Keynote Address: U.S.- China Internet Industry Forum

Robert D. Hormats
Under Secretary for Economic Growth, Energy, and the Environment 
U.S.- China Internet Industry Forum
Beijing, China
April 9, 2013

Thank you very much. It's a great honor and privilege to be here. I would like to begin by thanking Craig Mundie of Microsoft and State Council Information Office Vice Minister Qian Xiaoqian for inviting me to participate in this Forum.

I am very pleased to be able to return to the U.S.-China Internet Industry Forum for the fourth time as Under Secretary of State.

This is an exciting time for the relationship between our two countries, as leadership transitions both in China and the United States potentially provide new opportunities for collaboration. The Internet is, of course, one area where this spirit of collaboration could be harnessed for mutual benefit.

But as several of the previous speakers have indicated just a few moments ago, recent exchanges and a considerable amount of press coverage on this critical issue have been negative.

And I must admit again – as I did last year – to some degree of frustration that while many useful discussions have taken place, there also have been a number of steps backward with respect to certain aspects of the Internet.

Today I will address both the challenges and the opportunities for cooperation in three key areas each of which have been focal points of discussion and which have been mentioned by previous speakers: (1) Internet governance, (2) Internet freedom, and (3) the growing attention being devoted to the increasingly serious problem of cyber incidents, theft of trade secrets, and intellectual property rights violations.

And as I do so, I want to stress that collaboration with the private sector – both in China and the United States – will be critical to progress in each of these areas. That is why I am especially glad that there are so many high-level representatives from China’s Internet community represented today.

I’d like to begin with Internet governance. The United States firmly supports the existing multi-stakeholder arrangement of Internet governance. The value and vitality of the Internet are in large part thanks to a wide range of private sector innovators and consumers around the world.

But important credit should also go to Internet-focused institutions, such as the Internet Engineering Task Force, the Internet Corporation for Assigned Names and Numbers (ICANN), the Internet Governance Forum (IGF), and the World Wide Web Consortium.

The openness and flexibility of these institutions have allowed the Internet to adapt and grow into the world’s most compelling platform for information exchange, for business innovation, for collaborative research, and for creativity.

The specific characteristics of these institutions – open, multi-stakeholder, and free from governmental control – have facilitated the stunning success of the Internet. The global economy would not be able to function as it does today without the rapid, efficient, and multi-directional cross-border data flows that the Internet enables.

From 2008 to 2012, the annual growth rate of cross-border data flows was 49 percent. – far above the mere 2.4% per annum increase in trade in goods and services during this very same period.

For the Internet to continue the dynamic evolution it has undergone and be able to produce the enormous benefits it has for so many hundreds of millions of people throughout the world, we need to enable it to continue to support the creativity of innovators, to operate in a transparent manner, and to be responsive to users and innovators in China, the United States, and elsewhere in the world.

That is why the United States remains committed to strengthening this multi-stakeholder system. And because we want to continue to support this multi-stakeholder system we opted not to sign the final acts of last year’s World Conference on International Telecommunications (WCIT).

We were concerned that the document could have been used in future attempts to erode international multi-stakeholder Internet governance and with it to strengthen those who believe in various types of “information nationalism.”

This is one area where the United States and Chinese officials have significant differences. We believe a top-down, government-led approach to guiding the future of the Internet would be fundamentally flawed.

It would threaten the vitality of the Internet by placing power in the hands of government decision makers in various parts of the world whose tendencies would be to weaken or impair its international character and dynamism.

The Internet therefore would move at the halting speed of government – which also politicizes many decisions – rather than the dynamic speed of innovation. We also believe that many of the millions of innovators in China – and hundreds of millions of Internet-connected citizens in China, the United States, and around the world who need quick and reliable Internet access to communicate, do business, and exchange data through national and global servers in order to prosper in this hyper-connected information era – would be disadvantaged as well.

But while the United States and China were not in agreement on signing the final acts of WCIT, it is imperative now as we attempt to embrace the future that we seek to move beyond these divisions and work to pursue meaningful opportunities to address this divide.

