U.S. and Hong Kong (2003)

PRESS CONFERENCE
BY AMBASSADOR ROBERT B. ZOELLICK,
UNITED STATES TRADE REPRESENTATIVE

October 18, 2003
APEC Meetings, Bangkok, Thailand

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Question: [unintelligible] from CNN. You mentioned in your earlier remarks about ......tackling piracy in intellectual property. Do you think [unintelligible] impression of the commitment perhaps by Asian countries in dealing...

Ambassador Zoellick: I had a very interesting discussion with the Secretary of Commerce and Trade of Hong Kong today, because Hong Kong has been one of the leaders in really turning around this market. John actually was the Customs Commissioner before and really knows this business and in fact I was trying to learn from him about ideas that I could share with the people I will be meeting in Beijing in the next couple of days about ways of trying to address this issue. I think the record is mixed. Obviously, it's an enormous problem, but as Hong Kong has demonstrated, it's a problem you can get on top of. Indeed, he was telling he will be giving a speech on Monday giving some of the information on how to do this at a conference I think Time Warner was involved with. And I asked to get an early copy of the speech, which I haven't read yet, otherwise I'd be able to answer your question better.

But what I've been encouraged by is - take the case of Thailand. It's partly a question of getting the right legislation in place. But then it's also very much a question of enforcement and resources. So it's a question of the penalties and the follow through. What the Hong Kong experience has demonstrated is that, he put this in a very interesting way. He said the Hong Kong economy used to be based on frankly lower wage labor, then we moved to investment and now we're moving to innovation. And I think he mentioned some 86% of Hong Kong's economy is in the service industry. If you're going to go from investment to the world of innovation, you have to protect intellectual property. And so Hong Kong is demonstrating that. And I think that's important, because if we're going to be, in my experience of 20 years, is that if you're going to be effective, and working with countries you have to show how it's in their interest. It's not just penalties, but how it works to their benefit. And so this is a good case where you have some good models. And again this is where APEC, I think, the way APEC works, it's different from other groups - is that by putting out these benchmarks, you're showing the ways in which you can start to address this issue. And then if we follow up on the enforcement experience, people in this region ultimately have to act in their own self-interest. But there are a lot of businesses that are encouraging to take these steps.

But it's not only a problem obviously in this region. Russia is a member of APEC. It's been a big problem in our dealings with Russia as well. And indeed, in the case of Ukraine, we've taken sanctions against countries that can't get on top of the issue. Because from the perspective of the United States, obviously given our knowledge economy, we're running a $500 billion dollar current account deficit. We need to get some of the returns from some of our investments in intellectual property. We lose billions and billions of dollars around the world for lack of protection of this. So people who want to keep the United States' markets open for the growth in this region, and I'm certainly one of those people who wants to do that, we have to have some fair play in intellectual property protection as well.

Intellectual property protection covers a lot of topics, I'll give you another one that is relevant, which I'll be talking about in China. Counterfeit. I have an advisory group, for the United States Trade Representative, and this trade group presented to me a very interesting report on counterfeiting. Well counterfeiting is not only an economic issue, it's a health and safety issue. We have examples of shatterproof glass that is, counterfeit product is not shatterproof. So if you're driving a car that's made with this, that's a counterfeit operation, you've got a safety problem. And that's true for pharmaceuticals and other issues as well.

So part of the bigger challenge, which we and the business community and countries here are addressing, is to show why this matters to people and why it's important for their own innovation and safety to improve intellectual property.

Question: [unintelligible] from the South China Morning Post out of Hong Kong. Now that you've [unintelligible] talk a little bit China, coming in to this APEC meeting there has been a lot of speculation about the U.S., that it's going to be raising, putting a lot of pressure on China regarding the renminbi - is that going to be a major priority for you, and what are some other issues, bilateral, with China.

Ambassador Zoellick: Well just so you have the context of this, one of my deputies, Ambassador Shiner was just in China having a number of meetings before a visit to Sri Lanka. I leave tomorrow to first visit Shenyang, in Manchuria, and then on to Beijing. And just as a small observation, the last time I was in China, I visited Chongqing. And I find it very useful to not only go to the Beijing, Shanghai, Guongdong areas, but see some of the areas the Chinese government see as challenges for development. And we have American businesses there - I visited a Ford plant in Chongqing, which recently just had a very large investment.

But I think it's no secret to people that the issue of the China trade imbalance has become a very hot one in the United States. And as I recall, some 25% of China's exports now flow to the United States. And as all of you know who operate in this region, that's very important for the growth in south east Asia as well. Because whether it be commodities like rubber from Indonesia or Thailand or whether it be component parts, China is buying from other countries and then often selling the assembled products to the United States. So we want to keep American markets open, but as I said, we have a $500 billion dollar current account deficit globally, over $100 billion with China. And so the most critical part is we need to have a fair, a two way street. I'm one of the people that wants to keep the U.S. market open, I think a lot of this provides good quality goods for American consumers at lower prices. But to do so, I need to be certain that American farm products can get in, in a predictable fashion without people inventing reasons to stop them. I need to be sure that American intellectual property is protected. I need to be sure that tax rules aren't used in an unfair way against, whether it's American fertilizer or other products. I need to be sure that American financial service industries, which by the way are serving the Chinese people too, can operate without branching or other unfair requirements.

But a key issue is that China is obviously had a major task in terms of implementation of WTO accession. I know how complicated this was. I was the last of the series of Trade Representatives that completed the China's and Taiwan's accession. And I think one should not underestimate how hard that has been for China as its moved to a market economy, as reports of American business show, it's been a mixed record, a lot of changes, some things haven't happened.

