Speeches and Articles by Former Consul General James R. Keith

Question & Answer Session with Consul General James R. Keith
Following "Investing in Hong Kong's Future" Speech to AmCham/Asia Society

Conrad Hotel, Hong Kong
December 11, 2003

Questions from AmCham and Asia Society members:

Q: Thank you. Thank you for your kind and upbeat appraisal of Hong Kong. In your presentation, you mentioned globalization and the global security situation. Hong Kong's prosperity and economy depends on trade with China. There is serious concern about the U.S. trade deficit with China.

The U.S. should have a healthy trade surplus with China and worldwide because the U.S. is second to none and simply unbeatable in producing value-added goods and services for home market and export. The abnormal global situation, large military budget and procurement leaves less industrial capacity for export. Even then, the trade deficit is in fact the repatriation of (inaudible), to a large extent, by U.S. companies who have set up their companies in China and worldwide to increase their market share and create value for the U.S. economy. Could you share your views on this subject? Thank you.

CONSUL GENERAL KEITH: Well, it's a large subject (laughter), to say the least. What I would say about the trade deficit and the overall trade relationship with China is -- not to convey a sense to you that I am wearing rose-colored glasses, because I honestly do have upbeat feelings about what what's happening here in Hong Kong, and I'm very confident in the ability of the United States and China to work through our trade problems. After all, we've had a lot of practice. This isn't the first time that the issue of our trade relationship with China has become something of a political "hot potato," I suppose.

I think what's most encouraging about the way the trade deficit is being handled between the two countries -- and I think this was evident in the recent visit to the U.S. – is the commitment on both sides to dialogue and the sense of mutual understanding. I'm not sure this comes through well in the broad range of press attention to so many different aspects of the trade relationship, because it is now an extremely broad and profoundly important trade relationship.

What I think doesn't come through so clearly is a sense of identity of views, in many ways, between the U.S. and China. That is, that on both sides there has to be recognition of the need for the relationship to be politically sustainable. No one in the United States underestimates the challenges that China faces domestically in its effort to modernize its economy. The number of people it has to lift out of poverty, the huge challenges of reforming its banking sector. There are people here in this room who could tell you a lot more about the details of each and every one of the challenges that China faces.

But at the same time, I think China recognizes that the U.S. is – as you suggested in your question – extremely competitive in many industries where it's not selling exports into China, and there has to be a reason for that. I don't think the reason is that it's not the most competitive. We are focused on many non-tariff trade barriers in China. The identity of views can really be reduced in many ways to a very simple perspective, and that is: Both sides see it in our interests not to reduce the trade volume between us as a result of the trade friction that is a common element of our trade relationship; but rather to find ways to increase the volume. What that means – and I think the Premier addressed this during his discussions in the United States – is to increase American exports to China. We'll find ways to do this, first of all bilaterally as we've agreed to sit down and talk to each other in a number of different fora in the weeks and months ahead; and also the Americans and the PRC will find ways to do this multilaterally as China pays attention to the deadlines coming up for its commitments to the WTO. We have every confidence that China understands that the world's attention is focused on those commitments and those deadlines. I think you've heard in different venues from different speakers a commitment on our part to focus China's attention on the details of those commitments, and our desire to see them met on time and met fully – not with a sense of meeting the letter but not the spirit – but with a very full and complete, comprehensive approach to WTO commitments that amount to opening up China's market and allowing us to compete. And compete in ways that allow us to make money.

This is where something like IPR protection comes in. It is not enough to meet even the letter of the law, in our view. What has to happen is: The trade relationship has to be made politically sustainable. This is the sort of thing that you've heard our leaders talk about. I think if you look closely at what has been said in the United States, you've heard them talk about this with a sense of confidence, that both sides understand each other and that therefore there is room for progress. Now, that doesn't mean it's going to happen, but it does mean that we have a sense that it can happen and we'll be watching closely to see.

Q (follow up): Sir, what I meant to say is that if the United States genuinely wanted to sell goods to China, they could, and you would have a trade surplus. Why don't they do that?

CONSUL GENERAL KEITH: That's a good question, and the only suggestion I would have is that you ask an official from the People's Republic of China that question.

Q: My name is Alice Chen and I'm from Merck, representing the U.S. pharmaceutical company. I just want to thank James for his very encouraging remarks, and also you bring up the concern for the lack of intellectual protection in the pharmaceutical industry. I just would hope that if there is any Hong Kong government official here, they would bring up and advance this agenda and really do something about it. It is a real concern in the industry [and the government should] to continue to bring forward more investment into Hong Kong and turn around the strategic industry right here as a knowledge-based economy.

So I just wanted to thank you for your attention in this regard. Thank you.

