Remarks by Robert D. Hormats, Under Secretary for Economic Growth, Energy, and the Environment

Bloomberg Hong Kong, China -  December 7, 2012

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Thank you, James, for that very kind introduction.

I also want to express my thanks to Richard and the Chamber for organizing this terrific event with such a large number of influential people from the business community.

And of course I want to thank Bloomberg for providing this terrific venue. When I was at Goldman Sachs I spent a lot of time at Bloomberg and it was always interesting to go to Bloomberg, particularly early in the morning because they had the best cappuccino in New York (laughter). So you knew you were not only getting a good interview, but your day was made by having that infusion of caffeine from the ample number of Bloomberg coffee providers throughout a normal Bloomberg office, not to mention the various kinds of food you could munch on during the day. So thank you Bloomberg.

And I want to thank our superb Consul General Steve Young for his hospitality and his leadership in Hong Kong. Not only does he know the area well, but he’s been working for a long time on China, Asia, and various parts of the world, and his leadership and his vision and his sense of history and policy is really an enormous asset to the United States Government. And he is very heavily relied on in Washington for that judgment.

I’m really very honored to be here. Nearly a year and a half ago, you hosted Secretary of State Hillary Clinton for a similar event. The Chamber was the organizer of that, but it was important, I think, to all of us that it be done with, and by, the Chamber because the Chamber really does play a very important role in this community, and she of course was pleased to be able to deliver that speech.

And, therefore, we thought a year and a half later that it would be a good idea opportunity to think about and reflect upon what we have done in that period to follow up some of the statements and commitments and the policies that she articulated a year and a half ago here in Hong Kong. And she also, as you may know, reiterated a number of similar themes when she spoke recently in Singapore. And she emphasized when she did give her speech here in Hong Kong that the United States seeks to help create a global economic system that is, as she put it, “open, fair, free, transparent, and free.”

And in doing that, in aiming for those goals we recognize that the prosperity of the United States is inextricably linked to the prosperity and growth of this very dynamic Asia-Pacific region. We are working hard with our partners in the region to spur closer economic integration, to increase trade and investment, and to advance our major goal of greater shared prosperity. Our bilateral and multilateral economic and commercial relations have comprised a central pillar of our overall effort to rebalance our policies in the direction of Asia.

Today, I want to focus on what we have done over the last 18 months to enhance U.S. economic engagement with the Asia Pacific region and to identify some of the opportunities and challenges we face in the future.

And I’m very glad to have the opportunity to this here in Hong Kong. The United States historically has had an extremely strong business relationship and extremely strong commercial ties with Hong Kong. And the evidence of that is all of you here in this room who in many ways over years and decades a very close relationship with the American business community or are representatives, in fact, of the U.S. business community here in Hong Kong. And all of you, by your business practices and by your relationships with the United States, your role as representing American companies here in Hong Kong, are really key elements early on in the expansion of U.S. economic relations, trade relations, commercial relations with this region, and you will continue to be in the future.

So I can think of no better audience to discuss these issues with, and to have an opportunity for, after the speech, interaction through questions and answers and follow-up conversations because, at the very heart of our economic relationship with Asia, is the business community.

This is the dynamic force that is important because no policy is going to succeed unless it has the support – the enthusiastic support – and the follow up of the business community and unless it is developed, in conjunction with, and through the ideas provided by the business community. So you are very much a part of what we are trying to do and why we are trying to do it.

President Obama and Secretary Clinton signaled in a large number of speeches America’s foreign policy shift toward Asia, really beginning about four years ago by focusing more attention on the Asia Pacific region. And this really began at the start of the Obama Administration. This is a reflection of, and a response to, the dramatically changing nature of the global economy and of the enormous role Asia is playing in that dramatic change.

Economic history is being made in this region today, it has been made over the last decade, and it will continue to be made in the coming decades. Asian economies are not only growing rapidly, which they are, but they are also including more and more people in the creation of that growth and the benefits derived from that growth. And U.S. companies have been investing in, and trading with, Asian economies at an exponentially faster rate over the past decade.

