Speeches and Articles by Former Consul General James R. Keith

"The WTO and Beyond: Building on Hong Kong's Strengths"
Remarks by U.S. Consul General James R. Keith

Chinese University of Hong Kong
March 7, 2005

(As prepared for delivery)

Consul General Keith in the Cho Yiu Hall.

Vice Chancellor Lau, gathered friends, faculty and students, it's a great pleasure for me to join you today. Many of my staff attended Chinese U, including some of the Americans, and we have close ties here with the Hong Kong-America Center. In February, a Fulbright senior scholar spent two weeks advising on the development of your new law library. We look forward to the many future programs on which we can collaborate, including with your new master's degree program in global communications. I suppose that is what I am doing here today - communicating globally.

The U.S. recently inaugurated a new term for our president, and Hong Kong is hard at work preparing to host the World Trade Organization ministerial meetings in December. It is therefore fitting that I review our trade agenda for President Bush's second term and take stock of the U.S.-Hong Kong relationship. The U.S. enjoys strong trade relations with Hong Kong. American foreign direct investment in the territory was $44.3 billion at the end of 2003. U.S. exports last year were $13.5 billion, making Hong Kong our 14^th largest trading partner. Imports reached $8.9 billion. Moreover, we have one of the largest American Chambers of Commerce in Asia, with 55,000 Americans living in this city, many of them working for the 1,100 U.S. companies with Hong Kong branches. All these factors cement the U.S. government's interest in Hong Kong's success.

Nearly two years ago, I gave a speech on Hong Kong's economy during very tough times. It was May 2003, and Hong Kong was just emerging from the SARS outbreak. Tourism was down dramatically. Consumer spending was low. It was a harrowing time for banks with negative equity loans. But as a Chinese proverb says, a fall into a ditch makes you wiser. I was heartened then, as I have continually been, by the flexibility and entrepreneurship of the Hong Kong people. I noted that this entrepreneurship would get Hong Kong through the tough times. This city, like the United States, was made by immigrants starting all over and succeeding again. Hong Kong's rule of law, free economy, and dynamic spirit have helped it weather two recessions since the 1997 return to Chinese sovereignty. They have made Hong Kong a model for all of China. I am happy to be speaking today amid more positive news, as Hong Kong has been rewarded with its lowest level of unemployment in three years and solid economic growth. While the news is good, Hong Kong needs to continue to build on its strengths.

Doha demands our attention

It is fitting that Hong Kong - recently named the world's freest economy by the Heritage Foundation for the 11^th year in a row - will host this year's 6^th Ministerial Conference of the World Trade Organization. We've come a long way since the meetings in Cancun. During his first term, President Bush led the drive to launch new global trade negotiations in 2001, but the round foundered at the 5^th Ministerial Conference held in Mexico in September 2003. At the President's insistence, then-U.S. Trade Representative Bob Zoellick, working with his counterparts from around the world, led the efforts to resuscitate the negotiations and put us in a position to make substantial progress this December in Hong Kong, with the goal of concluding the round in 2006. This is certainly achievable, but it will require all WTO members to push very hard over the next several months to make sure that we leave Hong Kong with an "endgame document" that will allow us to finalize the negotiations in all the areas covered by the Doha mandate before the end of next year.

Our overall goal is a lowering of global trade barriers to provide an essential boost to worldwide economic vitality. And we are committed to an outcome that - in keeping with the round's middle name (the Doha Development Agenda) - contributes to the advancement of developing countries and their full integration into the global economy. This is important for the countries hit by last December's tsunami, as well as less-developed economies around the world.

Agriculture is the key to successfully concluding this round. We've already agreed to eliminate export subsidies, and the United States is prepared to work toward dramatic reductions of domestic support for rich country farmers, something that many developing countries regard as their top priority. But this will only be possible if we also get an ambitious package on improving market access for agricultural products, which will mean dropping or eliminating tariffs and other non-tariff barriers in this sector. An agricultural package that provides both significant reductions of subsidies and significant improvement of market access will require serious political courage, but the benefits it would bring to farmers and consumers around the world would signal an historic achievement in expanding global free trade.

Likewise on manufactured products, we must expand market access by cutting tariffs, with higher tariffs cut deeper than lower ones, ideally coupled with the elimination of tariffs altogether in key sectors. We recognize the need for special treatment for developing countries. On services, we should intensify negotiations to open service markets, reinforcing the idea that services are on par with agriculture and manufacturing as "core" areas for market access.

