Advancing U.S. Economic Engagement in Asia

Testimony
Charles H. Rivkin
Assistant Secretary, Bureau of Economic and Business Affairs
House Foreign Affairs Committee
Washington, DC
May 14, 2015


Thank you, Chairman Royce, Ranking Member Engel, and Members of the Committee. I appreciate the opportunity to testify before you with Assistant Secretary Russel about our economic engagement in Asia.

During my confirmation hearing I said that the Bureau of Economic and Business Affairs does two things: it creates jobs for Americans and keeps our country safe. Today, I want to show you how our economic engagement in Asia is accomplishing both of these goals.

In my 15 months as Assistant Secretary, I have already visited the region we call East Asia and the Pacific four times, and I will be going back again in two weeks to mark the 20th anniversary of our normalization of relations with Vietnam. Five visits to eight nations in this short span is not an accident. I am well aware of the importance of the region to the United States and the dynamic role the region is playing in the future of economics and business.

Asia and the broader Asia-Pacific is a diverse and vibrant region that is full of potential for the U.S. economy. Economic growth in the region has lifted millions out of poverty, and the region includes some of the fastest growing economies on the planet. East Asia and the Pacific is home to more than one-third of the world’s population, a growing percentage of which is middle-class, and many nations there now enjoy democratic forms of government.

These are all reasons why this Administration is committed to advancing our economic engagement with Asia. Our commitment to the region is deep, enduring, and expanding, covering many more issues and programs than we are able to fully discuss today.

Our bilateral trade in goods and services is at an all-time high, reaching over $1.4 trillion in 2013. U.S. businesses remain the largest source of foreign investment in East Asia and the Pacific. We also provide hundreds of millions of dollars in assistance each year to developing East Asia, training thousands of officials on issues vital to our interests such as trade facilitation, financial regulation, energy efficiency, environmental governance and resources management, and disaster preparedness.

Our Vision for the Asia-Pacific Region

The United States has a strong commitment to promoting Asia’s economic growth and prosperity. The reason for these efforts is obvious. A prosperous Asia will not only be more peaceful – it will create greater opportunities for the United States to benefit. We are a leading trader and investor in the Asia-Pacific, and this supports high-paying jobs and raises incomes here at home. The Obama Administration is focused on increasing economic opportunities in the region, for ourselves and for others.

Through our engagement, we aim to build a system for Asia-Pacific trade and investment that is open, free, transparent, and fair. Open to all comers, from both inside and outside the region. Free from unwarranted at-the-border or behind-the-border barriers to international economic activity. Transparent – so that all players can understand the rules. And fair – so that no entities have any improper advantage, whether based on ownership, political relationships, or any other advantages.

Trans-Pacific Partnership

At a time when the Asia-Pacific region is in flux, the Trans-Pacific Partnership (TPP) is a powerful manifestation of our strategy towards the Asia-Pacific region.

The TPP initiative – whose 12 participants account for over 40 percent of global GDP – embodies and codifies the values that we want to see prevail in the Asia-Pacific region. It is all about America working with its partners to establish high standards that reflect our own.

The fact of the matter is that the rules of the road are up for grabs in Asia. If we do not take the lead, others will. And they do not necessarily share our interests and values.

As Secretary Kerry recently stated, “the United States should be deeply engaged in helping to write the rules for trade.” In the Asia-Pacific, TPP is our chance to do just that. Ultimately, this agreement establishes a framework that enables countries throughout the region to grow together – in a way that will benefit us for generations to come. It will ensure that we focus not just on whether our economies grow, but how they grow. Through the TPP, the United States is at the center of shaping the high standards on labor, intellectual property, and the environment that will establish a level playing field for American businesses, workers, farmers, and innovators.

We know that TPP will unlock vast new opportunities for American businesses where they currently face barriers. But TPP is not just a technical trade agreement, it is a strategic opportunity for the entire region. The TPP represents a cornerstone of the President’s vision for maintaining the strength of U.S. leadership in the Asia-Pacific, reinforcing our relationships, and demonstrating our long-term commitment to the region.

It will assure our allies and partners that our long-term commitment to the region reaches beyond security and into the economic realm. It will add a new, critical dimension to our strong and enduring presence in Asia.

And with four of our TPP partners in the western hemisphere, the agreement is equally important to our relationships and our economic strategy on this side of the Pacific.

TPP will also have a broader effect on the region, even beyond its current membership, by encouraging non-members to commit to open, fair, and transparent trade and investment policies, so they can be seen as high-standard economic partners for international traders and investors. The TPP example will spur them to make reforms like lowering tariff and non-tariff barriers to trade and investment. And in doing so, it will increase the number of countries that support the ideals of a liberal and open global economy, as well as promote economic growth in the region.

