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Remarks by Ambassador Karan K. Bhatia Deputy U.S. Trade Representative before the American Chamber of Commerce

Thank you very much for that warm welcome.  It's a pleasure to be back in Taipei.  I want to thank the American Chamber of Commerce for inviting me to speak to you today.  The Chamber is a critical partner for AIT here in Taiwan, and I know that AIT appreciates your assistance and close cooperation in moving our economic agenda forward.  More generally, let me thank the business community represented here today for all the support you have given to our trade agenda and to building the strong U.S.-Taiwan economic ties we enjoy today.  Let me also acknowledge Stephen M. Young, who is doing a tremendous job in his new role as AIT Director.

This is my first visit to Taipei since joining USTR last October, and it is the first stop on a trip that will also take me to India for meetings of the U.S.-India Trade Policy Forum, and then to Vietnam, where I will hope to have Ambassador Susan Schwab join me for the meeting of the APEC Trade Ministers and for meetings with counterparts from throughout the region.  As you know, Ambassador Schwab is the President's superb nominee to be the next United States Trade Representative.  We hope that Susan will be confirmed very shortly.

This trip affords us an opportunity not only to make progress in our bilateral economic relationships with Taiwan and India, two important trading partners, but also to further our engagement with the Asia Pacific region and to advance the Doha Round of multilateral trade talks.

Today I would like to discuss the exciting steps we are taking to continue our close relationships with this dynamic and fast-growing part of the world and to deepen and strengthen our trade ties in the region, particularly with regard to Taiwan.

The Global Supply Chain and the Importance of Asia

Asia has become a growth engine of the world. It has been Asia, together with the United States, that have largely driven global economic growth over the past few years.  Asia's growth has in turn been driven by market-oriented economic policies and political reform. And the United States is pleased to be a partner in this transformation.

Trade is at the heart of these changes, as economy after economy has sought to harness the power of trade by lowering tariff and non-tariff barriers... encouraging foreign investment... building the infrastructure needed for trade... creating export processing zones like the one established in Kaohsiung in 1966 and then expanding them... adopting the political, legal and regulatory institutions necessary for trade to flourish... and becoming participants in the world's trading institutions.  The result has been economic growth and development that has helped to lift millions of people out of poverty. 

The U.S. has been a close partner in and major beneficiary of these developments.  Today, the United States and the economies of Asia have strong and growing trade relationships. U.S. goods trade with South and East Asia today accounts for one-third of total U.S. trade - up almost 70 percent over the past 10 years. U.S. investment in the region has more than tripled in that time frame. Few major U.S. companies today do not have an Asia strategy. Many have offices, operations or substantial sales in the region, and business plans that call for significant expansions.  American farmers export increasing amounts to fast-growing Asian markets.  And American consumers enjoy the fruits of Asia's trade-oriented policies, with access to more goods at lower prices.

In the past twenty years, however, the Asia Pacific region has also witnessed significant growth in intra-regional trade and investment flows.  Intra-regional trade that accounted for just 34% of total trade for East Asian economies in 1980 grew to 54% in 2004, according to the Asian Development Bank.  The growth of multinational enterprises and foreign direct investment has been a critical factor driving this regional integration.  Multinational corporations, which earlier had helped spur trade with their home regions, are increasingly promoting trade within the Asia-Pacific region through their development of regional production networks.  This has led to rising intra-regional trade as parts and components are produced and assembled into final goods in locations chosen because they provide the best environment for that specific operation.

David Ricardo's vision of cloth manufactured in England and wine in Portugal has come to full fruition in East Asia in the 21st Century.  Take the example of a Dell personal computer: Engineers in Texas and Taiwan may design it; the microprocessor might come from one of Intel's factories in the Philippines, Malaysia or China; memory could well come from a Korean or Japanese firm; and the other components from a U.S., Japanese, or Taiwan firm with factories throughout Asia.

The challenge for economic officials, in the United States, in Taiwan, and elsewhere in the region, is quite simply to be part of that supply chain.  It is to ensure that, when the Dells of the world are investing, their strategic advantages are not overlooked.  And that requires policies that encourage competition, innovation, the rule of law, and sustainable economic growth. In the increasingly integrated Asia Pacific economy of today, economies are rewarded when tariffs are low, non-tariff barriers are reduced, regulatory barriers are eliminated, corruption isn't tolerated, and measures are instituted to enhance transparency and improve the trade and investment climate.  The United States is committed to working with partners in the region to create just such a climate.  

This commitment derives from a U.S. conviction, common in business and government alike, that we will have no more important or potentially valuable set of economic relationships in the 21st century than those we have with Asia, whose people have shown themselves, like Americans, to be resourceful, creative, and hard-working.