There are clear challenges associated with an ambitious trade strategy. Economies all over the world have to cope with change. We'll need to work together on critical education and training issues, find ways to increase transparency and expand accountability, and help our citizens to be as agile and creative as possible.

Success will not be easy, but the United States is fully committed to doing its part to complete the Doha Development Agenda round next year. Why? Let me give you a very specific example of how the WTO has benefited international trade. When China was poised to impose unfair tax treatment on foreign-made integrated circuits in its rapidly growing market, the United States filed a WTO dispute settlement case. Fortunately, the case did not make its way past the initial phase of the dispute settlement process, but it didn't need to. The case helped accelerate our bilateral negotiations, leading to a satisfactory resolution far more quickly than would otherwise have been possible.

That's just one tree in the forest. The following numbers provide an idea of the size of the whole forest. U.S. companies with operations overseas account for 58% of U.S. exports. Foreign companies have created 6.4 million jobs in the United States. America's service industries earn a surplus of more than $50 billion by operating around the world. I could go on with such numbers, but these suffice to illustrate how important foreign trade is to our economy, as it is in Hong Kong. We have a strong interest in global trade liberalization. We believe that more open markets for trade and investment will create opportunities by lowering costs, increasing productivity, improving the quality of life for all concerned, connecting businesses, and expanding the influence of free-market economies. As people around the world recognize, particularly here in Hong Kong where trade accounts for nearly three times GDP, this logic applies to everyone who participates in the international economy.

Implications for Hong Kong

So all eyes will be on Hong Kong when it hosts the WTO ministerial this December, and for very good reason. The stakes are high. But while concluding the Doha round will rightly occupy the limelight over the next few months, let's not forget there are also important domestic and bilateral developments that will affect both U.S. and Hong Kong economic interests.

At the top of our bilateral agenda, we are urging Hong Kong to remove civil aviation barriers by signing an open skies agreement with the U.S. This type of agreement would allow U.S. and Hong Kong air carriers to make decisions on routes, capacity, and pricing on a purely commercial basis without government interference. Open skies agreements bring significant benefits to our communities, airports, airlines, shippers, and workers. Open aviation markets mean more service to more cities, creating jobs, enhancing efficiency, and providing travelers, exporters and shippers with a wider variety of new options. They facilitate formation of an aviation hub, which receives investment from air carriers as well as from the customers of air carriers with facilities in a hub. The hub benefits directly from higher employment and increased landing fees, taxes, and use of airport facilities, and it encourages other airlines and freight forwarders to move the airport. Most importantly, the hub creates better connectivity to more markets at lower cost for local businesses. Open skies agreements also lower prices and increase choice for passengers. The growing integration of the Pearl River Delta has made it increasingly easier to serve the region from any place in the Delta. To maintain its leadership position, Hong Kong needs to stay ahead in terms of a liberal civair environment. This is not merely the case with cargo flights, but applies equally to passenger traffic.

Another challenge faced by all economies that depend to some degree on the creativity of their people - and both the U.S. and Hong Kong rank very high on that list - is the protection of intellectual property rights. The territory has made great progress in tackling counterfeiting and optical disc piracy. By raising the awareness of the economic benefits of a strong IPR regime, as well as through new legislation and robust law enforcement, Hong Kong has shown how strong IPR protection can foster creativity and attract investment. There are still some areas of vulnerability. One key area is end-user piracy, something that the government is planning to address by amending the Copyright Ordinance. We hope that the outcome provides a more credible deterrent against this form of infringement . Another issue that copyright owners are very worried about is the unauthorized sharing of movies, music, games, and books via the Internet. We applaud the January arrest of an individual who uploaded three American movies to the Web via a powerful peer-to-peer file sharing technology that made these movies available to countless other Internet users. This is an area where we will all have to focus more of our enforcement resources as digitization proceeds apace. One last area of vulnerability here in Hong Kong regards the protection of pharmaceutical patents. At present, infringing drugs are able to be registered and enter the market legally. We would like to see Hong Kong establish a patent link in the drug registration process that gives patent owners a chance to prevent patent-infringing generics from getting marketing approval.

