U.S. Dept. of State - IIP: The United States and China

Text: U.S. Consul General Klosson Speech on U.S.-Hong Kong Relations
(Calls Hong Kong a "great advertisement" for globalization)

U.S. Consul General Michael Klosson told the Hong Kong General Chamber of Commerce June 15 that "if we want to sustain the global process of liberalization and integration from which Hong Kong and the United States have benefited, we need to think concretely about how to shape globalization so that it spurs growth and lifts the poor as well as the rich, improves the dignity of labor and strengthens protection of the environment."

"America's role, and Hong Kong's, is not just to promote globalization, but rather to join with others in guiding it -- so the new economy becomes a march to the top, not a race to the bottom," he added.

Klosson said Hong Kong, as a trading entity, can be a model and help move forward the debate over globalization -- and ensure the sustainability of globalization -- through the positions it takes within the international community.

"Ultimately, I expect globalization to be one of those issues that brings out the best in the U.S.-Hong Kong relationship -- by building on our shared commitments to the rule of law, clean government, open flow of information and free market economics we can help expand prosperity and create new opportunities for all our citizens," he concluded.

The Challenges of Globalization:
Bringing out the Best in the U.S.- Hong Kong Relationship
Remarks by U.S. Consul General Michael Klosson
to The Hong Kong General Chamber of Commerce
June 15, 2000

It's especially appropriate that my first speech to the Hong Kong General Chamber of Commerce come just after the U.S. House of Representatives approved Permanent Normal Trade Relations status (PNTR) for China. Many of your Members asked me often in recent months how the vote would go. The outcome was surprisingly solid.

President Clinton and his Administration worked exceptionally hard for this vote. I'm glad that visits to this city by Members of Congress helped illuminate for them the issues at stake. Our Representatives had the opportunity to talk to Hong Kong leaders, including members of this Chamber. Hong Kong provided them a window on the kind of future China can achieve through increased integration in the international economy. Chief Executive Tung's support for PNTR during his April trip to Washington was very well received, and Martin Lee, on his trip, was eloquent in addressing Congressional concerns over human rights. That May 24 House vote has put in view China's accession to the World Trade Organization (WTO). It was an enormously hopeful development for the U.S.-China relationship as well.

With at least the House PNTR vote behind us (the Senate is still to come) and passage earlier this Spring of legislation providing trade benefits to Africa and the Caribbean Basin, it is tempting to conclude we have also turned the corner in the broader U.S. debate over trade policy. Some may argue we have laid to rest the concerns about globalization and free trade that surged to the forefront last December in Seattle and played a role in the PNTR debate.

Clearly, the PNTR vote helped to mitigate the unfounded perception in some circles that the United States was becoming a more protectionist and less open economy. Nonetheless, despite an unprecedented run of surging economic growth in the United States, record-low unemployment, and the passage of America into an era where the "new economy" of information technology is daily changing the workplace, a significant proportion of American citizens remain deeply concerned about the impact of technology, trade and globalization on their lives. Indeed, in one public opinion survey published earlier this month, just over 50% of likely U.S. voters thought that opening the Chinese economy would cost American workers their jobs and do little for China's low-wage earners. Other polls indicate that while a majority of Americans support in principle the growth of international trade, they are lukewarm about its benefits for all sectors of society except business.

Globalization concerns have not surfaced in Hong Kong in the same fashion. However, I was struck by a poll of Hong Kong workers, published last month in the South China Morning Post, which suggested that 44% of the Hong Kong respondents felt threatened by globalization and were worried about the impact of China's WTO accession on their jobs. And everyone in this city remembers the pressures of globalized financial markets during the summer of 1998, which drove interest rates in Hong Kong through the sky, generated great anxiety in the community and prompted the SAR Government to take unprecedented measures.

Globalization is a phenomenon to be addressed everywhere, and the anxiety it stimulates is felt around the globe. Polls, for example, indicate that Europeans, like Americans, tend to put priority on the preservation of jobs rather than the benefits of lower prices from free trade, and significant percentages of Europeans take a negative view of foreign direct investment. For an economy like Hong Kong's, which is critically dependent on exports and has benefited mightily from the liberalization of trade under the GATT and WTO, the issue for government, business and other sectors is how best to deal with the challenges of globalization - how to capitalize on its benefits and address its downsides.

