The Asia-Pacific Region: Seizing Unprecedented Opportunities

Tuesday, March 18, 2014 - 10:15am

Remarks by
MYRON BRILLIANT
Executive Vice President for International Affairs
 U.S. Chamber of Commerce

Luncheon with Members of 
The American Chamber of Commerce in Hong Kong and
Hong Kong Trade and Development Council

Hong Kong, China
March 17, 2014

 

Thank you very much, and good afternoon everyone. It’s great to be back in Hong Kong. I want to thank the American Chamber of Commerce in Hong Kong for hosting me in conjunction with my trip to the mainland. 

In particular, I’d like to recognize AmCham Hong Kong Chairman Peter Levesque and President Richard Vuylsteke. Peter, thank you for your hospitality today.  The U.S. Chamber appreciates deeply the work you are doing to champion American business interests during your tenure as chairman.

Richard, you have been a friend for many, many years.  You are unquestionably one of the most effective advocates for American business in the region.  Your numerous accomplishments on behalf of American business in Hong Kong and across the region reflect not only your deep commitment to the causes of trade and investment promotion, but also your extensive knowledge and understanding of the region.  

I also want to extend a special thank you to our friends at the Hong Kong Trade and Development Council for your support for today’s event.  We value highly our long-standing partnership with the HKTDC and look forward to building upon our many past successes.

America's economic and commercial relationship with Hong Kong is very strong.  According to the U.S. Consulate, Hong Kong is home to around 60,000 American Citizens and close to 1,400 subsidiaries of U.S. companies, of which about 800 serve as the regional headquarters or office.  

Hong Kong is the United States' 10th-largest export market for goods and its 6th-largest market for agricultural products.  Those are striking statistics, especially for a territory with a population of less than eight million.

Our close relations reflect not only shared business interests, but the core values we hold in common. Hong Kong’s competitiveness has long been rooted in its openness, commitment to the rule of law, sound and transparent regulatory system, international orientation, and strong educational system.  

We share those same values; they have bound us together in a way that is unique, allowing us to build a deep, prosperous and ever-growing economic partnership. Today, I’d like to share a few thoughts about America’s trade agenda, its role in the Asia-Pacific, its critical relationship with China, and the future of Asian integration and global trade. 

But before I address those issues, I want to highlight briefly the evolving role of the U.S. Chamber of Commerce as a global institution as well as a handful of geopolitical forces that are affecting the global economic environment for policymakers and American business.

As the world has changed, so has the U.S. Chamber.  Increasingly, we are representing our members’ interests around the world. We have established a presence in critical global markets to extend our reach.  From Beijing to Pretoria, from Brasília to Ankara, from Tokyo to Brussels, we are actively engaged in shaping the international business environment.  

Today, we lead the most robust international business advocacy effort in the history of our organization, and I anticipate this effort will continue to grow in size and scope in the years to come.

Why, you might ask?  The answer is simple: outside our borders are markets that represent 80% of the world’s purchasing power, 92% of its economic growth, and 95% of its consumers.

We face a singular opportunity for American businesses to expand into new markets around the globe. Whether your acronym of choice is BRICS, CIVETS, or MINT, emerging markets have captured the imagination of global business. This interest won’t be shaken by a downward commodity cycle or a few weeks of currency turmoil because billions of people have joined the global middle class, and more will do so in the near future.

It also follows that the Chamber must extend its global reach to be more adept at monitoring and reporting to our members on global developments that have a bearing on the ability on our members to conduct business.

What are some of these macroeconomic and geopolitical developments that we are monitoring across the world?

First, it’s a challenging time in world markets—nervousness about emerging markets, the cooling off of the Chinese economy… The pace of reform, etc.

Second, in the Middle East, Egypt is in turmoil, Syria’s civil war is grinding on, and the effort to stop Iran’s nuclear quest through negotiations has entered an intensive phase.

Third, new challenges are emerging without warning as in Ukraine, pulled between Russia and the EU.

Fourth, there will be a series of critical elections this year, with the outcomes in doubt in key places.  The path forward with key countries and critical markets—India, Indonesia, Brazil, Turkey, and South Africa—is arguably unclear.

And I haven’t even mentioned North Korea or tensions in the East and South China Seas, It’s therefore fair to ask: Will a more aggressive U.S. trade agenda fall victim to foreign policy crises? We certainly hope not, as this is an absolutely critical time for the trade agenda. 

