TRANSCRIPT: DALEY 10/6 ADDRESS TO AMCHAM HONG KONG
(Hong Kong should keep high degree of autonomy)

Washington -- The United States looks forward to Hong Kong's continued success as a Special Administrative Region of China with a high degree of autonomy, according to Secretary of Commerce William Daley.

"It is the utmost importance for our bilateral relationship that Hong Kong continues to be Hong Kong. It must remain as a free and open society and a stable economy," Daley said in October 6 remarks to the American Chamber of Commerce in Hong Kong.

According to Daley, U.S. business representatives remain optimistic about Hong Kong's commercial future but are concerned about the protection of intellectual property rights.

"For Hong Kong intellectual property protection is generally good," he said. "Everyone recognizes that the government's increased efforts to combat piracy have been somewhat successful. Yet, the reality is that the widespread and blatant retail sales of pirated goods does continue."

"This (piracy) hurts the U.S. and Hong Kong companies, but it also is a spot on Hong Kong's otherwise sterling reputation in the international business community," Daley continued. "I know that many of you would like to see Hong Kong attract significantly more high-tech businesses. However, these companies need to know that their intellectual property is safe before they will be willing to invest the amounts of capital that Hong Kong would like to see here."

Another topic of great importance is export controls, Daley said.

Daley said that the United States currently treats Hong Kong differently from the rest of China in the area, giving Hong Kong preferential licensing treatment. He added that the United States intends to continue this policy and will be participating in regular meetings for export control cooperation between the United States and Hong Kong.

"This position recognizes Hong Kong's effective implementation of a comprehensive export control system, and our excellent working relationship in this area," he said.

Daley stressed that the United States remains very interested in how Hong Kong's relationship with China continues to unfold.

"Hong Kong is the bellwether of China's commitment to the 'one country, two systems' principle. It is a living prototype, demonstrating that when markets are open and people are free, opportunities are boundless. One hundred days is but the first step in a thousand mile journey that is underway right here," he said.

Following is the transcript of Daley's remarks:

(begin transcript)

THE HONORABLE WILLIAM M. DALEY
U.S. SECRETARY OF COMMERCE
ADDRESS TO THE AMERICAN CHAMBER OF COMMERCE
CONRAD HOTEL
HONG KONG SAR, CHINA
OCTOBER 6, 1997

HONG KONG SAR: THE FIRST 100 DAYS -- A CRUCIAL BELLWETHER

SECRETARY DALEY: Thank you very much and thanks, Doug, for that introduction. And I do appreciate the opportunity to be here. And thank you for the chance this morning to meet with so many different members of the board of the Chamber. I appreciate your hospitality and the fact that this Chamber is so successful. I would like to acknowledge the presence of our Consul General, Richard Boucher, who has been very helpful to our visit and obviously does a wonderful job year round on behalf of the Government of the United States of America. And also David Katz, who is our Commercial Officer in Hong Kong, thank you for his presence and the tremendous work which he does on behalf of American businesses in Hong Kong.

Let me just begin by thanking all of you for being here this afternoon and for giving me the opportunity once again to address an American Chamber of Commerce branch, this being the largest American Chamber outside the United States.

This is my first visit to the Island of Lights, and Hong Kong is, as described, a beautiful tourist site and one of the world's most vibrant commercial centers.

In 1959, the London Sunday Times sent Ian Fleming, the creator of James Bond, on a tour of the world's great cities. He described Hong Kong as the most vivid and exciting city that he had ever seen. That assessment is even truer today, for Hong Kong is a magnificent region, with a glorious, fabled history, and a vital, confident future. You, the leaders of the Hong Kong business community, are like the God Janus, looking back with satisfaction on the past, and forward with the optimism to the future. This is an exciting time to be here, and this week Hong Kong marks its first hundred days since the handover.