One description of globalization that I particularly like came from a former U.S. President. Commenting on the forces of economic change then at work, that President observed that:

"The world's products are exchanged as never before, and with increasing transportation comes increasing knowledge and larger trade. We travel greater distances in a shorter space of time, and with more ease, than was ever dreamed of. The same important news is read, though in different languages, the same day, in all the world. Isolation is no longer possible. No nation can longer be indifferent to any other."

Remarkably, these words were penned by U.S. President William McKinley. And if his name is not familiar in Hong Kong, that's not surprising: he was president more than 100 years ago!

His insights remind us that globalization is not new. But over the past century, the pace of that process has accelerated from snail-like to light-speed, and those who have been able to keep up have done very well. Fortunately for us here today, both the United States and Hong Kong have been among globalization's winners.

While healthy in many ways, the debate over globalization ignores a fundamental reality: globalization is here to stay. The technological advances which underlie it, and which have transformed and are continuing to transform our societies, cannot be undone. The genie cannot be put back in the bottle. Those technological advances have stimulated a rapid increase in international interactions, and a rapid evolution toward greater international activity.

Today, we know that because of scientific and technological advance, we can change the equation between energy use and economic growth. We can shatter the limits that time and space pose to doing business and getting an education. As we can observe here everyday, openness and mobility, flexible networking and sophisticated communications technologies have enabled geographically tiny Hong Kong to play a role on the global stage well beyond its traditional, physical natural resources.

Nevertheless, these same factors have also made us all more vulnerable to some of our oldest problems. Terrorism, narco-traffickers and organized criminals can use all this new technology, too, and take advantage of the openness of societies and borders. They present all of us with new security challenges in the new century. The spread of disease; ethnic, racial, tribal, religious conflicts, rooted in the fear of others who are different -- they seem to find ways to spread in this globalized era. The grinding poverty of more than a billion people who live for a year on less than what it costs to stay in a nice hotel at night -- they, too, are part of the globalized world. Look at the environment: greenhouse gases generated by a single country's industries contribute to climatic warming around the globe that knows no boundaries. And even here in Hong Kong, emissions and particles that travel across borders mean that improving air pollution does not rest solely in the hands of the local community.

Against this background, the question is not "whither globalization," but rather how to harness the forces unleashed by globalization to produce the greatest benefits to the most people, and to limit the costs. Harnessing those forces, sustaining the benefits of globalization, boils down to responsible policies and institutions both at the local and international level, both governmental and private sector.

In this regard, the experience of recent decades suggests there are three main tasks:

-- First, individual countries must create open, market-based, competitive environments supported by good macroeconomic policies. Hong Kong in many respects has done this. It is a leader in free trade, in budgetary responsibility etc. So, it is not surprising that Hong Kong is one of the world's great advertisements for the benefits of globalization.

-- Second, countries must put in place sound institutions, governed by law and unhindered by corruption, to help the benefits of growth reach all levels of society. Hong Kong's record in this area, including the 25-year history of the Independent Commission Against Corruption, is also strong and provides a positive example that other countries would do well to emulate.

-- Third, working through international economic institutions, we must find ways to ensure a strong global economic framework that that facilitates trade, investment, and capital flows, sets clear rules, promotes transparency, responds quickly and effectively to crises, provides policy guidance and, where appropriate, financial assistance.

Again, Hong Kong provides an instructive example - your strong and transparent financial regulatory system helped the SAR to avoid the kind of banking instability that devastated other regional economies during the Asian financial crisis.

Let's take trade as an example of the new globalization imperative. Trade liberalization has always been valuable; it is now essential. The only way in which countries can benefit fully from globalization is if they are completely tuned into market signals, and that can only happen if those signals are fully reported and not distorted by trade barriers. Trade barriers (and restricted flow of information) create distortions that reduce efficiency and competitiveness -- that's hard to overcome today, when competitiveness reigns supreme. We need look no further than America's and Hong Kong's experience over the past three decades to see the benefits of free trade. Since the last time the U.S. unemployment rate touched 4%, in January of 1970, our economy has grown to more than US$9 trillion, manufacturing output nearly tripled, and 50 million men and women joined the work-force. During that period, trade went from just 13 percent of GDP to 31 percent of GDP.