U.S. Engagement and Economic Opportunities in Asia

Today, throughout the region and in almost every phase of economic activity, the U.S. Government is actively engaging with our Asian trading partners.   Whether one wants to measure engagement by the number of visits by senior administration economic officials, by numbers of interagency strategy meetings, or by the amount of time administration officials spend answering questions from Congress, Asia is figuring prominently in people's thinking in Washington.  More significantly, it is featuring prominently in the day-to-day work of our trade negotiators. Let me give you a tour d'horizon of our efforts.

Southeast Asia.  Let me start with Southeast Asia.  After securing Trade Promotion Authority in 2002, one of the first free trade agreements President Bush pursued was an accord with Singapore. 

Shortly after concluding the Singapore FTA, in October 2002, the President announced the Enterprise for ASEAN Initiative. This initiative aims to deepen our trade relationship with the countries of Southeast Asia by establishing Trade and Investment Framework Agreements (or "TIFAs", and ultimately, by creating a network of bilateral FTAs with those ASEAN economies that have demonstrated an ability to resolve bilateral trade issues, build strong support in the U.S. business community and in the Congress, and are willing to enter into comprehensive and rigorous bilateral free trade agreements.

Under the Enterprise for ASEAN Initiative, we launched FTA negotiations with Thailand in 2004. While we still have work to do to conclude these negotiations, we have made progress, and hope to resume our work after the Thai elections.

After engaging in wide-ranging bilateral discussions over the past year, we have recently launched FTA negotiations with Malaysia. A U.S.-Malaysia FTA makes sense for both countries. Malaysia is a nation of 27 million people - an important voice of moderation in the Muslim and developing worlds, with a strong economy that is supported by stable democratic institutions. It is a growing trading partner of the U.S., and, importantly, it is strongly tied into the regional economy.

We have been working to strengthen our economic relationship with the other ASEAN economies. We have intensified our work under our TIFA with the Philippines. The dialogue has successfully addressed issues both large and small, ranging from intellectual property rights to regulations impeding agricultural trade.

We have also been intensifying our work with Indonesia, a key player in the region's economy. Here too we have also reenergized our work under the TIFA and are considering various potential bilateral initiatives including the negotiation of sectoral or other agreements that will facilitate trade and investment in the near term and could even serve as building blocks for the negotiation of an FTA in the future.

I know that many of you are aware that earlier this month we reached agreement in principle on a bilateral market access agreement with Vietnam - an important agreement that will strengthen our economic relationship with Vietnam, while opening the door for Vietnam to join the WTO. We are very hopeful that, upon signing this bilateral agreement, Vietnam will be afforded PNTR status by the U.S. Congress and can fully accede to the WTO in the near future. 

And - while working one-on-one with the economies of Southeast Asia - we are mindful of the importance of regional actors such as ASEAN and APEC. ASEAN countries together ranked fourth as an export market for the United States, and as our fifth largest supplier of imports.  So it will come as no surprise that we are looking to support ASEAN integration and to institutionalize our relationship with it - hopefully through the conclusion of a TIFA and agreement on a work plan with concrete initiatives aimed at promoting trade and investment in specific sectors.

We are also engaging vigorously in APEC, developing trade initiatives in areas ranging from customs facilitation to best practices for Free Trade Agreements.  Taiwan has been an active and constructive participant in APEC and we look forward to continuing to work together to support the work of that important regional organization in promoting prosperity and security in the Asia Pacific region.

Japan.  Let me move north, and turn to Japan. For years, the United States and Japan have had a strong economic relationship, and Japan continues to be one of our largest trading partners. As Japan's economic growth continues, trade and investment is growing between our countries, and we are looking for ways to ensure that this continues. Through the Economic Partnership for Growth launched by President Bush and Prime Minister Koizumi we are working to address impediments to even stronger bilateral economic relations and to addressing shared challenges such as global counterfeiting and piracy.

Korea.  In February we launched negotiations for a free trade agreement with Korea. This will be the most commercially significant bilateral free trade negotiation launched by the U.S. in 15 years.

Korea is already our seventh largest trading partner with $73 billion in two-way trade. Moreover, like Malaysia, it is strongly integrated into the regional economy, which will create multiplier effects from a U.S.- Korea FTA.  Several recent academic studies indicate the agreement will boost the incomes of both countries by several billions of dollars.  In short, this is a win-win proposition that enjoys strong support from the business communities of both countries.

India.  Let me also mention India. I recently accompanied Ambassador Portman and President Bush on the President's trip to India and I will be traveling there again on Saturday. The changes afoot in the world's largest democracy are certain to have a major impact on the global economy, and it is encouraging that the economic dimension of the U.S.-India relationship featured prominently in the President's visit. It is a relationship that we at USTR are working hard to grow - as evidenced by the launch last year of a ministerial level trade policy forum and the recent actions by both countries in reducing bilateral barriers to trade and investment.  I will be continuing the work of the trade policy forum during my upcoming visit.  

