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Remarks by Ambassador Demetrios J. Marantis "China: What's Next?"

Remarks by Ambassador Demetrios Marantis
Deputy United States Trade Representative

July 15, 2010
"China: What's Next?"

Washington, DC

*As Prepared for Delivery*


“Last week, I picked up my copy of Counselor: A Life at the Edge of History, Ted Sorensen’s memoir of a decade working as President Kennedy’s legendary speechwriter and closest advisor. Paging through the 500 page account of working for the young Senator and President who inspired a nation, I was struck that Sorensen dedicated just one half page to China. Half way through the volume he wrote of Kennedy: ‘The only controversial foreign policy issue that he deliberately, explicitly postponed to his second term…was U.S. relations with China…but a topic that Kennedy knew had to be faced.’

“How much the world has changed. An account of President Obama’s Administration would more likely address U.S. relations with China on many pages, beginning in chapter one, rather than dedicating just a single page. No longer can a new president delay or postpone the question of China, for a term, a year, or a week. Instead, the President and his Administration must address U.S.-China relations as an imperative of our foreign, security, and economic policy today and every day.

“U.S. policy toward China is more important than ever, because the United States and China are in one of the most challenging periods of our trade and economic relationship in decades. Economic events and policies past and present have conspired to lay at our feet a set of historic domestic and bilateral economic challenges, which taken together can define a generation and set the future course of U.S.-China relations.

“The nature of these challenges, their causes, and the complex conditions they create are no secret. Domestically, the United States is only beginning to emerge from an economic recession such as has not been seen in a generation. While unemployment has stabilized, too many Americans remain out of work. For some, this recession has deepened skepticism of the potential for international trade to create jobs in the United States. More voices, including an increasingly vocal group of U.S. businesses active in China, are asking tough questions about our trade and investment relationship with China, even while they acknowledge its impressive size and growth. These events coincide with the fact that exports have contributed, as much as household consumption, to our overall economic expansion over the past nine months and promise to be integral to future growth.

“Our bilateral challenges with China are also familiar. Nearly a decade after China joined the World Trade Organization (WTO), we are challenged to secure our past achievements and build on our successes. China has implemented many important economic reforms, removed trade barriers, and opened markets to U.S. exports. Our manufactured goods exports to China have tripled, and China’s strong recovery from the global recession brought double-digit growth in U.S. exports of manufactured and agricultural goods.

“Yet we must also contend with the fact that China’s implementation of its WTO commitments is incomplete. It has been nearly a decade since China joined the WTO, and is high time for China to follow through on past commitments, as well as provide new market access in key sectors. Failing to do so imperils not just our bilateral ties, but also the success of multilateral trade talks.

“The United States has serious concerns about Chinese policies that limit market access or otherwise skew our trading relationship. Trade-distorting measures, including export quotas and value-added tax rebates, impede market forces. Chinese subsidies across a wide range of favored sectors harm U.S. manufacturers and workers, and through their effects impede or displace U.S. exports to China and third country markets.

“Proliferating industrial policies set unique technology standards to favor Chinese producers; ‘Buy China’ policies cut off access to procurement markets; and arbitrary measures restrict investment flows. In services, China severely limits opportunities for U.S. companies in its telecommunications sector, hampers access for insurance and private pension suppliers, and its new ‘Postal Law’ excludes foreign express delivery companies from a key segment of China’s domestic market. In agriculture, a series of non-science based measures still impede our poultry, pork, dairy, and beef exports. And China’s use of import permits, tariff rate quotas, and value added taxes conspire to restrain agricultural trade.

“And one of our greatest challenges with China today flows from a set of industrial policies promoting ‘indigenous innovation.’ These policies aim to foster research and development and value-added production. Good goals for any economy. But the steps China is taking to try to implement these goals are very troubling. As drafted, China’s indigenous innovation policies threaten global intellectual property protections, fair government procurement policies, market competition, and innovators’ freedom to decide how and when they transfer technology.

“Getting these and other individual policy issues right are also key to the broader goal of rebalancing global economic growth.