This trip is actually my 10th visit to China during my tenure as Under Secretary of State. And in the past nine months alone, I’ve made six trips to the Asia Pacific region, covering 12 cities in seven countries, including two visits each to China and Vietnam, and a recent visit to Vladivostok for the APEC Heads of State meeting.

So the fact that I’m involved in this, and my colleagues are involved in this, given the number of trips we’ve taken, is an indication of the amount of emphasis and the amount of commitment that we have. But, of course, frequent flyer miles are not really the main indicator of the commitment (laughter) – although they demonstrate, I think, some measure of commitment flying all those trips back and forth.

But the real indicator of this is what we’ve done to enhance our economic engagement in the region, and I would like to spend some time describing what we’ve done and then go on to the kind of things that we anticipate doing over coming months and coming years.

A few highlights of what we have include:

(1) Seeking to forge more open economic ties, particularly through enhanced engagement with regional institutions such as ASEAN and APEC;

(2) Promoting a free system of commerce and investment and the exchange of ideas by pushing for lower tariffs, through trade expansion, and increased investment throughout the region, along with measures to protect intellectual property, and broader and deeper dialogues within regional institutions;

(3) Advancing a more transparent system with rules and with regulations that will promote higher standards, such as through the TPP and through other vehicles; and

(4) Supporting a fairer system, a system that respects “rules of the road” on trade and investment, particularly through extensive and constructive dialogues with emerging economies of the region in APEC, in ASEAN, and in other groups, engaging a wide number of countries in the region in a wide range of dialogues.

I would like to spend a few moments outlining what we’ve done in some detail with specific sets of countries that are particularly important in the U.S.-Asian economic relationship, and, of course, the place to start is China. Not only because I’ve just spent several days in China in various parts of the country in Hefei, Beijing, and Nanjing, now here in Hong Kong, but I also want to start because clearly the driving factor, but not the only driving factor, is China. One has to look, and I will in a moment, at ASEAN because it is another dynamic part of this region, but let me start with China.

Through the U.S.-China Strategic and Economic Dialogue, as well as other fora such as the JCCT, we’ve focused on building a cooperative economic partnership with China. The United States welcomes a strong, a prosperous, and a successful China that plays a key role in world affairs and adheres to international standards.
Key elements of the U.S. approach have been:

• First, to support and encourage the integration of China more fully into the global, rules-based economic and trading system,

• Second, to expand U.S. exporters’ access to the Chinese market,

• Third, to encourage continued Chinese investment in the United States and to ensure a level playing field for U.S. investors seeking to invest in China.

On this last point, it is worth noting that one indicator of the new ways in which we are engaging China on this very important investment issue is Ambassador Gary Locke’s first-ever Investment Forum, which was held in Beijing just a few days ago. I was privileged to be asked to deliver the keynote speech, and in that speech, I spelled out suggestions for promoting Chinese investment in the U.S. and also addressing some of the challenges that have to be overcome to improve our bilateral investment relationship.

At the same time, we continue to address issues directly affecting American businesses attempting to sell to, or operate in, China such as, for instance:

• the protection of intellectual property rights and trade secrets where we continue to seek significant improvements on the part of China,

• in addition, the expansion of market access in compliance with China’s WTO obligations, and

• third, to end what we see as unfair, market-distorting practices by some of Chinese state-owned or state-supported enterprises that give them an artificial competitive advantage vis-à-vis other companies, including American companies, in the American market and other markets around the world.

Despite these and other challenges, I believe that there are many possible areas for future U.S.-China collaboration in a number of sectors. We can see that China’s 12th Five Year Plan includes a number of measures that would benefit not only China but could also benefit the United States as well. And I think this is an important point to make – that when we look at China’s Five-Year Plan, there clearly are elements there that are designed to improve the Chinese economy, make China a more harmonious economy, make China a more balanced economy.

But if one looks more deeply at this, there are a number of things that China wants to do, a number of China’s priorities, that can increase opportunities for closer collaboration between our two countries, and particularly, between the American business community and Chinese companies and the Chinese government. And let me try to identify a few of these.

Many of Chinese priorities include, for instance, improving the healthcare system, developing cleaner energy, improving the overall environment (China has major environmental problems of course), addressing issues such as food security, expanding the service sector, and strengthening the role of small- and medium-sized enterprises. And these are also areas where we believe American companies can play a constructive role in working with China as it attempts to achieve these important objectives.