In the United States, we closely scrutinize the first one hundred days of any administration. Sometimes, we scrutinize a little too much. Many say that the first one hundred days does set the tone for the future. I am pleased to say that in speaking with Hong Kong's leadership today, it appears that Hong Kong is staying in the course in the terms of remaining a free and open society. We look forward to early open and fair elections that will maintain the direction and the pace of the democratization process.

This morning, I had the honor of meeting with Hong Kong's Chief Executive, C. H. Tung; Chief Secretary for Administration, Anson Chan; and the Secretary of Trade and Industry, Denise Yue. I'd like to share with you the message that I delivered to each of them. I said that it is the utmost importance for our bilateral relationship that Hong Kong continues to be Hong Kong. It must remain as a free and open society and a stable economy.

For many reasons, including Hong Kong's pivotal role in the international arena, the United States is very interested in how the myriad layers of your relationship with China continue to unfold.

Some eleven hundred U.S. businesses are represented here, and over four hundred of these maintain regional headquarters. Over 50,000 U.S. citizens live in Hong Kong, which has doubled in the last five years. And U.S. investment here continues to grow at a very healthy pace.

Recent Department of Commerce estimates for 1996 showed an increase in direct investment of 13 percent, representing over U.S. $16 billion. Companies are attracted because of the direct transparency in registering contracts and claims and adjudicating disputes.

This dynamic territory remains the gateway for over half of China's exports and almost 60 percent of the overall investment in China. And at the same time, you contribute expertise and capital to support China's modernization. U.S. interests in Hong Kong have always been strong, for our relationship is built on shared concerns, common goals and universal values, and of course, the personal ties which we have. We want to continue to promote free trade and investment policies that help both of our economies. We look forward to Hong Kong's continued success as a Special Administrative Region of China with a high degree of autonomy.

Let me take a moment to recognize Hong Kong's exemplary anti-corruption record. The Hong Kong Independent Commission Against Corruption is world renowned, as is its commissioner, Lilly Yam. Just last month, Commissioner Yam visited the United States and held successful meetings with the Departments of Commerce and Treasury and Justice and State, to brief us on the Commission's on-going anti-corruption efforts.

The last American Chamber of Commerce survey, as mentioned by Doug, showed that U.S. business representatives are overwhelmingly optimistic about Hong Kong's commercial future. Nonetheless, we do have some concerns. Intellectual property rights are probably the most major of our concerns. For Hong Kong intellectual property protection is generally good. Everyone recognizes that the government's increased efforts to combat piracy have been somewhat successful. Yet, the reality is that the widespread and blatant retail sales of pirated goods does continue. This hurts the U.S. and Hong Kong companies, but it also is a spot on Hong Kong's otherwise sterling reputation in the international business community. I know that many of you would like to see Hong Kong attract significantly more high-tech businesses. However, these companies need to know that their intellectual property is safe before they will be willing to invest the amounts of capital that Hong Kong would like to see here.

For my discussions this morning, I am extremely encouraged that the government recognizes the gravity of the problem and is trying to address it. And I underscore the need for prompt and effective actions.

Another topic of great importance to this audience is export controls. Our current policy is to treat to Hong Kong differently from the rest of China. In my meetings with Hong Kong authorities, I have affirmed that there will be no change in our export control position -- that we are continuing the previous preferential licensing treatment for Hong Kong. This position recognizes Hong Kong's effective implementation of a comprehensive export control system, and our excellent working relationship in this area. And I am proud to announce that this morning in my meeting with Secretary Yue we agreed to establish regular meetings for export control cooperation between the United States and Hong Kong.

After the remainder of my meetings in Hong Kong, I will travel to Beijing for the eleventh session of the U.S.-China Joint Commission on Commerce and Trade, which I co-chair along with the Minister of Foreign Trade and Economic Cooperation, Madam Wu Yi. I greatly look forward to developing a close and personal and cooperative relationship with the Minister, who as many of you may know was very close to my predecessor, Secretary Ron Brown. And she of course has a global reputation for having guided the rapid development of China's foreign trade.

