toward stability, shared prosperity and better lives.

This goal is not easily achieved. But it must remain our vision, and inform our policies.

This year, our agenda -- agreed upon in principle by the APEC Ministers -- is to eliminate tariffs and expand trade across $1.5 trillion in global trade, including medical equipment, environmental services and technology, energy equipment and services, forest products and telecommunications.

All this may sound arcane if you don't operate a sawmill or make medical equipment for a living. So let me give you an example of what it means in the real world.

Last month we at USTR got a letter from a seventeen-year-old American student on a Rotary Club exchange program in Peru. She wrote:

"The Rotary Clubs here in Arequipa were given a million dollars worth of kidney dialysis equipment. The equipment will be given to the state-run hospital. Customs Officials are demanding an import tax due of $200,000 to release the equipment. Rotary of course does not have that kind of money available.... The equipment has been here long enough now that Rotary is afraid it may be sent back. They are desperate."

Of course we want to help her by solving this specific case. But by completing the APEC agreement on medical equipment, and then making it universal through the WTO, we may be able to make sure no such case ever happens again. So as the medical equipment agreement creates sales abroad and jobs at home for Americans, it will also mean better-equipped hospitals, healthier children and better lives in places like Arequipa and everywhere else in the world.

Every other agreement has benefits to rival this one. The agreement on environmental services and technology, for example, will mean cheaper waste-water treatment plants and better health for developing Asian countries; along with more American sales in one of the world's fastest-growing market sectors.

And as we look ahead, with these agreements and more in the future, we can imagine a future in which all the Pacific nations are more prosperous. In which the quality of life for ordinary people rises along with the Gross Domestic Product of nations. In which peace, anchored as always by our commitment to a strong defense and a strong U.S. Navy; but also by strong ties of mutual interest, is more stable than ever before.

Conclusion

That is by no means guaranteed. The Naval Academy's conference title "Asia Rising?" -- has a question mark, and for good reason. This year has seen a wave of pessimism and doubt about Asia. And while the pessimism may be exaggerated -- as were earlier claims of a superior "Asian model" of economics there is no doubt that this year's financial crisis is serious; it is severe; it is the greatest immediate challenge to our hopes for the future.

But we know what we need to do. As you may know, though, the Chinese character for "crisis" combines the terms for "danger" and "opportunity." And that is the case with the Asian crisis. It poses real dangers to the affected countries and to American interests. But it also offers Asia, and us, an opportunity. With the right reforms, Asian countries will rise from this crisis with economies that are stronger, more open and more stable.

And as we look ahead, with a focused,, determined effort led by the United States to continue to open up Japan, to bring China into the trading system on the right terms, and to work with the Asian countries bilaterally and through APEC to our mutual benefit, we can see a future that is better for us all.

A more prosperous region.

A more secure peace.

A growing Pacific Community.

And, as Alfred Thayer Mahan would point out, a stronger America.

Thank you.

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