China.  It will likely not surprise any of you to know that China attracts more of my time and attention than any of the 60+ other countries in my portfolio. China has captured the attention of both businessman and policymaker - for the substantial changes it has already undergone, the potential it continues to hold, and the challenges it poses.

In 1978, China accounted for less than one percent of the world's economy, and its total trade was about $20.6 billion.  Today, China is the third largest economy in the world in terms of purchasing power, and our third largest trading partner. It accounts for four percent of global economic activity, with foreign trade approaching $1 trillion annually - approximately $300 billion of which is with the United States.

The United States and China share extensive - and growing - commercial ties, and both countries clearly derive substantial benefits from this relationship. Fueled in no small part by its access to the U.S. market, China's annual growth rate has exceeded nine percent for over 20 years - often reaching ten percent or more - and some 350 million people have been lifted out of poverty.  Over the past 15 years, over $500 billion in foreign direct investment has flowed into China. The United States played a leading role in encouraging China's economic transformation and in bringing it into the WTO. Since China's accession to the WTO 4 1/2years ago, U.S. exports to China have increased by more than 20 percent per year, and China has become our fourth largest export market.

Clearly, however, there are challenges. In February, USTR unveiled a top-to-bottom review of our trade relationship with China. It was a balanced and comprehensive assessment that concluded that, while the U.S. has clearly derived substantial benefits from U.S.-China trade, the relationship has not been sufficiently balanced in the opportunities it provides. Now that China's transition period as a new WTO member is coming to a close, the United States will treat China as a mature trading partner and draw upon the full set of tools available to us to ensure that China complies with its commitments.

China needs to do more to open its markets, reform policies that skew markets, and abide by its WTO commitments, particularly in the area of intellectual property rights enforcement. As a new global trading power, it - like the United States, the European Union, or Japan - must now assume responsibility not only to fulfill commitments, but also go beyond them to ensure the continued health of the international, rules-based trading system. In short, China must bear responsibilities that are commensurate with the benefits it has obtained from participation in that system.  We look to work constructively with China to that end. 

Taiwan.  Let me now turn to U.S. economic engagement with Taiwan.  We have a strong trade and investment relationship.  Taiwan is now our eighth largest trading partner with nearly $57 billion in two-way goods trade last year.  As of 2003, the last year for which data was available, the stock of U.S. foreign direct investment in Taiwan had reached $12.1 billion.  In turn, Taiwan had a stock of $3.2 billion in FDI in the United States in 2004.  Simply said: Taiwan is an important economic partner for the United States and it is one that we are determined not to overlook.

Our interaction with Taiwan has evolved as our two economies have grown closer together.  We strongly supported Taiwan's entry into WTO, and have encouraged its active contribution to that organization.  We support its accession to arrangements such as the WTO Government Procurement Agreement.  We have cooperated closely in APEC, where Taiwan is a valuable partner.  And - as evidenced by my visit here today - we seek to strengthen, deepen, and grow our bilateral economic engagement. 

I am here in Taipei for two days of meetings under our Trade and Investment Framework Agreement (TIFA), which was originally established in 1994.  These meetings offer us a real opportunity to review at high levels our entire trade relationship and look for ways to remove obstacles and expand opportunities for our business community.  Our last TIFA dialogue occurred in Washington in 2004, when we held a very productive high-level meeting.  The ongoing work of AIT and TECRO has helped keep this momentum going, and I am pleased at the progress we are making at the TIFA meetings yesterday and today.  I appreciate the opportunities I have on this visit to exchange views on the economic relationship during my meetings with a range of senior officials as well.

Among issues of particular importance to us are better enforcement of intellectual property rights (IPR) laws, further opening of Taiwan's agricultural sector to American products, continued modernization of the financial sector, Taiwan's active contribution to a successful conclusion of the Doha Development Round, liberalization of government procurement practices, and reform of Taiwan's regulation of its pharmaceutical industry.  AmCham's role in all this is vitally important, and we pay close attention to your annual White Paper, which is due out in a few days. I have encouraged the Taiwan authorities to continue to strengthen their direct dialogue with you on the business climate here, especially as you prepare for your annual "door knock" visit to Washington next month.

While we have a full agenda of bilateral economic issues, I also wanted to address another challenge that Taiwan faces - that of retaining its competitive edge within the increasingly integrated Asia Pacific region that I just discussed.  Finding a way to ensure that Taiwan continues to participate in the region's dynamic economic growth requires that it pursues policies consistent with the evolving strategies of multinational businesses.  There is no question that Taiwan has much to offer the international business focused on Asia - including a well-educated and hard-working workforce, demonstrated excellence in the manufacturing sector, and a democratic political system.

