U.S. State Department Geographic Bureaus: East Asia and Pacific Bureau

U.S. Department of State
95/07/18 Testimony: Joan Spero on APEC
Bureau of East Asian and Pacific Affairs

Testimony for Joan E. Spero, Under Secretary of State
for Economic, Business and Agricultural Affairs
House Committee on International Relations
Subcommittees on Asia and Pacific Affairs and
International Economic Policy and Trade
Tuesday, July 18, 1995

Introduction

Mr. Chairman and Members of the Committee. I am pleased to have the opportunity to testify on U.S. policy toward APEC, the Asia Pacific Economic Cooperation forum. In my remarks, I will provide an overview of the strategic role APEC plays in U.S. foreign economic policy, review APEC's evolution and set out the Administration's goals for APEC in the near term.

The Importance of the Asia Pacific

The Asia Pacific is one of the most economically dynamic regions of the world. It accounts for 41 percent of world trade and half of world output. It is the fastest growing region in the world: thirty years ago, Asia alone accounted for only 4 percent of the world's economy; today it accounts for 25 percent. Some economists predict that by the year 2000, it will account for 33 percent. By the end of this century, one half of world trade will take place in the Asia Pacific region. Asia is not only dynamic; it also is increasingly a closer, more cohesive, more integrated region. Forty-two percent of Asia's trade now takes place within Asia. And intra-Asian trade is growing four times more rapidly than trade between the United States and Asia. Direct investment by Asians within Asia also is burgeoning. Japanese companies are in the lead: they accounted for 18.4 percent of the foreign direct investment in major Asian markets between 1986 and 1992. But the Japanese are not alone. Companies from the rest of Asia -- Korea, Taiwan, Hong Kong -- accounted for half of all foreign direct investment in the region.

The worldwide communications revolution now underway will link the region ever tighter in the future. Pacific Rim countries are investing more than $21 billion annually to modernize and restructure their telecommunications networks. Fiber optic cables, the Silk Roads of the 21st century, are being laid throughout the Pacific.

U.S. business needs to be a part of this explosive economic development. As markets and competitors, the nations of Asia and the Pacific will only become more important to us in the future. Already one third of U.S. exports, supporting nearly 2.7 million American jobs, are destined for East Asian markets. There are immense challenges and immense opportunities in the region's dynamism. We must meet both.

New Economic Architecture

U.S. business is doing its part by becoming more competitive. For the first time since 1985, the United States last year displaced Japan as the world's most competitive economy. We are once again the world's greatest export machine, exporting more goods and services than any other economy.

But business cannot do the job alone. Government also has its part to play. The Clinton Administration has put economics at the center of its agenda and is committed to ensuring that U.S. economic interests are fully integrated in the development and implementation of our foreign policy. We are trying to carry out that mission in three principal ways.

Global Approaches

First, we are committed to global economic engagement and to building and modernizing the economic architecture for the post-Cold War world. We are aiming for an international system that is more open, more market-oriented, and that promotes world prosperity and world peace. To meet the challenges of the 21st century, we must ensure that we reach the year 2000 with an open, market-oriented world trading system, a stable and transparent world financial system, and global institutions that can effectively integrate developing countries and the former Communist world into the global mainstream.

The centerpiece of the Administration's policy of international economic engagement is the World Trade Organization (WTO). The WTO Uruguay Round agreement is the most far-reaching trade agreement in history: it will modernize the international trading system; significantly reduce tariffs and non-tariff barriers; expand the trade regime to services, intellectual property, and investment; and cover agriculture in a meaningful way for the first time. The new WTO will provide a solid foundation for the open, multilateral trading system -- a system that will allow regional arrangements like the EU, NAFTA or APEC to flourish, but keep the world economy from breaking into costly, exclusionary economic blocs.

We have also taken the first steps towards a thorough overhaul of the world's monetary and development institutions. At the June G-7 Summit in Halifax, leaders agreed to a two-pronged approach to reducing global instability:

-- crisis prevention, through IMF "early warning mechanisms" and a long-term drive for greater transparency and better regulation in both global and national financial markets; and

-- crisis management, through a new IMF emergency financing mechanism coupled with substantially increased resources for the IMF.

Leaders also endorsed reforms of the multilateral development banks and the UN development system to make development assistance work better.

Bilateral Approaches

We also are busy on the bilateral front. We continue to level the playing field and provide new opportunities for our companies through our efforts in the U.S.-Japan Framework talks, market access discussions with China, and formal economic dialogues with key Asian economies like Korea, Taiwan, Thailand and India.

The issues are tough and the problems can't be solved overnight. We will have difficult moments, ups and downs, as we work to convince our trading partners that the Clinton Administration means business: we expect the same opportunities for our firms in foreign markets as our trading partners enjoy in ours. But as we have shown in the case of Japan, we are committed to finding solutions, and making those solutions produce results in the market.

We will continue to work aggressively for the removal of barriers to U.S. trade and investment throughout Asia. In addition, we at the State Department, working with other agencies, are committed to promoting US business interests a variety of other means. These include advocacy efforts in support of key projects, and day-to-day assistance to US companies facing practical "doing business" problems abroad in such areas as intellectual property rights, tax and regulatory regimes.

Regional Approaches

We also need regional approaches to expand business opportunities, promote economic growth and secure benefits for the American people. We see positive regional policies as a way to ensure that U.S. business is firmly rooted in those dynamic parts of the world that are so important to our economic future. So, in addition to our efforts to sustain and strengthen an open, multilateral trading system, the Administration is revitalizing and expanding U.S. economic relations with the three most important economic regions in the world -- Western Europe, Latin America and the Asia Pacific. In Asia, our efforts to build a new architecture have centered on the Asia Pacific Economic Cooperation forum.

