James A. Kelly, Assistant Secretary of State for East Asian and Pacific Affairs v5n24ni
Testimony before the House International Relations Committee
June 25, 2003
Mr. Chairman, I would like to take this opportunity to thank you and the members
of the Subcommittee on East Asia and the Pacific, for inviting me to discuss
trade and commercial policy priorities in Southeast Asia and Oceania.
Looking back, this region has seen a remarkable transformation. Just a few decades
ago, it suffered from cross-border conflicts and struggled with domestic instability
and poverty. Today, the region has virtually no cross-border conflicts, has
more open societies and democratic institutions, and boasts some of the most
dynamic economies in the world. Thirty years ago, Malaysia's per capita GDP
exceeded Korea's, and today Korea's per capita GDP is more than double Malaysia's.
Hong Kong and Singapore, which earned a little more than $1,000 per capita in
1971, today exceed $21,000 in per capita GDP. Over the past 30 years, these
economies have made great strides in overcoming income inequality and developing
a solid middle class. Even amid the deep poverty I observed on my recent trip
to Cambodia, I saw the beginnings of a middle class taking shape.
However, these economies are still struggling to overcome the setbacks of the
Asian financial crisis of 1997-1998 and, more recently, economic fallout from
the SARS epidemic. The Asian Financial crisis revealed structural weaknesses
in the region's financial and corporate sectors. Some Asian countries, such
as Korea, have taken important steps to resolve the twin problems of non-performing
loans and non-performing assets, and have been amply rewarded through increased
growth rates. Most countries in the region have moved beyond the pegged exchange
rates that exacerbated the crisis, and have seen an improvement in their investment
environment. But many economies of Southeast Asia continue to wrestle with bank
and corporate reform, leaving structural problems that are seriously impeding
The economic impact of SARS on Southeast Asian countries remains unclear, but
it is likely to shave at least some growth from the most affected economies
this year. Countries like Singapore and Vietnam moved quickly and decisively
to contain the disease and, by taking a transparent approach to the problem,
succeeded in restoring the confidence that is key to continuing to attract investment.
The APEC SARS Action Plan, recently endorsed by APEC's Trade Ministers, emphasizes
APEC's strengths in cross-sectoral outreach to rebuild business confidence and
mobility of persons through cooperation and information sharing. The Plan includes
convening the first APEC Health Ministers meeting at the end of this month,
and responding to the impact on tourism, transportation, industry, and social
The focus you have put on Southeast Asia is well placed, for this region is
important to the United States, politically and economically. The region is
home to some of the world's fastest-growing economies and a number of significant
trading partners of the United States. Last year, the U.S. sold to this market
of a half-billion people $57 billion in goods and services, almost twice as
much as to China and Hong Kong combined. Large U.S. investment, totaling $53
billion in the ASEAN countries, has both strengthened our economies ties with
the region and expanded opportunities for American business.
These economic ties are part of deep and longstanding alliances and friendships
in the region that are as critical to our security as they are to our prosperity.
Virtually every country in the region has stood beside us in the war on terrorism.
The Bali bombing last October drove home to all of Asia that combating terrorism
is a global challenge for local, regional, and worldwide security. Steadfast
friends such as Singapore, Indonesia, and the Philippines are helping in the
fight against terrorism in many ways. Australia, Japan, Korea, and others stood
by us on Afghanistan and Iraq. Australia contributed forces on the ground and
in the air, Japan pledged $200 million toward Iraq reconstruction, and Korea
sent medical and engineering personnel.
U.S. Trade Policy Goals for the Region
The United States' number one economic objective in Southeast Asia is to promote
growth through expanded trade and investment and accelerated structural reform.
The region has seen significant progress in lowering tariffs over the past decade
and a half -- all but one of our trading partners in the region currently have
average tariff rates of below 10%.
We are continuing to push for even greater liberalization through:
· The cutting edge FTAs we concluded with Singapore and are negotiating
· Trade and Investment Framework Agreements, or TIFAs, with Indonesia,
the Philippines, Thailand, and Brunei.