I believe there is room for the U.S. and China to enhance cooperation on Internet governance. And I believe we can find common ground in multi-stakeholder Internet institutions by working to ensure the full representation of all stakeholders – including, indeed epecially, the private sector and a wide range of innovators.

And as we do so, transparency must be a key priority, which brings me to my second topic and that is Internet freedom. The U.S. Government strongly supports respect for freedom of expression, including on the Internet. This goes back to the founding of our nation.

Thomas Jefferson – the United States' first secretary of state and third president – wrote, "The will of the the only legitimate foundation of any government, and to protect its free expression should be our first object."

But we believe that free expression is not just an American right. It is a universal human right for the very reasons Jefferson described. And, this right applies in the virtual world just as it does in the real world.

It is also, in this information era, an economic necessity. If the citizens of one country are unable to connect reliably to the global community, then their economic opportunities are significantly impaired vis-a-vis their competitors in other nations who have full accessibility.

Chinese innovators have created a remarkable online community, shaping services and content to meet the needs of the Chinese people. Weibo, Weixin, and numerous other innovations are achievements for which China should be proud.

From commerce, to social networking, to microblogging, Chinese users take advantage of these online opportunities at an astounding rate: over 700 million users on Tencent; some 100 million posts a day on Sina Weibo; and 18 million transactions a day on Taobao.

While all this activity is impressive, the characteristics of the Chinese Internet reduce prospects for even greater possibilities by slowing speeds, limiting tools, and restraining the ability to connect in some cases to the global community.

Virtual Private Networks (VPNs), a tool used by multinational companies to connect to their corporate networks, are increasingly targeted for government blocking and thus have been less reliable.

I have reason to be hopeful, however, that despite current circumstances we can find areas of common cause. I have confidence for instance that Chinese innovators recognize the need to connect globally – in a quick and reliable way – because these connections are the tools required to compete.

I also believe that China’s most progressive provinces – which are working hard to attract high-end, high-value investment – will be a strong force for improving practices in this country. Because without improvement, attracting this type of investment will be difficult.

I also know that many of you will seek partnerships with your foreign counterparts, exploring joint ventures that can increase the flow of ideas, information, and data between nations. And it is important for innovators in China, the United States, and all countries to be very public in explaining that isolation from the global market place of ideas that enables and inspires creativity, connects communities, and advances business opportunities is detrimental to their countries’ futures. Over time, such arguments will have a policy impact.

Let me turn to the third area, which is cyber theft and IPR protection. Another key problem that can leave China disconnected from, or subject to suspicion within, the global online community is the serious and continuing challenge of insufficient protection of intellectual property rights.

It is troubling to see the deterioration in the confidence in our economic relations with China, within the U.S. Government, and our business community, because of IP violations, trade secrets piracy, and incidents of cyber intrusions.

So many aspects of the U.S.-China bilateral relationship are moving in the right direction. In fact, there are many examples where we are working constructively on economic, political, and security issues. It's disappointing that this is not one of those areas.

From my vantage point, more than any other single factor, serious incidents of IP violations, trade secrets piracy, and growing evidence of cyber intrusions are responsible for substantial mistrust in our economic relationship by many American businesses and many officials in our government, who otherwise hope for, and are working for, improved relations with China. And, unfortunately, this mistrust is not confined to the United States. It extends to other countries as well.

The level of IPR infringement and trade secrets piracy in China – including online piracy – remains puzzling to me for a country that has more and more intellectual property of its own that needs to be protected.

Allow me to focus for a moment first on the IP issue. When I addressed this gathering in 2011, I emphasized that we do not view IP theft as a “United States versus China” issue. Many in China also suffer from it. So, it would be useful for all stakeholders in the U.S. and China to collaborate on this issue.

I have noted during the past year that this message also resonates with many Chinese companies, researchers, and educational institutions. Unfortunately, the IP issue can be a major deterrent to the high-value added investment China wants to encourage. It also goes to the trust factor as it relates to access of Chinese goods to foreign markets – if there is suspicion that certain products are made with illegally obtained intellectual property.