And to achieve many of its goals, including developing what China calls Strategic Emerging Industries (SEIs), China needs to purchase the best technologies world-wide and work with the most innovative global companies. Restrictions that limit purchases to indigenous technology and indigenous innovation can, in fact, jeopardize China’s ability to achieve these broad objectives in these Strategic Emerging Industries. More broadly, we must find ways to ensure that one side does not seek to accomplish its objectives at the expense of the other.

And as we do so, the bottom line is that while we will press for specific changes that benefit our economic interests, American economic interests, we will also look for broader areas of common interest with China where we can develop the interests of China and the United States together, and we believe there are a growing number of opportunities for doing that as well.

This is, I think, going to be a very important part of Chinese-American collaboration – to identify areas where we, as the Chinese call it, can engage in “win-win” solutions – solutions that enable China to achieve its goals but also enable the United States and China to work together on goals that benefit both of our economies. We see this as a hallmark of progress in the future if we can engineer the kinds of dialogues that we think we can in order to focus on these common mutually beneficial objectives.

I’d now like to turn to ASEAN.

Our engagement in the Asia Pacific region stretches well beyond China, and I think that, from an American point of view, has been demonstrated by very recent visits by the President and the Secretary of State. We are now focusing much of our attention on strengthening economic ties with ASEAN.

A great example of this deepening relationship has been with Indonesia where we have established a very robust commercial dialogue to help identify new and mutually beneficial business relations. And next year we anticipate even closer collaboration with Indonesia, because Indonesia will be host of APEC next year and that will give it a very important role in shaping trans-Pacific cooperation.

Last year, exports to the ASEAN countries together exceeded $76 billion, up 42 percent since 2009 – quite a strike increase. This makes ASEAN the sixth largest destination for U.S. exports after the EU, Canada, Mexico, China and Japan.

President Obama’s National Export Initiative – or NEI – has been a major factor in this effort because its goal is to double exports over a 5-year period, and we see ASEAN as an important recipient of large numbers of increased American exports. Our Ambassadors throughout Southeast Asia all are very focused on the National Export Initiative, as they explore a multitude of trade opportunities in the region.

We have also sought to forge more open ties with Southeast Asian nations through institutionalizing the U.S-ASEAN Leaders meeting and through our participation very recently in the East Asia Summit. As all of you saw, very recently, President Obama and Secretary Clinton both participated in these two important meetings just last month.

Under the U.S.-ASEAN Trade and Investment Framework Arrangement – or TIFA – the United States and ASEAN are working on new trade initiatives on digital connectivity, on healthcare, on services, on agribusiness, and on consumer goods.

We also held the first-ever U.S.-ASEAN Business Forum last year in Siem Reap in Cambodia with the goal of expanding public-private sector cooperation on the U.S. side and working more closely with ASEAN member states and ASEAN companies. I was pleased to be a member of the U.S. delegation to this meeting, which focused in particular on the topic known as regional connectivity. This included connectivity in power, roads, rail infrastructure, and information technology, and also in expanding communications technology in the region.

And I was very glad to have had the opportunity at the forum to meet numerous Hong Kong-based U.S. business representatives, and of course Richard was a prominent member of that group as were others from Hong Kong, but I particularly want to thank Richard for his leadership and for his creativity and for coming to this event, which I think we both agreed was quite successful and we will hope to have it again with support from the chambers in the region.

During the U.S.-ASEAN Summit last month, President Obama and ASEAN leaders also launched what we called the “U.S.-ASEAN Expanded Economic Engagement” Initiative to promote economic cooperation between the United States and ASEAN. This initiative, which we called the “E3,” will focus on enhancing ASEAN members’ capacity for advancing cooperation in many areas that we think will further enhance trade.

In addition, an exciting new area for our outreach is in the energy sector. At the East Asian Summit, President Obama and his counterparts from Brunei and Indonesia announced the U.S.-Asia Pacific Comprehensive Energy Partnership. The Partnership will offer a framework for expanding energy and environmental cooperation to advance efforts to ensure affordable, secure, and cleaner energy throughout the region. We will foster active private sector involvement in the partnership, which will focus on the four key areas of renewable and clean energy, markets and interconnectivity, the emerging role of natural gas, and sustainable development.