While in Beijing we will use the opportunity to re-affirm the important role of a free and open Hong Kong, the role it plays in the global marketplace. Of course, we will be promoting the development of bilateral commerce, and especially we will be promoting the development of commerce in a more balanced manner.

The United States has a strong interest in expanding our trade with China, in its continued economic development and in the liberalization and opening of its economy. There are two major aspects of our commercial engagement. The first is pursuing China's accession to the WTO in a way that generates firm commitments to the principles and practices of the WTO and that generally opens the Chinese market.

I am very much looking forward to working closely with Ambassador Barshefsky to seek a strong and effective market-opening package from China. This must include reducing not just tariffs, but non-tariff barriers as well -- standards, certifications, imported licensing, distribution rights and many others. When China enters the WTO, it will receive the benefit of fifty years of global trade negotiations. And it must make a commensurate balance of concessions and obligations to the WTO members.

The second major aspect of engagement is building the nuts and bolts of doing business -- the practical construction of the business and commercial environment in a way that enables commerce to grow. This is a special function of the JCCT -- company to company contacts, problem solving and creating the business infrastructure that paves the ways for you and your companies, as business representatives, to succeed in this most dynamic marketplace.

We welcome a secure, prosperous, and open China -- a country that will be a constructive member of the international community and a valued partner for the United States. Given the economic and commercial importance of China in the global economy and to U.S. international commerce, we are committed to expanding bilateral trade and also investment ties -- and doing so in a way that creates a more open and a more balanced trade relationship.

Only a dozen years ago, our trade with China was in balance. Today, we have a trade deficit that so far this year is running at an annual rate of U.S.$ 44 billion. This is second only to our deficit with Japan. In this we are not alone, for last year the rest of the industrialized nations ran a $34 billion deficit with China, virtually the same size as our $40 billion.

The huge size of China's domestic economy -- which is second largest in the world-- contrasts with its role as an importer. China ranks as our 15th largest market, behind much smaller countries such as Belgium and Singapore. And moreover, despite China's explosive growth domestically, American exports to China have remained only a small percentage of our total overall exports -- 1.8 percent of U.S. global exports in 1985, and only 1.9 percent in 1996.

I would like to be very clear: our export performance in China is not due to any loss of U.S. competitiveness to other industrialized nations. Our exports to China have actually grown more rapidly than those of other industrial competitors.

Our trade is in severe imbalance. Since 1985, when we last had a balanced trade situation with China, China's exports to us have grown at a compound annual rate of 25 percent. However, China's imports from us over that time period grew at an annual rate of only 11 percent. And this is barely more than the 10 percent rate at which our exports to the world grew during the same period.

The real message of these numbers is that the Chinese market has yet to open. China is in the throes of an unprecedented reform of its internal economy, dealing with the transformation of largely unproductive state enterprises. However, the pursuit of internal reform and economic dynamism has preceded decisions to open the economy to international competition.

We want to address this imbalance in the JCCT, and we have prepared a full agenda that includes trade finance, standards, market access, taxes, price caps on pharmaceuticals and medical equipment, export controls and domestic distribution.

We will also be discussing small business opportunities, for over 75 percent of the 4100 U.S. exporters to China are small and medium-sized firms. But Fortune 500 or small and medium size, only 4 percent of the total U.S. exporting community is represented here. And we need to show the other 96 percent that bilateral trade is both possible and also mutually profitable.

To build our numbers, there must be greater market access for U.S. exports. American trade policy is based on a basic, unwavering demand for fairness and a level playing field. With the 140 members of the WTO, we recognize that the increasingly open global market system comes with rights, and also it comes with obligations.

China's reach is great, its economic impact and potential is boundless. But for trade to continue to thrive, China must be willing to accept the obligations, as well as the opportunity that open trade brings. This is my central message, for the world is waiting for China's commitment to the basics of open and fair trade in all aspects of the global economy.

As President Clinton said, China is a home to a quarter of the world's people. In less than two decades, its economy may be the largest on earth. America has a proud interest in seeing that China is stable and open, and at peace with its neighbors. We want to embrace political pluralism and the international rules of civilized conduct. We want a China that works with us to build a secure and a prosperous future.