At the same time, the percentage of our rivers and streams fit for fishing and swimming doubled; the number of citizens living in cities with unhealthy air fell by half; many endangered or threatened species, including the U.S. national symbol, the bald eagle, are recovering; we created modern consumer safety laws and key regulatory policies; and the number of workplace deaths fell 60%. Our companies have found it good business to be concerned with work conditions and the environment. It is not a coincidence that the most dynamic and fastest growing sectors of the U.S. economy have been those most plugged into the global trading system and global trends.

Similarly in Hong Kong, during the same 30 year period, the economy grew from US$4 billion to US$158 billion, and average per capita income grew from US$959 to more than US$23,000. Again, trade and free trade policies were an important engine of this growth: trade went from 143 percent of GDP in 1970 to 223 percent now. In Hong Kong this expansion coincided with rising incomes and business opportunities, an increasing quality of life, strengthened labor laws, a free press and, most recently, growing attention to the environment. Male life expectancy, for instance, has grown from 67.8 years to 77.2 years, and infant mortality has declined dramatically from 17.7 per 1,000 to 3.1.

The benefits of liberalization and a policy of relying on markets as the best response to globalization - with governments providing legal and regulatory frameworks that facilitate rather than impede the development of markets -- can also be seen in individual industries - sometimes with astonishing clarity. Look at Hong Kong's experience over the past year or so with opening of its telecommunications market. As a result of the January 1999 liberalization of the international simple resale market, Hong Kong residents now enjoy international direct dial rates that are among the cheapest in the world. At some times of the day, a call from Hong Kong to New York can cost less than a call from New York to Washington, D.C. There are now more than 145 licensed international direct dial operators in Hong Kong, giving businesses and the general public a vast range of choices in price and service level. And you can tell a similar story about other consumer telecommunications services, including mobile and corporate broadband markets. Telecommunications is an industry on which all others rely; the huge benefits of this increase in competition and decrease in prices accrues to every sector of Hong Kong's economy and society. Liberalization overall has been a win-win-win-win: for consumers, businesses, workers and government alike.

Another industry on which many other sectors rely, and which could benefit from a similarly liberal approach, is aviation. Hong Kong's producers, and marketers, and e-commerce traders, could all benefit from a more open and competitive air freight market. Several major international air cargo players -- including some based in the United States -- would like to make Hong Kong a hub for the kind of air services that Asia needs for the 21st century. But they cannot do so unless the Hong Kong government makes their investments possible by providing a more open market environment -- as it did in telecommunications.

So far, unfortunately, it has not been willing to do so. If it had adopted in the telecommunications industry this philosophy of protecting existing players from competition, you know what your phone bills would look like today. And the e-industries of the future would be dying on the line. If the authorities promote significant liberalization of the air cargo industry, Hong Kong businesses will be able to take full advantage of the globalized market being created by the internet and low-cost telecommunications.

Another way to help make globalization economically and politically sustainable is by rooting out and de-legitimizing corrupt business practices. Corruption blocks development, slows and impedes the consolidation of democratic institutions, weakens the rule of law, and undermines the confidence of people in their government. A 1996 study by the International Monetary Fund (IMF) found that investors are wary of investing in countries where corruption is prevalent, and low levels of investment lead to low growth.

I noted earlier that Hong Kong's long and successful history with an Independent Commission Against Corruption provides a powerful example of the benefits from clean government and clean business practices. But the challenge that comes with globalization is to make these principles universal. The Clinton administration has sought to attack the supply side of the bribery equation by negotiating the Organization for Economic Cooperation and Development Convention on Combating Bribery of Foreign Public Officials in International Business Transactions (OECD Anti-Bribery Convention). This OECD Convention marked a sea change in international attitudes on the subject of global corruption. The United States Senate voted its advice and consent to ratification of that Convention in 1998, and we hope that others will eventually follow suit.