Q: Thank you, Mr. Keith. My name is Bradley Kerr. My question revolves around the Article 23 legislation, which was so prominent in our daily activities this past spring. I believe your office was – I think in a somewhat extraordinary sense -- direct in expressing its point of view, its opinion about the Article 23 legislation here in Hong Kong. Can we anticipate -- with the very fluid state of political affairs here in Hong Kong and the allusion you made to constitutional reform in that type of thing -- that we'll have more pronouncements from your office on the political scene and how you might like to see things develop?

CONSUL GENERAL KEITH: Thank you for the question. I think I would have to disagree with your premise, I suppose, in the sense that I don't think anything that I said here or that Secretary Powell or his deputy said or his spokesman said or that the White House said was extraordinary, in the sense that what we've talked about -- in terms of the politics of this issue that you raise -- is consistent with what we've talked about all around the world. We stand for those basic values that are enshrined in the Universal Declaration of Human Rights that are part of the international covenant on civil and political rights, to which Hong Kong is a party -- and as a separate SAR is a party. So this is of a piece with what we're doing throughout the world, and it's not solely our office that's doing it. It's part of a U.S. government approach to these issues universally.

Also, I think it is important to note that this is part of the answer to the question that I alluded to in my remarks, that is, as visitors come through -- when they ask why do we care and why we're doing what we're doing -- part of the reason for us to be interested in what's happening in Hong Kong is our commitment to Hong Kong's success, based on our traditional friendship and based on those elements of national interest that I sketched very briefly.

But another very specific reason for us to focus on these kinds of things is the President's requirement under the Hong Kong Policy Act to ensure that he's satisfied that the premise for our treatment of Hong Kong continues to be current. That is, that we treat Hong Kong as an Autonomous Special Administrative Region and have laws that allow us to treat it differently from the Mainland on the basis of our understanding that it is seeking to be distinct than different and, as a Special Administrative Region, deserves to be treated in as autonomous as possible a fashion.

We have an obligation as a government to ensure that the president is informed and prepared to speak to our Congress. We do that by means of an annual report, but the President is enjoined in our legislation to satisfy himself that these basic conditions continue to exist. This is a function of the one up to 1997 and our desire to be in Hong Kong -- and be in Hong Kong in a way that promotes the highest possible degree of autonomy here, again based on this long tradition of shared values and shared objectives. That deals with the premise of your question.

As to the question itself, I think you can expect us to continue to stand up for what we believe in. This isn't a matter of us telling Hong Kong how it should operate. Of course that's for the Hong Kong people and the Hong Kong government to decide. There are consequences to the choices that Hong Kong people make, and that's part of my job, too: To try to explain the consequences and the implications of policy steps in both directions, that is for Hong Kong policymakers as far as what's going on in the United States and --for my government -- as far as the kind of choices that the Hong Kongers are making.

We are hopeful that the Hong Kong people and the Hong Kong government will build the consensus in the coming debate over constitutional reform. It will be up to them to do that, and it will be up to us to evaluate and appreciate it for the purposes of informing our policy makers and developing U.S. policy toward Hong Kong.

Q: Jim, David Pong, Shu Wing Steel, Hong Kong. We are not involved with selling to the States, so the recent wrangle with steel had nothing to do with us. Since you mentioned July 1st and Bradley also mentioned Article 23, but in fact during the demonstration on July 1st, the majority or quite a large number of the people were venting the frustration on the economy of Hong Kong. Half of the population in Hong Kong live in public housing or government-assisted housing. Only one in every 16 actually pay any tax. We don't have that natural resources to fall back on, you know, we don't have gold or oil. If we are moving too quickly towards democracy, do you see other difficulties that would arise in too quick a pace towards democracy?

CONSUL GENERAL KEITH: Well, I think it's an entirely legitimate question. I'm not sure I'm person who can answer it, but I do understand. From any number of angles, you could look at this. Certainly if I were a Hong Kong citizen and I held a negative equity mortgage, I would be less inclined to be charitable toward my government than otherwise. I can understand that point. I think it is fair also to point toward the challenges that Hong Kong has lived through in six years. It is a huge undertaking. I don't think anyone underestimates the political challenge before the Hong Kong government to make "one country, two systems" work. There is no easy solution to a lot of the problems that arise in the implementation of "one country, two systems." The government has to work on this day-by-day, month-by-month, year-by-year. It's not at all surprising, therefore, that there would have to be course correction and refinements in the government's approach. As I mentioned, I think the government deserves a lot of credit for listening to the people on July 1st and adopting some course corrections.