Let me conclude by saying that Hong Kong is the bellwether of China's commitment to the "one country, two systems" principle. It is a living prototype, demonstrating that when markets are open and people are free, opportunities are boundless. One hundred days is but the first step in a thousand mile journey that is underway right here.

The Chinese have a saying: "The predecessors plant trees so that the future generations can enjoy the shade." This is the future which we all are working for and dream for.

Thank you very much.

MODERATOR: Ladies and gentlemen, Secretary Daley has graciously agreed to answer some questions. The ground rules are that if you raise your hands, there are microphones around. I'll ask you to identify yourself, please, and stand up if you will. And just ask clearly the question. The media at the back will be excluded from this Q and A session. For those of you sitting here and have paid for your lunch, and if you work for the media and you are a member, that's okay.

So I'll start. First question please.

Q: We, like a number of other American companies, have received approvals in recent years for make major petrochemical investment in China. One of the issues that has been arisen recently is the re-imposition of import duty on equipment that it bought into China for the projects, which has a significant impact on the viability of that project. Is this import duty issue on your agenda, Mr. Secretary?

DALEY: I believe it is on the agenda of the JCCT meetings which begin tomorrow afternoon, and we will discuss it with our counterparts in Beijing -- not your specific company's problem, obviously, but overall issue, yes.

Q: Secretary Daley, inherent in China's systemic problems are -- they have been very good at establishing a great deal of laws to help businesses, however, inherent in the whole system is the problem of not being able to implement and control these laws. Is there anything we can do to help in that line?

DALEY: Well, I think this is another issue as part of our JCCT, the working group on the rule of law, and trying to work through many of the problems that have been brought to us by companies trying to do business in China. I think what you can do is to continue to highlight to the business people and the government officials that you deal with in China, that the rule of law, and getting not just laws on the books but also implementation processes, are most important if there are to be the opportunities that all of us believe will occur in China. In this extremely vibrant economy that is growing in China, that will only succeed if there is not only rule of law on the books, but there is a process by which one can see those laws being enforced. An open and free judicial system is most important. For starters, a dispute resolution process would be most important too. So I would think what you can do is to continue to highlight it as a major concern, and if it is not addressed, then the opportunities which everyone believes in there may not develop.

Q: About six to nine months ago, if you had been here, there would be some discussions about the coming Presidential summit in Washington, D.C., that there might be some understanding on China's accession to the WTO. Currently, in the last couple of months, that issue has apparently dropped from the agenda. What do you think will be on the agenda during the Presidential summit, and will there be discussions about the current status of the WTO talks?

DALEY: The status of the WTO discussions is of great importance to the United States. One of the issues that I will obviously discuss with my counterpart starting tomorrow will be exactly where we may be in our negotiations. Ambassador Barshefsky's team continues to meet with their counterparts. We have not seen the progress that we would like to see. It is an issue that will be discussed in and around the summit, and we do hope that there is a proposal that gets tabled, that accomplishes not only what the United States is looking for, but many other countries, as I have mentioned, that have been part of this open and free trading system for fifty years, and have met the obligations and have been the beneficiaries of that system. So we are hopeful that there can be some progress. Obviously, in the run up to the summit, there is great anticipation, but these sorts of decisions and movements should not be based upon a certain date or an event that may happen. And it is much more important to be done the right way and not try to be rushed because of a certain date or an imaginary date that may be set by someone else. We are confident that we can continue to make some progress, but it is difficult right now, to be very honest with you, because of the offers that have been tabled so far.

Q: Most of your remarks have focused on trade imbalance. During the Fifteenth Party Congress, China took up the challenge to re-structure a lot of its state-owned enterprises to make them more effective and efficient. On your agenda, is there any mention of services that U.S. companies and other companies can play in helping China to re-structure their economy and the state-owned enterprises in particular?