And the U.S. Government will add support to the effort through utilizing various U.S. government agencies, including the Export-Import Bank, OPIC, and TDA, in order to promote the use of American technology, services, and equipment in the energy infrastructure area and also to provide financing for American companies that wish to become engaged in these projects.

In addition, through our Lower Mekong Initiative – a multilateral effort that includes Cambodia, Laos, Thailand, Vietnam, and Burma – we are working to foster integrated regional cooperation and capacity building in the areas of education, healthcare, and infrastructure connectivity.

We have also enthusiastically supported the creation of the Asian Development Bank’s $485 million ASEAN Infrastructure Fund – which should provide opportunities for many U.S. businesses to participate in ASEAN infrastructure projects in such areas as energy, transportation, information technology and communications technology.

There are enormous opportunities in the information area in particular as these are built up, these infrastructure projects are built up throughout the region, but in all of these sectors, there are opportunities, and we think American companies can take advantage of them, and we believe that the fund that has been established under the Asian Development Bank can be one way to enable them to do that.

Let me now turn to the very interesting new developments that have been occurring with respect to Burma.

As we enhance our engagement with ASEAN, the United States has actively supported reforms in Burma. A little over a year ago, Secretary Clinton made the first trip to that country by a Secretary of State since 1955. And just a few weeks ago, President Obama was the first-ever American President to visit that country.
The United States has worked steadily and consistently with that country’s leadership over the past year and a half to welcome it back in the international community. We have eased sanctions, we have supported trade missions, we have launched new relationships with President Thein Sein and his ministers, and we have entertained an enormous number of visits by senior officials to the United States – most recently the Minister of Energy and the Minister of Mines – both very important sectors for American investment and both very important sectors for that country’s future development.

As part of this effort, I had the opportunity to lead the highest level U.S. government economic mission to that country in the last three decades. This took place last July. And we have also engaged with government ministers in a variety of ways to develop not only our relationships at a government level but also to encourage them to engage more actively with civil society. And we ourselves have met with civil society in Burma to bring them into the dialogue, and we have engaged with our business community and the business community of Burma to try to further enhance opportunities for American companies and Burmese companies to work together.

So there are enormous opportunities here. The dialogue is just beginning. But it is well underway, and compared to what the relationship looked like a year and a half ago, things have changed quite dramatically. We were also joined on the mission that I mentioned by the U.S.-ASEAN Business Council’s first-ever trade mission to Burma, which enabled American businesses and other businesses from that region to get together and identify ways of collaborating with one another.

There is still much work to be done. And it is critically important that U.S. companies undertake the due diligence required in such a complex political and social environment before investing there. But together, the U.S. government and the U.S. business community can further engage President Thein Sein’s government, his ministers and his senior officials, and the private sector, and others in Burma in a way that promotes both U.S. economic interests in the region and the ongoing reform process in that country.

It also is important as we move through the region to recognize the efforts we have made to enhance our economic engagement with our strongest allies in this region. We have worked closely with Japan to strengthen institutions that foster networks that are open, inclusive, and support internationally accepted rules and norms. Japan has been a major partner for the United States in the WTO, and in ASEAN collaboration, and in APEC, and in other fora as we try to encourage other countries to play by global rules with respect to intellectual property, with respect to openness, and with respect to transparency. So we continue to see Japan not only as a major ally of the United States, but also as a major partner in shaping the rules of the global system that are consistent with our goals of greater openness, transparency, fairness, and a level playing field.

We have committed to cooperate also with Japan energy, including the development of clean and renewable energy sources, energy security, and the peaceful, safe, and secure uses of nuclear energy. In July of this year, we launched the highest-ever Bilateral Commission on Civil Nuclear Cooperation to further strengthen this work. And this is at a very high level, and obviously given what’s happened in Japan, we pay a lot of attention to this dialogue and the Japanese do likewise.

And we have continued to deepen our bilateral trade and investment ties and to promote cooperation on innovation, entrepreneurship, supply chain security, the Internet economy, space, cyber, and science and technology, as well as women’s entrepreneurship, and economic empowerment.

