Report of the Commission

on United States–Pacific

Trade and Investment Policy

Building

American

Prosperity in the

21st Century

U.S. Trade and Investment in the Asia Pacific Region
Building

American

Prosperity in the

21st Century

U.S. Trade and Investment in the Asia Pacific Region

Report of the Commission

on United States–Pacific

Trade and Investment Policy
ACKNOWLEDGMENTS

The Commission wishes to thank the following individuals for their assistance throughout the

research and drafting phases of its work: Grant Aldonas, Philip Budwick, Eric Drabiuk, Marc

Glosserman, Joseph Pon, Kirk Rubida, David Walters, and Julie Wolcott. The Commission

would also like to extend its deep appreciation to those who testified as expert witnesses and

others who assisted in the Commission’s work. 
Contents

Transmittal Letter to the President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . iii

Commission Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . v

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . vii

Building American Prosperity in the 21st Century:

1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1

2. Observations and Findings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

3. Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

4. Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49

Additional Statements:

Additional Statement of Jason Berman, Clyde V. Prestowitz, Jr.

and Bruce Stokes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53

“Toward A Prosperous Pacific” by Lawrence Johnson

and Ko-Yung Tung . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54

Pacific Island Fact Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56

Dissent:

Statement of Dissent by Morton Bahr, Kenneth Lewis,

and Ron Sims . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61

Annexes:

Annex A: Background on Commission Members . . . . . . . . . . . . . . . . . . . 79

Annex B: Commission Background and Record of Proceedings . . . . . . . 87

Annex C: Overview of U.S. Trade Relations with the Asia Pacific

Region, 1980-1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 95

Annex D: Summary of Barriers to Trade and Investment

in the Asia Pacific Region . . . . . . . . . . . . . . . . . . . . . . . . . . . . .119

References . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .131
April 1997

Dear Mr. President: 

On behalf of my colleagues, I am proud to present you with the report of your Commission on U.S.-Pacific

Trade and Investment Policy. Our mandate was to recommend steps the United States should take to

achieve greater opening of Asia Pacific markets for U.S. companies in order to create better jobs for

American workers. We have defined Asia Pacific as Brunei Darussalum, China, Hong Kong, Indonesia,

Japan, Malaysia, the Philippines, Singapore, South Korea, Taiwan, and Thailand.

The United States is now enmeshed in the world economy with trade amounting to 30 percent of our gross

domestic product. Today, international trade is more than twice as important as it was just twenty-five

years ago. Our welfare and security and our ability to fulfill the American dream depend more than ever on

how well we perform in the global marketplace.

The Asia Pacific region is key to our international success. It is the largest producing, the biggest trading,

the most populous, the fastest growing, and the most dynamic region in the world. The United States has

done well in the region, our exports have increased nearly fourfold in the last ten years. One sector in

which we have done particularly well is high-technology. It is for this reason we have chosen to highlight a

section in the Observations and Findings section on the Information Age. By setting this section slightly

apart, we believe that U.S. government and business leaders should give greater consideration to the

impact of the Information Age on our trade and investment relations. However, in our overall trade and

investment relations we could be doing a lot better if we had the same access to Asia Pacific markets as

they have to ours. Asia Pacific presents some of America’s most vexing trade barriers and most unbalanced

trade relationships. The significant and persistent trade deficits with Asia Pacific, particularly Japan and

China, demand effective market opening action by the United States in order to insure continued support

of the American people for our trade policies.

Your Commission, consisting of members with a substantial amount of “hands-on” experience in the Asia

Pacific region, consulted with experts, visited the region, and debated at great length the issues covered in

this report. It is important to note that even though we had viewpoints ranging across the entire ideological

spectrum, all but three of the Commissioners agreed with the final report. (These three have written an

eloquent dissent which is included with the Commission’s Report.) The fact that such a diverse group

came to agreement on so many issues makes it likely that the report’s recommendations will be supported

by the American people.

The Commission is indebted to Senator Jeff Bingaman who first and forcefully advocated the creation of

the Commission to you. Your decision to create the Commission reflects your similar understanding of the

importance of trade with Asia Pacific to the economic welfare of America.

The Commission believes that the opportunities and challenges that lie ahead in our relationships with

Asia Pacific must be embraced and addressed with equal vigor. For this reason, the Commission has

outlined a number of steps that could be taken to enhance American trade and investment relations with

the Asia Pacific region in a way that creates more high wage jobs in the United States and enhances

America’s global competitiveness.

It has been an honor for all of us to serve on this Commission; we hope that our work stimulates policy

discussion on how to better deal with the Asia Pacific countries as well as to help educate the American

public on the growing importance of this dynamic region to America’s future.

Yours truly,

Kenneth D. Brody

Chairman

Commission on U.S.-Pacific Trade and Investment Policy

iii

Commission on United States–Pacific

Trade and Investment Policy

Washington, D.C. 20508
iv

April 1997

Dear Member:

On behalf of my colleagues, I am proud to present you with the report of the Commission on

U.S.-Pacific Trade and Investment Policy. Our mandate was to recommend steps the United

States should take to achieve greater opening of Asia Pacific markets for U.S. companies in order

to create better jobs for American workers. This report represents one year of our research,

deliberations, and recommendations for future U.S. trade and investment policy towards the

nations of Brunei Darussalam, China, Hong Kong, Indonesia, Japan, Malaysia, the Philippines,

Singapore, South Korea, Taiwan, and Thailand.

The Commission was established in the spring of 1996 by the President on the initiative of your

colleague, Senator Jeff Bingaman. Members of the Commission include leaders from business,

journalism, labor, and academia, who have a substantial amount of “hands-on” experience in the

Asia Pacific region. I along with Commission vice chairman Clyde Prestowitz chaired 13 formal

meetings and numerous informal sessions, and also led a fact finding mission of the Commission

who have written an eloquent dissent which is included with the Commission‘s report.

The Asia Pacific region is key to our international success. It is the largest producing, the biggest

trading, the most populous, the fastest growing, and the most dynamic region in the world. The

United States has done well in the region, our exports have increased nearly fourfold in the last

ten years. However, we could be doing a lot better if we had the same access to Asia Pacific

markets as they have to ours. The significant and persistent trade deficits with Asia Pacific,

particularly Japan and China, demand effective market opening action by the United States in

order to insure continued support of the American people for our trade policies.

It has been an honor for all of us to serve on this Commission. We hope that our findings and

recommendations will stimulate more debate in the Congress on our economic relations with the

fastest growing region in the world. We also hope that this report will promote greater public

awareness of the importance of our trade and investment relations with the Asia Pacific region.

Yours truly,

Kenneth D. Brody

Chairman

Commission on U.S.-Pacific Trade and Investment Policy

Commission on United States–Pacific

Trade and Investment Policy

Washington, D.C. 20508
v

COMMISSION MEMBERS

Kenneth D. Brody

Commission Chairman

Former Chairman and President

The Export-Import Bank of the United States

and Founding Partner

Winslow Partners LLC

Clyde V. Prestowitz, Jr.

Commission Vice Chairman

President

Economic Strategy Institute

Morton Bahr

President

Communication Workers of America and

Vice President of the AFL-CIO

Jason S. Berman

Chairman and CEO

Recording Industry Association of America

Eugene Eidenberg (resigned 8/15/96)

Advisory Director

Hambrecht and Quist

James Fallows (resigned 7/25/96)

Washington Editor

Atlantic Monthly

Lawrence M. Johnson

Chairman and Chief Executive Officer

Bancorp Hawaii

Robert Z. Lawrence

Albert L. Williams Professor of International

Trade and Investment

John F. Kennedy School of Government

Harvard University

Kenneth Lewis

Former President and CEO 

Lasco Shipping Co. 

James C. Morgan

Chairman and CEO

Applied Materials Corporation

Harold A. Poling

Former Chairman and CEO

Ford Motor Company

Ron Sims

County Executive

King County, Washington

Bruce E. Stokes

Senior Fellow

Council on Foreign Relations

Jackson Tai

Managing Director

J.P. Morgan & Co. Incorporated

Yah Lin Trie

President

Daihatsu International

Ko-Yung Tung

Senior Partner

O’Melveny & Myers LLP, and

Chairman, Board of Governors

East-West Center

Hon. Harriett M. Wieder (effective 9/96)

Former Chairman of the Board of Supervisors

Orange County, California

and Vice President

Overseas Marketing Exchange
vi

Robert A. Wilson, Jr.

General Manager and Country Corporate

Officer for South Korea

Citibank, N.A.

Meredith Woo-Cumings

Associate Professor of Political Science

Northwestern University 

COMMISSION STAFF

Executive Director

Nancy Adams

Assistant U.S. Trade Representative

Office of the U.S. Trade Representative 

Senior Policy Advisor

Carmen Suro-Bredie

Senior Policy Advisor to the U.S. Trade

Representative

Office of the U.S. Trade Representative

Staff

Charles D. Uthus

International Economist

U.S. Department of Commerce

Barton Meroney

Staff Assistant

U.S. Department of Commerce

ADVISORS

Naotaka Matsukata, PhD

Economic Strategy Institute

Amanda DeBusk 

Partner

O’Melveny& Myers LLP

COMMISSION MEMBERS continued
vii

Introduction

In the aftermath of World War II, few Americans believed that the war torn economies of Asia

Pacific would someday rival the advanced economies of North America and Europe. However, 52

years after the end of World War II and only 22 years after U.S. withdrawal from Vietnam, the

United States faces a bold new era full of economic opportunities and challenges in a region that

has far surpassed the world’s expectations and become one of the most vibrant parts of the global

economy. Asia Pacific’s rise to industrial status has stimulated tremendous global interest in the

region. However, the importance of the region to the future of the United States has yet to fully

capture the imagination of American government and business leaders.

The explosive growth of Asia Pacific economies has been fueled by indigenous aspirations for

better living standards and facilitated by a liberal international trading regime anchored by an

open U.S. market. Growth has also been sustained through unilateral trade and investment

liberalization within the region. For the United States, the opportunities of Asia Pacific are

promising. The United States stands to gain from a stable and growing economic engagement

with the region. Increased exports to the region will positively impact U.S. employment

opportunities and help raise American living standards, however, many Asia Pacific economies

continue to have barriers to trade and investment that prevent the United States from having

adequate access to their markets. These conditions have led to a commercial relationship

between the United States and Asia Pacific that is both full of promising possibilities and vexing

problems. 

In an era where trade is having a larger impact on job creation and living standards, a fair and

equitable trade and investment relationship with Asia Pacific is critical to the American people.

Business and government leaders must act soon to implement policies that are designed to help

maximize U.S. comparative advantage in the region and further reduce trade and investment

barriers. A second “American Century” is about to begin. This time, the opportunities for

prosperity lie across the waters of the Pacific.

Executive Summary
Observations and Findings

Trade and foreign investment are of unprecedented importance to the U.S. economy. In 1995,

exports and imports of goods and services and the return on U.S. investment abroad equaled

almost 30 percent of U.S. gross domestic product (GDP), up from 13 percent in 1970. More

than ever, the welfare of the American worker is dependent upon U.S. competitiveness in the

global economy. By the end of 1996, U.S. exports of goods and services supported an estimated

11.3 million jobs and American workers in export manufacturing firms earned between 11 and

18 percent more than the average manufacturing wage in the United States. Moreover, imports

enable American consumers to stretch their incomes, buying more of what they want at

competitive prices. Growing U.S. investment overseas has also contributed to American

prosperity, enabling U.S. firms that invest overseas to significantly increase their exports. 

The globalization of the U.S. economy has also brought about new challenges and problems for

American society. Although exports have increased, the trade imbalance has grown worse. Greater

international competition has, at times, led to job dislocations, resulting in calls for everything from

greater access to foreign markets, protectionism, and disengagement from the global economy.

These demands will only gain greater acceptance unless the benefits of trade are more tangibly

experienced by American workers and companies at large. 

As the significance of trade and investment to the growth of the U.S. economy increases, it is

imperative to have trading partners with strong growth potential. The Asia Pacific economies

have averaged 6.6 percent growth annually over the last decade - 9 percent excluding Japan –

and will account for nearly a third of the global economy by the year 2000. In the future, most

Asia Pacific economies are expected to grow at three times the rate of the U.S. economy. 

Such rapid growth has already fed a flourishing demand for U.S. goods and services. The region

is by far America’s best customer, purchasing 30 percent of U.S. goods and absorbing more than

$40 billion of U.S. foreign direct investment between 1991 and 1995. The American worker also

has gained from trade and investment relations with Asia Pacific. Between 1989 and 1993, one

of every six new jobs created in the U.S. was attributable to trade with the region’s economies.

The potential benefits for the U.S. economy in the future are great. The rapidly growing Asia

Pacific economies will spend $1.5 trillion on new infrastructure development in the next decade

alone. 

High-technology is vital to U.S. competitiveness in Asia Pacific. The United States remains the

largest exporter of technology products in the world. Having made development of hightechnology industries and infrastructure a priority within their growth strategies, the fast growing

economies of the Asia Pacific region are in a position to purchase large amounts of high-tech

products and services from the United States. Increased exports of high-tech goods to Asia

Pacific will contribute to job creation and improving living standards. U.S. high-tech industries

on average earn roughly 70 percent more than the average national wage. 

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

viii
Impeding the potential growth of U.S. trade and investment with Asia Pacific are tariff and nontariff barriers that restrict market access to the region. Without the elimination of these barriers,

the full potential of economic relations with the region will never be realized. Tariffs on

manufactured products applied by developed countries in Asia Pacific are relatively low, but tariff

peaks still exist. Average tariffs rates for developing economies in the region are higher and

individual tariffs can be extremely high. More problematic are non-tariff trade barriers that

persist in Asia Pacific, including licensing of production, government procurement and offsets,

and phytosanitary and technical standards that discriminate against foreigners. U.S. exports to

Asia Pacific are also inhibited through piracy of technology and intellectual property such as

patents, trademarks, and copyrights.

Finally, U.S. exports and investment are impaired by the persistence of private and public anticompetitive practices and poor enforcement of antitrust laws. Many Asia Pacific governments

actively intervene in their domestic markets to protect favored industries. Furthermore,

government bureaucracies in some countries use administrative guidance to intervene in the

economy to influence business decisions to bolster exports and limit foreign direct investment.

Many Asia Pacific economies keep foreign firms out of the domestic market through preferential

business relationships, price-fixing, bid-rigging, and market allocation arrangements among

competitors. Foreign direct investment barriers also limit the expansion of U.S. exports and the

flow of U.S. capital into Asia Pacific markets. Many Asia Pacific countries have longstanding

traditions of limiting foreign direct investment in their economies. For many years, the U.S. has

had an active program to advance investment disciplines and provide fair and equitable treatment

for U.S. investors abroad. Unfortunately, these efforts have been unsuccessful in the Asia Pacific

region. Many of these barriers and practices that have limited foreign competition in domestic

markets have been a result of policies that rely less on domestic demand and more on exports for

economic growth. Such policies have impaired U.S. efforts to export more into the Asia Pacific

region.

The continuation of trade and investment barriers in Asia Pacific has exacted a cost on U.S.

economic growth and has had a negative impact on U.S. economic welfare and competitiveness.

Any efforts to reduce trade and investment barriers in Asia Pacific may prove more difficult in

the future because they must take place in a new trade policy environment. The World Trade

Organization (WTO) has established a new, multilateral venue for dismantling trade and

investment barriers with stronger, more comprehensive trade rules and an efficient dispute

settlement mechanism applying to all member countries. Furthermore, the Asia Pacific Economic

Cooperation forum (APEC) serves as an additional plurilateral forum which the United States

can use to address trade and investment barriers within the region. Nonetheless, many issues of

great importance to U.S. competitiveness in the region remain outside the purview of the WTO,

and APEC’s non-binding character creates doubts about its ability to deliver steady progress

towards market liberalization. For this reason, while the effectiveness of purely bilateral market

opening efforts on the part of the United States has diminished in recent years, such initiatives

will still occasionally be necessary to deal with persistent commercial barriers not adequately

covered by multilateral and regional disciplines. 

Executive Summary

ix
In addition to directly addressing trade and investment barriers in the region, the United States

must place a higher priority on U.S. engagement in Asia Pacific. Companies are only just

beginning to station senior corporate officers in the region and term-financing for overseas

development and projects has been insufficient. Although U.S. corporate investment in Asia

Pacific has increased over 80 percent from 1991 to 1995, the United States still must contend

with aggressive European and Japanese competitors. The sheer physical distance between

Washington and Asia Pacific capitals, combined with competing U.S. policy priorities, has

resulted in episodic and insufficient attention to the region by high level government officials.

The U.S. government has also failed to provide adequate resources to bolster U.S. economic

involvement in Asia Pacific. Overall government spending on trade promotion has dropped from

$691 million in 1995 to $323 million in 1997, impairing trade expansion in the region.