Hong Kong's experience with globalization was the creation of a vigorous cycle of growth and higher living standards. I would argue that there is absolutely no reason the world economy of the next decades cannot see the same combination of growth, better environmental protection, safer factories, stronger labor protection, and job creation.

Indeed, if we want to sustain the global process of liberalization and integration from which Hong Kong and the United States have benefited, we need to think concretely about how to shape globalization so that it spurs growth and lifts the poor as well as the rich, improves the dignity of labor and strengthens protection of the environment. What we should seek is a steady march to the top that leaves no one behind. While the principal driving forces for these changes are, of course, domestic policies, the trading system also has a role to play.

I know there are many here in Hong Kong who believe that "trade is trade" and it should not be cluttered with issues like labor and the environment that the United States and others raised in Seattle. Many developing countries view our promotion of these issues as a form of protection, giving unfair advantage to the developed world. I respectfully disagree.

First, trade and the WTO can do more to help us protect the environment. This could be of special interest for Hong Kong, given the mounting concern over pollution. The WTO already cites sustainable development as a fundamental goal of the global system. Its agreements explicitly recognize the fundamental right of all its members to set any level of environmental protection and consumer safety desired, as long as those standards are based on good sound science. The WTO has already embarked on a series of discussions in the area of trade and environment.

Looking ahead, Washington has developed a series of proposals for trade liberalization measures with direct environmental benefits, calling for the elimination of barriers to trade in environmental goods and services, of fishery subsidies which contribute to over fishing, and of agricultural export subsidies. The White House has also adopted a set of principles on trade and the environment that will guide U.S. participation in policymaking and trade negotiations and help us ensure that trade rules remain supportive of environmental protection both at home and abroad. It just makes good sense to protect the world in which we live.

The WTO can also address more effectively the concerns of workers reflected in the survey data I cited earlier. Today, in a formal sense, the WTO does not recognize that links between trade and labor exist. This is tantamount to saying that WTO members must close their eyes to child labor, human exploitation and repression of internationally-recognized worker rights. That is not a position which can endure, and it will over time weaken public support for the trading system. Our task, therefore, is to ensure that the WTO formally recognizes the relationship between trade and labor policy and acts upon it -- recognizing the real concerns developing countries have about discrimination against the poorest countries and workers; without pretending there are easy answers; but also understanding that all of us will ultimately benefit from such a discussion.

So where do the United States, Hong Kong and other advocates of trade liberalization go from here? Those who say that we should freeze or disband the WTO are dead wrong. Since World War II, global trade has increased fifteen-fold, contributing to the most rapid, sustained and widely shared growth and improvement in social progress ever recorded.

America's role, and Hong Kong's, is not just to promote globalization, but rather to join with others in guiding it -- so the new economy becomes a march to the top, not a race to the bottom. We must help those hurt by change and reaffirm our belief that an open and competitive world economy is the best route to higher standards of living for people everywhere. Now this is the kind of thing one might expect to hear in Hong Kong, but it is also the message we are hearing more and more in capitals from Beijing to Brasilia.

As I see it, there is only one direction to take on trade: forward! We must go on with what we're doing, recognizing this is a new and very different world. The idea that we would be better off with less trade, with less rules-based trade, I think, is wrong. We all need to think more about how can we harness the forces of globalization to ensure that the benefits are more evenly distributed and to maintain the free trade consensus that open societies must seek to preserve. You -- as leaders of Hong Kong's business community -- can have an important impact with the kind of labor and environmental practices you employ at your factories overseas or the practices you demand from your customers, suppliers and business partners. Hong Kong, as a trading entity, can be a model and help move forward the debate over globalization -- and ensure the sustainability of globalization -- through the positions it takes within the international community.

Ultimately, I expect globalization to be one of those issues that brings out the best in the U.S.-Hong Kong relationship -- by building on our shared commitments to the rule of law, clean government, open flow of information and free market economics we can help expand prosperity and create new opportunities for all our citizens. But we should not assume that the international environment that has worked so well for Hong Kong and the United States over the past few decades will sustain itself without direction by governments. The explosion of global commerce, travel and electronic interaction is both an opportunity and a challenge. The more we all speak to each other about the means to manage this process, the better off we will be.

(Distributed by the Office of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)