We’ve also made significant progress with another key ally in the region, and that is South Korea. In particular, as you all know, we have reached agreement with Korea on a free trade agreement known as KORUS, which was a major objective for the Administration in Seoul and for our Administration in Washington.

Results since the FTA has entered into force, which was in March of this year, illustrate the benefits of promoting free trade in the Asia Pacific region. U.S. manufacturing and agricultural exports to the Republic of Korea have increased dramatically under this free trade agreement; for example, U.S. wheat exports to the ROK rose 65 percent from January to August compared to the same period last year.

This FTA also is supporting job-creating investment by Korean firms in the United States, such as a Korean auto parts manufacturing investment, which was quite substantial, in fact, $50 million in a facility in Alabama. And the successful U.S.-Korean FTA renews our determination to lower barriers to trade and enhance opportunities for investment throughout the Asia Pacific region.

And this brings me to the issue of the TPP.

With the Trans Pacific Partnership (TPP), we are making progress towards finalizing a far-reaching trade agreement that brings together some of the largest and fastest growing economies of the Pacific Rim. The TPP will lower barriers, raise standards, and drive long-term growth across the region. However, our goal is not simply to create more growth, as important as that is, it is also to foster better, more responsible, and more sustainable growth by also establishing strong protections for workers and for the environment. Better jobs with higher wages, safer working conditions – including for women, migrant workers and others often excluded or marginalized in many economies – will help build a sounder foundation for future prosperity and social harmony.

And the TPP features new cross-cutting issues not previously included in trade agreements, such as making the regulatory systems of TPP countries more transparent and more compatible. Canada and Mexico recently joined our original eight TPP negotiating partners and we also continue to consult with other countries in Asia that have expressed interest.

Our optimism on TPP is largely based on what we’ve seen to be the continued development of Asia Pacific economic cooperation in APEC and in other fora. We think this is part of a broader effort and we’re optimistic that it will achieve results. During the U.S. host year of APEC, for instance, where we think we made a great deal of progress, we focused on a wide range of issues which enhanced cooperation in the area of trade, and of course, as I mentioned, we’re looking to work with the Indonesians to continue this process.

It is worth noting in this process that Hong Kong played a major role and was a very strong partner for the United States in APEC. And I was pleased to be able at the APEC meeting in Vladivostok to honor a Hong Kong scientist for winning APEC’s “ASPIRE” prize for science at this meeting. So Hong Kong played a major role not only in the development of the meeting, but Hong Kong’s innovative capabilities – along with Hong Kong’s commitment to open trade and a rules-based system – has been a very important part of APEC. Among the economies of APEC, Hong Kong’s role is very substantial and very powerful, because it’s based on principles, it’s based on practice, it’s based on a commitment to the rule of law, and therefore, Hong Kong’s voice is a very robust one when it comes to trying to shape the rules of global trade in the region, particularly the utilization of APEC as a forum for discussing ways in which the rules and the practices of this region can evolve in a constructive way.

Working with our APEC partners, we believe we have significantly advanced the trade and investment liberalization this region, providing tangible improvements that have helped to facilitate business. APEC’s accomplishments in the past few years have included:

• lower tariffs on environmental goods and services,

• getting the private sector from APEC economies more engaged in the process of encouraging a regional trading system,

• promoting market-based, non-discriminatory innovation policies in the Asia Pacific, and

• encouraging greater participation by women in APEC economies.

These areas were particularly important, but one of the most important, I think, was the fact that we agreed in Vladivostok on a list of 54 environmental goods and services that we all committed to reduce tariffs on and make sure there was a lid of no more than 5 percent on these items by 2015. These goods included, for instance, technologies used for renewable and clean energy, for pollution control, hazardous waste treatment, and environmental monitoring and assessment.

In addition to lowering tariff barriers, we’ve also launched efforts at APEC to ensure that new emerging issues are addressed in a more robust way, particularly those that we think threaten this region. And I’ll just name three of them:

• One is the prevalence of counterfeit pharmaceuticals in the region. This is a growing problem. The United States imports 80 percent of the active ingredients of its pharmaceutical products from abroad and many of those come from East Asia. And therefore it is particularly important that our Food and Drug Administration work with counterparts throughout the region to make sure that there are safe supply lines for pharmaceutical products in all of our countries. It’s a health matter for virtually every country in this region that there be more cooperation in this area.