There are many in the world who see the global marketplace as a threat.  Each economic downturn, these pressures ramp up — we see a push from some quarters for countries to wall themselves off from the world — to protect themselves from competition. 

It never works. And it’s even less likely to work – given the trends in the world today. But to take advantage, we need strong rules of the road for open trade and investment.

The next step comes in the trade talks across the Pacific — the Trans-Pacific Partnership (TPP) — and the Atlantic — the Transatlantic Trade and Investment Partnership (TTIP). But the first step for the United States – is a different acronym: TPA — Trade Promotion Authority. 

TPA is based on the commonsense idea that the executive and legislative branches of the U.S. government should work together on trade agreements. While the Constitution gives the president authority to negotiate with foreign governments, it gives Congress authority to regulate international trade.  

TPA squares this circle by letting Congress set negotiating objectives for any trade negotiation. It further requires the administration’s negotiators to consult frequently with legislators, and it leaves the final say to an up-or-down vote by Congress. The result is a partnership between the White House and Capitol Hill.

TPA is also meant to reassure our negotiating partners. They quite reasonably hope to negotiate a trade agreement with the United States just once — not once with the administration and then with the 535 Members of the United States Congress.

So where are we on TPA?  A good bipartisan bill was introduced in January, and it received a positive hearing in the Senate Finance Committee. However, the departure of Senate Finance Committee Chairman Max Baucus to become U.S. Ambassador to China has slowed our momentum. 

In his stead we have Senator Ron Wyden of Oregon, who has a strong record supporting past trade agreements. He is doing what any new chairman should do — meeting individually with all the committee members to hear their concerns and priorities on trade.

Senate Majority Leader Harry Reid made headlines when he said — the day after the president’s State of the Union address — that he does not support TPA. This isn’t news — he has voted against every trade agreement back to NAFTA. However, four FTAs have been approved by the Senate since Reid became leader.

Our situation shows how much we need President Obama to lead the way on TPA. He has called for TPA and defended it in closed-door caucus meetings. But to date, he has yet to show he has the fire in the belly needed to win in the tough fight that is TPA. We’re calling for him to up his game on TPA, but we are not sitting on our hands, either.

Over the past year, we’ve organized over 350 meetings with Members of Congress and staff to press for TPA. We are working with our national federation of state and local chambers of commerce to help constituent companies of all sizes reach out to their members of Congress. In the traditional press and social media, we are making the case for TPA wherever the fight takes us.

So with all of these changes and challenges — where does that leave us? What room do we have to impact events in a way that advances free trade and open investment?

There is no better and more important place for us to start than the Asia-Pacific region. The future prosperity of the United States is clearly linked to how well we do in Asia—and this applies to U.S. companies of all sizes, our workers, and our farmers.  

We sit at the center of the world’s most dynamic growth regions—the Asia-Pacific. Over the last two decades, the region’s middle class grew by 2 billion people, and their spending power is greater than ever. The middle class will expand by another 1.2 billion people by 2020. According to the IMF, half of the $22 trillion in global growth over the next five years will be in Asia. 

In short, the prospects for increased prosperity, investment, and trade have never been brighter. The question is: Will government and business leaders take the necessary action to seize those opportunities? While accelerating our own reforms, we need to jump on our profound advantages in energy, technology, and trade. 

Nothing epitomizes the opportunities better than the Trans-Pacific Partnership Agreement. For the United States, the agreement is the biggest and best opportunity we have to secure a strong and lasting foothold in the Asia trading system. And that’s essential because based on market share, U.S. companies have been falling behind in the Asia-Pacific. 

The number of trade accords between Asian countries surged from three in 2000 to more than 50 in 2011. Some 80 more are in the pipeline. Meanwhile, the United States has just three trade agreements in Asia. Completing the TPP would pay huge dividends for America. 

One study estimates it could boost U.S. exports by $124 billion by 2025, generating hundreds of thousands of American jobs. It also has the potential to strengthen our commercial, strategic, and geopolitical ties across the region. It would more tightly integrate the Asia-Pacific nations.  And it would send a message to the world that the United States is not going to sit on the sidelines. 

The TPP can also play a major role in helping the United States and the other participants reform our economies and government policies. It is a new and innovative kind of agreement. It requires countries to not only commit to eliminating tariffs on manufactured and agricultural goods, but to commit to new rules for the global economy that have never been addressed.  