· The Enterprise for ASEAN Initiative (EAI), announced by President Bush
last October, which offers the prospect of bilateral FTAs with individual ASEAN
countries that are committed to the economic reforms and openness inherent in
an FTA with the United States. The ultimate goal of the EAI is a network of
bilateral ASEAN FTAs.
· Bilateral Trade Agreements, with Vietnam and Laos. The BTA with Vietnam
has been particularly successful, with trade with that country doubling since
the BTA entered into force in December 2001. Our $8 million technical assistance
program played an important role in that success. The BTA with Laos will not
go into effect until we have NTR with the country, and we are discussing NTR
with Congress. The human rights situation in Laos remains poor, and we hope
that NTR will improve the atmosphere for progress in human rights as well.
· Close consultations with the region to help ensure a successful conclusion
of the Doha Development Agenda -- Southeast Asia will be a major beneficiary
of a successful global trade round.
· Continued engagement at the multilateral level through APEC and ASEAN.
APEC remains a powerful vehicle for liberalization, as its members have committed
themselves to free and open trade and investment in the Asia-Pacific no later
than the year 2010 for industrialized economies and 2020 for developing economies.
At the APEC Leaders' meeting coming up in October in Bangkok, we expect President
Bush to introduce new initiatives related to countering terrorism while facilitating
trade and investment. We are also pursuing agreements in APEC designed to further
liberalize air transportation, protect copyrights, and help APEC members implement
the structural reform that will be key to continued economic growth.
As tariffs have fallen, we have focused increasing attention on non-tariff barriers
faced by American business, such as weak judiciaries, inefficient customs procedures,
divergent standards, and poor IPR enforcement. We are currently working through
both bilateral and multilateral channels to solve these issues. For example,
the State Department, working closely with the U.S. and China Customs and the
private sector in the APEC forum, launched an express package customs initiative
in Shanghai that led to significant improvement in the speed and cost of customs
We are working on an ASEAN Cooperation Arrangement on Automotive Standards to
create consistent safety and environmental standards throughout ASEAN, and to
further ASEAN economic integration. We are pushing in both ASEAN and APEC initiatives
to increase investment in the life sciences sector through regulatory harmonization.
We have launched an ambitious initiative in APEC to fight digital piracy. In
programs in both APEC and ASEAN, we are also encouraging countries in the region
to adopt agricultural biotechnology products and to build regulatory capacity
to permit the sale and use of those products in the region.
In the area of investment, even amidst an uneven recovery from the Asian financial
crisis, we have watched this part of the world attract significant amounts of
foreign capital. However, recent years have seen a significant fall in foreign
investment to the region, in part due to problems related to weak legal institutions.
Between 1997 and 2001, annual flows of foreign direct investment in ASEAN fell
by more than half, from investment of $30 billion in 1997 to only $13 billion
The Asia Pulp and Paper (APP) case is a good example of why FDI is declining.
APP is a firm based in Indonesia and Singapore that has defaulted on $14 billion
worth of debt, almost half of it owed by its four Indonesian units. Foreign
firms are owed $960 million, a significant portion held by American creditors.
On behalf of the American creditors of the APP, the State Department and the
U.S. Export-Import Bank have worked bilaterally with Indonesia and multilaterally
with a coalition of Ex-Im Bank and 10 other Export Credit Agencies that hold
APP debt. Improved corporate transparency and judicial accountability in Indonesia
-- sorely lacking in the APP case -- would help attract foreign investment.
Indonesia is not alone in the need to improve governance. A recent survey by
the Department of State found that, despite a reasonably strong matrix of laws
and regulations governing public disclosure of most regional governments' budget
and privatization tendencies, such laws and regulations are unevenly enforced
and moderately transparent at best. In APEC, we have launched the "Transparency
by 2005 Strategy" to implement APEC's transparency standards, which will
enhance good governance, increase regulatory certainty, and attract investment
in APEC economies.
We are working to encourage all countries in the region to improve the investment
climate with legal institutions and reforms that protect people and their property,
allow peaceful resolution of disputes, facilitate economic exchange, and hold
their governments accountable. On a multilateral basis, the United States is
leading efforts in APEC to promote best practices in the area of corporate restructuring.