A third area in which the U.S. and Hong Kong enjoy close collaboration is in agricultural trade. Hong Kong is our eighth largest market for agricultural exports and a major consumer of U.S. oranges, cherries, plums, raisins and rice. Hong Kong has traditionally been our fifth largest export market for U.S. beef, though this has been on hold since the Hong Kong Government imposed a ban in December 2003 following the discovery of BSE in a single U.S. cow imported from Canada. Given that the U.S. and Canada are using similar measures to detect and prevent BSE, we are disheartened by the Hong Kong Government's continued ban on our beef, despite its resumption of imports of Canadian beef. We feel strongly that trade should be conducted on the basis of sound science and according to international standards. I think it's worth noting that in the absence of medical reasons to bar Hong Kong travelers from the U.S. during the SARS outbreak, we kept our borders open. We were quite firm and supportive in putting the principles of sound science into practice. We would hope that the Hong Kong Government would apply the same principles when making its trade decisions.

Leveraging Hong Kong's strengths

When I first arrived in Hong Kong, the pessimism about Hong Kong's economy was palpable, and it didn't improve until the end of 2003. Fundamental to its rebound was positive news from the U.S. market and continued robust growth in mainland China.

Hong Kong's relationship with China has been very important to turning the economy around, starting with the individual visit scheme. The real strength of the Hong Kong economy, however, continues to be its commitment to the rule of law and civil society; the free flow of information; and an accomplished work force with superior language skills and professional credentials. Now that the economy is on track, Hong Kong can't afford to be complacent. There are still a number of challenges that Hong Kong must face to secure its prosperity in the longer run, including clean air and water quality, and superior education and health care facilities.

Hong Kong has done several positive things to reduce pollution in the SAR, including requiring all taxis to run on LPG, setting rigid standards for vehicle emissions, and setting concrete pollution reduction targets in conjunction with mainland authorities. Hong Kong's integration with the Pearl River Delta, as fundamental as it is to steady growth, is contributing to the worsening pollution here. There are at least 65,000 Hong Kong-run factories in the Pearl River Delta employing more than eleven million workers. While they are learning do business with an international, free-market focus, these factories are an integral part of Hong Kong's environmental problems. M any of the power plants operating in Guangdong are financed by Hong Kong companies. These power plants are among the worst offending industries in the PRD and contribute an enormous share of pollution that gets blown into Hong Kong from the mainland . In a positive sign for future improvement, Hong Kong officials and their Guangdong counterparts are now discussing pollution reduction targets for the PRD as a whole. We hope concrete action will follow shortly, with governments and businesses on both sides taking pro-active measures to safeguard the environment and public health. Only in close coordination with its counterparts across the border can the Hong Kong authorities begin to improve this cross-border pollution, as well as maintain Hong Kong's energy supply.

With declining natural gas reserves in southern China and increased dependence on imported LNG, Hong Kong electric power generation firms are interested in continuing to provide a stable supply of energy in the long term by considering building a liquefied natural gas receiving and storage terminal, and by considering entering into gas supply agreements. The declining gas reserves and recent economic recovery mean more burning of coal for fuel, adding to Hong Kong's concern that electric power generation is contributing to recent high levels of air pollution. The twin problems of pollution and energy are significant because they affect the territory's ability to maintain a healthy population and quality of life. This can affect the ability to attract investment, tourism, and to develop and maintain natural parks and waterways. In comparison, Hong Kong's power transmission and distribution networks have generally coped well with growing demand. Predictability and reliability of supply of energy is an important and valuable asset. For example, in the summer of 2004, when Hong Kong faced historically high levels of demand, resulting in a significant incremental load of up to 38% in some areas, Hong Kong maintained a stable and reliable supply of energy.

Similarly, Hong Kong's professional work force and accomplished levels of English are key elements in the territory's economic success. The Hong Kong government - helped by leading institutions such as Chinese University - must work hard to ensure excellent standards in education, in English as well as in Chinese. Top-notch health care facilities and research institutes will also be critical to Hong Kong's continued success.

Hong Kong is an international city. Its engine of progress is trade. Hong Kong's awareness of its connection to the wider world - beyond the global trading system -- was evident in the outpouring of public and private contributions to victims of the December tsunami, making Hong Kong one of the most generous per capita donors for that disaster. I think we were all proud to be Hong Kong residents and part of that effort. And I think the spirit of community, which is based on toleration and unity, so evident in Hong Kong's outreach to the victims of the tsunami, is absolutely critical to Hong Kong's continued success. Hong Kong residents need to stay connected to this region and others, but they also have to find ways to stay connected to each other, to reach past individual or narrow concerns, to reach out in a spirit of partnership and common purpose.

As we approach the December WTO ministerial, the U.S. is committed to an ambitious global trade agenda. Hong Kong's stewardship of this meeting is fortuitous for both the global agenda as well as Hong Kong's own ambitious goals to advance its economic and political goals to the benefit of Hong Kong, mainland China, and the United States.

Thank you.