U.S. and Hong Kong (2003)

Promoting Trade, Investment Tops U.S. Economic Agenda in Asia

Following is the text of the prepared testimony of Assistant Secretary of State for the Bureau of East Asia and Pacific Affairs James Kelly before the House International Relations Subcommittee on Asia and the Pacific hearing of June 25:

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Committee on International Relations
U.S. House of Representatives
Washington, D.C. 20515-0128

Statement of James A. Kelly
Assistant Secretary Bureau of East Asia and Pacific Affairs
To the House International Relations Committee
June 25, 2003

"U.S. Trade and Commercial Policy Toward Southeast Asia"

Mr. Chairman, I would like to take this opportunity to thank you and the members of the Subcommittee on East Asia and the Pacific, for inviting me to discuss trade and commercial policy priorities in Southeast Asia and Oceania.

Looking back, this region has seen a remarkable transformation. Just a few decades ago, it suffered from cross-border conflicts and struggled with domestic instability and poverty. Today the region has virtually no cross-border conflicts, has more open societies and democratic institutions, and boasts some of the most dynamic economies in the world. Thirty years ago, Malaysia's per capita GDP exceeded Korea's, and today Korea's per capita GDP is more than double Malaysia's. Hong Kong and Singapore, which earned a little more than $1,000 per capita in 1971, today exceed $21,000 in per capita GDP. Over the past thirty years, these economies have made great strides in overcoming income inequality and developing a solid middle class. Even amid the deep poverty I observed on my recent trip to Cambodia, I saw the beginnings of a middle class taking shape.

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The economic impact of SARS on Southeast Asian countries remains unclear, but it is likely to shave at least some growth from the most affected economies this year. Countries like Singapore and Vietnam moved quickly and decisively to contain the disease and, by taking a transparent approach to the problem, succeeded in restoring the confidence that is key to continuing to attract investment. The APEC SARS Action Plan, recently endorsed by APEC's Trade Ministers, emphasizes APEC's strengths in cross-sectoral outreach to rebuild business confidence and mobility of persons through cooperation and information sharing. The Plan includes convening the first APEC Health Ministers meeting at the end of this month, and responding to the impact on tourism, transportation, industry and social welfare.

The focus you have put on Southeast Asia is well placed, for this region is important to the United States, politically and economically. The region is home to some of the world's fastest growing economies and a number of significant trading partners of the United States. Last year, the U.S. sold to this market of a half-billion people $57 billion in goods and services, almost twice as much as to China and Hong Kong combined. Large U.S. investment, totaling $53 billion in the ASEAN countries, has both strengthened our economies ties with the region and expanded opportunities for American business.

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As tariffs have fallen, we have focused increasing attention on non-tariff barriers faced by American business, such as weak judiciaries, inefficient customs procedures, divergent standards, and poor IPR enforcement. We are currently working through both bilateral and multilateral channels to solve these issues. For example, the State Department, working closely with the U.S. and China Customs and the private sector in the APEC forum, launched an express package customs initiative in Shanghai that led to significant improvement in the speed and cost of customs processing.

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Intra-regional Cooperation: China's New Role

In recent years there has been a plethora of trade and investment arrangements both among Southeast Asian economies and with countries outside that region. Long-delayed integration of ASEAN economies through the ASEAN Free Trade Agreement is making some important progress with most elements of the Accord to be in place by 2005. Meanwhile, a group of countries including ASEAN members plus China, Japan and Korea (the so-called "ASEAN plus three") have concluded accords on foreign currency swaps and hold annual meetings to talk about how to advance integration.

China's rising economic power in particular has made it a new presence in Southeast Asia. In sharp contrast to its trade with the US, China runs a significant trade deficit with Asian emerging economies, reflecting in large part its role as processor of materials and parts imported from Southeast Asia for sale in the US. For example, China is the number three export market for Malaysia and the fifth largest for Malaysia and Thailand. China has become Korea's second most important export destination. As China continues to import more, it is becoming one of the region's most important engines of growth. In that role, China's ongoing economic transformation can significantly enhance Asian and global economic growth and stability.

China is seeking to further cement those ties through an FTA with ASEAN. It is also nearing conclusion of a Closer Economic Partnership Agreement with Hong Kong and is exploring FTAs with Korea and Japan.

We view China's integration into regional and global organizations and arrangements as a positive development. Not only is China committing itself to playing by the rules of some trade-related international fora, but it also has an increasing stake in seeing that others do the same. And as its economy and prosperity become linked more closely to relationships with trading partners, it has a greater stake in peace and stability in the Asia-Pacific region and the world. China made significant progress in fulfilling its WTO commitments during its first year as a member. Serious shortcomings, however, in agriculture, services, IPR enforcement and transparency need to be addressed, and are being addressed.

Nonetheless, we cannot ignore the fact that China's growing economic power has created a competition for influence in the region, which makes it all the more important for the United States to remain actively engaged with our Asian allies. While China has not moved aggressively to garner political capital from its growing economic strength, there is no denying its prominence on the Asian political stage. We need only to look as far as Taiwan -- where firms are queuing up to move operations to China and whose executives lobby for freer access to the Chinese market -- to see how quickly economics can change a political dynamic. Neither can we ignore the fact that the Chinese military is a beneficiary of the country's rapid economic growth, which underscores the necessity of sustaining a modest military-to-military relationship with the People's Liberation Army within the guidelines established by Congress.

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