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

Text: U.S. Consul General Klosson on U.S.-Hong Kong Ties
(U.S., Hong Kong share free trade values)

Because both Hong Kong and the United States share similar free trade values, they should work together to promote the kinds of open markets that can improve the lives of millions, says U.S. Consul General Michael Klosson.

In a speech delivered June 23 to the Chinese University Executive Master's of Business Administration (MBA) program, Klosson said that "by working together on the basis of our shared values and our shared interest in preserving open markets, we can help to ensure that the first decades of the 21st century produce on an even wider scale the same kind of improvement in income and living standards that the United States and Hong Kong enjoyed during the final decades of the 20th century."

Klosson said that one of the Bush administration's top priorities is the passage of trade promotion authority (TPA), also called "fast track," which would provide for greater flexibility and speed in negotiating trade agreements.

The United States, he said, is committed to advancing free trade by pursuing global, regional, and bilateral trade agreements. It also seeks to extend the benefits of trade liberalization to the developing world. To this end, the United States will contribute $1 million to the World Trade Organization's (WTO) Global Trust Fund for Technical Assistance for developing nations.

To maintain public support at home, the Bush administration plans to provide assistance to those who will find it difficult to adjust to the changes unleashed by technology, trade, and other forces.

"Frightened people will call for protection," Klosson said. "But a failure to adapt and improve will not restore companies to profitability or revitalize communities. Instead, we need to consider the creative and targeted use of safeguards if businesses and workers restructure seriously so as to be able to compete effectively."

Part of the U.S. plan to promote free trade, Klosson said, is to promote respect for national sovereignty while encouraging respect for core labor standards, environmental protection and good health. "And we must always seek to strengthen the principles that go along with free and fair trade -- tolerance, democracy, and the rule of law," he said.

He urged that transparency become "a hallmark of all future trade negotiations and trade agreements.

"It will build public awareness and underscore that trade is not the exclusive province of bureaucrats and activists," he said.

The United States and Hong Kong in the Global Economy

Remarks by U.S. Consul General Michael Klosson
to the Chinese University Executive MBA Programme
June 23, 2001

I'm delighted to have this opportunity to speak about the global economy and the trade side of the Hong Kong-U.S. relationship. In doing so, I recognize that talking to Hong Kong business people about trade is a little like talking to a Saudi Arabian about oil. You probably know the issue better than I do, and if you didn't invent the concept, you certainly set the standard for exploiting it.

Both Hong Kong and the United States are among the world's most open economies, so it's very useful for us to discuss opening markets around the world, especially in this critical year, as the World Trade Organization prepares for its November Trade Ministerial in Doha, and for the accessions of China and Taiwan.

In both the United States and Hong Kong, it's increasingly understood that what happens in international markets matters to the man on Main Street -- or in your case, the man on Nathan Road. In the United States, trade and international payment flows have grown to over a third of our economy today. Over 12 million U.S. jobs are supported by exports, and one in three acres of agricultural land is planted for export. Last year U.S. trade hit $3.4 trillion -- nearly 6.5 million dollars per minute.

The statistics in Hong Kong are even more impressive. Trade flows equal 255 percent of gross domestic product, and tens of thousands of small- and medium-sized enterprises depend largely on trade with China, the United States and Europe. When Asia's major economies collapsed during the 1998 financial crisis, Hong Kong suffered too, not because of any structural weakness, but simply because your economy depends so much on goods flowing through the region.

Much of the trade policy discussion between our two governments takes place through official channels. With trade so important to us both, it's no surprise that Hong Kong's early Cabinet-level contacts with the new U.S. Administration were initiated by Commerce and Industry Secretary Brian Chau when he visited Washington last month. However, one of the consequences of globalization is that trade issues are no longer the exclusive domain of government officials. They are increasingly the subject of public debate. That's one of the reasons why I welcomed the invitation to speak to you today.

With that in mind, I'd like to talk today about the Bush Administration's approach to trade, Hong Kong's role as a launch pad for U.S. business in Asia, and the "international personality" that Hong Kong derives from its active participation in multilateral bodies like the WTO and APEC. I'll wind up with some thoughts about Hong Kong and its aspirations to be "Asia's World City."

After the Seattle WTO Ministerial in 1999, many of my Hong Kong friends voiced concern about the future of the international trading system. The policy uncertainties accompanying any change in administration in Washington compounded those anxieties. Five months into the new Administration, however, with the Quebec Summit of the Americas and the important Shanghai APEC Trade Ministerial behind us, the outlines of the trade policy that President Bush and his team will pursue are more fully articulated. It's a framework that bodes well for Hong Kong and provides a solid basis for economic growth and for future cooperation between our two governments.