Intra-regional Cooperation: China's New Role
In recent years there has been a plethora of trade and investment arrangements
both among Southeast Asian economies and with countries outside that region.
Long-delayed integration of ASEAN economies through the ASEAN Free Trade Agreement
is making some important progress with most elements of the Accord to be in
place by 2005. Meanwhile, a group of countries including ASEAN members plus
China, Japan, and Korea (the so-called "ASEAN plus three") have concluded
accords on foreign currency swaps and hold annual meetings to talk about how
to advance integration.
China's rising economic power in particular has made it a new presence in Southeast
Asia. In sharp contrast to its trade with the U.S., China runs a significant
trade deficit with Asian emerging economies, reflecting in large part its role
as processor of materials and parts imported from Southeast Asia for sale in
the U.S. For example, China is the number three export market for Malaysia and
the fifth-largest for Malaysia and Thailand. China has become Korea's second
most important export destination. As China continues to import more, it is
becoming one of the region's most important engines of growth. In that role,
China's ongoing economic transformation can significantly enhance Asian and
global economic growth and stability.
China is seeking to further cement those ties through an FTA with ASEAN. It
is also nearing conclusion of a Closer Economic Partnership Agreement with Hong
Kong and is exploring FTAs with Korea and Japan.
We view China's integration into regional and global organizations and arrangements
as a positive development. Not only is China committing itself to playing by
the rules of some trade-related international fora, but it also has an increasing
stake in seeing that others do the same. And as its economy and prosperity become
linked more closely to relationships with trading partners, it has a greater
stake in peace and stability in the Asia-Pacific region and the world. China
made significant progress in fulfilling its WTO commitments during its first
year as a member. Serious shortcomings, however, in agriculture, services, IPR
enforcement, and transparency need to be addressed, and are being addressed.
Nonetheless, we cannot ignore the fact that China's growing economic power has
created a competition for influence in the region, which makes it all the more
important for the United States to remain actively engaged with our Asian allies.
While China has not moved aggressively to garner political capital from its
growing economic strength, there is no denying its prominence on the Asian political
stage. We need only to look as far as Taiwan -- where firms are queuing up to
move operations to China and whose executives lobby for freer access to the
Chinese market -- to see how quickly economics can change a political dynamic.
Neither can we ignore the fact that the Chinese military is a beneficiary of
the country's rapid economic growth, which underscores the necessity of sustaining
a modest military-to-military relationship with the People's Liberation Army
within the guidelines established by Congress.
I cannot close this testimony without discussing the deplorable situation in
Burma, and our administration's response. We are appalled at the crackdown engineered
by the ruling junta, the State Peace and Development Council (SPDC), on those
who stand for freedom. On May 30, government-affiliated thugs launched a premeditated
attack on the caravan of Daw Aung San Suu Kyi and her supporters. The attack
left many injured and some dead. The SPDC claim that the caravan provoked the
incident is nonsense.
We strongly condemn the continued detention of Aung San Suu Kyi, in supposed
"protective custody," and we are especially appalled at reports that
she has been detained in the notorious Insein prison without access to visitors.
We again call for her immediate release and that of the leadership of her party,
the National League for Democracy. We call for the formulation of a concrete
plan to restore democracy in Burma.
As Secretary Powell announced previously, we are increasing the pressure on
the SPDC in response to their rejection of reform. We support the goals and
intent of the bills introduced here and in the Senate and are working on an
appropriate set of new steps.
We support efforts to restrict imports from Burma, as long as the President
is given an appropriately flexible waiver authority. Meanwhile, the State Department
has acted to expand our visa restrictions on Burmese officials. We are preparing
an executive order for the President to freeze the assets of SPDC members, and
ban remittances to Burma from the United States. We are supportive of legislation
that would place restrictions on travel-related transactions.
We continue to coordinate with counterparts in the international community.
Member states of the European Union have already agreed to toughen their common
position against the SPDC. Canada is looking at visa restrictions. When Secretary
Powell was in Phnom Penh, he pressed the member states of ASEAN to reject the
unacceptable behavior of their neighbor, and we welcome their statement calling
for the release of Aung San Suu Kyi. We support their plans to send a troika
delegation to Rangoon. Thank you.