I suspect that the perspective you describe in terms of the identification of the course as correct -- that is, as laid down in the Basic Law, if I've understood your question correctly -- moving in a gradual and orderly fashion as the Basic Law puts it toward the objective of further democratization. But some debate about the pace and, from some quarters, a desire to see a greater sense of patience about the pace, is going to be part of this debate that's coming. I think it's entirely appropriate that every angle and every perspective be allowed to emerge during the debate that the government will lead on constitutional reform. It's up to Hong Kong people, I think, working with their government to identify and work through toward resolution of the problems associated with movement in this direction.

I guess from the American perspective, it just make sense to us that, over time and at a pace to be defined by the Hong Kong government and people, that Hong Kong -- if it wants to compete in this fierce global economy -- will need the fullest possible participation of its people. People who I think have earned the respect of the world on July 1st and who deserve credit for what they did in terms of the very patient, very wise, very mature and very deliberate annunciation of their views with full respect to law and order and within the framework of "one country, two systems." From our perspective -- I'm looking at it only as an outsider as the only perspective I can speak to – we have a great deal of confidence that there isn't a rush to judgement here, that this is being given very careful and deliberate consideration by the Hong Kong people, and that if anything they have been patient, it seems to me.

Looking at it from the perspective of one who advises people coming to Hong Kong, I feel pretty comfortable about the process so far. Then as to the specifics of your question, the answer that will come out that process, that's really something that one can't speak to until the Hong Kong people and government find some way to develop a consensus.

Q: As a Brit whose pegged Hong Kong dollar is linked to the U.S. dollar, your weakening dollars is costing me a fortune during this Christmas holiday season. There was partial blame on the U.S. dollar strength for it being the cause of deflation in Hong Kong. Now the U.S. dollar is weakening, does that mean that I can also blame you for inflation taking off? Or, to be slightly less facetious, what do you think the impact of the weakening U.S. dollar is on Hong Kong, and I suspect you've only got about 30 seconds?

CONSUL GENERAL KEITH: Well, it won't take me long to answer. As you can imagine, I've learned my lesson very well not to look for ways to influence markets, and I'm not interested in doing that today. I do thank you for your consumerism, and I think that's something that Americans can only applaud.

But I do think you bring up a broader currency issue, and this is another element of the positive outcome of the Premier's visit in the United States. Everyone is well aware of the pressure that has emanated from the United States toward China with regard to China moving toward a more flexible arrangement that would allow for market forces to work on China's currency. It seems pretty clear in Hong Kong that Hong Kong is looking toward China and looking toward China's developments first before it allows much flexibility movement here. I would anticipate that that would continue, so if anything I guess I would anticipate stability -- that would be my response to your question.

Q: Mr. Consul, my name is Andrew Lo. Yesterday you know the Chinese Premier, Wen Jiabao, gave a speech at Harvard. He said in order for the U.S. to reduce its trade deficit with China, you know, you should not reduce Chinese exports to the U.S., but the good thing to do is to increase U.S. exports to China. Can you elaborate? What can Hong Kong do in this prospect?

CONSUL GENERAL KEITH: How can Hong Kong help in terms of increasing U.S. exports to China? Well, I guess there are a number of things. I alluded to our desire to work together with Hong Kong on intellectual property rights protection, and I think this is an area where Hong Kong has tremendous value-added and has good channels of communication to the Mainland. To the extent that Hong Kong can convey some of its expertise and its lessons learned, I suppose that's a good thing, and we would like to team up to the extent that we could. More generally, I suppose another area where we are able to address this, at least incrementally, is in Hong Kong's partnering in many different ways with small and medium enterprises in the United States and trying to get into the Chinese market. We all know that it can be a daunting market to enter if you are not familiar with it and don't have deep pockets, which is often the case in small and medium sized enterprises. So there's a lot that Hong Kong can do to convey its expertise to our companies in the United States.

I think what it boils down to for China is really beyond Hong Kong's reach. Really, it's a question of market access. It's not the case, as I think was the premise of an earlier question, that there is a lack of desire, effort, expertise and ability on the part of the American companies. I think that's just a canard. It's not the case that there is a barrier in terms of the American government's restrictions on American companies. The problem with the lack of increasing exports to China relates to trade barriers, especially non-tariff trade barriers in China, that prevent our goods -- that are otherwise competitive -- from getting in. To the extent that Hong Kong can help convey that message to China, I suppose it can help itself as well because, of course, increasing trade volumes are very good for Hong Kong, which is one of the major beneficiaries of exports and re-exports between China and the United States. What it boils down to is market access, and the best way of getting at that is not only fulfilling WTO commitments, but there's no reason why China's WTO commitments couldn't be fulfilled early. It would certainly be a sign of good faith.

Thank you.

Questions from the media:

CONSUL GENERAL KEITH: Who's first?