• A second area is trafficking of wildlife parts both into and within Asia. The killing of elephants, the killing of rhinos, the killing of other endangered species has become a huge problem not just for this region but for the world. The United States and other countries of this region have a responsibility to address this problem and are able to do it. And I think more cooperation between our countries can help to address this scourge, which accounts for between $7 and $10 billion of illegal trade. After illegal trade in arms and drugs, illegal trade in wildlife is the third largest area of illegal trade, and it is done by syndicated organized crime that is connected with drugs, and is connected with arms, and also with terrorist groups. So this is not just an issue of conservation, which of course it is, it’s an issue of protecting animals, protecting those people who protect animals, and also dealing with a widening area of organized crime.

• We’ve also worked together to increase cooperation with respect to avoiding restrictions on food exports. Food export restrictions have in the past distorted food trade, particularly during periods of shortage, and we agreed to try and avoid that within the context of APEC.

I also want to within the context of the wildlife issue to single out Hong Kong for its major efforts that it has made to stop illegal trade in ivory and rhino horns through very active seizures in this area.

As we look forward to 2013, we’re particularly eager, as I mentioned, to work with Indonesia. We see cooperation with Indonesia in a wide range of areas such as improving rights for women, addressing food security challenges, while also working on a wide range of environmental issues.

Looking ahead, let me just identify two or three areas where we think there are opportunities for real progress. One is we want to engage in a more robust way on the broader question of “Connectivity” across this region. Throughout the Asia Pacific, better connections on infrastructure, road, rail, telecoms, information technology, power, water, etc. is going to be key to Asian growth. And U.S. companies can play a very positive role in this area.

The U.S. Government – not only the State Department but also TDA, the Export-Import Bank, the Commerce Department, the Department of Energy and others – already have done collectively a great deal through cooperation in APEC, through ASEAN, and through the Lower Mekong Initiative. And ultimately, we want to extend this vision from the Pacific to India, to develop further India-Southeast Asian connectivity. We’re working with institutions such as the Asian Development Bank in order to do this.

An Indo-Pacific economic corridor linking the rapidly expanding economies of South and Southeast Asia would open new investment and trade opportunities, create jobs, promote peace and strengthen regional stability, and help lift millions in this region of people out of poverty. Connectivity means not just better physical infrastructure but also strengthening people-to-people ties and addressing behind-the-border regulatory barriers, and finding ways to make it cheaper, easier, and more effective for companies to do business between India and Southeast Asia.

Let me conclude by simply emphasizing a few of the points that I have raised a few moments ago. In all of the areas of economic engagement I’ve mentioned – whether key bilateral relationships or the emerging importance of multilateral institutions such as APEC – the bottom line is that this engagement can create jobs in the United States and in all of the partner countries engaged in this process.

This is not a “zero sum game” we’re involved in. It is a process by which through trade and investment, we can create more jobs in all the countries in this region.

It also will give us an opportunity to shape the future rules and norms of this – the most dynamic region in the world. We will need to continue to focus most of our energy – indeed, the large portion of our energy – on areas where we see common opportunities for progress, and there are many. One of them is energy. We think there’s a great opportunity for energy cooperation. We think there’s a great opportunity for strengthening commercial relations in this region. We think there are great opportunities for strengthening mutual investment relations in this region.

And at the center of this, as I said at the outset, is the business community. The business community has been the vanguard of this effort. And if all these efforts are to move ahead and succeed, it is going to be the business community which is going to have to be the most dynamic factor in this process. And I think, and I’m hopeful, that that will be the case. We as a government want to encourage continued cooperation with the business community, and we want to provide a maximum amount of support. One of my top priorities since taking this job has been to work closely with the business community because I know of its importance, and I know that our initiatives throughout Asia will not work without cooperation between our government and other governments and the private sector. This has been the case in the past, and it remains so today.

So I am very excited about the direction in which our engagement is heading in this very important region of the world and will do all I can to make sure it continues and to make sure it thrives.

Thanks very much.

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