This Administration believes strongly in the benefits of free trade and places a high priority on trade issues. I'll cite a few examples:

-- The Administration settled a decade-old dispute with the European Union over banana quotas in a way that upheld the findings of the WTO and protected the interests of developing countries.

-- The Administration is working actively in Geneva and in WTO capitals to help refine an agenda and build support for launching a new trade round.

-- The President used the third Summit of the Americas meeting in Quebec to reaffirm the goal of achieving a hemispheric free trade area by 2005, and challenged the rest of the world to achieve market opening just as fast.

-- The Administration resumed bilateral free trade negotiations with Chile and Singapore and set the ambitious goal of completing the Chile agreement this year.

-- And finally, the President launched a concerted campaign to secure Congressional support for our trade negotiators through a vote on Trade Promotion Authority, something I'll discuss more in a minute.

Part of the challenge the President faces in pursuing this agenda is to rebuild the free-trade consensus in the United States. As Ambassador Zoellick recently put it, we "need to build more public support for opening markets, at home and abroad. We need to be more forthright in spelling out the benefits of trade. And not just the economic benefits, but also explaining how trade is intertwined with security, political cooperation, and the spread of democratic values. Expanded trade -- imports as well as exports -- improves our well being."

To defend this belief in free trade, the Bush Administration points to the U.S. experience in the 1990's. NAFTA -- the North American Free Trade Agreement -- and the completion of the Uruguay Round contributed to the longest period of economic growth in U.S. history, with levels of full employment and minimal inflationary pressures that defied almost every model. But free trade does not benefit only the United States. Trade protection is a hidden tax on every consumer. This is a principle that Hong Kong policy-makers figured out long ago. And trade is essential for economic growth in developing nations. A recent World Bank study analyzed the economic performance of globalizing and non-globalizing developing countries. The study found that in the 1990s, the income per person for globalizing developing countries grew more than 5 percent per year. For non-globalizing countries, annual incomes declined by more than 1 percent per year. Absolute poverty in the globalizing developing countries has dropped sharply in the last 20 years.

Free trade is also about freedom. In notifying Congress earlier this month of his intention to extend China's normal trade relations status for another year, President Bush argued that open trade is a force for freedom in China and a force for stability in Asia. He observed that the institutions and individuals in China who are most sympathetic to freedom are often the most friendly to trade. They know what Americans know -- free trade supports and sustains freedom in all its forms. As the President put it, the United States trades with China because trade is good policy for our economy, because trade is good policy for democracy, and because trade is good policy for our national security.

Not surprisingly, there is increasing concern in the United States about the size of our trade deficit with China, which reached $84 billion in 2000. Nevertheless, our trade with China and our investment there are, without any doubt, in our interest. Our trade relationship is at the cutting edge of reform and positive social development in China. Our investment -- and, I might add, Hong Kong's too -- establishes higher standards of enterprise behavior in areas like corporate governance, labor relations, or even environmental attention. In China today, trade and investment have led to greater openness and fewer government controls on day-to-day life, particularly in the coastal regions.

We therefore support China's WTO entry as soon as China is ready to meet WTO standards. Taiwan is ready for entry now, and we expect both to enter the WTO.

For the same reasons, we look forward to China's hosting of this year's APEC summit in October. President Bush has said that he plans to go to Shanghai and Beijing in the fall. His presence at the APEC Leaders' Meeting will speak volumes about our commitment to market-oriented economic reform in China.

Having recognized the value of a free-trade approach, President Bush has indicated that one of his top legislative priorities will be passage of Trade Promotion Authority -- TPA, or what used to be called "Fast Track." The White House has noted that, "Trade Promotion Authority tells the world that the President and the Congress are united at the negotiating table." The President has emphasized his personal commitment to working with the Congress, on a bipartisan basis, to accomplish this.

In pursuing Trade Promotion Authority, the Bush Administration has argued that the legislative gridlock surrounding U.S. trade policy over the past few years has had real costs for the American people. In Latin America, Europe and even here in Asia there has been a growing sense that the United States is falling behind the rest of the world when it comes to trade liberalization.

Globally, there are 130 free trade agreements. The United States is a party to just two: one is with Canada and Mexico -- NAFTA -- and the other is with Israel. The European Union has free trade or special customs agreements with 27 countries, 20 of which were completed in the last 10 years. In laying out its plans to get the United States back to the free-trade negotiating table, the Bush Administration highlighted five key principles:

First, the U.S. will advance free trade by pursuing global, regional, and bilateral trade agreements. We will help launch a new round of global trade negotiations in the World Trade Organization later this year. At the same time, we will pursue regional agreements such as the Free Trade Area of the Americas and bilateral agreements with countries such as Chile and Singapore. These initiatives are complementary. By moving on multiple fronts, we can create a competition in liberalization that will promote open markets around the world. Our most important aim in these negotiations is to cut taxes on trade and reduce other barriers to competition -- whether for services, industrial goods, or agriculture.