However, it is clear that Taiwan's continued economic vibrancy will require progress in removing cross-Strait economic restrictions.  China is playing an increasingly central role in regional production and distribution networks, not only as a site for final assembly, but also as an increasingly important market for commodities and finished goods. 

I understand that this perspective is shared by the business community here and, while there are different views as to the tactics and pace of policy change, the need for robust cross-strait economic links is increasingly recognized by Taiwan's top policymakers.  For example, in the past two months, Taiwan has taken steps ranging from permitting Chinese officials to visit Taiwan for discussions of technology standards; to considering unilaterally opening Taiwan to PRC tour groups; to announcing a new Jinmen-Quanzhou ferry service.

All of these steps are commendable, and we are pleased to recognize them.  But much more is needed in the future.  Remaining restrictions on transfers of commercial technology, on imports of certain goods from the mainland, on travel to Taiwan by PRC employees of Taiwan and multinational companies, and on outward investment to the PRC, as well as the lack of direct cross-Strait air and shipping service, all combine to create uncertainty as well as a distinct competitive disadvantage for Taiwan.  These restrictions do not apply in Seoul, Hong Kong, Kuala Lumpur, or Singapore -- only here in Taiwan.  They discourage multinational companies from establishing operations in Taiwan that are viable only if integrated into regional production and distribution networks.  And by placing its own talented and dynamic entrepreneurs at a disadvantage, Taiwan puts them in an increasingly difficult position as well.  Many would stay if restrictions were lifted, but under the present circumstances feel compelled to relocate.  I encourage policy makers here to consider how the economy can be set on a course towards a restriction-free environment.  


Having covered why we are focused on Asia and how we are engaged throughout the region, let me now turn to the subject of challenges that confront us as we seek to strengthen and deepen our relations.

One challenge is a recurring one -- making clear to the region and the world that the United States is and will remain a Pacific power -- fully engaged and deeply invested in the region and its institutions.  A second is to ensure the continued competitiveness of the United States' own economy -- something that President Bush has signaled a strong focus on.  Though our economy is strong, we need to continue to focus on equipping our companies and citizens to meet the challenges of the 21st century.

A third challenge lies in negotiating and completing meaningful, high-quality agreements - particularly when it comes to FTAs.  Let there be no doubt - the standard for FTAs that our Congress has established is a demanding one. The U.S. model FTA is comprehensive, cutting-edge, and tailored for today's high tech world. In a world increasingly populated by so-called FTAs, ours remain the gold standard in bilateral trade liberalization.

I know there has been a lot of discussion in Taipei about the idea of an FTA with the United States, so I want to briefly address that issue. The Administration has a very full trade agenda for the period leading up to the expiration of Trade Promotion Authority (TPA) in June of 2007.

A critical priority is an ambitious conclusion to the WTO Doha negotiations, and, as I have previously mentioned, we also have a number of ongoing Free Trade Agreement negotiations underway, including just-launched negotiations with South Korea and Malaysia.

Given the demands that this agenda will place on USTR and interagency resources, it will be extremely difficult for us to take on any additional FTA partners during the next year. When we are again in a position to launch new FTAs, any potential candidate should focus on:  building a record of accomplishment in resolving bilateral trade issues and implementing its WTO commitments; demonstrating that there is strong and active support in the U.S. business community, and on Capitol Hill; and being a constructive partner in the WTO and other trade fora. 

Many of the topics that we are addressing in the TIFA meetings this week fall squarely into the areas of resolving bilateral trade issues and building support in the U.S. business community.  Continuing to enhance IPR protection, improve market access for agricultural goods, reform the pricing and regulatory environment governing the pharmaceutical industry, and adhere to the disciplines of the Government Procurement Agreement - all of these efforts will broaden and deepen the economic relationship with the U.S.  When coupled with the liberalization of the self-imposed barriers to cross-strait trade, these policy measures will help move Taiwan's economy to the next level of economic development to the benefit of its 23 million inhabitants.  I have heard from my Taiwan hosts a lot in the past two days about the importance they attach to an FTA with the U.S., and I have listened carefully.  It would be premature to discuss an FTA with Taiwan for the reasons that I have described, though, looking to the future, we do want to grow our relationship and do not rule out any mechanism to further enhance our bilateral economic cooperation that makes sense.

As a more immediate task, we look forward to exploring other ways to strengthen our vital bilateral trade ties.  And we will continue to encourage our other trade partners in Asia and around the world -- including the PRC -- to maintain and expand support for Taiwan's active participation in the world trading community which already benefits so much from Taiwan's important contributions.  Considering the longstanding friendship and cooperation Taiwan and the United States have built over the past five decades, I am confident we will together forge sound strategies for tackling today's economic challenges as we move together toward a bright future.

Thank you.