If TPP fulfills its ambitions, it will protect intellectual property, unwind regulatory barriers to trade, and safeguard international investments.  It will set important precedents for trade agreements going forward, something that will ensure future trade flows and economic growth both regionally and globally.

The stakes are enormously high for the United States, the other TPP partners and the region; simply put, we can’t afford to fail. That’s why we are as anxious as anyone to conclude this agreement…but with the right content. We need the strongest possible intellectual property protections and strongest disciplines protecting private actors against unfair competition from state-owned enterprises. And we need an investor-state dispute settlement mechanism that will allow independent third parties to adjudicate disagreements. 

Consistent with goals set forth in the 2011 Honolulu Leaders Declaration, the TPP must be a comprehensive agreement, covering the full scope of goods, services, and investment. I’ll come back to those goals in a minute.

Why does the agreement need to be comprehensive?

The political reality is that every TPP country has products that are highly sensitive.  Let’s take the United States and Japan, for example. The U.S. has its sensitivities, and everyone knows what those are.  For Japan, it is agriculture, agriculture and more agriculture. 

Prime Minister Abe deserves credit for committing Japan’s participation in the “comprehensive” TPP negotiation last spring, in advance of Upper House elections in July. Japan has generally been a constructive partner in the rules areas of the TPP negotiations.  

But in the other critical part of the negotiations—market access—Japan has not been forthcoming with an acceptable offer.  Japan is not showing leadership here.  Even though the Japanese government committed to a comprehensive negotiation, many party members in the LDP are seeking to protect five “sacred” areas – rice, wheat, beef/pork, dairy, sugar.  This has led Japanese negotiators to talk about exemptions or exclusions because of the political sensitivity of these issues.

But such exclusions would not allow Japan to meet the high standard of the TPP, which must be comprehensive as Minister’s clearly called for in 2011.  Moreover, it would deny Japan the full benefits from market opening and trade expansion, which are a key part of Prime Minister Abe’s so-called Third Arrow.   

The United States and other TPP partners—which include major agricultural exporters like Australia, Canada, Chile, Mexico, New Zealand, and the United States—are disappointed in Japan’s current market access offer and have found it unacceptably weak.

An exemption from one country, on any product, will amount to the falling domino on a chain of protections and carve outs.  For Japan, the issue is whether it continues to put its 19th Century interests ahead of its 21st Century interests, as other countries will balk at the offensive interests Japan has in securing strong intellectual property protection and lower tariffs on industrial goods through the TPP.   

As I have said, for Japan its politics gather around agriculture, but in Malaysia the political tension is over the application of preference programs… Australia –enforcement procedures… New Zealand –pharmaceuticals. 

The list goes on, and the result would be a watered down, much less ambitious deal, which translated into business terms, would equate to less growth, less innovation, less consumer benefit, and fewer jobs for all economies. 

The bottom line is that “comprehensive access” is a core principle of this agreement. No country will get an exemption. 

The gains to the economies involved in TPP come from both market expansion, but also from internal reforms that come with the elimination of trade protection.  Companies are able to tap new markets, domestic market distortions are eliminated, consumers get lower prices, all of which drives domestic economic growth and increased competitiveness. 

Ladies and gentlemen, we are now in the overtime period of this negotiation.  The decisions that need to be made will not get easier with time. We need all sides to show political courage, but particularly in the United States and Japan, to conclude a high-standard, comprehensive agreement. Again, the goals espoused in the TPP Trade Ministers’ Report to Leaders in Honolulu must guide the negotiators to the finish line. 

We must also keep in mind that the opponents of trade across TPP economies are out in full force and stirring the pot about TPP on the internet and social media. To them, TPP is going to lead to the arrival of black helicopters, the surrender of sovereignty and the takeover of the economies by faceless corporations.   This sounds like a bad Hollywood screenplay. None of this is true, of course, but reality is often much less entertaining. 

Although we have not yet crossed the finish line on TPP, it is already turning heads throughout the region. It is not lost on anyone that whereas many in China previously saw TPP as a threat - erroneously in our view - many now see TPP as an opportunity, consistent with economic reforms underway in the country. China is moving forward with important new pilot projects—like the Shanghai Free Trade Zone—that can serve as models for China’s deeper integration into the global economic system, including potentially through the TPP.  