Furthermore, in 1996, the United States allocated only $684 million in foreign aid to Asia

Pacific, just 4 percent of total U.S. foreign assistance. Japan gave Asia Pacific nations $4.1 billion

in foreign aid in 1996, 31 percent of its total development assistance. Such Japanese aid, unlike

U.S. assistance which is geared towards social and health related development, often targets

technical assistance, paving the way for exports. European nations also have allocated a larger

proportion of their aid to Asia Pacific.

Tremendous economic opportunities, persistent trade and investment barriers, and insufficient

attention to the region characterize the conditions of U.S. economic relations with Asia Pacific.

The Commission has formulated its recommendations based on these broad observations. Some

countries have received more Commission attention than others, but the central thrust of the

Commission’s report has been to put forth recommendations to promote greater market access

for U.S. companies throughout the region. Implementation of these recommendations in a timely

fashion will generate significant gains for the U.S. economy and workers.

Recommendations

Recommendation 1: China

n The United States should continue to lead the effort to integrate China into the global

economy and continue to support China’s accession to the World Trade Organization.

China’s accession to the WTO should be conditioned on commercially viable terms. The

United States should be inflexible on China’s agreement to all WTO principles, but

flexible with regard to the time frame for implementation of other WTO obligations.

Furthermore, the United States should assist China in its economic transformation from

a government controlled economy to one that is more market-oriented. It is essential

that the United States pursue improved market access for U.S. goods through bilateral

and regional initiatives, as well as through negotiation for accession to the WTO.

Moreover, negotiation of China’s accession to the WTO should be completed before any

action is taken with regard to granting permanent Most-Favored-Nation (MFN) status to

China.

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

x
Recommendation 2: Japan

n Japan is one of the world’s largest economies and must play its proportionate role in

creating a fair and open marketplace. The United States should continue its efforts to

gain greater access to the Japanese market for U.S. exporters and investors. Structural

talks and sectoral negotiations are needed to insure that rules governing access to the

Japanese economy in various sectors provide for equitable trade. Market opening

initiatives should use all sources of U.S. leverage in any trade forum that is likely to

maximize U.S. economic interests, including the WTO, APEC, and government-togovernment talks. To broaden the scope of the U.S.-Japan economic dialogue, the United

States government should study the feasibility of negotiating a Comprehensive Market

Agreement with Japan that would go beyond a standard free trade agreement and

develop agreed upon procedures to deal with anti-competitive business practices,

investment restrictions, administrative guidance, and other trade restrictions.

Recommendation 3: Domestic Initiatives: Fast Track Negotiating Authority and Economic

Balance of Benefits Study

n Broad negotiating authority for the Executive Branch and fast track Congressional

approval procedures should be renewed immediately. Fast track authority would permit

the United States to participate fully in APEC trade liberalization, negotiate selective

free trade areas with Asia Pacific countries, and advance initiatives in the WTO to

address specific trade problems. Furthermore, in order to assure that trade agreements

bring tangible benefits to the U.S. economy, an economic balance of benefits study

should be prepared at the conclusion of major trade agreements.

Recommendation 4: Competition Policy

n The Administration should formulate a coherent policy to address problems of market

access arising from anti-competitive behavior in foreign markets. This policy should be

formulated in consultation with Congress and the private sector to ensure domestic

support for possible changes, to the extent appropriate, in trade and domestic antitrust

legislation. The U.S. government should also initiate international discussions on

improving cooperation between national competition authorities and provide technical

and educational support for nations attempting to implement antitrust policy. The U.S.

government should also conduct an annual review of abuses and progress in the

international use of competition policy and pursue bilateral and plurilateral competition

policy agreements. Where sustained price differentials between U.S. and foreign markets

suggest anti-competitive practices abroad, the United States government should selfinitiate dumping cases or, where appropriate under law, issue cease and desist orders

against those anti-competitive foreign practices that restrict U.S. commerce.

Executive Summary

xi
Recommendation 5: Human Rights, Worker Rights, and the Environment

n International human rights, worker rights, and environmental protection are core ideals

and goals of the United States. The United States should work with the Asia Pacific

nations in multilateral fora to help promote human rights in a manner balanced with

U.S. commercial interests. The United States should also support an active international

dialogue on the relationship between trade and labor and encourage collaboration

between the International Labor Organization and the World Trade Organization. On the

environment, the United States should promote a dialogue on trade and environment

and support the APEC environmental agenda. In addition, a review of the environmental

implications of any free trade agreements made with Asia Pacific countries should be

undertaken by the government. The United States should work with the Group of Seven

(G-7) countries to develop a coordinated approach to international environmental policy,

including common environmental guidelines for export credit agencies.

Recommendation 6: Foreign Direct Investment Liberalization

n Foreign direct investment lays the foundation for robust trade in goods and services. The

United States should work to conclude the Multilateral Agreement on Investment (MAI).

Upon completion of the agreement, the United States and the OECD should encourage

non-OECD countries in the Asia Pacific region to join. The United States should also

foster greater regional and bilateral dialogue on the merits of investment liberalization

and persuade Asia Pacific nations to enter into Bilateral Investment Treaties with the

United States. Forced technology transfer as a precondition for foreign direct investment

should be actively opposed by the U.S. government.

Recommendation 7: Multilateral Solutions to Asia Pacific Trade and Investment Problems

n Primary fora for resolving trade and investment problems have shifted from bilateral to

multilateral venues. The United States should continue to promote its Asia Pacific

interests through active use of the WTO’s dispute settlement mechanism and expansion

of the WTO’s rules. U.S. trade negotiators should be mindful that despite the MostFavored-Nation and National Treatment provisions of the WTO, inequities in the global

trading system remain. U.S. trade policy should be guided by principles of mutuality and

contestability of markets. 

Recommendation 8: APEC and Selective Free Trade Areas

n The United States should encourage APEC to produce concrete initiatives that further

trade and investment liberalization in Asia Pacific. The United States should continue to

use APEC as a major anchor for American engagement in Asia Pacific as long as it

delivers steady progress on regional integration, economic cooperation, and trade

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

xii
liberalization. To further trade liberalization, the United States should pursue selective

bilateral and plurilateral free trade areas with interested Asia Pacific trading partners.

Recommendation 9: Exchange Rates

n The United States government should pay careful attention to the impact of exchange

rates on U.S. commerce. The United States should ensure that foreign governments do

not manipulate their exchange rates to achieve competitive advantage.

Recommendation 10: Greater Priority to Asia Pacific

n U.S. economic prosperity is tied to Asia Pacific. U.S. trade and investment interests in

Asia Pacific should be given higher priority within the U.S. government. The United

States should establish a permanent high-level trade and commercial office in Asia

Pacific headed by a Special Representative of the President to monitor economic trends

in the region, execute trade and investment policies, assist in trade negotiations, and

advocate U.S. commercial interests in Asia Pacific. Furthermore, greater government

resources should be allocated for monitoring trade agreements with Asia Pacific

economies.

Executive Summary

xiii
Introduction

1

1

On the threshold of a new millennium and at the center of a rapidly growing global marketplace,

the American economy faces a future of unprecedented possibilities and unparalleled challenges.

Nowhere is this more evident than in America’s commercial relationship with Asia Pacific.1

For most of the post-war era, the fate of the United States was largely determined by domestic

events. Now, America has an economy that is inextricably linked to the world around it. A third

of recent U.S. economic growth and nearly a quarter of recent U.S. job creation come from

exports.2 High wage American jobs are increasingly dependent on exporting and the living

standards of American citizens are increasingly reliant upon foreign trade. The profitability and

survival of American firms, large and small, are more and more determined by how they fare in

the global marketplace.

The continued well-being of this new American economy is, in large part, dependent upon

developments overseas. Nowhere in the world is the U.S. stake greater than in the rapidly

growing Asia Pacific economies arrayed along the western shores of the Pacific Ocean. In recent

years, this Asia Pacific region has become the fastest growing foreign market for U.S. goods and

services, the largest exporter to the United States, and the most popular new destination for U.S.

foreign direct investment. 

Much of the future success of the U.S. economy will depend on how well America capitalizes on

the growth of the Asia Pacific region; although opportunities are great, there are frustrating

obstacles. Despite significant progress on the part of many Asia Pacific governments to open

their economies to foreign competition, significant trade and investment barriers still inhibit U.S.

market access in many nations in the region. Differing economic philosophies and protectionist

government practices sustain sanctuary markets for key industries, enabling them to export to the

United States with only limited competition in their domestic markets from American and

foreign companies.

In the past, the United States has often ignored or misunderstood developments in Asia Pacific.

Americans have been slow to fully appreciate the fundamental importance of the region to

American economic vitality. U.S. policy toward the region has been inconsistent, mixing political
and economic objectives. America

can no longer afford the luxury of

such behavior. If the United States is

to fully capitalize on economic

developments in Asia Pacific, then

the American government must

launch a series of initiatives designed

to increase U.S. exports and

investment in the region, from China

in the north to Indonesia in the

south. 

The opportunities must be

capitalized on immediately. As Asia

Pacific economies mature, the

intimate business relationships in the

region and complex governmental

policies and laws that regulate them

will be increasingly difficult to

penetrate or change. America’s

principal competitors in the region—

Japan, the nations of the European

Union, and some of Asia Pacific’s

own newly industrial nations—are

not standing still. They are rapidly

expanding their trade and investment

presence in the region. If U.S.

businesses do not compete head-tohead and local laws are not put into

place to insure open competitive

markets, the United States risks not

being able to fully capitalize on its

competitive strengths in Asia Pacific.

If regional trade and investment

barriers facing U.S. businesses

continue to inhibit U.S. commerce,

it will be increasingly difficult to

sustain public support for

maintaining open markets in the

United States. Such a development

would be detrimental for the United

States and gravely injurious to the economies of Asia Pacific. An active U.S. policy toward trade

and investment in the Asia Pacific region must become a national priority. 

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

2

World Gross Domestic Product in 1980 and 1995

1995

United States (22.4%)

European Union (22.1%)

Canada (2.1%)

Mexico (2.7%)

Asia Pacific (16.1%)

Rest of World (31.4%)

1980

India (2.9%)

United States (21.6%)

India (4.2%)

Asia Pacific (26.2%) Canada (2.0%)

Mexico (2.1%)

European Union (20.1%)

FIGURE 1

Rest of World (23.6%)

Note: GDP estimates are based on purchasing power parity

computations rather than on conversions at currency exchange

rates made by Summers and Heston in PENN World Table 5.6

(For discussion of their basic methodology see “Quarterly

Journal of Economics,” May 1991); GDP estimates for OECD and

EU for 1970-90 include former West Germany and for 1991–1995

include unified Germany.

Source: CIA Handbook of International Economic Statistics, 1996.

Source: Forecast – DRI McGraw Hill
Asia Pacific Opportunities

Asia Pacific has undergone a dramatic transformation in recent years and is now one of the most

vibrant regions of the global economy. The region of 11 nations now accounts for 33 percent of

global trade and 26 percent of world GDP,

3 up from 17 percent and 16 percent respectively only

15 years ago.4 

The dramatic emergence of Asia Pacific has translated into a wide range of trade and investment

opportunities for the United States. In 1995, the region accounted for 35 percent of total U.S.

trade, 30 percent of total U.S. exports, and 40 percent of U.S. imports. Asia Pacific purchases of

U.S. goods and services have almost quadrupled in the last ten years, from around $47 billion in

1985 to $175 billion in 1995.5 U.S. imports from the region have more than doubled, rising

from $122 billion in 1985 to $295 billion in 1995. Much of this trade is the result of U.S.

foreign direct investment into the economies of Asia Pacific, which has grown faster than to any

other region in the past ten years and currently equals almost $100 billion.6

1. Introduction

3

1980 1985 1990 1995

0

500

1000

1500

2000

2500

3000

Billions of $ (Nominal)

United States

EU

Asia Pacific

U.S., EU, and Asia Pacific Merchandise

Trade as a Percent of World Trade*

FIGURE 2

19%

15%

23%

17%

20% 23%

18%

22%

33%

19%

17% 27%

* Excludes intra-EU & EEC trade. Note: EEC in 1980 and 1985

Source: International Monetary Fund – Direction of Trade Statistics Yearbook 1986, 1992, 1996

Source: U.S. Data – Total Exports Free Along Side (FAS)/General Imports Customs Value Basis
This growing commerce links the United States to both the richest nations in the region and to

the poorest. From 1985 to 1995, U.S. trade with Japan, whose per capita income approximates

that of the United States, grew by 106 percent. Over the same period, U.S. trade with China,

whose per capita income is a tenth of that in America, expanded nearly 600 percent. Commerce

with the newly industrial countries of Hong Kong, Taiwan, and South Korea grew 160 percent,

while trade with the Association of Southeast Asian Nations (ASEAN) of Brunei, Indonesia,

Malaysia, the Philippines, Singapore, and Thailand grew 350 percent.

As a result of this burgeoning commerce, the Asia Pacific market and individual national

economies in the region now rival many traditional U.S. trading partners in their importance for

U.S. exports. Outside of Canada, Japan buys more from the United States than any other

country and South Korea now imports more from the United States than does Germany. Taiwan

and Singapore now each purchase more U.S. goods and services than do either France or Italy.

U.S. investment into the region in recent years has grown faster than U.S. investment in either

Europe or Latin America.

Asians are already the fastest-growing consumers of U.S. products, and the commercial

opportunities for American business in the awakening Asia Pacific economies will only grow over

time. The number of Asian consumers is mushrooming as populations expand. Although incomes

remain low in some countries, individual purchasing power is growing much faster than that in

the more mature American and European economies. Rising incomes are creating an ever larger

middle class in the region, with a healthy potential demand for U.S. food products, computer

software, and financial services. (See Figure 4 on page 6)

An unprecedented wave of trade and investment liberalization on the part of the Asia Pacific

economies has also played an important role in the region’s economic dynamism. Over the last

decade, countries in Asia Pacific such as Taiwan, Indonesia, the Philippines, and Thailand have

unilaterally liberalized many key sectors of their economies. In the Philippines, tariffs were

reduced from an average of 28 percent in 1988 to 15.6 percent in 1996 and they will be reduced

to a uniform 5 percent for non-agricultural products by 2004. South Korea reduced its tariff

rates from an average of 19 percent in 1988 to 8 percent in 1996. Moreover, through APEC and

the WTO, the economies of the region have committed to continue reducing tariffs and other

impediments to trade and investment and to achieving free trade in the region no later than

2020. Such liberalization on the part of the region’s economies will help create a more

prosperous environment for U.S. economic interests in Asia Pacific.

Asia Pacific Challenges

The opportunities for U.S. trade and investment that result from the economic rise of Asia

Pacific will remain unrealized, however, unless there are more equitable commercial relations

with the region. Traditional trade barriers continue to impede commerce in Asia Pacific. Many

such trade barriers will persist even after the full implementation of the Uruguay Round trade

agreement. Fully capitalizing on the economic possibilities requires further reduction in Asia

BUILDING AMERICAN PROSPERITY IN THE 21ST CENTURY

4
1. Introduction

5

Intra-Asia Pacific Merchandise Trade 1985-1995

Billions of Dollars

1985

USA

NIE

ASEAN China

Japan

8 48

26.9

90.9

29.5

22.6

4.2

102.1

19

FIGURE 3

1995

USA

NIE

ASEAN China

Japan

57.3

(643%)

187.9

(106%)

126

(163%)

119

(342%)

54.2

(185%)

69.4

(579%)

115.2

(291%) 102.1

(980%)

12.2

(192%)

10.2

102

(350%)

Notes:

1. Billions of U.S. dollars

Trade values = exports + imports

2. Trade values between U.S. and other

partners based on U.S.

statistics

3. Trade values between Japan, China,

ASEAN (5), and NIEs based on Japan

statistics

4. Trade values between NIEs and

China/ASEAN based on NIEs

statistics

5. Trade values between ASEAN and

China based on ASEAN statistics

6. ASEAN comprised of Singapore,

Malaysia, Indonesia, the Philippines,

and Thailand

7. NIE (Newly Industrialized Economies)

comprised of Hong Kong, Taiwan,

and South Korea
BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

6

Asia Pacific Latin America Japan EU Canada Rest of World

0

100

200

300

400

Percentage

346

211

190

142 138

66

Merchandise Export Growth: 1985–1995

FIGURE 4

(Excluding Japan)

* Based on U.S. Government estimates of growth in foreign export markets and the assumption that the

U.S. share of those markets remains constant.

Merchandise exports are estimated to be $582 billion in 1995 and are projected to rise to $1,735 billion

in constant 1990 dollars and $2,177 billion in current 1995 dollars, based on historic trends in export

price inflation.

Asia Pacific

Latin America

Japan

Canada

EU

Rest of World

0 100 200 300 400 500

1995 2010

Current and Projected U.S. Exports*

(billions of dollars)

269

62

186

124

251

126

118

69

303

95

110

371

(Except Japan)

Source: Official Statistics of the U.S. Department of Commerce

Forecast Data: DRI McGraw Hill
Pacific trade barriers that include high tariffs and the use of standards and regulations to

discriminate against imported agricultural and manufactured products. 