Second, we will seek to extend the benefits of trade liberalization to the developing world, and thereby integrate these countries more effectively into the global economic system. USTR has announced, for example, that the United States will contribute $1 million to the WTO's Global Trust Fund for Technical Assistance. This money will provide trade officials from developing nations with new technology as well as specialized seminars and workshops offered by WTO officials. Our goal should be to support the developing world's transition from debt forgiveness and aid to growth and trade. Special preferential trade liberalization measures, such as America's African Growth and Opportunity Act, Andean Trade Preference Act, and the Caribbean Basin Trade Partnership Act, or the EU's "Everything but Arms" Initiative, help lay the foundation for a future of sustainable prosperity.

The Bush Administration's third principle is that if we are going to maintain public support in our own countries for open trade, we will need to provide assistance to those who will find it difficult to adjust to the changes unleashed by technology, trade, and other forces. Although capital and information move markets in moments, some industries and communities cannot adjust so rapidly. Understandably, frightened people will call for protection. But a failure to adapt and improve will not restore companies to profitability or revitalize communities. Instead, we need to consider the creative and targeted use of safeguards if businesses and workers restructure seriously so as to be able to compete effectively. For workers who will lose their jobs, we need improved assistance, training, and placement. Experience has shown that early adjustment efforts, involving private sector networks, help people get back on their feet most quickly and effectively. We need better transitions, not protectionism.

Fourth, we need to align the global trading system with our values. We can encourage open and efficient markets while respecting national sovereignty. We can encourage respect for core labor standards, environmental protection, and good health without slipping into fear-based campaigns and protectionism. And we must always seek to strengthen the principles that go along with free and fair trade -- tolerance, democracy, and the rule of law.

Fifth, transparency should become a hallmark of all future trade negotiations and trade agreements. It will build public awareness and underscore that trade is not the exclusive province of bureaucrats and activists. With this in mind, the United States and the other nations participating in the Free Trade Area of the Americas recently agreed to make public the preliminary negotiating text of our agreement. This innovative step will contribute to a more informed debate on trade. We believe the WTO should follow suit and make its dispute resolution proceedings public, reveal panel decisions promptly, and encourage more exchange with outside groups and other international organizations.

As the United States moves forward on trade liberalization, we look to Hong Kong as a natural partner. Already this year, Hong Kong has played a leadership role in Geneva. It was one of the first WTO members -- along with the United States -- to introduce a concrete proposal for moving ahead with the mandated negotiations for services liberalization. In the WTO General Council, Hong Kong's Permanent Representative Stuart Harbinson is providing a terrific service as Council Chairman, playing a key role in refining issues and narrowing differences ahead of November's WTO Ministerial Meeting in Qatar.

Within APEC, the Asia Pacific Economic Cooperation forum, Hong Kong has been a vocal advocate of market opening and has played an active role in the Committee on Trade and Investment. In this regard, we were especially happy with the Trade Facilitation Principles that Hong Kong promoted and APEC Trade Ministers endorsed this month at their Shanghai meeting. The nine principles endorsed in Shanghai -- things like transparency, communication, simplification, non-discrimination, and predictability -- provide a valuable baseline which all the APEC economies can apply.

But Hong Kong's role in the international process of trade liberalization -- its "international personality" if you will -- goes far beyond the contributions of Hong Kong's representatives in Geneva and in APEC. Equally important is the leadership that Hong Kong provides through its day-to-day demonstration of how open markets and open societies can flourish in Asia. In a number of sectors, Hong Kong's economy is one of the freest in Asia. Think of shipping. Think of telecommunications. The benefits of this approach are all around you. Look at how Hong Kong's standard of living has improved in the space of one generation! You see it in the tremendous choice of products available to consumers here. You see it in the Hong Kong skyline -- which, believe it or not, when I first came here in 1971 was dominated by the Furama Hotel. Those dramatic changes in the skyline are but another sign of this city's continuing quest to reinvent itself.

Hong Kong's economic policy leadership and its model role is especially evident in telecommunications, where the territory has moved over the past decade from a closed, monopoly marketplace to one that already ranks among the most open in Asia and will become even more competitive as the government opens up the local fixed line network. The benefits of this telecommunications liberalization are evident to every consumer: bargain long-distance rates keep families in touch with friends and relatives in the United States; teenagers can choose from six different mobile telephone operators offering state-of-the-art services; and businesses can benefit from one of the best digital infrastructures in the world offering innovative and cost-competitive services.