Evolution of APEC

Let's start with some history. APEC first met in Australia in 1989 as an informal economic dialogue among twelve member economies. Beyond a general economic focus, the group had no stated mission or goal. We have come a long way since then.

APEC has expanded from 12 to 18 member economies. It now includes the vibrant Pacific economies of Mexico and Chile, and those of the Peoples' Republic of China, Hong Kong and Chinese Taipei -- one of the world's most powerful economic areas. Collectively, APEC's members represent one half the world's people and one half its annual economic output.

APEC now has a structure: a small secretariat in Singapore, a policy making process capped by annual leaders meetings, and most importantly in terms of day to day business needs, three committees and ten active working groups. APEC's working groups strongly encourage active private sector participation, and focus on ways to make it easier to do business, in sectors such as transportation, telecommunications, or energy. Yet the U.S. contribution to APEC's annual budget is only 580,000 dollars. It is one of the best deals the American taxpayer gets.

APEC also has a customer. APEC is not for governments. It is for business. Through APEC, we aim to get governments out of the way, opening the way for business to do business. It is our goal to make APEC the most user friendly forum in the world. That is why business participates in APEC's working groups. That is why APEC established a business advisory group -- the Pacific Business Forum -- to advise APEC leaders on business priorities and provide a vision for APEC's future. And that is why increasing the role for the private sector in APEC is a key objective for this year's meetings in Japan. The Pacific Business Forum will deliver its own "Business Blueprint for APEC" to Prime Minister Murayama in the fall.

How does APEC carry out this mission? Let me give you some specific examples.

With the establishment in 1993 of a new Committee on Trade and Investment, or CTI, APEC launched an extensive new trade and investment facilitation effort. Its goals are to simplify and harmonize customs procedures and standards, identify administrative barriers to trade, implement a set of non-binding investment principles and work to harmonize Uruguay Round implementation among APEC member economies.

Much of APEC's most important work, in terms of solving practical, daily "doing business" needs, takes place in the day-to-day activities of its ten working groups.

For example, APEC's working groups have published customs, investment, telecommunications and transportation guides. The guides provide information which make regional regimes and regulatory environments more transparent. APEC will use these guides to analyze "best practices", identify bottlenecks, and work toward harmonization of standards and regimes.

APEC's Energy Working Group has held seminars and training courses in the use of clean coal, providing new market opportunities for American environmental and alternative energy companies. The APEC telecommunications working group and the recent meeting of telecommunications ministers has agreed on guidelines for harmonizing equipment certification, establishing principles to harmonize certification of this multi-billion dollar regional market. In APEC's customs working group, work is underway to speed movement of air express shipments by creating an electronic system to replace paper tracking and clearance systems. APEC transportation ministers met for the first time last month in Washington to identify ways to improve and expand the region's transportation system to better support a freer flow of goods, services and people in the region. Australia will host the second meeting of ministers involved with small and medium businesses in order to find ways to expand export opportunities for this sector of the business community.

These practical efforts directly reflect business's input in the working groups, and APEC's desire to tackle the nitty gritty but important issues confronting companies doing business in the region.

What We Expect in November

APEC reached a turning point with President Clinton's hosting of the first-ever APEC economic leaders meeting at Blake Island in 1993. With that meeting, APEC developed a guiding vision. APEC announced its commitment to more open trade and investment, application of free market principles and the concept of "open regionalism." At their meeting last year in Bogor, Indonesia, leaders gave life to the Blake Island vision by calling for the achievement of free and open trade in the Asia Pacific by the year 2020. By this, we mean not a formal trade agreement, but rather an effort to achieve freer trade through promotion of more open systems that pave the way for business to do business. These two meetings transformed APEC from a dialogue forum to an action-oriented, results-producing forum.

This year's Ministerial and leaders meetings, under the chairmanship of Japan, hold special promise. We expect that further progress in advancing our vision of the Pacific's economic future will emerge this year. Japan has said it will use the Osaka meetings to establish concrete goals for open and GATT-consistent trade and investment liberalization in the region. The United States is supporting Japan in this effort.

Based on our 1994 free trade pledge, APEC members are working on an action agenda for the leaders to review at their meeting in Osaka this November.

We expect the agenda to include initial liberalization steps; progress in lowering some business transaction costs, for example announcements on streamlining customs procedures; and a blueprint for free and open trade and investment. This blueprint would go beyond tariff reductions to address broader non-tariff and structural barriers in the region, e.g., cooperation toward strengthened intellectual property rights, strengthened disciplines in government procurement, greater transparency of rules and rulemaking, etc. It would address the concerns and needs of APEC members at different levels of development. The blueprint would also have to define how the process of moving towards freer trade in the region would be consistent with GATT and with APEC's commitment to "open regionalism."

We also hope that APEC leaders in November will endorse establishment of a new, permanent business sector advisory body to APEC. We want business to provide the expertise and views necessary for APEC to define its objectives and focus its work. The litmus test for APEC's success will be whether its work has practical relevance to the business community -- whether APEC removes impediments, creates opportunities, and develops a genuine sense of community in which all can do business.

Conclusion

Through the WTO, APEC and our bilateral economic dialogues, we are working to lay the groundwork for U.S. business to seize the opportunities in Asia's economic boom. Our economic future requires greater U.S. business involvement in Asia, competing and leading in the world's fastest growing markets.

APEC is a work in progress, one which holds the promise to help us set the stage for the future. APEC provides a platform for achieving genuine economic integration in the region based on market driven forces. APEC members increasingly see that market-oriented policies offer the best chance to attract foreign capital, generate domestic savings and stimulate innovation -- all the ingredients that are needed for sustained economic growth and that are the elemental building blocks for any Pacific community. We look forward to working with American business and the Congress in developing APEC as a key building block of that community.

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