Non-traditional barriers to commerce reflect profound differences in economic philosophy across

the Pacific. In many Asia Pacific economies, bureaucrats exercise broad discretionary authority to

guide the economy. Many governments embrace an interventionist approach to economic

development that is at odds with free market philosophy. The governments of Indonesia, China,

and Malaysia persist in attempting to nurture their budding auto and electronics industries in a

hot-house environment protected from the cold blasts of international competition. In addition,

cartels and collusion among ostensible business competitors are tolerated and, at times,

encouraged by many Asia Pacific authorities. Two firms control 85 percent of the South Korean

auto and truck market. Parts suppliers associated with major Japanese auto firms provide 96

percent of all auto parts used in cars manufactured in Japan. Laws and regulations to restrict such

practices either do not exist or are weakly enforced. These factors create a business environment

that makes Asia Pacific markets extremely difficult to penetrate, denying foreigners the benefits of

any comparative advantage they may have in the production of a good or service.

While inhibiting imports, many Asia Pacific governments have also promoted exports rather than

domestic demand to spur economic growth. Domestic exporters have received preferential

treatment and foreign investors have been forced to agree to export a portion of their production

and transfer technology. Often, the American market has been the target of these exports,

creating economic dislocation in the United States.

Once, because of the Cold War, such differences in economic philosophy were overlooked and such

protectionist, discriminatory policies enjoyed tacit U.S. blessing. Today, these exclusionary business

practices pose unacceptable obstacles to U.S. commerce in the region.

Asia Pacific Differences

Capitalizing on economic opportunities in Asia Pacific while dealing with these trade and

investment problems is complicated by the fact that the region is an ethnically, culturally, and

geographically complex and diverse part of the world. Each country has its own historical and

economic experience making it impossible to reduce the region to a single model of trade or

political economy. 

In recent years, China has had double digit economic growth. In the 1990s, Japan’s economy has

slowed down dramatically, only achieving zero to low single digit growth levels. Despite rapid

increases in wealth, disparities in national income are wide in Asia Pacific. Hong Kong and

Singapore have per capita incomes higher than those in Italy or Spain. The Philippines has a

lower per capita income than that in the Ukraine or Belarus.

Japan, South Korea, and Taiwan are industrial countries with a long history of national industrial

policies and government direction of their economies. Singapore is a city-state with an extremely

open economy. China is a mixture of a Communist-led centralized economy and a burgeoning

1. Introduction

7
free enterprise market economy that offers vast opportunities hidden amid layers of opaque

regulations. Widespread economic diversity also exists throughout Southeast Asia.

Asia Pacific diversity mandates that U.S. relations with the region be attuned to complex issues.

Attitudes toward human rights differ widely. Labor and environmental standards are uneven.

Business practices and governmental norms vary from country to country. In the past, lack of

appreciation for these differences has often stymied the pursuit of U.S. trade and investment

goals. In the future, effective U.S. policies to increase market access for U.S. exports and

investment in the region must be predicated on a discerning and in-depth understanding of the

similarities and differences inherent in the Asia Pacific economies. 

Conclusion

For the rapidly globalizing U.S. economy, Asia Pacific is a region of vast opportunity and

daunting challenge. To prosper in the future — to create more high paying jobs in the United

States — America needs to export and invest abroad. Without greater access to the Asia Pacific

market, that ambition will be frustrated. But U.S. access to those markets is still often impaired

by entrenched trade and investment barriers that reflect differing history, custom and economic

goals. The challenge facing the U.S. government in Asia Pacific in the 21st century is to lower

trade and investment barriers while taking into account political and economic differences within

the region. The future well-being of American workers and U.S. industry demands it.

The Commission and its Mission

The Commission on United States-Pacific Trade and Investment Policy, first advocated by

Senator Jeff Bingaman of New Mexico, was created by President William Jefferson Clinton

pursuant to Executive Order 12964 on June 21, 1995. Recognizing the dynamism of the Asia

Pacific region and its importance to the future welfare of the United States, President Clinton

selected a group of experts with various professional backgrounds to take a fresh look at U.S.

economic relations in the region. The Commission was fully constituted in March 1996 under

the chairmanship of Kenneth D. Brody, former Chairman and President of the Export-Import

Bank of the United States, and the vice-chairmanship of Clyde V. Prestowitz, President of the

Economic Strategy Institute. The Commission was directed to develop recommendations on how

to “achieve increased access for United States business in Asia Pacific markets by the turn of the

century in such a way that a maximum number of high wage jobs are created and maintained in

the United States.” In pursuit of this objective, the Commission held hearings from May

through August 1996 at which it solicited the views of a variety of business, labor, human rights,

environmental, Congressional, and Executive Branch leaders involved in Asia Pacific related

activities. In September 1996, the Commission traveled to Japan, China, Hong Kong, Thailand,

Indonesia, and Taiwan, where it held discussions with officials in each of these countries, as well

as with U.S. embassy representatives and executives of both U.S. and Asia Pacific companies

operating within the region.7 The Commission then worked to formulate the findings and

recommendations which are presented below.

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

8
2Observations and Findings

9

After 10 months of hearings and deliberations, the Commission made the following observations

and findings with respect to U.S. trade and investment in Asia Pacific.

Trade and foreign investment are of unprecedented importance to the U.S.

economy, improving living standards and expanding employment opportunities

for high wage jobs.

U.S. prosperity is

closely linked with

America’s success in

international commerce.

More than ever, the

welfare of the American

worker—how much he

or she is paid, the

stability of his or her

job—is dependent on

the competitiveness of

his or her employer in

the global economy. 

Over the last quarter

century, international

commerce has made a

growing contribution to

economic life in

America. In 1995,

exports and imports of

goods and services and

the return on U.S.

investment abroad

1970 1992 1995

0

5

10

15

20

25

30

35

Percentage of GDP

Goods Exports

Goods Imports

Services Exports

Services Imports

Foreign Investment Receipts

Foreign Investment Payments

Growing Importance of Trade to the U.S. Economy

Total Exports + Total Imports as a Percent of U.S. GDP Value

FIGURE 5

Source: U.S. Department of Commerce, Bureau of Economic Analysis

13% or

$132 Billion

25% or

$1.6 Trillion

30% or

$2.1 Trillion
equaled almost 30 percent

of U.S. GDP, up from 13

percent in 1970. That

proportion is expected to

continue to grow. Today,

the United States is the

world’s largest exporter

and importer.

8 It ranks

number one as both the

largest holder and

recipient of foreign

investment.9 Long

considered by Europeans

and Japanese as an

inward-looking, domesticoriented economy,

America is now as

internationalized as

Europe as a whole and

more internationalized

than Japan.

By the end of 1996, U.S.

exports of goods and

services supported an

estimated 11.3 million

jobs, approximately 9

percent of the total

civilian American

workforce. Two-thirds of

these jobs, or 7.6 million,

are attributable to merchandise exports.10 But exports do not simply create jobs, they create

better, more secure jobs. American workers in export manufacturing firms earn between 11 and

18 percent more than the average manufacturing wage in the United States.11 Workers producing

for the global market receive higher benefits and their jobs are more stable.12 

The buying power of those wages has been enhanced by rising imports. Products from abroad

provide American consumers with a range of choices at competitive prices, so that at any given

wage American workers can buy more of what they want. 

Moreover, the majority of U.S. merchandise imports are not consumer goods, but capital

equipment and industrial supplies primarily used in the production of final goods in the United

States. These low cost, high quality imports have improved the global competitiveness of U.S.

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

10

U.S. Merchandise Trade With World

By Sector, 1995

Foods, Feeds, & Beverages (4.46%)

Industrial Supplies (24.30%)

*

Capital Goods (29.78%)

Full Year Imports

Vehicles, Parts (16.78%)

Consumer Goods (11.02%)

FIGURE 6

Full Year Exports

Imports, (Other) (3.15%)

Imports, (Other) (4.91%) Foods, Feeds, & Beverages (8.63%)

Industrial Supplies (25.01%)

Capital Goods (39.85%)

Vehicles, Parts (10.75%)

Consumer Goods (21.52%)

*Industrial supplies include crude petroleum

Source: Official Statistics of the U.S. Department of Commerce
industry. Growing U.S. foreign direct investment overseas also contributes to American

prosperity. Trade often follows foreign direct investment as the creation of U.S. subsidiaries

abroad acts as a magnet for U.S. exports. American firms that invest overseas have demonstrated

significant increases in their shipments abroad. To compete effectively in markets for

sophisticated products, it is often necessary for a company to have a presence in a foreign market

to provide adequate marketing, sales, and after purchase service. A market presence is also

needed to follow market trends, respond to customer needs, and acquire innovative new

technologies. 

Despite the benefits of international trade and foreign investment, the globalization of the U.S.

economy has generated new challenges and problems for American society. International

competition has sometimes led to job dislocation and contributed to the widening gap between

rich and poor. Major American industries — textiles and apparel, steel, and autos — have been

forced to shrink their work force. The communities where these industries were the principal

employers have suffered

wrenching transformations.

These problems have led to calls

for protectionism and American

disengagement from the global

economy. Such demands will

only grow if the benefits of trade

are not enjoyed by large

segments of society that are

directly and indirectly affected

by global commerce.

Asia Pacific is of growing

global economic

significance.

Asia Pacific is now the focal

point of global economic

growth. The region has averaged

6.6 percent growth annually

over the last decade – nearly 9

percent excluding Japan.13 The

economies of Asia Pacific, which

accounted for one-seventh of

the global economy in 1970, will

account for nearly a third of the

global economy by the year

2000.14 As a result, average per

capita income in the region has

2. Observations and Findings

11

Table 1

GDP Per Capita, 1995 - 2000

thousands of $-Purchasing Power Parity

avg. annual

1995 2000f % change

World 5,886 6,347 1.6%

United States 27,559 29,409 1.3%

European Union 18,061 19,935 2.1%

Canada 24,351 26,443 1.7%

Mexico 7,670 8,800 2.9%

Japan 21,398 24,316 2.7%

Taiwan 13,615 16,033 3.6%

China (PRC) 2,923 4,191 8.7%

Hong Kong 24,581 28,661 3.3%

Malaysia 9,700 12,162 5.1%

Philippines 2,469 2,875 3.3%

Sinapore 22,000 25,386 3.1%

South Korea 13,133 17,108 6.1%

Thailand 7,165 9,330 6.0%

Indonesia 3,494 4,282 4.5%

Note: GDP estimates are based on purchasing power parity computations rather

than on conversions at currency exchange rates made by Summers and Heston in

PENN World Table 5.6 (For discussion of their basic methodology see “Quarterly

Journal of Economics,” May 1991); GDP estimates for OECD and EU for 1970-90

include former West Germany and for 1991–1995 include unified Germany.

Source: Base – U.S. Bureau of the Census, International Data Base;

CIA Handbook of International Statistics, 1996

Source: Forecast – DRI McGraw Hill
grown six-fold and will be $12,000 by the end of decade, more than the current average income

in Greece or Portugal.

Trade has fueled this economic miracle. From 1985 to 1995, merchandise exports from Asia Pacific

grew 250 percent. In 1995, trade accounted for about 29 percent of the Asia Pacific economy, up

from 15 percent in 1986.15

Asia Pacific producers have vaulted into the forefront of international commerce in key

technologies. While two decades ago no South Korean companies made semiconductors, South

Korea now produces 14.4 percent of the world’s basic computer chips. Japan only began

competitively exporting cars in the 1960s but now accounts for 25 percent of all world auto

exports.16 Moreover, Taiwan, which did not have a computer industry two decades ago, is now a

leader in manufacturing notebook computers and mobile computing technology, and produces a

growing share of the world’s computer components.

Economic relations with Asia Pacific are of increasing significance to the United

States and will remain so well into the 21st century.

In 1980, Asia Pacific bought $45 billion worth of U.S. goods and services. By 1995, the region

purchased $175 billion of U.S. exports. A decade and a half ago, Asia Pacific was second to

Europe as a customer for U.S. exports, buying 20 percent of what America sold abroad. Today,

the region is by far America’s best customer, purchasing 30 percent of U.S. exports.17 U.S. sales

to individual Asia Pacific economies have soared in recent years. Exports to Japan have tripled in

15 years and exports to South Korea, Taiwan, Hong Kong, and Singapore have increased five fold

at a time when total U.S. exports have only doubled. 18 (See Figure 7 on page 15)

Key American industries have benefited from this export boom. In 1995, the United States

exported $57.5 billion in advanced technology products to Asia Pacific, 42 percent of total such

U.S. exports to the world.19 Between 1990 and 1995, industries that have experienced strong

growth in exports include electrical machinery (146 percent), paper (98 percent), and prepared

foods (100 percent). 

Meanwhile, between 1991 and 1995, total U.S. foreign direct investment in Asia Pacific grew by

more than $40 billion, rising from $52 billion to $95 billion.20 American firms gained a foothold in

important national economies. Investment in China more than tripled in the first half of the 1990s,

reaching $34 billion in 1994.21 China accounted for three quarters of the increase in U.S.

investment in Asia Pacific between 1991 and 1994.22

There are significant, tangible benefits for many American workers from U.S. trade and

investment ties to Asia Pacific. As of 1996, an estimated 2.3 million jobs were supported by U.S.

exports to the countries of Asia Pacific. Of the 2.3 million, it is estimated that over 850,000

American workers owed their jobs to U.S. exports to Japan, over 210,000 to Taiwan, over

170,000 to South Korea, and over 160,000 to both Hong Kong and China.23

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

12
The potential of the Asia Pacific market for U.S. exports and investment is great. In 1997,

outside of Japan, the Asia Pacific economies are expected to grow at three times the rate of the

American economy. For some time, these markets are likely to continue to expand much faster

than the more mature U.S. economy or the markets of Europe and Latin America. This rapid

growth may create a flourishing demand for U.S. goods and services. By the year 2000, Asia

Pacific nations are expected to purchase a fifth of all basic chemicals produced in the United

States, one-twelfth of the radio, television and telecommunications equipment made in America,

and one out of every twelve aircraft manufactured in the United States.24

Asia Pacific will be a particularly attractive market for U.S. exports of and investment in high

technology. In 1996, Asia Pacific consumed $74 billion worth of semiconductor chips. By the

year 2000, Asia Pacific demand for computer chips is expected to grow to $158 billion. In China

alone, consumption of semiconductor chips will nearly quadruple by the end of the century,

exceeding $20 billion. Comparable increases in demand are expected for semiconductor

production equipment. 

The infrastructure needs of these rapidly growing Asia Pacific economies also present a myriad of

commercial opportunities for the United States. In the next decade, Asia Pacific, excluding

2. Observations and Findings

13

80 81 82 83 84 85 86 87 88 89 90 91 92 93 94 95

-200,000

-100,000

0

100,000

200,000

300,000

Billions of $

Exports Imports Trade Balance

U.S. Merchandise Trade With Asia Pacific

FIGURE 7

-5,748 -26,234 -26,152

-35,404

-59,154

-75,260

-90,042 -99,353

-91,148 -86,584 -78,465 -77,518

-106,952

-91,627

-124,566 -120,060

300

200

100

-200

-100

Source: U.S. Department of Commerce
Japan, will spend over $1.5 trillion on new infrastructure development — an estimated $493

billion to build new power generating and transmission facilities; $256 billion for

telecommunications projects; $607 billion for new transportation links; and $153 billion for

water and sanitation facilities. If estimates for modifying and expanding existing infrastructure

are added, the total market could exceed $3 trillion.25 The Boeing Company anticipates that in

the next 20 years commercial aircraft purchases throughout Asia Pacific will total $290 billion.26

In practical terms, these anticipated expenditures translate into potential demand for U.S. road

building equipment, airport radar and service contracts, port dredging and construction services,

telecommunications switching devices and fiber optic cables.

U.S. exports to the Asia Pacific region face tariff and non-tariff barriers that

restrict market access. 

Despite the growth in U.S. trade with Asia Pacific, the full economic benefit to the U.S.

economy of trade with the region has not been realized due to the persistence of tariff and nontariff barriers. The need to identify these barriers and make recommendations for their

elimination was a major reason for the formation of this Commission.

In the wake of commitments to reduce and bind tariffs made in the Uruguay Round of multilateral

trade negotiations, the tariffs on manufactured products applied by countries in Asia Pacific, such

as Hong Kong, Japan, Brunei, Malaysia, and Singapore, are relatively low, between 0 and 9 percent.