China is feeling the same internal pressures that many other countries are—demographics, debt, and declining competitiveness. The good news is that China’s leadership recognizes the economic challenges before it and, for the first time in many years, seems committed to pursuing fundamental structural economic reforms—as opposed to tweaks to the current system—to address them. 

The U.S. Chamber of Commerce and our members are rooting for China’s success in implementing difficult reforms that will in fact create a decisive role for market forces across the economy.  

Similarly, Korea, the Philippines and a range of Latin American countries are expressing strong interest in a joining the TPP. Regardless of level of development or size of economy, governments across the region are embracing the TPP. As other countries demonstrate their readiness to meet the high standards and terms of TPP, they will be welcomed.

Assuming we get a high-standard, ambitious TPP agreement—we must and we will— what’s next for integration in Asia and for the global trading system? That brings me to a few more comments about China. 

The relationship with China is as critically important as it is highly complex. There are many facets to our relationship with China—some of which are positive and encouraging and some of which are less so. 

For American business, China is a $450 billion market (exports to China and sales by U.S. affiliates in China) for American companies—and can and should be much more. Many of our members remain optimistic, driven by strong performance and expectations of significant growth in domestic demand.  

China is already a significant source of revenue for many U.S. companies, and another ambitious round of economic reforms could enhance the market opportunity for American businesses, workers, farmers and ranchers.

On the negative side, notwithstanding the increasing anticipation for reform and the hope that market forces will play a decisive role in the Chinese economy going forward, our members report few improvements in the business climate over the last year and some areas of noteworthy deterioration, such as in the area of antitrust enforcement.

In some instances, there is a growing view that China’s increased enforcement efforts are targeting foreign companies disproportionately via a series of investigations, administrative actions, and state-controlled media exposés. 

The U.S. Chamber was very pleased that both countries agreed at the July 2013 meeting of the U.S.-China Strategic & Economic Dialogue to intensify negotiations on a bilateral investment treaty.  Those negotiations hold the potential to remedy some of these concerns.

In particular, a comprehensive BIT that provides market access and contains few exemptions would be a significant step that could help pave the way for China joining the TPP. It could also move us closer to our eventual goal of negotiating a more comprehensive trade and investment pact between the United States and China. 

There are other interim, mutually beneficial steps that would contribute to our reaching this objective. 

First, China should join the WTO’s Government Procurement Agreement on terms consistent with those of other GPA signatories. 

Second, China should agree in advance of the May APEC Trade Ministers’ meeting in Qingdao to expand the WTO Information Technology Agreement with an ambitious, comprehensive and commercially meaningful offer.

As a major exporter of information technology products and the top beneficiary of the original ITA, China has an opportunity to exhibit leadership and demonstrate flexibility in reducing its sensitivities list in areas such as displays, semiconductors and medical equipment.  

ITA will be a key indicator:  the inability to conclude the ITA expansion agreement in a timely manner will in the perception among some that China is not committed to ambitious outcomes in international trade and investment agreements. 

Third, China should support its expression of interest in joining the Trade in Services Agreement, which the U.S. Chamber welcomes, with concrete steps that would advance services liberalization in its market and thereby demonstrate a clear commitment to an ambitious outcome in the negotiations.

China can do this not only by improving market access, but by complying fully with its existing WTO obligations. This would serve notice of China’s serious intention to build a more inclusive, pro-growth services sector.  

In particular, we continue to await actions from China to comply fully with the recent WTO ruling on electronic payments services as well as existing WTO obligations in the areas of express delivery and telecommunications services, among others areas.

More broadly, the U.S. Chamber will continue to press both governments in the near term to achieve progress in reducing barriers to trade and investment, eliminating industrial policies that restrict the ability of our member to compete, and strengthening IP protection and enforcement.

The Chamber is challenging the United States and China to make significant progress toward achieving some of the steps I have discussed by the time China hosts APEC in November 2014, if not sooner.

In the discussion session ahead – I’m happy to explore any one of these areas. As the overarching principle — the lens through which we see these issues — our role as the Chamber is to deal with the world as it is — as we press to make it the world we know it can be, through free trade and open investment. Your views and your voice can be a critical catalyst for the kind of positive change we seek. So I thank you for all you’re doing, and urge us all to do even more together.

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