DALEY: Well, I would assume that there are a few companies that see opportunities, depending on how those state enterprises are privatized. But that will only occur if the market is open to those services in a greater way than we have seen. So there is no doubt there may be tremendous opportunities to bring the expertise from not only U.S. companies, but from companies throughout the world, service companies that have dealt with these sorts of activities -- not quite at the degree that you are going to see occurring in China. But that's the heart of what we are trying to do, to open and get a different attitude about the opportunities that may be presented there, and bring the expertise that many of you have in the service sector, to China.

Q: A couple of years ago, there were a lot of discussions about question marks over the future of your Department. We no longer seem to hear those. Has that gone away?

DALEY: Since you asked that question, I guess it hasn't gone away! But I can say with some confidence and some certainty that, at least through the end of this year, I will have a job. And for that I am eternally grateful!

I think the questions that were raised back in 1995 by Secretary Brown, who did such a masterful job of responding to the complaints some people had about the Department of Commerce and about its relevancy ... I think at this stage we are in a strong position. I do believe there is an understanding within the American political system of the importance that our Department does play in the growth of our exports, which have sky-rocketed over the last four years and now account for about a third of our GDP. And, so we feel very confident that those activities that we do are appreciated by the political establishment. But I would assume there are still people in the Congress who would like to see fewer members of the Cabinet. And, as a matter of fact, there was a bill introduced last week to do away with us. But I am confident that people in this room who have a interest in such things could express themselves to members, if they cared to. I feel pretty good about where are we at right now, but "ever vigilant.".

Q: The Foreign Commercial Service has long been a very helpful entity working for the support of the American goods and product. The Foreign Commercial Service -- it may have its name changed but I am not sure. And we worked with them ourselves and through the Chamber for a long period of time. Will you be discussing the opportunities for opening more branches and resources to support more branches in China? It would be nice to have more of them for us to interact with as we look towards supporting our clients, our American clients' products and services in the PRC. Will there be any expansion of these offices?

DALEY: I do not think there is any question but that we are going to have to look to expand our operations in China. We have budget constraints, as you can imagine, as with most departments. But within our budget, I do appreciate your words about the Commercial Service. They do a wonderful job, and as does our domestic offices, who support U.S. companies by providing a better understanding of the export markets around the world. And I would think it is imperative on us, and on your businesses, to re-evaluate the deployment of people around the world, and where are there opportunities and where are we most needed. And it would seem to me that what is possibly developing as the largest economy in the world, we should have a much greater presence there than we have had. And I would look forward to being able to expand that over the next couple of years -- but within the confines, of course, of budget constraints. But there is no doubt our people do a wonderful job and with what has been dwindling resources, budget-wise.

But Secretary Brown three and a half or four years ago set out what was the "big emerging market strategy" of identifying the ten major markets for potential growth, and we are in the process of trying to re-do some of our resources to make sure that we are there in sufficient numbers -- so that American businesses have the support they need. Thanks for the question, though.

Q: Mr. Secretary, The American Chamber of Commerce in Hong Kong supports the U.S. Foreign Corrupt Practices Act, which is consistent with our view of business ethics and is also in effect a shield against people who may solicit corrupt contributions. But we are keenly aware that no other country in the world has similar legislation, and we would greatly love to see the United States export this type of legislation to other countries, which not only do not have that type of legislation, but actually permit tax deductions for payoffs, etc. Could you please give us an assessment of where the American government is in encouraging other countries to follow the U.S. example on that?

DALEY: I appreciate that question, because it is an extremely important question. As I mentioned, one of the successes of Hong Kong, one of the reason for its success right now, and it has been so for the last twenty-some years, is the vigilant anti-corruption action which has been taken by the government. That is extremely important to you, and businesses know that corruption is rampant in many parts of the world. We in United States feel very strongly -- since it has been mentioned -- we are the only country in the last twenty years who's had a very tough law we have enforced against the U.S. companies for any foreign corrupt actions. Last May, I had the opportunity to represent the United States at the OECD meeting, where we put forward a recommendation -- which was passed -- to make foreign corrupt practices non-deductible, for starters. I know that everyone laughs and thinks that's funny, and it is rather odd to think that in today world, in these times, that that would still be legal; but it is. And it is a serious impediment to doing business on an fair and level playing field. And it is not a laughing matter and we do not view it as a laughing matter in our government.