We know that many Chinese companies have devoted significant resources to developing new products and new technologies. And many of these companies complain that they also suffer when competitors here have illegally copied their ideas and technology.

But it is also important and fair to acknowledge that China has made some progress in some areas. Much of that progress is the direct result of the personal engagement of Chinese leaders. It reflects the hard work of people like former Vice Premier and now Politburo Standing Committee member Wang Qishan led the State Council IP campaign and worked to create the National Leading Group on IP. And as a result of these efforts, there has been improved IP protection in some areas, such as software legalization.

Further improving intellectual property rights protection would be a positive development for China. It would give inventors and creators here greater opportunity to engage foreign counterparts in business and research cooperation without these foreign counterparts fearing loss of their intellectual property.

The United States will continue to work with China in this area. We desire cooperation, not confrontation, because we believe that business and scientific collaboration between our two countries and among all countries can be mutually beneficial if done fairly and on a level playing field. But at the same time, we will vigorously act to protect our own interests because our innovation is vital to the future.

We recently unveiled a new IP and trade secrets strategy to address the theft – both online and otherwise – of our IP and trade secrets whereever it comes from in the world. The United States also has utilized the Special 301 and Notorious Markets reports to encourage improved IPR protection and enforcement.

We have seen positive results in many countries, and some positive results here in China where companies are attempting to address these concerns. But, there remains a great deal left to be done.

Finally, let me turn to the cyber issue. The level of cyber intrusions emanating from China that result in theft of valuable propriety information has reached an unprecedented level. Recent public evidence has documented this.

This problem is a big part of the mistrust I mentioned earlier. The U.S. Government is taking an active approach to addressing the issue, and we continue to raise our concerns with senior Chinese officials.

As an old friend of China, I question and ask my Chinese friends to question, whether this activity serves China’s real interests as it seeks to attract high-end investment, aims to develop international markets for its innovative products, and wants its companies welcomed and respected as they increasingly invest around the world.

The long-term interest of the Chinese Government is in investigating and halting cyber intrusions wherever in this country they come from. Our countries have a common interest in working together to address and resolve this problem. And, there are many people in China who are supportive.

At the last Internet Industry Forum, I emphasized the need for deeper dialogue on cyberspace issues, noting the need to work together to develop a shared understanding of acceptable norms and behavior. I want to take the opportunity today to renew this proposal.

In a recent speech, the U.S. National Security Advisor, Tom Donilon, called for a constructive direct dialogue between the United States and China to address acceptable norms of behavior in cyber, noting that our two countries, “the world’s two largest economies, both dependent on the Internet, must lead the way in addressing this problem.”

The need for a productive dialogue with a clear and constructive outcome is critically important to our bilateral relationship and the restoration of trust. The dialogue must not be prolonged and must be a means to an end -- which in this case must mean an end to this problem.

Let me conclude by going back to the broad theme of the Internet. There undoubtedly are areas where the United States and China will continue to disagree.

But there also are many areas of mutual interest where we can collectively focus our attention and our energy.

Both multilaterally and bilaterally, we can work together to maximize the utility of the Internet for our businesses and for our innovators, ensure that our companies and peoples have the fastest connections and the most advanced services, and provide opportunities for mutually beneficial collaboration.

Together, we can address technical measures, such as 4G licensing and mobile spectrum, to modernize our economies and set the stage for the next round of connectivity and innovation.

Together, the United States and China can explore the potential for cloud computing, mobile Internet, and the Internet of Things, ensuring compatible international standards, the free exchange of information, and respect for intellectual property.

All of this calls for even greater levels of collaboration and mutual confidence. We should increase the frequency and depth of our dialogues -- and agree that they must produce constructive results. We also can make room for more industry voices; for instance, the United States would welcome the opportunity to include Chinese and American businesses during portions of the next round of the Bilateral Consultations on Communication and Information Policy.

Together, we can create an environment where our companies, our researchers, our academic institutions, and our entrepreneurs can freely compete, freely partner, freely exchange exciting cutting edge ideas, and freely invest.

Most of all, let’s make sure the Internet is free to connect our people, to exchange ideas, and to enrich our lives.

Thank you very much.