Q: You're talking about wanting to see more participation by Hong Kong people in the political process. There's been a lot of talk lately that maybe Hong Kong would move toward letting everybody vote on the Chief Executive, but a closed nomination process where a rather select committee could pick who's actually on the ballot. What would your view on that sort of arrangement be?

CONSUL GENERAL KEITH: As I mentioned in my remarks just now, I think it is important that the debate over constitutional reform begin. I applaud the government's decision to enter into a debate and wish the Hong Kong people and the Hong Kong government well in considering all elements of the debate, including the one that you propose. I think there are a number of different ideas; that's one of them. I hope that the Hong Kong people and the Hong Kong government working together can build a consensus that will fulfill all the specific obligations or requirements of the Basic Law that relate to this initiative.

Q: Do you think that by 2007 that Hong Kong should be electing the Chief Executive by universal suffrage and by 2008 for the LegCo members by universal suffrage?

CONSUL GENERAL KEITH: I think the specific timetable and the specific movement in keeping with the Basic Law is an issue that the Hong Kong people and the Hong Kong government need to work on together. We are very hopeful they can find that consensus, recognizing that there are a wide number of views in Hong Kong society and that all of those have to be accommodated in this debate that the Hong Kong government will lead in Hong Kong society.

What I can say from the American perspective is that we are interested in seeing this debate occur. I think it is important and appropriate for the Hong Kong government to lead it. As far as the specifics of what kind of consensus arises out of this deliberation, led by the Hong Kong government and including the broad range of Hong Kong people, is up to them to determine. It's not for Americans to dictate or determine the outcome of that process.

I do think it makes sense, as I mentioned in my remarks, over time for the fullest possible participation of the Hong Kong people here, if for no other reason than that this is an element of competitiveness that Hong Kong ought to be thinking about in the fierce competition that goes on in the global economy.

Q: President Bush just told Chen Shui-bian essentially not to try to change the status quo. I'm already hearing a bit of concern here locally, does this mean that if people here in Hong Kong locally want to change the status quo politically that the U.S. does not support them? Can you sort of talk to that?

CONSUL GENERAL KEITH: Without acknowledging the premise of your question – I don't think this is the appropriate place for me to start interpreting the President's words on Taiwan, I think they speak for themselves. As far as the U.S. government's position on promotion of democracy in Hong Kong, there is absolutely no change in our position. You are very familiar with our long-standing commitment -- based on the kind of friendship that I talked about in my remarks just now -- the long-standing commitment that we have to Hong Kong's success. We believe that movement in Hong Kong toward constitutional reform, the kind of debate that the government is going to lead, is all to the good. There is nothing that has happened in recent days that changes our commitment to that ultimate goal of the fullest possible participation of the Hong Kong people in their own government.

Q: About a week before, there were four legal experts in China commenting on constitutional reform through Xinhua News Agency, the press agency of China. Do you think this will affect Hong Kong's autonomy and "one country, two systems"?

CONSUL GENERAL KEITH: I'm sorry; I didn't hear the last part of your question.

Q (follow on): High degree of autonomy in Hong Kong and "one country, two systems."

CONSUL GENERAL KEITH: I think it's not my place to legally interpret the Basic Law. I wouldn't compete with either the lawyers here in Hong Kong from any of the different parties or interest groups or organizations; or from the mainland. I think it is appropriate that the rule of law is what we are talking about and that interpretation of the Basic Law on the basis of this public debate that will take place, led by the Hong Kong government, including a broad range of participants from Hong Kong society – it's entirely appropriate. I think that's the place where questions of how to deal with a provision that's been made in the Basic Law for gradual and orderly movement towards universal suffrage should be discussed.

I think any and all elements of that debate ought to be on the table and ought to be fair game. I certainly have every expectation that that's how the government intends to conduct this discussion. It's quite clear that there are a variety of views in Hong Kong society, and they should all be accommodated. One hope is that a consensus can emerge between the Hong Kong people and the government. It's important that everyone's views be taken into account, and it's quite clear that it will have to be done in a way that's in accord with Hong Kong's constitution, the Basic Law.

Q: Chinese Premier Wen Jiabao said the meeting with George Bush was very successful. Do you think that it can improve the relationship between the U.S. and China on the trade market?

CONSUL GENERAL KEITH: It's not so much my personal view, but I think you've heard from authoritative spokesmen in the United States that we're very confident about the U.S.-China relationship and the basis for that relationship. I'm very confident that they know what they are talking about and that the kind of words that you're hearing out of Washington are well grounded.

Looking at it from the perspective of Hong Kong's relationship or the context for Hong Kong's relationship with the United States, I would say that there is a very stable, predictable and solid basis for anticipating that U.S.-Hong Kong relations will continue to improve over time.

Thank you very much.

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