Nevertheless, tariff peaks still exist. Even in Singapore, which has few tariffs, a U.S. exporter

attempting to sell whiskey faces an applied tariff equivalent to 120 percent.29 Post-Uruguay Round

tariffs for other economies in Asia Pacific, such as Indonesia, the Philippines, South Korea, and

Thailand, have average tariff rates between 15 and 38 percent. Individual tariffs in these countries

can be extremely high — the Thai tariff on auto parts is 60 percent.30 The amount of commerce

inhibited by such tariffs is difficult to accurately quantify; however, the U.S. information technology

industry estimates that the removal of all tariffs on information technology products, agreed to at

the Singapore Trade Ministerial meeting in December 1996, will save the industry $1 billion a year,

much of that in Asia Pacific.31

Non-tariff trade barriers, such as licensing production to only a favored producer, some

government subsidies, and technical standards that discriminate against foreigners, continue in

many countries. In South Korea, for example, a combination of government policies and

tolerated private practices have resulted in foreign auto makers having less than 1 percent of the

South Korean auto market. China effectively excludes some imports by requiring testing and

certification of foreign products to comply with vague or unpublished standards.

Piracy of intellectual property — technology, patents, trademarks and copyrights — also inhibits

U.S. commerce with Asia Pacific. Intellectual property and technology are the essential added

value in many U.S. exports, such as films, sound recordings, computers, and software, making

many U.S. goods and services competitive in the Asia Pacific market. That advantage is

undermined when films such as Independence Day are illegally copied, Microsoft Windows 95

software is clandestinely reproduced, and knock-offs are made of Nike’s Air Jordan sneakers. The

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

14
International Intellectual Property Alliance estimated that U.S. copyright industries alone lost

nearly $5 billion to piracy in the Asia Pacific region in 1996.

Currency exchange rates measurably affect U.S. trade and investment in Asia Pacific. For

example, between May 1995 and February 1997, the yen’s value to the dollar dropped 49

percent. As a result, the cost of U.S.-made goods to Japan increased commensurately. Some Asia

Pacific economies, at times, have promoted exports and reduced imports through manipulation

of exchange rates by maintaining a weaker currency against the dollar. 

The persistence of private and public anti-competitive practices and poor

enforcement of antitrust laws where they exist in the Asia Pacific region are

major impediments to U.S. exports and foreign direct investment.

Some of the most egregious problems facing U.S. export expansion and foreign direct investment

are private agreements and business practices that restrain commerce, sometimes with the tacit

or explicit blessing of government. Often, these practices are outside the parameters of existing

international trade rules.

Many Asia Pacific governments actively intervene in their domestic markets, promoting strategic

industries with high tariffs, investment restrictions, standards and licensing restraints, subsidies,

and domestic content requirements. In the post-war period, the Japanese Ministry of

International Trade and Industry (MITI) frequently chose “winners and losers” among domestic

industries. Japanese auto manufacturers, for example, benefitted for many years from a protected

domestic market and government export support. Even today, Japanese governmental policies

actively help the domestically-owned telecommunications satellite industry and computer

hardware and software makers. While critics claim that targeting efforts have failed in the past,

other Asia Pacific governments have not been deterred from emulating Japan’s practices.

Indonesia and Malaysia embarked on national car programs designed to bolster their domestic

auto industries by severely limiting foreign competition. Similarly, China has designated “pillar

industries”, such as electronics, autos, and aviation. 

Some Asia Pacific governments guide, intimidate, and manipulate business decisions to bolster

exports and limit foreign direct investment. Bureaucrats wield discretionary power to protect national

industries and companies under the guise of maintaining national order. For example, for the sake of

market stability, Japan’s Finance Ministry has repeatedly orchestrated mergers or propped up bank

share prices to keep insolvent Japanese banks from closing their doors. Such short term palliatives

have staved off a fundamental restructuring of the Japanese financial market that could have opened

it up to greater competition. 

Business cartels, price-fixing, bid-rigging, and market allocation agreements between competitors

that effectively freeze foreign firms out of the market are also tolerated. Japanese keiretsu and South

Korean chaebol business groupings maintain preferential relationships between affiliated companies.

For example, the Fuyo group of Japan is one of several huge networks of firms, with interests in

banking (Fuji Bank), autos (Nissan), and consumer electronics (Hitachi), tied together by cross-share

2. Observations and Findings

15
The emergence of the Information Age presents special challenges for Asia Pacific trade and

investment. Over the history of international trade, the goals of commerce have evolved from territory

to natural resources to manpower to production to markets. Now, the key asset of commerce is ideas.

These ideas are embedded in such exports as know-how in production processes, patented technology

in high-tech goods, copyrighted works in software and media, and creative products in financial

services. The question has changed from who owns and controls the goods to who owns and controls

the ideas.

So long as goods were the object of trade policy, attention was placed on who made the goods and

whether those goods had fair access to foreign markets. Foreign trade policies focused on formal

barriers such as tariffs and quotas at a country’s borders. As the means of production and distribution

extended around the globe, issues like national treatment and the absence of collusive discrimination

became important.

Idea-intensive industries thrive without regard to language, geography, or natural resources. Ideas can

be born anywhere and can move instantaneously without regard for national boundaries. For national

economic and trade strategies, this means that the United States must adopt policies to foster the

birth of ideas by Americans, to have those ideas incorporated into exportable forms in the United

States, and to protect those assets from being unfairly devalued or obstructed.

Information Age Has Economic Implications

Knowledge-based industries are contributing to increased efficiency and added-value in the world

economy. Innovation and technology contribute a greater portion of the value-added in ordinary

products and services affecting business and commerce in ever more fields. As one example, the

electronics industry already represents 11 percent of U.S. GDP, and provides more than four million

high-wage American jobs — more than any other manufacturing sector. The jobs pay roughly 70

percent more than the national average wage and they are also highly leveraged jobs; for every job in

electronics, between two and four jobs are created in related industries. And the impact of the

Information Age affects far more than traditional electronics and high-technology industries, adding

an innovative edge and a differentiating factor to American products and services in the global

marketplace.

Nowhere is the rapid development of the Information Age more clear than in the explosive growth of

the Internet — the global infrastructure of computer networks that allows for the transmission of

electronic information. This growth has put into more hands the power of information to change

communication, society, and economic relationships.

The Internet has the potential to be a significant factor in the world’s economic development. As an

economic and commercial vehicle, the Internet offers certain advantages for trade and market access in

Asia Pacific, particularly within the area of services. The Internet provides a new, direct distribution

channel that places foreign and domestic suppliers side-by-side on a reasonably level playing field. At the

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

16

IMPACT OF THE INFORMATION AGE ON U.S.-ASIA

PACIFIC TRADE AND INVESTMENT RELATIONS
2. Observations and Findings

17

same time, the Internet raises new challenges for protecting goods such as software from piracy and for

enforcing intellectual property laws. While it is early to suggest precisely how the Internet will develop

into a commercial vehicle for trade, it has the potential to make a powerful contribution if it remains a

market-driven medium free from undue government control, and excessive regulation and taxation.

Information Age Technology is a Priority in Asia Pacific

The fast-growing economies of Asia Pacific have recognized well and early the importance of hightechnology for industrial and economic growth. They have made the development of Information Age

industries and infrastructure a priority within their growth strategies. The acquisition of Information

Age technology is a highly attractive target for developing economies: with little need for particular

natural resources and relatively low training requirements, there are few barriers to entry for many

sectors of Information Age production. There are opportunities to leapfrog the development cycle and

invest in advanced infrastructure. Several Asia Pacific countries successfully have targeted

semiconductors and other Information Age technologies and rapidly brought on-line production

facilities geared for exports. In line with their high economic growth rates, the countries of Asia

Pacific are pouring massive capital investment into urban and other development, with whole cities

and industrial complexes rising from the countryside. Unencumbered by an existing, outmoded

technology infrastructure as found in the West, these developments are being built from the ground

up with some of the most sophisticated communications and other information systems. Advances in

technology can be leveraged to supply advantages and efficiencies across the spectrum of commercial

activity, offering a broad return on investment compared to other industries.

As an example, Japan’s electronics industry has matured and captured a large share of the world

market for different electronics products over the past decades. In new technology development,

Japan is a world leader. This is because Japan is out in front in funding new technology development,

in preparing its workforce for business in these and other new technologies and in developing its

capability to compete across the globe. Other countries in Asia Pacific — notably South Korea,

greater China, and the countries of Southeast Asia — have included high-technology and electronics

products as part of their economic strategies and are forecast to experience the fastest growth rates in

many Information Age industries in the years ahead.

Technology Leadership is Key to U.S. Success in Asia Pacific

Leadership in technology and knowledge-based industries will be key to America’s success in

competing for the markets of the Asia Pacific region. The United States will never be able to compete

in the world on the basis of low labor costs. In a global marketplace with free flow of goods and

capital, economies of scale are available to all producers and the cost of capital should be roughly

equal in all major markets. Yet, the value contributed by innovation is not equal.

The accelerating pace of innovation abbreviates product life cycles, reducing advanced products to

the level of commodities often within a few years or even months. Remaining competitive with the

most advanced products requires American producers to invest in the Research and Development
(R&D) that leads to new technology that can be translated into new generations of products that

remain ahead of the value curve. As technology advances, the value in new generations of products

and services is migrating to their innovative components. In a personal computer, almost all of the

product value is contributed by the microprocessor, software, and display. Even in everyday products,

the content and value contributed by semiconductors and other Information Age technology is

increasing.

Thus, the only way for America to maintain and expand its presence in Asia Pacific markets while

continuing to pay high and rising wages is by dint of advanced skills and knowledge, leveraged into

R&D, to produce value-added goods and services and sell them to the world’s markets. This means

not only that the United States must continue to produce products and services in which it is

technologically dominant (such as microprocessors, airlines, and global fund management) but also

must apply Information Age and other technologies to industries such as agriculture, steel, autos, and

textiles, and by infusion of technology, maintain or increase competitiveness even at high wage levels.

As we approach the next century, the United States must position itself to remain ahead of the growth

curve in the adaptation of technology in order to maintain its comparative advantage and optimize its

opportunities in Asia Pacific.

The pace of technological change combined with the explosive growth of Asia Pacific markets makes

speed imperative. Maintaining the base of revenue from which research and development investment

is drawn requires companies to achieve significant market share in high-value industries. This often

cannot be achieved without penetration into Asia Pacific markets. Leadership can only be established

by getting to market first and capturing enough share to fund the necessary R&D to produce the next

generation of products — and that raises even higher the priority of opening markets in Asia Pacific.

Thus, policies and programs aimed broadly at promoting and infusing technology and opening

markets will be essential to America’s future in Asia Pacific markets.

Leadership Demands Ongoing Investment in R&D

Technology development is a key to U.S. competitiveness, fueling gains in innovation and

productivity. More than ever, investment in R&D drives the process of innovation that underpins

much of the United States’ economic well being and trade advantage. To maintain this advantage

requires an unwavering commitment to education and training, including math, science, languages,

and culture, to develop the skills and abilities necessary to compete successfully in the Information

Age. This commitment must acknowledge that the shift to a knowledge-based economy requires lifelong learning, with valuable development and re-training opportunities available for workers.

While many Pacific Rim partners depend heavily on public financing of R&D, in the United States

most investment is private. Public policy, however, can be used to send a strong signal to encourage

and incentivize private investment in R&D. The products of such research are important assets and

require stringent intellectual property protection, including the enforcement of patents, trademarks,

and copyrights.

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

18
2. Observations and Findings

19

In addition to domestic economic benefits, American technology is also a significant export. The

United States remains the world’s leading exporter of technology products, which account for a

quarter of all U.S. goods and services exports. The United States exports four times the amount it

imports in technology trade and is the only major country to have a large positive balance. As

technology advances, government leaders need to fully understand the trade-off between export

controls and export opportunities.

Changing the Trade and Investment Debate

The Information Age also holds tremendous potential for spreading the U.S. message of

consumer sovereignty and open markets. With a free flow of information, U.S. negotiators can

develop allies and make common cause with reformers in a number of Asia Pacific’s relatively closed

markets. Greatly expanded information exchange will assist and support “sunshine” measures and

magnify their impact on trade and investment. Information Age technology can foster greater

awareness of human rights conditions, labor conditions, child labor practices, and anti-competitive

practices, as well as positive feelings engendered by exposure to different cultures. Using the global

information infrastructure, U.S. officials can get their story directly to the public and thereby help

build local support for reasonable market opening requests.

As the world’s industrial and developing economies gear up to compete in the Information Age,

maintaining U.S. competitiveness and the benefits of trade for all Americans will depend more and

more on America’s ability to capitalize on its innovative capabilities. The new challenges of commerce

in the era of information are clear. The United States must adopt policies and practices based on the

following imperatives:

1. Maintaining America’s competitive advantage in the Information Age requires a strong commitment

to research and development. The United States, through tax, accounting and regulatory policy,

must encourage basic research and private R&D investment.

2. Because the speed of introduction of new products is essential in an environment where product

life-cycles are measured in months, the United States must insist on clear access in all key

economies so that new products can get to market quickly.

3. The Information Technology Agreement (ITA), signed in December 1996, is a positive step toward

the elimination of tariffs on information technology products. The United States should encourage

additional signatories to the ITA, particularly China and other Asia Pacific countries.

4. The Internet is a global communications medium that requires national and international policies

regarding tariffs, electronics payment systems, privacy, security, encryption, intellectual property

rights, and many other issues. The United States must discourage government intervention and

encourage voluntary international standards that are as broad as possible and do not act as barriers

to free trade.

5. As vigorously as the United States would protect its most precious natural resources, America must

have strong, reliable intellectual property protection and make this issue a high priority in all

international trade fora.
BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

20

holding arrangements. The economic reach of these business groupings is allencompassing. The combined sales of the four largest South Korean chaebol —

Hyundai, Samsung, LG, and Daewoo — account for 80 percent of the South Korean

economy. Ever so slowly, the keiretsu and chaebol are beginning to break down at home.

However, they are rapidly being replicated throughout Southeast Asia in the wake of

Japanese and South Korean investment in the region. Toyota, for example, now sources

much of the parts for the cars it builds in Thailand, Indonesia, and the Philippines from

several of its keiretsu affiliates also with plants in Southeast Asia. As such exclusionary

business relationships proliferate throughout Asia Pacific, it could become increasingly

difficult for U.S. suppliers to produce and sell in these markets.

Enforcement of commercial law receives relatively low priority throughout much of Asia

Pacific, where legal and regulatory structures are underdeveloped. There are often no

standardized procedures, no transparency of decision making, no due process, severely

limited rights of private action for companies operating in these markets, and judges and

lawyers lack adequate resources and training. Bribery, corruption, and lack of

transparency in government procurement are often identified as among the most

difficult barriers confronting U.S. business in many Asia Pacific markets. These

impediments distort trade and investment and waste valuable resources. All too often,

what makes the difference in major procurement contracts in the region, whether for

turbine power generators or telecom network equipment, is not the quality or price of a

product or service, but that something “extra” was involved in the contract. Although

difficult to measure, it is estimated that between mid-1994 and mid-1996, U.S. firms

lost 36 contracts valued at $11 billion to foreign competitors around the world as a

result of bribery or corruption abroad. These figures present only those cases which

have come to the attention of U.S. authorities. The magnitude of this problem is likely

to be much larger.

34 In Asia Pacific, the United States competes with European and Asia

Pacific firms that engage in bribery and corruption in procurement of large government

contracts. However, U.S. companies and citizens are subject to stringent standards and

penalties under the Foreign Corrupt Practices Act of 1977.

Except for Japan, South Korea, Taiwan, and Thailand, antitrust laws do not exist in the

region. Even where these laws exist, they are often inadequate. Efforts to improve

enforcement, such as the Structural Impediments Initiative with Japan and the Dialogue

for Economic Cooperation with South Korea, have met with some success. Nevertheless,

antitrust regimes in the Asia Pacific region still remain insufficient; the applicable scope is

limited; sanctions are not severe enough to act as a deterrent; exclusionary practices are

not always prosecuted; and the right of private action is circumscribed.

Investment barriers limit the expansion of U.S. exports and the flow of

U.S. capital into Asia Pacific markets.

Over the last five years, in recognition that investment restrictions harm their own

economic prospects, a number of Asia Pacific countries — Singapore, Thailand, and
Taiwan — have undertaken unilateral investment deregulation, streamlined administrative

procedures for the approval of foreign investment and lifted some prohibitions on foreign

investment in certain industrial sectors.

From 1990 to 1994, Asia Pacific economies received $37.3 billion in foreign direct investment,

19.2 percent of total global foreign direct investment during that period. Between 1995 and

2004, the region is likely to receive another $1.2 to $1.5 trillion dollars in foreign direct

investment. China, South Korea, Thailand, and Indonesia are expected to command about 90

percent of that total. 

Despite this need for foreign capital, Japan, China, Malaysia, Indonesia, South Korea, and the

Philippines have longstanding traditions of limiting foreign investment in their economies. While

investments do continue to flow into the region despite these barriers, the interests of these

investors cannot be fully capitalized upon due to limits placed on their freedom of action from

these barriers. At times, governments will require forced transfer of technology. In Japan,

foreigners can only own 20 percent of telecommunications firms. In Indonesia, the President

must personally approve every individual foreign investment project. Malaysia will only allow

foreigners to own 100 percent of the equity in a company if they agree to export at least 80

percent of what they produce. China and South Korea make it difficult for foreign investors to

repatriate their profits.