So we have gotten the OECD, after much prodding and much cooperation by many of the countries who have been members for a while, to come forward and make recommendations. We hope to have a convention to put together by the end of this year. The recommendation that was passed calls for legislation to be introduced in all the national legislators by the end of April, and passage in those legislatures by the end of 1998. It is a very aggressive schedule. But we will be very vigilant about the implementation of those recommendations, because we do feel that it affects our companies' ability to have a fair and level playing field. And it is just too prevalent in too many countries. As I mentioned, Hong Kong is an example of how to fight that. But it is a constant fight and you can never sit back and think that you have been totally successful. Because there are always those who are rather creative at the other of the table. But I also thank you for that question, because it is an extremely important issue that we keep trying to raise and will later this year as we move through this negotiation with the OECD members.

Q: Going back to WTO accession and also the Fifteenth Party Congress, in addition to the state enterprise reform, President Jiang Zemin also announced that, as of last October just passed, that they would cut tariffs by an average of about 26 percent, about 4800 imports. What results have you seen far, if any, on this, and also is this considered the "considerable progress" that Ambassador Charlene Barshefsky has called for from China in order to progress in its accession to the WTO?

DALEY: We do think that that is very good progress. Obviously, to cut tariffs to that degree is a sign of an attempt to try to address some of the concerns which have been brought up again, not just by the United States but also by many others. But in addition to these tariff reductions, there are a whole host of non-tariff barriers that have existed and continue to exist that are, often times, much more serious than the size of the tariff, that may be in existence. So we find that many of these non-tariff barriers today, not just in China but also in many other countries, that are much more serious. And we hear that from the business community, that have been brought to our attention, that tariffs are one issue, and obviously it is helpful to the Chinese economy to get those tariffs down and to become much more competitive. But at the same time, the whole host of non-tariff barriers that are raised to doing business in China for companies, are as serious in many ways as the level of the tariffs. But we view it as a very positive step, that reduction.

Q: The FCS, the Foreign Commercial Service, has been invaluable to us, and I have told my Congressman that and I keep telling him that. My question to you is, your focus is China, and that is important to our company, as well as many here. What are your plans for the rest of ASEAN? Do you intend to do a swing down to Singapore, Indonesia, Malaysia, etc.?

DALEY: I'll probably do a trade mission. I have done two so far and will do a third this year. I did one to Latin America and one for small and medium-size businesses to Canada, and I am going to do a trade mission to India. Early next year, I will probably do one to Singapore and Thailand, and possibly one other country in ASEAN. But the schedule is not complete for all of next year. I assume that you will see me often here, but I have not yet laid out the entire schedule for next year. Trade missions are a big part of what we are going to try to do next year in raising the visibility and the presence of U.S. companies in Asia, so I look forward to a number of trade missions next year, and one to China.

Q: I was going to elaborate on that also, given the problems, of course, with Taiwan, you know sensitive issues like that. And also the environmental problems that are major things in Indonesia and Malaysia. I am wondering if the United States was going to bring in companies or try to work together to eradicate this major problem, which is of course is hurting industry in those countries?

DALEY: We have our environmental technology companies, obviously, who have been very supportive in trying to address the problem. We, in the Department of Commerce -- the National Oceanographic and Atmospheric Administration is part of the Department of Commerce -- all those satellite photos you see come from our satellites. We have been heavily involved in trying to bring whatever expertise is desired from our Department and from our government to try to address some of the concerns. And I know quite a number of our environmental technology companies are very much involved trying to address some of the problems. But this is a major problem, and we stand ready to be of assistance to the governments if called upon.

(end transcript)