But part of my message will be, it's very important for China to follow through on the obligations. And let me mention one that is coming up soon. Many people may not be aware that if you sell goods in China, you can't just bring them into the country and sell them in a normal trade and distribution network as you can in the United States. So China has made commitments to open up the trading rights and distribution system in China, on a progressive fashion, to be completely opened up by December 11th of 2004, and by December 11 of this year, we're supposed to allow majority ownership of joint ventures.

So part of the message will be, it's important that China follow through on those obligations. Now on the currency topic which you mentioned, my colleague Secretary Snow has talked about this. I think there's some aspects that are obviously in our mutual interest. What's driven some of the attention to the exchange rate is the fact that China has been having very large increase in dollar reserves. Well why is that happening? Well it's happening because to maintain the currency peg they have to spend renminbi to buy dollars.

Well that's how they're buying the dollars. But under country's monetary policy, that means they're expanding the money supply more rapidly. Well, I used to be in the housing finance business - that runs some risks of actually bubbles. That draws the risk of overheating. So there are discussions that I've read within the Chinese financial press about whether that is always in China's interest.

So again, part of my feeling is that China's integration into the world economy has big opportunities, but big challenges. And that shouldn't be a surprise. It's 1.3 billion people, it's happened in a relatively quick space of time. On my visits to China I've emphasized the great respect that I have for the Chinese in terms of what they've accomplished. I first visited China in 1980 when I lived in Hong Kong, and so I've seen the changes in China. Just in the past week, we've seen China put a person into space. Tremendous transformation. But in part, because of its size and influence, China, in some ways, like the United States, has a larger responsibility. It's not just a question for the United States but it's a question for China effect with others. I hope to try to talk about with Chinese officials is building the foundation of mutual interest, so that we can show how this is an overall benefit. And I've mentioned some of the areas, but there are others we need to work with our Chinese colleagues on trying to improve. Because what the President and my colleagues in the cabinet and I need to do with the Congress and the American public is to show that it's fair and a two way street.

Moderator: I think we have time for two more quick questions, and quick follow up.

Question: So does that mean that if they give concessions in other things they may not [unintelligible].

Ambassador Zoellick: Well, I'm not the Treasury Secretary. And I imagine that President Bush will be talking about this with President Hu. Just to give you a slight piece of history on this - when I was interviewed for this job, President Bush asked me what is the Trade Representative's view on exchange rates and currency. And I had an advantage because I used to work at the Treasury Department in the 80's under Secretary Baker, and I knew that the Trade Representative doesn't have a view on exchange rates and currency, that's for the President and the Treasury Secretary. And so that's my answer to your question.

Question: John [unintelligible] from the Guardian. Not being from an APEC country, I wonder, and mentioned about the diversity of economies, the non-binding nature, everyone fighting for their own interest, for the rest of the world, why should we really be paying attention to APEC, and what's it's real relevance?

Ambassador Zoellick: Well, APEC started in 1989 with a very important concept, and I was there, in Canberra. At the end of the Cold War, people were interested in how institutional ties would change. And here you have a region, that spans the Asia Pacific, and I'm sorry, being from the Guardian, you had some historical ties here, but you gave them up. And it's an area, a region of great diversity, of great energy and innovation. The North American market remains a great source of dynamism, creativity, between 25 and 30 percent of the world's GDP. You've got incredible growth in China. You have countries in south east Asia that represent not only large populations but very important innovation. You know, as small as Brunei and as big as China. And so if a group that diverse can come together with a point of view - it's quite significant. Now the nature of this group from its very start, and this is partly ASEAN's wish - is that it's not a trading bloc and it's not to try to separate, it's what people have referred to as an open regionalism. All of us are part of this region but we're part of the global economy as well. And that's a very important point to emphasize. Well just take my day. I just came from Central America, and Montreal, and next week I'm going off to Europe. The United States is not just an Asian Pacific economy, it's a global economy. But so how can this region can send a message, in practical terms and in strategic terms for the world as a whole? Well one thing I mentioned, we're showing how trade facilitation has practical benefits, and maybe we can show that to some of the African countries so they'll support it in the WTO. We're showing things like how to deal with optical disk piracy, those are very concrete, practical things. And one of the things that's always distinguished APEC as a post-Cold War grouping is that it's had much closer ties with the business community...[6 second break in tape]

As I said, frankly I didn't expect that this group would agree and send a message that we should all work off the Cancun text. That's a very good sign. So if you report in that little part of the world called Europe, about the need to work off the Cancun text, that would be great. And so, I'll be seeing Commissioner Lamy I think on November 3, I'll be talking about this with him, with our Brazilian colleague who I'm going to be seeing shortly.

So there are past examples of this. You know, in closing the Uruguay Round one of the important dimensions was the completion of NAFTA and the first APEC summit. This prodded, as some Europeans have said, the recognition that Europe had to move from liberalization at the time. That was a significant step. So when China came in, when China hosted the APEC meeting in 2001 in Shanghai, it was quite interesting. And to give my colleague Commissioner Lamy credit, he was one of the few trade ministers at the time that was really pushing for the Doha launch. A lot of my Asian colleagues were more reluctant. But China, even though it wasn't a WTO member, was very active at the APEC meeting saying we should launch this round.

So it's a combination of, if you get these 21 economies, as varied as they are - Latin America, North America, Asia-Pacific, North Asia, South East Asia, you know all moving in a direction - that carries some weight with it, and then there's the very practical sense of the things we are doing.

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