Such investment conditions distort the marketplace, forcing American investors to make

decisions that are not necessarily in the interest of the American economy. In this day and age,

American companies need to invest abroad, to be in touch with rapidly changing consumer

demand, to have access to the latest technological innovations, to size up the competition faceto-face, to save on transportation costs and to take advantage of differences in production costs.

Most importantly, the United States needs American investment abroad to spur exports. 

Contrary to popular belief, U.S. foreign direct investment actually fuels exports and therefore

does not necessarily lead to job dislocation in the U.S. economy. Those who believe that U.S.

FDI costs the United States jobs generally ignore the creation of jobs through exports and the

reality of the global market place. If U.S. companies did not invest, other parties, most likely

from Europe or Asia Pacific, would make the investment, making them more efficient and

competitive against the United States in the global economy. Almost a quarter of all U.S.

merchandise exports are from U.S. multinational corporations to their overseas affiliates. For

example, in 1995, Chrysler Corporation built a plant in Thailand to assemble Jeeps. Chrysler

sources some Jeep parts from Thai producers, but a majority of the vehicle, especially the highend components, are manufactured in the United States and shipped to Thailand where the

components are then fully assembled into a Jeep. 

Since exports follow investment, it is not surprising that the fastest growing importers of U.S.

goods and services are also the fastest growing recipients of U.S. foreign direct investment.

Between 1991 and 1995, U.S. foreign direct investment in Asia Pacific grew over 80 percent. At

the same time, merchandise exports to the region grew by 56 percent.

2. Observations and Findings

21
BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

22

For over a decade, the United States has had an active program to advance investment

disciplines and provide fair and equitable treatment for U.S. investors abroad, but these

efforts have largely been stymied in the Asia Pacific region. The Uruguay Round

Agreement on Trade Related Investment Measures (TRIMs) prohibits certain

investment performance requirements, but is limited in scope. Efforts by APEC to

develop an investment regime resulted in weak principles that are heavily qualified and

only voluntary in character. Moreover, in the last decade the United States has

negotiated over 37 bilateral investment treaties that provide safeguards against

expropriation, the better of national or MFN treatment on establishment, and the

freedom to hire top managerial personnel and to move them about. No Asia Pacific

country has agreed to these high standards in a bilateral investment treaty with the

United States. Negotiations for a treaty are underway with Hong Kong and are about to

begin with Taiwan.

Asia Pacific trade and investment barriers exact a high cost on U.S.

economic growth and living standards and limit the creation of high

wage jobs.

The inability of the United States to maximize its economic relations with Asia Pacific

impacts U.S. economic welfare and competitiveness. It is difficult to estimate precisely

the magnitude of foregone commercial opportunities. Too many factors come into play.

But evidence of the cost of regional trade barriers gives some sense of the price America

pays for trade and investment barriers in Asia Pacific. For example, in Japan, tariff and

non-tariff barriers cost Japanese consumers and industrial purchasers up to an estimated

$110 billion annually. Most of these barriers protect the agricultural, computer,

telecommunications, and chemical sectors of the Japanese economy, segments of the

economy in which U.S. firms have a significant competitive advantage.

U.S. efforts to reduce trade and investment barriers in Asia Pacific will

take place in a new trade policy environment.

Over the course of the last fifteen years, the United States has repeatedly attempted to

lower trade and investment barriers in Asia Pacific one nation at a time. Through

bilateral negotiations, often conducted under the threat of unilateral U.S. trade

sanctions, U.S. administrations have succeeded in lowering tariffs and improving the

investment climate in Japan, Taiwan, and South Korea and the protection of intellectual

property in much of Asia Pacific. These successes demonstrate the potential for

expanding market access in the region when the U.S. government is willing to take a

firm stand to open markets.

The WTO is a new, potentially effective venue for further dismantling trade and

investment barriers in the region. Prior to 1994, the dispute settlement mechanism

within the General Agreement on Tariffs and Trade (GATT) was ineffective. Moreover,

many issues, such as protection of intellectual property and trade in services, were not
subject to GATT discipline. Now, an efficient

dispute settlement mechanism is in place,

applying to all member countries. No longer

can an offending party block resolution of a

problem. A longstanding dispute with Japan

over discriminatory taxation of distilled spirits

was finally resolved by a recent WTO

decision and appeals panel; Japan must now

either reform its tax system or pay

compensation to the United States. Bilateral

trade tools — such as Section 301, as

amended, and Special 301 and Super 301 —

provide the leverage for the United States to

make that stand. Section 301 is an especially

valuable tool for monitoring and enforcing

existing trade agreements. In fact, the only

trade tool available to the U.S. for ensuring

that trading partners abide by their

commitments is the threat of 301 sanctions

and retaliation. Section 301 also continues to

be effective in those areas where there is less

than adequate multilateral discipline,

including investment, financial services,

market access, and competition policy. It is

important to note that there is no inherent

incompatibility between international trade

rules and U.S. trade law.

The Asia Pacific Economic Cooperation

forum has agreed to remove all trade and

investment barriers within the region by 2010

for industrial nations and 2020 for developing countries. However, liberalization efforts are in the

early stages. APEC’s future credibility will depend upon its ability to deliver steady progress

toward market liberalization.

Competition in the Asia Pacific market is growing. 

Competition to sell and invest in Asia Pacific markets has intensified. The principal competition

is coming from Asia Pacific nations themselves as they engage in more commerce with each

other. In 1980, a third of Asia Pacific trade was within the region itself. In 1995, that proportion

had grown to one half. From 1985 to 1995, while Japan’s trade with the United States was

doubling, Japan’s trade with ASEAN, Hong Kong, Singapore, and South Korea quadrupled. IntraAsian Pacific investment accounted for a quarter of the total foreign direct investment in Asia

Pacific in 1980 and amounted to a third of the total by 1993. 

2. Observations and Findings

23

Table 2

Foreign Direct Investment Stock in

Asia Pacific*

1980 (%) 1993 (%)

Developed 58% 48%

U.S. 16% 14%

E.U. 16% 13%

Japan 25% 21%

Intra-Asia Pacific** 26% 36%

NIE* 23% 34%

ASEAN 3% 2%

China 0% 0%

Other 17% 16%

*Data relate to FDI stocks of cumulative FDI flows 

**not including Japan

Note: As of October 1996, 1993 data is best available

data

NIE=Hong Kong, South Korea, Singapore and Taiwan

ASEAN (4)=Indonesia, Malaysia, Philippines and

Thailand

Data for China, Indonesia, Malaysia, South Korea,

Taiwan and Thailand are on an approval basis 

Hong Kong: Only manufacturing Data are as at end1984 and end-1993

Malaysia: Data under 1980 are for 1981

Singapore: Data under 1993 are for 1991

China: Data under 1980 are for 1984

Source: UNCTAD-DTCI, based in UNCTC, 1992b, and official

national sources
The United States is still the major export market for many Asia Pacific countries. China sells 17

percent of its exports to the United States and 20 percent of ASEAN exports are bought by the

United States. No other single economy is currently big enough, rich enough, or open enough to

replace the United States as a market. This provides the United States with leverage in trade

negotiations with Asia Pacific governments. However, as commerce grows within the region, the

dependence of Asia Pacific on trade with the United States diminishes. Japan now exports more

to the rest of Asia Pacific than it does to the United States. While ASEAN’s trade with the

United States is expected to grow 50 percent by the year 2000, ASEAN’s trade with Japan,

already larger than that with the United States, is forecast to grow 59 percent. (See Figure 8 on

page 27)

Current U.S. efforts to increase trade and investment in Asia Pacific are

inadequate.

The economic rise of Asia Pacific has yet to capture the full attention of U.S. business and

political leaders. As a result, the United States is not maximizing its economic opportunities in

the region. 

Until recently, U.S. business paid less attention to Asia Pacific than have competitors from other

countries. In some cases, U.S. companies pulled out of markets at the first sign of trouble,

abandoning the field to their Japanese and European competitors. In the Philippines, for

example, the U.S. auto industry held a majority share of the market in the early 1980s, but

following political instability there, many U.S. companies left the Philippines and Japanese

automakers gained 90 percent of the market. In the last few years, however, American firms have

deepened their commitment to the region. Several companies have assigned senior corporate

executives to the region. For example, General Electric recently has set a goal to have one

quarter of its senior executives stationed in Asia Pacific. U.S. corporate investment in the region

increased over 80 percent from 1991 to 1995. At the same time, European and Japanese

competitors appear aggressively committed to the region. 

In Asia Pacific cultures, even more than elsewhere, personal contact at a high level and

development of human relationships over long periods of time are critical to the success of any

endeavor. However, the sheer physical distance between Washington and Asia Pacific capitals,

combined with competing U.S. policy priorities and cultural differences, often has resulted in

episodic and insufficient attention to the region by high level government officials. Although the

U.S. has recently sent more official trade missions to the region and is shifting dwindling

resources to assist American businesses in Asia Pacific, foreign competitors also have intensified

their efforts.

The U.S. government has not provided adequate resources to bolster U.S. economic engagement

with Asia Pacific. Overall government spending on trade promotion has dropped from $691

million in 1995 to $323 million in 1997.43 In comparison, the German government, in

conjunction with German banks and industry, has established a “German Center” in Singapore to

assist business and especially small and medium sized enterprises (SME’s) to penetrate the Asia

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

24
2. Observations and Findings

25

Intra-Asia Pacific Merchandise Trade 1995–2000

Billions of Dollars

1995

USA

NIE

ASEAN China

Japan

126

69.4

57.35

119

187.9

115.2 102

12.2

102.1

54.2

FIGURE 8

Forecast 2000

USA

NIE

ASEAN China

Japan

89

(56%)

268

(43%)

189

(50%)

182.7

(54%)

79.7

(47%)

140.6

(102%)

182.7

(59%) 153

(50%) 202.4

(98%)

22

(82%)

Notes:

1. Billions of U.S. dollars

Trade values = exports + imports

2. Trade values between U.S. and other

partners based on U.S. statistics

3. Trade values between Japan, China,

ASEAN (5), and NIEs based on Japan

statistics

4. Trade values between NIEs and

China/ASEAN based on NIEs statistics

5. Trade values between ASEAN and

China based on ASEAN statistics

6. ASEAN comprised of Singapore,

Malaysia, Indonesia, the Philippines,

and Thailand

7. NIE (Newly Industrialized Economies)

comprised of Hong Kong, Taiwan,

and South Korea
Pacific market. The “German Center” offers German businesses an opportunity to avoid much of

the overhead cost associated with conducting business in the region. These services include

offering free office space and basic business and translating services. The first “German Center”

was so successful in expanding business for German SME’s in Asia Pacific, a second “German

Center” is under construction in Shanghai and others in Seoul, Beijing, and Hanoi are in the

planning stage. In comparison, the U.S. Foreign Commercial Service does not have adequate

resources to provide services on the scale of such “German Centers” to American small and

medium sized enterprises. (See Figure 9 on page 29)

In 1996, the United States allocated only $684 million in foreign aid to the region, just 4

percent of total American foreign assistance. In the same year, Japan gave Asia Pacific nations

$4.1 billion in foreign aid, 31 percent of its total development assistance. Even European nations

allocated a larger proportion of their aid to the region — Germany 11 percent and France 10

percent — than did the United States.44 These statistics, however, obscure the fact that Japan

and European nations apportion a majority of their aid to technical assistance, while the United

States dedicates most of its assistance to basic human needs. In 1995, the United States

allocated $43.9 million in government spending for development-related feasibility studies,

compared to Japan’s $250 million and Germany’s $159 million.45 Such government assistance

often paves the way for exports. For example, if a government funds the feasibility study for a

generating plant, helps write the specifications for the project, and provides subsidized credit to

finance the project, its firms are likely to get the contract to build and supply the plant.

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

26
2. Observations and Findings

27

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

FY1993 FY1994 FY1995 FY1996 FY1997(proposed)

2,200,000

2,400,000

2,600,000

2,800,000

3,000,000

3,200,000

3,400,000

3,600,000

In Thousands of Dollars

U.S. Trade Promotion Expenditures

Total Expenditures

FIGURE 9

U.S. Trade Resources Diminishing

in Asia Pacific and Rest of World

Asia Pacific Latin American OECD Cent. Eastern Europe

0

200,000

400,000

600,000

800,000

In Thousands of Dollars

FY1993 FY1994 FY1995 FY1996 FY1997(proposed)

U.S. Trade Promotion Expenditures

By Geographic Expenditures

Notes

1. Trade promotion expenditures include the following: negotiating open markets & lowering/removing

trade barriers, combating foreign export subsidies, financing & insuring U.S. trade and investment,

providing information/counseling/export-assistance services, providing government-to-government

advocacy on behalf of U.S. Business, funding feasibility studies on major infrastructure & development 

2. Latin America includes Caribbean expenditures

3. Source - National Export Strategy, Trade Promotion Coordinating Committee, Fourth Annual Report to

the United States Congress, October 1996

Source: National Export Strategy, Trade Promotion Coordinating Committee, 3rd Annual Report to the U.S. Congress,

October 1996
3 Recommendations

29

Asia Pacific is undergoing an unprecedented economic transformation, creating a vibrant, rapidly

growing market for U.S. exports and investment, but significant barriers inhibit U.S. access to

that market. The United States must act now to encourage nations in the region to dismantle

those barriers so that American business can fully engage the economies of Asia Pacific.

To that end, the goals of U.S. trade and investment policy in Asia Pacific should be to: (1)

promote the economic well-being of the United States through the promotion of free trade and

investment; (2) build constructive, long term economic relations with the Asia Pacific region to

enhance economic well-being; (3) position the United States as a strong, reliable leader in both

the economic and security realms; (4) clearly define and articulate U.S. trade and investment

objectives to Americans and Asians; (5) effectively promote American economic interests by using

all available trade policy tools — multilateral, regional, bilateral, collaborative, and, if necessary,

confrontational; (6) apply these policy tools to specific problems with surgical precision so that

trade disputes do not become the only focus of U.S. relations with individual Asia Pacific

nations; and (7) recognize that continued strategic leadership in Asia Pacific is dependent on

U.S. economic strength and competitiveness in the region.

To achieve these goals, the Commission believes the following policy recommendations should be

adopted by the Executive and Congressional branches of government. These recommendations

are crafted to fulfill the Commission’s mandate: to address market opportunities in the region, to

identify the barriers that prevent greater U.S. access to Asia Pacific markets, and to ensure that

the U.S. economy benefits from the creation of a maximum number of high wage jobs through

active engagement with the Asia Pacific region. Rather than develop a comprehensive framework

for U.S. trade and investment policy, a task beyond the scope of this Commission, the

Commission has fashioned targeted recommendations that can be effectively implemented in a

reasonable time frame. 
Recommendation 1: China

n The United States should continue take an active role in efforts to integrate China into

the global economy and to develop China’s overall market economy.

n China’s accession to the World Trade Organization should be conditioned on

commercially viable terms. In negotiations, the United States should be inflexible on

China’s agreement to all WTO principles, including MFN and national treatment, but

flexible with regard to the time frame for implementation of other WTO obligations.

n Genuine market access for U.S. goods, services, and agricultural products is essential.

The United States should pursue improved access to the Chinese market through

bilateral and regional initiatives as well as through negotiation for accession to the

WTO.

n Negotiation of China’s accession to the WTO should be completed before any action is

taken with regard to granting permanent MFN status to China. 

Incorporating China into the community of nations may be the single most important foreign and

economic policy challenge facing the United States at the end of the 20th century. The magnitude of

the task and the risks involved are reason for both hope and concern. 

The sheer size of China’s market and the productive capacity of its industries are unprecedented.

Over the past ten years, China’s economy grew at an average of 10 percent a year and could

surpass the United States as the world’s largest economy at some point in the next century. This

awakening giant is undergoing a dramatic transformation from a government-controlled economy,

largely closed to the world, to one that is more market-oriented and engaged in global commerce.

Chinese government reforms have stimulated economic growth, encouraged the maturation of

domestic industries, and attracted a flood of outside investment. However, substantial

government controls on trade and investment still exist throughout the economy that protect

domestic, state-run industries and limit foreign business opportunities. China lacks a legal

system characterized by rule of law, due process, and transparency, making commercial ventures,

especially by foreigners, both difficult and risky. The government in Beijing has yet to

demonstrate its full commitment to the disciplines attendant with membership in the community

of trading nations. 

Building China’s Capacity to Implement Reforms 

China faces daunting economic challenges: the privatization of state-owned companies that

currently account for a large share of the Chinese economy and employ over a hundred million

people; the growing economic inequality between the wealthy coastal regions and the

impoverished interior regions that has spawned massive internal migration; a burgeoning

population that must be fed, housed, and employed; and serious pollution and other

environmental problems. If China is unsuccessful in dealing with these challenges, the future

opportunities for trade and investment in China that are of such importance to U.S. business

will never materialize.