This telecommunications market opening has also brought benefits to the international business community -- including a growing roster of American IT firms. In 1999, the telecommunications sector contributed HK$51 billion (or 4.1%) to Hong Kong's GDP. That same year, U.S. direct foreign investment totaled HK$19 billion, a substantial portion of which was attributable to American IT companies like AOL, Level (3) and Global Crossing that have chosen to make Hong Kong their regional headquarters. I fully expect that when the Census Department issues its foreign investment statistics for 2000, the figure for U.S. technology investment will be even higher. And I'm confident that this IT investment will expand further after the government removes the remaining obstacles to fixed-line local telecommunications investment in January 2003.

American IT companies -- and indeed any foreign investor -- come to Hong Kong because your government has gotten its policies right. Transparent regulation, a level playing field for new entrants, a well-regulated financial system, free flow of information and capital, and the rule of law are all essential to making Hong Kong competitive. Senior Hong Kong officials frequently highlight these principles, both here and abroad, but I think they're worth repeating because they're so essential to Hong Kong's future prosperity. It's Hong Kong's distinctiveness that forms the basis for its competitive advantage as well as the foundation for its close cooperation with the United States and other major trading partners.

Another sector that demonstrates the importance of these principles -- and the value of this market-driven approach -- is financial services. In 2000, Hong Kong's 15,000 banking and finance establishments provided nearly 160,000 jobs. Together these companies contributed nearly 12 percent of Hong Kong's GDP. The role of these financial services companies in raising capital for mainland enterprises illustrates the market advantage that Hong Kong derives from its separate political and economic system. In the year 2000 alone, mainland firms raised US$ 44 billion directly or indirectly through Hong Kong -- more than twice what they raised on the mainland. The institutional investors, investment bankers and individuals who participated in these deals preferred Hong Kong over the mainland for some very good reasons -- most importantly because Hong Kong firms operate under effective and transparent regulations which meet international standards.

With all the recent talk of China's WTO accession and opportunities in the mainland marketplace, it's important not to lose sight of what makes Hong Kong special. Hong Kong will continue to prosper, not just because it happens to sit at the mouth of the Pearl River Delta, but because it has developed an approach to governance that makes it an almost unmatched force in the world of commerce and trading. As the Hong Kong government's new motto -- "Asia's World City" -- reminds us, Hong Kong's future lies not just in its role as the richest city in China. Hong Kong aspires to be something more -- the most globalized city in Asia, and a city where the principles of economic and political freedom are just as much part of life as a morning newspaper and dim sum, or a Sunday afternoon conversation at the Shatin racecourse.

This concept of Hong Kong as a global crossroads does not require any renunciation of the city's Chinese character. Indeed, a large part of what the Hong Kong brand stands for is the spirit of enterprise, hard work and adaptation that have been part of this city's Chinese culture for as long as anyone can remember. But it does require all of us who are interested in Hong Kong's future prosperity to keep in mind and to stand up for the core principles that make Hong Kong unique in Asia.

Already there is a great deal of common ground between U.S. interests in Asia -- financial stability, good governance, market opening -- and the interests of Hong Kong companies and the Hong Kong SAR government. As Hong Kong firms mature, as they become more active in the world marketplace and adopt global outlooks, I expect the foundation for cooperation between our two governments will be further strengthened. Hong Kong's most successful firms are marked by their global vision and worldwide presence. These companies have prospered not just by taking advantage of Hong Kong's location on the Pearl River Delta, but by leveraging their expertise in finance, marketing, logistics and knowledge management to become "category killers" in their fields. They've achieved that position by always looking in two directions -- both inwards, to Hong Kong's southern Chinese hinterland, and outwards to the international marketplace that accounts for more than half of Hong Kong's trade.

Hong Kong is fortunate to occupy a global crossroads. It sits at the rapidly evolving hub of Asia's information highway at a time when communications through satellites, transoceanic cables and mobile devices are exploding. It sits at the center of Asia's publishing industry at a moment when the demand for unfiltered information is surging. And it sits at the doorstep of the mainland marketplace at a time when it is poised for rapid expansion following WTO accession.

Open trade reflects the spirit of the new century. At the beginning of the last century, revolutionary changes in information, communications, technology, commerce, and finance were shaping the environment for global politics and security. And so it is too at the beginning of this century. Our policies must promote these global trends. We must take practical steps to move the world toward greater freedom and promotion of human rights by linking ourselves to the agents of global change: the new networks of free trade, information, investment, and ideas.

Neither the United States nor Hong Kong can control these tidal forces on our own. But by working together on the basis of our shared values and our shared interest in preserving open markets, we can help to ensure that the first decades of the 21st century produce on an even wider scale the same kind of improvement in income and living standards that the United States and Hong Kong enjoyed during the final decades of the 20th century.

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