So my team at the State Department, and our Ambassadors and officers overseas, continue to work hard to support Ambassador Froman and his team in enshrining in TPP the core economic values that we want to see prevail in the Asia-Pacific – values like fair labor standards, environmental protection, open investment climates, and the protection of intellectual property rights. These standards reflect our values and interests as nations committed to dynamic, just, and rules-based economic practices.

The Internet Economy

Another key American value we promote through trade agreements and other means is the protection of the free flow of information across the digital economy, which is a critical source of American innovation and prosperity. As the Assistant Secretary for Economic and Business Affairs, I am deeply involved in our initiatives related to Internet governance. Unlocking the promise of e-commerce, keeping the Internet free and open, promoting competitive access for telecommunication suppliers, and setting digital trade rules of the road is central to U.S. competitiveness in the future.

Three billion people are connected to the Internet today and trillions of devices are set up to join them in the Internet of things. Together, that connectivity holds the potential to lift people out of poverty, formalize the informal economy around the world, increase the efficiency of supply chains, increase the productivity of workers, and in turn raise wages and make possible activities that we have not even begun to imagine.

Economically, companies of all types and sizes share in these benefits– not just companies that we think of as digital. A McKinsey study, for example, highlighted how 75 percent of the Internet’s positive impact is realized by “traditional industries” like oil and natural gas, or manufacturing and retail companies.

The Internet Economy holds special promise for small and medium-sized enterprises (SMEs). Digital technologies enable even the smallest companies and entrepreneurs to become “micro-multinationals” – selling products, services, and ideas across borders. In emerging and developing nations, whose small businesses are so often the backbone of their economies, this access to global markets can have dramatic results.

In recent years, we have helped to successfully oppose data localization and restrictions on cross-border data flows in foreign jurisdictions that would unnecessarily impede the digital infrastructure vital to U.S. commercial interests ­ – big and small – and to open flows of information across borders. During my recent visit to Japan, I discussed this very issue with government officials, businesses, and the media.

We have also led the effort to advance U.S. priorities on Internet governance in international fora. And we are leading the U.S. push to expand spectrum for mobile broadband and pave the way to command remotely piloted aircraft at the International Telecommunication Union’s (ITU’s) World Radiocommunication Conference (WRC-15) later this year, seizing the opportunity to advance U.S. innovation, economic growth, and national security. In multilateral discussions of ICT issues – and in our robust dialogues on Internet Economy issues with key partners such as Japan, the Republic of Korea, China, and others through APEC and ASEAN – the United States incorporates both government and industry voices to ensure that U.S. business and other stakeholder views are considered in policy discussions. Just last month, we worked with Telecommunications and Information Ministers from 19 APEC economies to conclude a strategic plan aiming to expand broadband access and make our digital economies more resilient and inclusive.

Entrepreneurship

I have mentioned small and medium-enterprises (SMEs), entrepreneurs, and innovation. These themes are at the heart of the work we do every day. From trade agreements to infrastructure to intellectual property, the work we do promotes environments that enable entrepreneurs and the benefits that stem from their businesses and innovations. At its heart, our work on entrepreneurship is about spurring economic growth and stability in the region.

Through the Global Entrepreneurship Program (GEP) we are promoting and spurring entrepreneurship by catalyzing and coordinating private sector and U.S. government programs to support entrepreneurs around the world. Under the GEP we have numerous programs and initiatives to improve enabling environments and to make tools and networks available to individual entrepreneurs.

The GEP culminates in the annual Global Entrepreneurship Summit, which demonstrates the Administration’s continued commitment at the highest levels to encouraging and supporting entrepreneurship around the world.

To foster this entrepreneurial spirit, we have launched programs like the Women’s Entrepreneurial Centers of Resources, Education, Access, and Training for Economic Empowerment, or WECREATE, which will have centers in Vietnam and Cambodia, among other locations. The Centers will build the capacity of established and emerging women business owners, and will support them as they transition from operating in the informal economy to formally registered companies, generating momentum for measurable economic and societal change.

GEP has had an Entrepreneur in Residence in Jakarta since 2011. Since inception, the Global Entrepreneurship Program Indonesia (GEPI) started an incubator and organized a business angel investor network that has grown to 50 active investors, 18 of whom are women. The network has invested $1 million to date. GEPI is organizing its second Regional Entrepreneurship Summit from November 6-8 and our GEP team is recruiting American entrepreneurs and investors willing to fund themselves to speak at Summit workshops.