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

30
The Commission recommends an official dialogue between Washington and Beijing to identify

areas where the United States could work with China on problems created by its rapid economic

development. The opportunities for cooperation include energy, education, environment, and

development of the legal system. For example, China has enormous long term energy needs. It

also has large reserves of oil, but lacks the technology to extract them. The United States has

some of the world’s best oil and other energy production technology. Similarly, China’s

environmental challenges are immense, while the United States has world-class environmental

technology. China’s management training needs are pervasive and the United States has perhaps

the best management training infrastructure in the world, in its universities and its corporations.

There are countless similar occasions for mutually beneficial collaboration.

To implement this new cooperative initiative, the United States should reinvigorate the work of

the U.S.-China Joint Committee on Commerce and Trade (JCCT). Through the Committee,

public and private sector representatives from both China and the United States could develop

the financing, investment, technology transfer, and procurement plans for joint projects. The

objective of the projects would be to assist China’s development and to establish long-term

commercial relations between U.S. suppliers and Chinese users in a number of industries. The

United States should also offer to develop a long term training program with China that would

involve not only formal instruction at universities and other learning institutions, but also

internships for Chinese at participating U.S. corporations, labor unions, government agencies,

and non-profit organizations. Such programs could be two-way exchanges which would augment

the education of Americans about China, as Chinese counterparts were learning about the

United States and its approaches to economics and commerce. This training effort could be

financed by a public-private partnership, using existing institutions, such as the East-West

Center at the University of Hawaii, to facilitate such exchanges. 

To help foster U.S. commercial involvement in Chinese economic development, the Commission

recommends that the Overseas Private Investment Corporation (OPIC), which insures U.S.

investment abroad, and the Trade Development Agency (TDA), which funds export feasibility

studies, once again become active in China.

China’s Accession to the World Trade Organization

The negotiations on China’s accession to the World Trade Organization (WTO) are critical to the

long-run economic interests of the United States. They are at the heart of America’s new

commercial interaction with Asia Pacific and should be based on economic, not political, criteria.

The Commission believes that China can only be admitted to the WTO with the understanding

that it first accept all WTO obligations in principle, with transition timetables and phase-in

periods for issues such as tariffs, non-tariff barriers, and subsidies, where appropriate. Accession

should be conditioned upon a substantial down payment of economic liberalization by China that

reflects its commitment to economic reform and a series of milestones to measure China’s

progress toward an open market that show significant signs of progress, particularly in the areas

of agriculture and services. This agreement should be monitored carefully.

3. Recommendations

31
China has never demonstrated genuine commitment to the two core principles of the multilateral

trading system: national treatment, which accords foreign firms every right and advantage

available to domestic firms, and most-favored-nation (MFN) trading status, which grants all

nations the same trading privileges granted any one nation. Moreover, China’s system of limited

trading rights, license requirements, state trading, subsidized industries, non-transparent

administrative procedures and commercial rules, and trade-related investment measures, are

clearly at odds with any meaningful concept of free trade. If China refuses to implement national

treatment and MFN, any future market access commitments by the Chinese would be

meaningless because American firms and other foreigners would never be able to compete on a

level playing field in China. If subsidies and other protectionist practices continue, Chinese firms

will have an ongoing unfair advantage when competing in the global marketplace.

Both China’s philosophy about trade and its practices must change if the Chinese are to gain the

benefits of the international trade regime. There can be no U.S. compromise on China’s

acceptance of national treatment and MFN. At the same time, because the Chinese commercial

environment is a very mixed picture, the timing of China’s adherence to various WTO rules and

procedures is open to negotiation. In some business sectors, such as textile and apparel

production, China is already a world class performer and should be required to submit to global

rules quite rapidly. In other sectors, many of them dominated by state-owned industries, China is

largely uncompetitive. These industries employ well over half the Chinese work force. To prevent

dangerous disruption of the Chinese economy and potential political instability, Beijing needs

time to reduce subsidies and lift exclusionary practices related to state-owned enterprises in

order to meet WTO requirements. To accommodate these differences, the Commission believes

that in the WTO accession negotiations the United States should be firm on principles and

flexible on timing.

China’s transition to a market-based WTO-consistent economy will take time. During that

transition period the United States and China’s other trading partners should maintain the right,

when necessary, to impose temporary limits on imports from China to protect their domestic

companies from surges of competition from Chinese industries that are still aided by the Chinese

government. China should receive no compensation for such limits on its exports until the

Contracting Parties determine that China has met the obligations of membership. 

Finally, Japan, Europe and other Asia Pacific nations have a major stake in reform of the Chinese

economy. They should be encouraged to play a more active public role in the WTO negotiations

with China, so that the United States is not seen by the Chinese as the sole obstacle to their

desire to be a full-fledged member of the global trading community. 

Obtaining Market Access for U.S. Goods and Services is Essential

Obtaining genuine market access in China should be a primary U.S. goal. It should be pursued

bilaterally, regionally, and multilaterally through the World Trade Organization. Since the

bilateral agreement on Market Access for Goods signed in October 1992, China has eliminated

import restrictions on more than 1000 tariff categories and opened its market to computers,

heavy machinery, and pharmaceutical products. 

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

32
However, problems remain. China maintains many barriers to the sale of foreign farm products.

The U.S. should not conclude WTO negotiations with China without substantial commitments

on opening up the Chinese agriculture market, including concessions on trading rights, lower

tariffs, access to distribution networks, and elimination of import inhibiting standards not based

on scientific principles. Another market access barrier that must be addressed is continued lack

of transparency. China should be required to publish all trade-related laws and regulations. U.S.

access to China’s growing services market, including business services, insurance, banking and

other financial services, is limited at best. Although China has begun to open its services market

on an “experimental basis” to a number of U.S. companies, U.S. firms still do not have access

comparable to that which China enjoys in the United States. Sectors such as

telecommunications, insurance, distribution, audiovisual, advertising, and maintenance and

repair need to become open to international trade.

Most-Favored-Nation Treatment for China

Unlike other countries, the United States grants China most-favored-nation treatment (MFN) on

an annual, rather than permanent, basis. To extend MFN treatment, the President must waive

the Jackson-Vanik Amendment of the 1974 Trade Act. The waiver process, which provides for the

temporary grant of MFN, is subject to a Congressional resolution of disapproval. The question of

whether or not to grant permanent MFN to China has been debated recently among members of

Congress and the private sector. The Commission recommends that the negotiation of China’s

accession to the WTO be completed before the United States grants permanent MFN privileges

to China. To grant MFN prematurely would remove a major incentive for China to bring its trade

and investment practices into conformity with prevailing world standards. 

Recommendation 2: Japan

n The United States should redouble its efforts to gain greater access to the Japanese

market for U.S. exporters and investors, paying close attention to macroeconomic

imbalances, structural rigidities, and sector-specific market barriers.

n Such market-opening initiatives should creatively use all sources of U.S. leverage in

whatever trade forum is likely to maximize U.S. economic interests, including the World

Trade Organization, APEC, and government-to-government talks.

n To broaden the scope of the U.S.-Japan economic dialogue and give it a consistent,

forward-looking goal, the United States should study the feasibility of negotiating a

Comprehensive Market Agreement with Japan to eliminate all formal and informal

barriers to trade and investment and to establish common rules and enforcement

procedures for such things as anti-competitive business practices.

Japan is America’s most important trading partner and most serious competitor in Asia Pacific.

American companies compete head-to-head with Japanese companies throughout the world to

sell coveted high-technology products that generate high-wage jobs back in the United States.

3. Recommendations

33
For some time, Japan has run a huge trade surplus with the rest of the world, including the

United States. By almost any measure, the Japanese economy is the most closed to foreign

products, services, and investment among the major industrial nations. Japan’s persistent failure

to consume more of what the rest of the world produces has been a brake on global economic

growth. Successive U.S. government initiatives have attempted to break down this resistance to

foreign goods and investment. For example, the 1986 semiconductor agreement eventually led to

a tripling of U.S. sales of computer chips in Japan.

Japan is the richest nation in Asia Pacific with a large pool of affluent consumers who have long

been denied a chance to buy many foreign products. U.S. businesses and workers stand to

benefit greatly if Japanese consumers can freely choose between domestic and foreign-made

goods and services. Moreover, the existence of a sanctuary Japanese home market, free from

profit-sapping competition from foreign firms, gives Japanese companies an important

competitive advantage that enhances their ability to go up against U.S. companies in other parts

of Asia Pacific. Furthermore, continued difficulties facing U.S. investors in Japan deny American

firms necessary access to cutting edge technologies and rapidly changing consumer tastes that

are only available to companies with a direct presence in the region’s largest economy.

Faced with a prolonged sluggish economy and worried about the competitive future of its

manufacturing and service industries, recent Japanese governments have promised deregulation

of the economy. However, deregulation has often been tailored to help national champions,

enabling them to reorganize while shielding them from foreign competition. Moreover, the

Japanese government still resorts to traditional industrial policies to bolster key industries, such

as telecommunication satellites, and computer hardware and software.

Over the years, there have been several initiatives to help American businesses crack the

Japanese market. In 1985-1986, the Reagan Administration launched a series of market-oriented,

sector-specific talks, which covered telecommunications, electronic goods, forest products,

medical equipment, and pharmaceuticals. At the same time, with the Plaza Accord in 1985, the

G-7 nations agreed to a revaluation of the yen versus the dollar to price U.S. products more

competitively in the Japanese market.

Subsequently, the Bush Administration’s Structural Impediments Initiative (SII) attempted to

strengthen Japan’s antitrust enforcement and to open its retail distribution system to large stores

that would be more likely to sell imported products. The Clinton Administration pursued a

framework approach, combining macroeconomic, structural, and sectoral negotiations, using

objective criteria to measure what was happening in the marketplace. It also initiated an effort to

monitor existing trade agreements to insure their fulfillment.

The Commission recommends a continuation of the current multi-pronged effort to reduce

Japanese trade and investment barriers. Macroeconomic discussions are necessary to insure that

exchange rates are determined free from government manipulation. Structural talks are needed

to insure that the rules governing access to the Japanese economy are similar to those in other

major industrial nations. Sectoral negotiations are needed to guarantee that all sectors of the

Japanese economy are equally open to foreign competition. To maximize the effectiveness of

these negotiations, the United States should pick a limited number of targets and be willing to

use all the trade tools at its disposal in multilateral, regional or bilateral fora to gain maximum

opening of the Japanese market. 

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

34
In the end, U.S. public and Congressional support for free trade with Japan cannot be sustained

if future trade arrangements do not result in greater market access to Japan, or if Japan is

perceived not to have fulfilled both the letter and the spirit of trade deals. For these reasons, the

Commission recommends that the United States continue to track implementation of trade

accords with Japan and to aggressively pursue all available trade remedies whenever fulfillment

of agreements is lacking. 

While continuation of the current issue-by-issue negotiating strategy is necessary to chip away at

Japanese trade and investment barriers, it is unlikely that by itself this approach will fully resolve

the problems of Japan’s closed markets. Moreover, issue-by-issue negotiating tends to be driven by

specific corporate complaints and is thus episodic, reactive, and adversarial. It casts the United

States as a bully while enabling Japanese negotiators to assume the position of defender of the

national patrimony against unreasonable foreign demands. The result is an increasingly embittered

and distrustful U.S.-Japan relationship.

To create a long-term positive trade negotiating goal that could benefit both nations and provide

a vision for the future, the Commission recommends that the U.S. government study the

feasibility of negotiating a Comprehensive Market Agreement between Japan and the United

States. Such an agreement would include all the aspects of a standard free trade agreement, but

would go beyond such a pact by creating agreed upon procedures with regard to investment, anticompetitive business practices, administrative procedures, and a range of other sectoral matters

often identified as structural trade and investment barriers.

It is the hope of the Commission that the proposed Comprehensive Market Agreement would

provide a mechanism for broad engagement with Japan while giving the Japanese reformers a

concrete means for overcoming objections and achieving the deregulation and reform that would be

in the interest of both Japan and the United States. Thus, a true win-win situation might be created.

The Commission is aware of the difficulties this proposal will face and wishes to emphasize that

nothing can be achieved without the willing and open commitment of Japanese business and

government leaders to deregulation that leads to an open Japanese economy. It is for this reason

that the Commission recommends a preliminary feasibility study be done to assess the real

possibility of success on both sides before any formal proposals are put forth.

Recommendation 3: Domestic Initiatives: Fast Track Negotiating Authority and

Economic Balance of Benefits Study

Fast Track Negotiating Authority

n Broad and flexible U.S. trade negotiating tools, such as fast track authority, should be

used to help facilitate regional trade liberalization and to advance American economic

objectives in the region.

The Executive Branch negotiates trade agreements under authority granted by Congress.

Congress then has the right to approve or disapprove agreements. Trade agreements are

3. Recommendations

35
unavoidably complex by nature, dealing with tariff and non-tariff issues, and the interests of a

wide range of industries, consumers, and labor. If normal legislative procedure were followed in

approving such deals, with multiple amendments permitted by Congress, few countries would

ever sign trade agreements with the United States because they would never be sure of the

bottom line. Since 1974, Congress has used expedited procedures to approve the GATT Tokyo

Round Agreements, the U.S.-Israel Free Trade Area, the U.S.-Canada Free Trade Area, the North

American Free Trade Area (NAFTA), and the Uruguay Round agreements. Under these “fast

track” procedures, Congress agrees to limit itself to a simple up or down vote on the legislation

implementing a trade agreement, without the possibility of amendment. The process provides for

a 90-day timetable within which Congress must act. Failure to act within 90 days is deemed to

constitute approval. In order to use fast track authority, the Administration must follow carefully

prescribed procedures throughout the trade negotiations, including cooperation in Congressional

oversight and solicitation of extensive advice from the U.S. private sector, labor, and state and

local governments, and environmental groups.

Without fast track authority, U.S. negotiating credibility and the prospects for success in

advancing trade liberalization are severely undermined. As trade alliances throughout the globe

increase in importance, the ability of the United States to create strategic alliances and to move

swiftly to take advantage of opportunities to lock in market liberalization will be critical to

defining America’s leadership role in the next century. China is building new commercial and

strategic alliances to confront U.S. economic power in Asia Pacific and elsewhere. Japan, South

Korea, and others have taken new, highly visible commercial initiatives and are determined to

compete globally. Since the United States has the most open markets in the world, entering into

trade negotiations with fast track authority can only be a positive for the United States. Within

Asia Pacific, intra-regional preferential trading agreements are rapidly changing the competitive

rules of the game. Moreover, the goals set by APEC will not be met without fast track authority

being granted to permit the United States to make contributions to liberalizing trade along with

its APEC partners. If not for residual negotiating authority from the Uruguay Round, the trade

opportunities created by the recently concluded Information Technology Agreement would not

have been possible. The United States needs tools to lead, negotiate, and conclude and

implement agreements with its trading partners to ensure it can create opportunities in other key

sectors and in dynamic, strategic markets throughout the region and the world.

Over the years, fast track authority has been renewed periodically, with modified guidelines and

objectives, to reflect changes in American interests and trade initiatives. However, conflicting

Congressional constituencies, domestic politics, disagreement over negotiating objectives, and a

public divided over the merits of trade agreements, have prevented renewal of fast track authority

since it expired in 1994. Fast track authority would lend greater credibility to U.S. negotiators

and would allow the United States to exert greater leadership in APEC and the WTO.

The Commission recommends that broad trade negotiating authority for the Executive Branch

and fast track Congressional approval procedures be renewed immediately, for at least a four-year

period. This would permit the United States to fully participate in planned APEC trade

liberalization, to negotiate selective free trade areas with Asia Pacific nations, and to advance

initiatives in the WTO that address specific trade problems, such as competition policy, that are

particularly prevalent in the region.

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

36
Economic Balance of Benefits Study

n The United States government should prepare an “economic balance of benefits study”

after the negotiation of major trade agreements.

In order to assure that trade agreements do indeed bring tangible benefits to the U.S. economy,

its companies and workers and to win support for such accords in Congress, the Commission

believes that a study of the balance of economic benefits should be prepared at the conclusion of

major trade negotiations. This study should be undertaken by the independent U.S. International

Trade Commission, which is responsible both to the Administration and to Congress. The

balance of benefits study would be publicly available, in contrast to the currently mandated

“Probable Economic Effects” studies that are classified and are primarily reviewed only by

government negotiators. 

The study would serve several purposes. It would help gain public support for more aggressive

market expansion initiatives and related additional U.S. trade liberalization. It would impose

discipline upon our trade negotiators to more clearly define and publicly articulate the concrete

benefits each agreement would bring to the United States. It would also help American workers

and industry to foresee and assess the potential challenges posed by a trade deal. In order to

accomplish this goal, the study should summarize the primary objectives of the agreement, the

sectors and products affected, the anticipated increase in exports and imports, the estimated

number and types of jobs created and lost, the laws and regulations affected or necessary to

implement the agreement, and issues related to the environment and workers. An impact study

would provide a common analytical base from which to discuss the merits of a particular trade

agreement in Congress and among the general public, and would help to educate Americans

about the benefits derived from trade and investment as well as the costs of global integration. 