“The American people and the global community will measure this Administration’s success by how it navigates this challenging period. There should be no doubt that, for President Obama, the question of China is fundamental, a crucial issue tied to how our nation will grow and prosper. Our goal is for our two economies to grow together on a sustainable and mutually beneficial path that fosters innovation, growth, and job creation – a path that allows China’s economy to continue its impressive growth trajectory, while diversifying its drivers of economic growth, implementing market reforms, and becoming a progressive force in the global economy. Most importantly, our goal is to keep our economies travelling on this path with a keen focus on the economic rules of the road – the binding global trade and investment commitments to which we have bound ourselves to ensure our trade relations are fair and mutually beneficial.

“Goals alone will not steer our economies through our challenges. We need a comprehensive strategy to guide our future course. President Obama’s Administration has that China strategy, built on three distinct but mutually reinforcing pillars.

“The first pillar of our economic strategy with China begins at home. The United States cannot prescribe economic reforms for others, but hesitate to undertake new necessary measures itself. We recognize that our own domestic policies sometimes fall short, and that our domestic savings and spending practices contributed to our economic imbalances with China and the world.

“We must do better. Under the leadership of President Obama, this Administration is working with Congress to put in place a bipartisan plan to reform America's economic present and future. Congress passed and the President signed a robust economic stimulus plan to save and create new jobs in a cleaner and more sustainable economy. Historic healthcare reform is in place. Financial sector regulatory reform is within reach. As our economy emerges from recession, the Administration is crafting a plan to put our future on sound fiscal footing. And the National Export Initiative is mobilizing resources to assure exports play a bigger role in our future economic growth.

“These and other domestic economic reforms promise to make America's economy more competitive and prosperous for generations to come. These domestic economic reforms are also a global plan and a commitment to the world economy. An America that is more competitive and prosperous at home is also an America that can be more ambitious and engaged with its economic partners in all countries. This engagement will not only benefit our trading partners, but it will also create more jobs at home by increasing U.S. exports to the world.

“Building on this bedrock of domestic economic reforms, the second pillar of our China strategy is robust bilateral engagement focused on results. These results may not always be flashy. They may not always make headlines. But in every case they are safeguarding and promoting the jobs and livelihoods of American workers, farmers, ranchers, and service providers in a rules-based trading system.

“Look at our results in the S&ED last May. The United States went into the dialogue concretely focused on concerns with China’s so-called indigenous innovation policies, and we got results. China committed that its innovation policies will be consistent with principles including nondiscrimination, intellectual property rights enforcement, market competition, and open trade and investment. China pledged to leave the terms and conditions of technology transfer, production processes, and other proprietary information to individual enterprises. China also agreed to hold intensive expert and high-level bilateral innovation discussions, commencing next week, with all relevant U.S. and Chinese agencies. This is progress, but indigenous innovation is a tremendous challenge. We have much more work to do to address it, both on winning Chinese support for non-discriminatory innovation policies overall and our short term concerns with pending measures.

“Our S&ED work also won good results on government procurement. China committed to produce a robust revised offer to join the WTO Government Procurement Agreement (GPA). Fulfilling that commitment is a solid step toward ensuring China’s huge government procurement market is open to U.S. companies. China submitted its revised offer last week. We are still analyzing it, but we recognize that it includes significant improvements over its initial offer that was submitted at the end of 2007. After we complete our analysis, including consulting with domestic stakeholders, we will work with China and other GPA members to ensure China’s terms of accession are comprehensive and comparable to that of other GPA parties.

“The JCCT is also getting results. At last year’s JCCT meeting in Hangzhou, China dropped its H1N1 ban on our pork exports, great news for U.S. pork exporters to this growing market. While that was a solid step toward good results, we are still facing other non-science-based measures affecting our agriculture exports – including beef, dairy, and poultry – that we must work closely with China to address.

“On intellectual property protections, at last year’s JCCT China agreed to instruct state-run libraries to strengthen protection of copyright-protected academic and medical journals. China also cracked down on IPR violations on the internet, investigating websites, imposing fines, and shutting down hundreds of websites. Here again, we are making progress, but there is no doubt that rampant IPR violations in China still cost U.S. companies billions of dollars every year, and there is much more we must do.