I personally engage on entrepreneurship whenever I travel. For instance, later this month in Vietnam, I will speak at an entrepreneurship conference as part of the Young Southeast Asian Leadership Initiative.

Aviation

Another way we are supporting entrepreneurs and businesses of all sizes is by making it easier for them to get their goods to markets all over the world. As the U.S. government lead for negotiations of Open Skies agreements, the Bureau of Economic and Business Affairs expands international passenger and cargo flights by eliminating government interference in commercial airline decisions about routes, capacity, and pricing. This frees carriers to provide more affordable, convenient, and efficient air service to consumers, promoting increased travel and trade, and spurring high-quality job opportunity and economic growth

Open Skies agreements expand cooperative marketing arrangements, liberalize charter regulations, improve flexibility for airline operations, and include provisions committing both governments to observe high standards of safety and security. These agreements also produce countless new cultural links worldwide.

We have Open Skies agreements with 14 countries in the Asia-Pacific, including with major economies like Australia, the Republic of Korea, and Japan, and several smaller countries, such as Singapore and Laos. We also have a restricted aviation agreement with China.

Asia is a key market in the global business strategies of most major U.S. airlines, and U.S.-China traffic in particular is growing rapidly. Cargo operations are extremely important for healthy trade partnerships, and liberal aviation agreements are critical in facilitating efficient cargo operations. U.S. cargo airlines now operate hubs in China, through which they are able to reach smaller markets beyond the major hub cities. U.S. cargo airlines also have extensive networks not just between the United States and Asia, but between Asia and other regions of the world – networks made possible by Open Skies and other liberal aviation agreements.

China

We face a challenging environment in China for various aspects of our economic agenda. But we believe that expanding the areas where the United States and China can work together, while managing our clear differences, is central to our engagement with Asia. We seek a relationship with China defined by practical and tangible cooperation on challenges that face both of our nations.

On the economic side of the ledger, we have marks of real progress as well as real potential. During President Obama's trip to Beijing in November, we agreed to expand visa validity for business and leisure visitors from one to 10 years, a win for the U.S. tourism industry and a win for U.S. companies with interests in China. We also achieved an important bilateral understanding with China to expand the WTO's Information Technology Agreement (ITA), which will eliminate tariffs on next-generation ICT products such as advanced semiconductors and high tech medical equipment. We subsequently had a setback and there's still a lot of work to do, but we remain hopeful that we will be able to conclude negotiation of the ITA.

Also in November, I joined Secretary Kerry in Beijing for a meeting with ten of the most important CEOs in China, major companies that all of you know and have heard of, who are doing extraordinary work and are also investing in the United States. Secretary Kerry used that CEO roundtable to send a clear message that the United States provides an open and reliable investing environment. Together, the United States and China account for a third of global GDP, $600 billion of trade between our countries, and 40 percent of recent global growth. It is clear from these numbers that we have an enormous stake in each other’s economic success.

Presently, negotiations on a Bilateral Investment Treaty (BIT) with China offer tremendous potential to unlock new opportunities for U.S. firms and promote a more level playing field for U.S. investors in China’s market. A high quality BIT would provide strong investor protections for U.S. investors that support transparency, predictability, and the rule of law. We will continue to press China to provide a narrow “negative list,” reflecting a high level of openness to foreign investment.

In our engagements with the Chinese, we have made clear that we would like to see additional progress on the ground in terms of economic reform. We have also encouraged China to do more to welcome American businesses and reassure them that foreign firms won’t be subject to discriminatory trade regulations.

Next month, Secretary Kerry and Secretary Lew will lead the United States in the Strategic and Economic Dialogue (S&ED), and we will have another important opportunity to move our mutual economic objectives forward. I look forward to participating in those discussions and hope that we can make real progress through the S&ED. Through these regular interactions we are continually moving the ball forward with China and ensuring that U.S. economic objectives in Asia are fulfilled.

Conclusion

My testimony has only hinted at the breadth and complexity of our economic engagement with the Asia-Pacific. It is as diverse and vibrant as the region itself. Beyond the areas I’ve discussed today we are engaged on intellectual property rights, development finance, and sanctions, to name but a few more issues. Through this all-encompassing web of economic initiatives we and our regional partners are building a stronger region that is even more vibrant and dynamic.

Under wise leadership, the economies in the Asia-Pacific can continue to grow and prosper together. This requires seeing past short-term special interests and pursuing long-term benefits. By focusing on these opportunities, we can define standards, open markets, create jobs, strengthen our alliances and partnerships, and keep our country safe.

Thank you.