Recommendation 4: Competition Policy

n The Commission recommends that the Administration formulate a coherent policy to

address problems of market access arising from anti-competitive behavior in foreign

markets. The policy should be formulated in consultation with Congress and the private

sector to ensure domestic support for possible changes, to the extent appropriate, in

trade and domestic antitrust legislation.

n The U.S. government should initiate international discussions on improving cooperation

between national competition authorities, provide technical and educational support for

nations attempting to implement antitrust policy, and pursue bilateral and plurilateral

competition policy agreements. 

n The United States should conduct an annual review of abuses and progress in the

international use of competition policy drawing from the National Trade Estimates report;

self initiate anti-dumping cases where sustained price differentials between the U.S. and

foreign markets suggest anti-competitive practices; and use section 301 of the Trade Act

of 1974, as amended, or use antitrust laws to issue cease and desist orders, where

appropriate under existing law, against certain anti-competitive foreign practices that

burden or restrict U.S. commerce. 

3. Recommendations

37
America’s participation in the multilateral trading system rests on a political consensus

that the domestic market should be kept relatively open to investment and to imports of

goods and services from the rest of the world. Essential to the maintenance of that

consensus is the expectation that other major world markets are similarly open or, in the

case of developing countries, will be open within a reasonable period of time. While the

elimination of conventional trade barriers is essential, it is insufficient to ensure genuine

market access. What multilateral trade negotiations may grant, industry targeting

policies by governments and restrictive business practices may deny. The removal of

border barriers frees American firms from the obligation to pay tariffs or to suffer the

constraints of import quotas, but these firms may find their ability to compete impaired

by price fixing, cartels, bid-rigging, and market allocation arrangements. They may also

face barriers such as “tying” and “exclusive dealing”, practices that prevent domestic

distributors from offering foreign products or services. 

Competition policies aim at eliminating such practices through the establishment of

legal regimes that prevent the abuse of dominant positions by firms. These regimes exist

in most developed countries, though the efficacy of the laws and their enforcement

varies dramatically. In the United States, there is a comprehensive system, embodied in

such laws as the Sherman Act, the Clayton Act, and the Federal Trade Commission Act.

The Treaty of Paris and The Treaty of Rome impose these disciplines within the

European Union. The need to establish comparable systems is particularly urgent in

Asia Pacific. There, many of the world’s largest corporate entities operate with weak or

non-existent antitrust laws and enforcement. 

The Commission recommends that the International Trade Commission prepare a study

of the competition policy regimes of our major trading partners including levels of

enforcement, with a special emphasis on the problems encountered in Asia Pacific. This

analysis will address serious concerns in the U.S. private sector that there has been

inadequate study of competition policy issues to date.

Once that study is completed, the United States should take the lead internationally in

the development of rules, and/or processes to deal directly with problems arising from

anti-competitive practices and industry targeting policies. The Organization for

Economic Cooperation and Development (OECD) is the most likely forum for

immediate action. Composed of developed countries, OECD work on competition policy

dates back to 1967. The group, which includes two Asia Pacific nations, Japan and

South Korea, already has accepted guidelines on notification, exchange of information,

and coordination of action among national antitrust authorities. A new working group

on competition and trade seeks to merge experts from both fields in policy-making. 

To make rapid progress, the U.S. government would need to coordinate positions with

its partners in the European Union, Canada and Japan, laying the groundwork for

decisions at the OECD Ministerial. This process will also serve to develop a coordinated

outcome for the WTO working group on competition, established at the 1996 trade

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

38
ministerial meeting in Singapore. Finally, the United States should participate actively and at a

high level of representation in the APEC working group on competition. The participation would

signal a new U.S. interest in elevating the role of Asia Pacific regulators in the policy-making

process for APEC. The APEC working group can also serve to help countries with no antitrust

laws, such as Malaysia and Indonesia, to formulate appropriate competition legislation and

policy.

While experience with antitrust policies has been extremely limited in a number of Asia Pacific

countries, there is growing interest. The Commission believes that the United States should

provide technical and educational support in this area to legislators, jurists, and enforcement

authorities. This process should replicate recent efforts to develop an awareness of the

importance of intellectual property protection. 

The Administration should give high priority to encouraging Asia Pacific governments to

cooperate with the United States in enforcing U.S. and their own national antitrust laws. Such

cooperation could occur in the context of general Mutual Legal Assistance Treaties, or as ad hoc

arrangements. Through these agreements, national competition policy authorities could exchange

documents and evidence, and prosecute violators. 

One way to create pressure for resolution of difficult problems is to shine the sunlight of public

attention on them. The United States has employed monitoring and sunshine measures for a

number of years to highlight trade barriers and egregious trade practices, using public exposure to

create leverage for negotiations. For instance, the 1988 Trade Act mandates annual publication of

trade and investment barriers in the annual National Trade Estimates report. Other statutes require

annual reviews of government procurement practices, telecommunications barriers and the

protection of intellectual property rights. These reports have involved the creation of “watch lists”

and “priority watch lists” that rate countries on the practices in question. Experience shows that

countries do not like to be included in these lists and that the threat of inclusion often results in

trade liberalization. Sunshine also creates public pressure for change in other countries by

educating consumers on the real costs of these practices in their economies.

The Commission recommends that the United States government conduct an annual review of

anti-competitive practices and industrial targeting in other countries, with particular emphasis on

Asia Pacific, and assess the effect of such practices on U.S. industry and workers. This review

could identify cases of significant price differentials for the same good or service in different

markets as an indication of the possible existence of anti-competitive practices or the use of

sanctuary markets for predatory trade activity. The review could examine industry targeting

measures and other anti-competitive behavior. This study should also use sunshine to highlight

good practices and the progress countries are making in eliminating anti-competitive practices.

The Commission also recommends that in combination with these new sunshine measures, more

active application be made of U.S. trade laws to combat competition problems. The Secretary of

Commerce should exercise existing authority to self-initiate anti-dumping cases against foreign

producers where the competition study shows egregious price differentials exist between products

3. Recommendations

39
sold in the U.S. market and the same product sold abroad. The Commerce Department

generally relies on American business to bring anti-dumping cases, but the rising cost of

such litigation means that many important anti-competitive practices by foreigners are

never challenged. The Commission also recommends that the Administration make

judicious use of authority under section 301 of the Trade Act of 1974, as amended, to

address foreign anti-competitive practices and industrial targeting. The statute identifies

government toleration of systematic anti-competitive activities by or among private firms

to be a cause for action.

While implementation of the above measures is highly desirable, it will clearly be some

time before there is a comprehensive regional or global competition and industrial policy

regime. In the meantime, it is necessary for the United States to have adequate tools for

dealing with anti-competitive practices and policies that harm U.S. commerce. In this

regard, the Commission recommends that Congress pass legislation directing USTR to

bring instances of anti-competitive activities that burden U.S. commerce to the

attention of the Federal Trade Commission (FTC), directing the FTC to investigate such

notifications and, where appropriate under existing law, issue cease and desist orders at

its discretion while reporting all findings to Congress. The legislation should also direct

the FTC to notify USTR of all findings in which foreign governments are involved in

perpetrating anti-competitive activities. Additional resources should be allocated to the

international antitrust divisions of the Justice Department and the FTC to ensure that

the United States aggressively pursues cases of anti-competitive behavior.

Recommendation 5: Human Rights, Worker Rights, and the Environment

Human Rights

n The U.S. should work with Asia Pacific nations and in multilateral fora to

promote human rights, but should do so in a manner balanced with U.S.

commercial interests.

Human rights are fundamental and cherished American values, as well as a key concern

that drives U.S. foreign policy. This heritage of idealism and support for individual rights

dates back to the Declaration of Independence. It is a profound asset to U.S. leadership

in the world. 

The United States must do what it can to work with the nations of Asia Pacific to

promote human rights through changes in their institutional, legal, and political

structures. Moreover, international commercial interaction, economic growth, and

progressive liberalization of trade and investment will, over time, help inculcate the rule

of law in national legal regimes. The unilateral linkage of progress on human rights to

continued access to the U.S. market may not be the most effective way to advance the

cause of human rights.

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

40
The United States should pursue a human rights policy that is both consistent and

results-oriented and that will be comprehensible to U.S. allies in the Asia Pacific region

and gain their support. Consistency is important to ensure that each nation of the

region is held to the same standard, regardless of form of government or relationship to

the United States. Results count above all, since the more respect for human rights

there is in Asia Pacific, the better U.S. relations will be with all the countries in the

region. Continued progress is important. China, for example, has recently indicated it is

positively considering signing the International Convention on Civil and Political Rights

and the International Convention on Economic, Social, and Cultural Rights. The

United States should encourage China, and other Asia Pacific countries to sign such

international conventions.

Worker Rights and Labor Standards

n The United States should support an active international dialogue on the

relationship between trade and labor and encourage collaboration between the

International Labor Organization and the World Trade Organization to help

address worker rights and labor standards problems in Asia Pacific.

Freedom of association, the right to collective bargaining, the prohibition of forced

labor, non-discrimination in employment, and prevention of the exploitation of child

labor are all basic human rights and common norms that all societies are pledged to

respect. They are important economic issues and relate quite properly to trade.

Promotion of these rights and labor standards is not designed to deny legitimate

comparative advantage that some countries enjoy based upon lower wages. 

The Commission believes that labor issues should be addressed by both the

International Labor Organization (ILO) and the WTO. To this end, cooperation between

the WTO and the ILO should be encouraged. The United States should also continue to

advocate the creation of a WTO working group on worker rights and labor standards. 

In addition, the United States should encourage greater cooperation between

governments and the private sector within the Asia Pacific region to promote labor

rights. U.S. businesses manufacturing abroad should be encouraged to adopt “codes of

conduct” that address working conditions. There is evidence that recent purchases by

large American wholesalers and retailers who demand high ethical behavior by their

suppliers are beginning to have some positive effect on labor conditions in Asia Pacific.

The United States should assist in the expansion of these efforts by facilitating

dissemination of information on codes of conduct.

The United States should also heighten global awareness of worker rights and labor

standards by publishing an annual study of working conditions abroad, including

conditions in Asia Pacific.

3. Recommendations

41
Finally, consistency in all such U.S. efforts is critical. U.S. security and diplomatic ties with

nations in the region should not mute concern for labor rights. The United States must treat

allies in the same manner as countries with which it does not have as extensive political and

security ties.

Environment

n The United States should encourage a trade and environment dialogue with Asia Pacific

by enhancing the coordination between trade and environment experts and supporting

the APEC environmental agenda. When entering into a free trade agreement with one of

the countries of Asia Pacific, the United States should review the environmental

implications of such an agreement.

n The United States should work with the Group of Seven (G-7) countries to develop a

coordinated approach to international environmental policy including common

environmental guidelines for export credit agencies. 

Support for environmental measures is growing slowly in Asia Pacific. However, there is still the

sentiment that environmental measures in the West are used to disguise trade protectionism. In

addition to the WTO Working Group on Environment, one way to break down these assumptions

is to encourage greater coordination between trade experts and environmental experts in the

region. APEC has well developed trade and environment groups at the staff and ministerial

levels. The Administration should suggest that these officials have specific joint meetings as is

done in the OECD. Moreover, the Commission believes that the United States should urge

greater coordination at the national level among these experts in each APEC economy. Trade

policy officials can help to ensure that measures that are adopted to achieve environmental

objectives are consistent with a country’s international obligations, while environmental officials

can help to insure that trade policy is conducted in a manner that is sensitive to environmental

concerns. Input into policy discussion from both types of experts will ensure that these two areas

of policy-making are mutually supportive in order to promote sustainable development. 

The Commission believes that the new APEC environmental agenda should be encouraged. By

developing environmental policies, Asia Pacific can ensure that its economic development goes

hand in hand with environmental improvement. APEC’s first Ministerial Meeting on Sustainable

Development, held in 1996 in Manila, laid out a work program that includes sustainability of the

marine environment, clean production/clean technology and sustainable cities. The Ministers

emphasized that their work on sustainable development underscores complementarities between

trade liberalization, economic development and environmental protection. 

The Commission has highlighted the importance of obtaining fast track authority to further

liberalization in APEC and to negotiate a free trade area with one or more of the countries of

Asia Pacific. The Commission believes that the United States should review the environmental

implications of a free trade agreement as part of the development of its negotiating position, i.e.,

through its public and advisory committee comment processes and its consultations with

Congress. Useful models for such a review include the environmental reports to Congress done

for the NAFTA and the Uruguay Round Agreements to assess the impact of trade liberalization

on the environment. The United States should encourage its trading partners to do likewise. 

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

42
The Commission also believes that issues of trade-related environmental policy should be

addressed multilaterally in the WTO, in U.N. agencies, and in the context of on-going work

among the Group of Seven (G-7). As host of the next G-7 meeting, the United States should

raise two issues of importance for Asia Pacific: the importance of assisting environmental

protection in developing countries and establishing common environmental guidelines for official

export credit agencies. Helping the countries of the Asia Pacific region to develop in a

sustainable manner is in the U.S. interest as is ensuring environmental protection without the

loss of export competitiveness.

Recommendation 6: Foreign Direct Investment Liberalization

n The United States should intensify its efforts to conclude the Multilateral Agreement on

Investment. Upon completion of the agreement, the United States and the OECD should

encourage non-OECD countries in the Asia Pacific region to join.

n The United States should foster greater regional and bilateral dialogue on the merits of

investment liberalization and encourage Asia Pacific nations to sign Bilateral Investment

Treaties with the United States.

n The United States should actively oppose mandated technology transfer as a condition of

foreign direct investment. To the extent that this practice remains outside of the WTO, the

United States should continue to rely on available bilateral tools to combat it.

Given the importance of investment to American competitiveness in the Asia Pacific region,

liberalization of investment should be a high priority for the United States government. The

government should use all means — multilateral, regional, and bilateral — to promote common

international rules on investment. 

To advance investment liberalization in the Asia Pacific region, the Commission supports

successful completion of negotiations on a Multilateral Agreement on Investment (MAI) within

the OECD. The U.S. goal in these negotiations should be to obtain agreement on disciplines

based on the investment provisions contained in NAFTA, the most comprehensive international

investment rules in existence today. Once consensus is achieved by OECD members, the United

States should actively work with Japan, South Korea, and other OECD partners to encourage

other key Asia Pacific countries to accede to its provisions. 

Asia Pacific countries have negotiated numerous investment agreements with Europe, Japan, and

other regional players, but some Asia Pacific countries have demonstrated reluctance to adopt

high level disciplines on investment. These agreements do not address the issue of right of

establishment, a key element of all U.S. Bilateral Investment Treaties. The United States

government needs to thoroughly assess why the 15 year-old bilateral investment treaty program

has had so little success in the region and determine how to improve the prospects of success in

the future. At the same time, the U.S. government should continue its efforts to educate Asia

Pacific nations on the merits of investment liberalization and the standards of established

behavior investors demand in order to invest. APEC and bilateral discussions both can play an

important role in this education process. 

3. Recommendations

43
Recommendation 7: Multilateral Solutions to Asia Pacific Trade and Investment

Problems

n The United States should continue to promote its economic interests in Asia Pacific

through active use of the WTO’s dispute settlement mechanism and through expansion

of the WTO’s rules. Additional resources should be provided to ensure these objectives

are met effectively. 

n U.S. trade negotiators should be mindful that despite MFN and National Treatment

provisions of the WTO, inequities in the global trading system remain. Any maintenance

of regulatory regimes that do not promote competition and access to foreign markets,

while locking open the U.S. market, is not in the U.S. interest.

n To promote equity in the system, U.S. policy should be guided by the principles of

mutuality and contestability of markets. As a first step, in any new WTO negotiation

addressing issues not now covered by mutilateral disciplines, the United States should

resist joining a global consensus until a critical mass of key trading partners provides

mutual benefits that meaningfully expand market access. 

In order to ensure that the U.S. economy reaps the full benefits of the Uruguay Round, the

United States should aggressively promote its interests through proactive use of the WTO’s new

dispute settlement mechanism. The United States should be bold and imaginative in filing cases

to stretch to the maximum the scope of WTO rules. Asia Pacific nations, in particular the more

developed countries of Japan and South Korea, must be held to the spirit, as well as the letter, of

their WTO commitments. Replacement of WTO inconsistent measures with barriers designed to

offset the balance of benefits achieved in trade negotiations should not be tolerated. Whenever

possible, as in the dispute regarding the Indonesian auto policy, the United States could join with

others in opposing trade and investment barriers in the region, because all nations ultimately

suffer from such obstacles to free trade.