“And we continue to work to improve market access in China. At the JCCT, China committed to remove local content requirements on wind turbines, ease compulsory testing for some information security products, and eliminate unnecessary regulatory requirements for medical devices. Yet again, to keep these markets open and fair, there is much more we still must do.

“Our focus on results also means that we are looking at our own approach to China to figure out what to do better. For example, we are making sure our Chinese counterparts hear this Administration speak with one voice on a single set of priorities. Which is why, leading up to the Strategic and Economic Dialogue (S&ED) in May, Ambassador Kirk worked hand-in-glove with Secretaries Geithner, Clinton, Locke, and others in this Administration to prioritize our goals and find the best means to achieve them. This cooperation is the rule on all levels across all agencies.

“We can also get more and better results by reexamining our processes with China. Take the JCCT. The JCCT has been the boiler room of U.S.-China trade ties, churning out results to power our relationship forward. We know the JCCT works, but we also know we can do better. Over the past year, we looked for ways to improve the JCCT process. One innovation was to restructure our work into a sustained effort throughout the year, rather than concentrate our efforts in a flurry of activity around the annual JCCT plenary meeting. Together with the Department of Commerce, USTR is pushing for results early and throughout the year by intensifying and accelerating our engagement in sectoral working groups. We are also elevating our engagement above the working level more often. For example, in May, Vice Minister-level officials from U.S. and Chinese agencies held our first-ever mid-year review of our JCCT work. Our session was productive, moving toward better results this fall.

“While our negotiators are seeking solutions through dialogue, USTR also works rigorously to lay the groundwork for the filing of enforcement actions in the WTO, if needed. Our goal is to send an unmistakable message that we will not negotiate indefinitely where U.S. rights are concerned. The United States has been by far the most active – and successful – WTO Member bringing WTO dispute settlement cases against China. Last summer, the United States, the European Union, and Mexico commenced a WTO dispute against China challenging its export restraints on nine important raw material inputs. We also have scored important victories for American workers and businesses on market access for books, movies, and music, and on intellectual property rights enforcement. We successfully challenged subsidies benefiting exports of Chinese ‘famous brands.’ And also for the first time, we took action under the Section 421 special safeguard provision against a surge of Chinese tire imports.

“The third pillar of our China strategy supports work beyond our bilateral initiatives to address our relationship multilaterally and regionally. Multilaterally, we are working with China to get an ambitious and balanced outcome in WTO Doha negotiations. We can only achieve success in these negotiations if China, and other advanced developing economies, play a role and make commitments commensurate with their position in the world economy. We are disappointed with China’s contribution to date. China has come up short and continues to leave the United States and its global trading partners waiting for more serious engagement and a more serious contribution to WTO negotiations. The role in the global economy that China has aspired to and now plays comes with commensurate responsibilities. That means stepping up on such issues as Doha.

“Regionally, our China strategy has two aspects. First, we cannot overlook the important work the United States and China can achieve in key regional bodies like the Asia-Pacific Economic Cooperation (APEC) forum. Together, the United States and China can move APEC’s 21 member economies to benefit the region and the global economy. As the United States prepares for its 2011 APEC host year, we look forward to working with China to further regional economic integration in the Asia-Pacific.

“Second, our regional focus also recognizes that China has done a remarkable job integrating its trade and investment ties in the Asia-Pacific region. We welcome China’s regional accomplishments, but we also recognize that we need to pursue important trade and investment opportunities for U.S. businesses in this arena. The United States too must anchor its economic future in the region as a Pacific economy. This is why President Obama has directed Ambassador Kirk to strengthen these ties to the region through APEC, work to address outstanding concerns with and complete our Free Trade Agreement with Korea, and pursue an unprecedented regional trade agreement with the eight-country Trans-Pacific Partnership.

“While President Kennedy may have had the luxury of deferring his China policy a half century ago, he did have the vision to create the Office of the Special Trade Representative in 1963, urging Americans to ‘trade or fade.’ This Administration is honoring this Kennedy legacy by shaping a comprehensive China strategy built on a foundation of domestic economic reforms, focused on results, and bilateral, regional and multilateral engagement. We will adjust and reform our strategy as events and developments require, but we must get it right to keep the U.S.-China relationship on target and on track for success.”