The United States already is the most active user of the new WTO dispute mechanism. In 1996

alone, the United States was a party to 20 cases before the WTO, 5 times as many as in 1991.

However, the General Counsel’s office at USTR is no larger than when it was handling one to

eight cases a year. A more intensive litigation strategy will require more financial and human

resources than are currently available to USTR. 

The United States stands to gain tremendously by pursuing WTO cases against trading partners

that are not opening their markets. A solid WTO track record for effective and rapid resolution of

trade problems with Asia Pacific nations would go a long way toward establishing American

public confidence in the benefits of the world trading system.

The United States should also take the lead in expanding the scope of the World Trade

Organization to address new challenges to free and fair trade and investment. This is an area

where U.S. leadership has been critical in the past; it is no less critical now. Major sectors of the

international economy, such as financial services, aviation, and shipping, are not yet covered

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

44
effectively by specific multilateral commitments and obligations. Many non-tariff trade barriers

widely prevalent in Asia Pacific, such as industrial policies, anti-competitive practices and major

access questions on investment, have yet to be addressed. These issues are difficult, not yet well

defined, and will take some time before an international consensus can be achieved.

Nevertheless, the United States should continue to use whatever means possible to advance

substantive global debate on these new areas and develop disciplines that promote the

fundamental goals of the WTO and U.S. interests. 

The Commission believes that the United States should only agree to extend global trade and

investment rules on the basis of mutually open markets. To accomplish this goal, it may be

necessary for the United States to consider alternative ways to provide global leadership and

develop consensus in new areas of concern. For example, the Commission commends the

position taken by the Clinton Administration to withhold further concessions in the WTO on

financial services and telecommunications until all other significant economies provide greater

mutuality in market access. Another approach, already being pursued, is to develop initial

agreements among a sub-set of WTO members, for example in the OECD, APEC, or some other

group of like-minded countries. The OECD’s effort to negotiate a Multilateral Agreement on

Investment and the existing Government Procurement Agreement are two such efforts. 

The U.S. market is, with a few notable exceptions, among the most open in the world. But in key

areas of commercial interest to the United States, for example in the financial services sector,

other nations have not been willing to undertake significant market liberalization. This

reluctance to open markets in sectors of their economies where the United States has a

comparative advantage in trade and investment raises doubts about the benefits the United

States derives from international agreements. To correct that problem, in recent multilateral

negotiations over financial services and telecommunications, the United States initially refused

to provide greater access to the American market in the absence of substantial commitments of

liberalization from other key trading partners, particularly those in Asia Pacific. The Commission

suggests this negotiating tactic be employed in future efforts to develop new areas of

international discipline.

Recommendation 8: APEC and Selective Free Trade Areas

APEC

n The United States should encourage APEC to produce concrete initiatives that further

trade and investment liberalization in Asia Pacific. APEC should continue to be a major

anchor for the United States in Asia Pacific as long as it delivers steady progress on

regional integration, economic cooperation, trade facilitation, and market liberalization.

Since its inception, APEC has been a complementary forum to American multilateral and

bilateral initiatives on trade and investment. The United States should continue to support APEC

in its efforts to achieve full trade and investment liberalization in the region. In addition, APEC

should be used to deal with a range of issues such as customs procedures and administrative

3. Recommendations

45
standards, human resource development, small business support, infrastructure networks for

telecommunications and transportation in the region, and support for the environment. The

achievement of APEC’s goal of free and open trade in the region by 2010 for industrial nations

and 2020 for developing countries requires strong leadership by the United States and steady

tangible progress. United States engagement in APEC is imperative in order to achieve a more

liberal and free trade environment in the region.

Free Trade Areas (FTAs)

n The U.S. should pursue selective bilateral or plurilateral free trade areas with interested

Asia Pacific trading partners.

Free trade areas can be an important tool for trade liberalization. The WTO permits the

establishment of free trade areas between like-minded countries as long as they: cover

substantially all trade between the parties; are phased in within a reasonable period of time; and

do not raise barriers to third parties higher than those that existed before the free trade area was

established.

Since the creation of NAFTA, several Asia Pacific nations, such as South Korea, Taiwan, and

Singapore, have each indicated an interest in either joining NAFTA or negotiating a separate

bilateral free trade agreement with the United States. The Commission recommends that the

United States respond to such interest by opening negotiations for WTO-consistent free trade areas

with one or more of these Asia Pacific countries. Such an initiative would necessarily have to

address more than border measures to provide mutual economic benefit for the United States.

Internal barriers to trade and investment, such as competition and investment policy and standards,

would also have to be addressed. 

FTA’s could prove beneficial for several reasons. Even announcement of America’s intention to

create one or more bilateral free trade areas in the region could accelerate competition for scarce

capital in the region and create momentum for APEC-wide trade and investment liberalization,

bringing the benefits of market opening to American traders all the sooner. For example,

negotiation of a free trade area with Singapore, which already has a relatively liberal trading

regime, could help American firms to compete more effectively in ASEAN. An immediate benefit

for U.S. companies would be access to Singapore’s service sectors. Entry into the Singapore

market could also serve as a stepping stone into the service sectors of other ASEAN economies.

Moreover, an FTA with Singapore would lead to better market access in ASEAN for key U.S.

products, including software, chemicals, and pharmaceuticals. The Commission also

recommends considering the Philippines, Taiwan, and under certain circumstances Japan, as

possible free trade partners.

Recommendation 9: Exchange Rates

n The Commission recommends that the U.S. government should pay careful attention to

the impact of exchange rates on U.S. commerce. It should be particularly vigilant to

ensure that foreign governments do not manipulate their exchange rates to achieve

competitive advantage.

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

46
While trade negotiators have concentrated on reducing tariffs and removing other trade barriers,

exchange rate movements continue to have a significant influence on trade and investment flows.

For example, in 1996 as negotiators labored to lower average tariffs around the world on

information technology from 15 percent to zero, the dollar appreciated 11.6 percent against the

yen and 9.6 percent against the German mark. Such exchange rate movements can easily

overwhelm hard fought gains from tariff reductions. To insure that U.S. economic interests are

not disadvantaged by exchange rate manipulation, the Commission recommends that the

government pay greater attention to exchange rate movements and their impact on U.S. foreign

trade and investment. It should also be vigilant to ensure that foreign governments do not

manipulate their currency exchange rates. 

Recommendation 10: Greater Priority to Asia Pacific

n U.S. trade and investment interests in the Asia Pacific region should be given

significantly higher priority and visibility within the U.S. government. 

n The Commission recommends that greater resources be allocated for monitoring trade

agreements with Asia Pacific economies.

n The United States should establish a permanent high-level trade and commercial office

in the Asia Pacific region headed by an official with ambassadorial rank to monitor

economic trends in Asia Pacific, to help implement U.S. trade and investment policy in

the region, to assist in negotiations, and to advocate U.S. commercial interests in the

region. 

U.S. trade and investment interests in the Asia Pacific region need to be given higher priority by

the U.S. government. The Commission proposes the establishment of a permanent high-level

trade and investment office to be located in one of the major metropolitan centers of the Asia

Pacific region. This office would be headed by a Special Presidential Representative for Asia

Pacific with ambassadorial rank. The office would have the same diplomatic status as the U.S.

missions to the United Nations, the European Union, the Organization for Economic

Cooperation and Development, and the World Trade Organization. 

The Office of the President’s Special Representative for Asia Pacific would have several

important functions. The office would not be directly responsible for formulating policy. It would

execute and help coordinate trade and investment policy and trade promotion activities in the

region for the Office of the United States Trade Representative, the Departments of Commerce,

State, and Treasury, the Export-Import Bank of the United States, and the Overseas Private

Investment Corporation. In this capacity, the office would gather information, build relationships

with senior Asia Pacific government officials, meet with high level business executives and

opinion elites, and help develop coalitions for market liberalization among consumers and

businesses in the region. The Special Representative could attend APEC meetings and support

U.S. negotiations for the United States on certain trade and investment issues. Furthermore, the

office would serve as a conduit for informing Washington on the policies and intentions of the

Asia Pacific countries and would help monitor the regional policy initiatives of ASEAN and the

Asian-Europe dialogue. 

3. Recommendations

47
The office would also serve as a regional public relations center to articulate U.S. policies and

approaches to trade and investment in the region, countering misrepresentations of U.S. motives

and actions in Asia Pacific. This local presence would serve to provide on the spot advocacy for

American industry. The office would assist U.S. firms in identifying regional trade and

investment opportunities, act as a liaison with the Asian Development Bank, and help secure

regional procurement and infrastructure contracts for American firms. 

An important function of the office would be to play an integral role in expanding U.S. trade

between small and medium sized enterprises (SMEs) and the region. SMEs are an important

part of the U.S. economy, employing over half of the private workforce, accounting for half of

U.S. GDP, and accounting for over 30 percent of U.S. exports. However, most SMEs do not have

the adequate tools, resources, and experience to effectively compete internationally. To help

these firms gain greater exposure in the region, the Commission recommends that the office

serve as a regional one-stop-shop for the support of small and medium-sized U.S. businesses

trying to enter Asia Pacific markets, similar in function to the “German Center” in Singapore. 

The Commission believes that a high-level regional office cannot be successful without adequate

human and financial resources. The Commission is aware of the current need for budgetary

restraint by the U.S. government. The Commission is also conscious of the increased economic

significance of Asia Pacific, the substantial financial resources other nations now commit to the

region and the important role Asia Pacific governments play in determining market access for

trade and investment. For these reasons the Commission believes that a significant increase in

overall U.S. spending in the region is essential. 

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

48
49

1. For the purpose of this study, the Commission defines Asia Pacific as Japan, South Korea,

China, Hong Kong, Taiwan, Brunei Darussalam, Indonesia, Malaysia, the Philippines,

Singapore, and Thailand

2. Council of Economic Advisors, Economic Report of the President, 1996, (Washington, D.C.:

Council of Economic Advisors, 1996).

3. GDP dollar estimates are based on purchasing power parity (PPP) calculations rather than on

conversions at currency exchange rates. PPP dollar estimates are calculated by applying standardized international dollar prices to a country’s output of goods and services and are the

best measure for international comparisons of gross domestic output.

4. Directorate of Intelligence, Central Intelligence Agency, Handbook of International Economic

Statistics, 1996, (Washington, D.C.: Central Intelligence Agency, 1996).

5. United States Department of Commerce, Bureau of the Census.

6. United States Department of Commerce, Bureau of Economic Analysis.

7. Commission members traveled to Asia Pacific at their own expense. 

8. International Monetary Fund, Direction of Trade Statistics Yearbook, (Washington, D.C.:

International Monetary Fund, 1986-1996).

9. Directorate of Intelligence, Central Intelligence Agency, Handbook of International Economic

Statistics, 1996, (Washington, D.C.: Central Intelligence Agency, 1996).

10. Official Statistics of the Office of the United States Trade Representative.

11. Richardson, J. and Rindal, Karin, Why Exports Matter More! (Washington, D.C.: Institute

for International Economics and the Manufacturing Institute, 1996).

4 Endnotes
12. Richardson, J. and Rindal, Karin, Why Exports Matter More! (Washington, D.C.: Institute

for International Economics and the Manufacturing Institute, 1996).

13. DRI/McGraw-Hill, World Economic Outlook, A Publication of the World Markets Service,

(Lexington, Mass.: DRI/McGraw-Hill, 1996).

14. Directorate of Intelligence, Central Intelligence Agency, Handbook of International

Economic Statistics, 1996, (Washington, D.C.: Central Intelligence Agency, 1996).

15. Directorate of Intelligence, Central Intelligence Agency, Handbook of International

Economic Statistics, 1996, (Washington, D.C.: Central Intelligence Agency, 1996);

International Monetary Fund, Direction of Trade Statistics Yearbook, (Washington, D.C.:

International Monetary Fund, 1986-1996).

16. American Automobile Manufacturers Association, Motor Vehicle Facts and Figures, 1995,

(Washington, D.C.: American Automobile Manufacturers Association, 1995).

17. United States Department of Commerce, Bureau of the Census.

18. United States Department of Commerce, Bureau of the Census.

19. United States Department of Commerce, Bureau of the Census.

20. United States Department of Commerce, Bureau of Economic Analysis.

21. United Nations Conference on Trade and Development, Investing in Asia’s Dynamism:

European Union Direct Investment in Asia, (Geneva, Switzerland: UNCTAD Division on

Transnational Corporations and Investment, 1996).

22. United States Department of Commerce, Bureau of Economic Analysis.

23. International Monetary Fund, Direction of Trade Statistics Yearbook, (Washington, D.C.:

International Monetary Fund, 1986-1996).

24. Noland, Marcus, Pacific Basin Developing Countries: Prospects for the Future, (Washington,

D.C.: Institute for International Economics, 1990).

25. Noland, Marcus, Pacific Basin Developing Countries: Prospects for the Future, (Washington,

D.C.: Institute for International Economics, 1990).

26. Testimony of Frank Shrontz, the Boeing Company, before the Commission on U.S.-Pacific

Trade and Investment Policy, July 17, 1996.

27. American Electronics Association, 1997.

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

50
28. Council on Competitiveness, 1996.

29. Official Statistics of the Office of the United States Trade Representative.

30. Official Statistics of the Office of the United States Trade Representative.

31. Office of the United States Trade Representative estimates based on industry sources.

32. Korean Automobile Manufacturers Association and Korean Automobile Importers and

Distributors Association.

33. International Monetary Fund, International Financial Statistics, (Washington, D.C.:

International Monetary Fund, 1996); The Washington Post, February 18, 1997.

34. Trade Promotion Coordinating Committee, National Export Strategy. Toward the Next

American Century: A U.S. Strategic Response to Foreign Competitive Practices,

(Washington, D.C.: Trade Promotion Coordinating Committee, 1996).

35. United Nations Conference on Trade and Development, Investing in Asia’s Dynamism:

European Union Direct Investment in Asia, (Geneva, Switzerland: UNCTAD Division on

Transnational Corporations and Investment, 1996).

36. Chrysler Corporation, 1997.

37. United States Department of Commerce, Bureau of Economic Analysis.

38. United States Department of Commerce, Bureau of the Census.

39. Sazanami Yoko, Urata Shujiro, and Kawai Hiroki, Measuring the Costs of Protection in Japan,

(Washington, D.C.: Institute for International Economics and the Manufacturing Institute,

1996).

40. International Monetary Fund, Direction of Trade Statistics Yearbook, (Washington, D.C.:

International Monetary Fund, 1986-1996).

41. International Monetary Fund, Direction of Trade Statistics Yearbook, (Washington, D.C.:

International Monetary Fund, 1986-1996).

42. Official Statistics of the Office of the United States Trade Representative.

43. For budgetary purposes, the activities of various U.S. agencies involved in trade policy and

trade promotion are broadly defined as including: negotiating open markets and

lowering/removing trade barriers; changing unfair trade practices; combating foreign export

subsidies; financing and insuring U.S. trade and investment finance; insurance; generating

and providing information; export assistance services and counseling; trade events; providing

Endnotes

51
government-to-government advocacy on behalf of U.S. business; and funding feasibility

studies on major infrastructure and development projects.

44. Michel, James, Efforts and Policies of the Members of the Development Assistance Committee:

Development Co-operation and Development, (Paris, France: Organization for Economic Cooperation and Development, 1996).

45. Trade Promotion Coordinating Committee, National Export Strategy. Toward the Next

American Century: A U.S. Strategic Response to Foreign Competitive Practices, (Washington,

D.C.: Trade Promotion Coordinating Committee, 1996).

46. International Monetary Fund, Direction of Trade Statistics Yearbook, (Washington, D.C.:

International Monetary Fund, 1986-1996).

Endnotes for Impact of the Information Age on U.S.–Asia Pacific Trade and Investment

Relations

1. American Electronics Association, 1997.

2. Morgan, James and Morgan, Jeffrey, Cracking the Japanese Market: Strategies for Success in

the New Global Economy, (New York: Free Press, 1991).

3. Dataquest, Applied Materials, Inc., 1996.

4. Council on Competitiveness, 1996.

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

52
53

Jason S. Berman, Clyde V. Prestowitz, Jr., and

Bruce Stokes

One area of our trade relationship with Asia Pacific that is not explicitly mentioned in the

Commission’s Report is dumping. There is a very constructive recommendation that the

Secretary of Commerce should be more aggressive in initiating anti-dumping cases. There is,

however, no discussion of the common practices of Asia Pacific nations who currently engage in

dumping and, as a corollary, why U.S. anti-dumping laws remain a critical tool in our trade

arsenal.

Repeal of our anti-dumping laws is often suggested as the price we should be prepared to pay for

increased cooperation on developing competition policy standards. We do not believe, as yet,

there is any reason to view this as a possible tradeoff. Dumping is a well established tool of

mercantilist economies; competition policy standards are uneven and enforcement is often

problematic.

In regard to China, there is increasing recognition of the fact that we are locked in a heated

competition with Europe and Japan, which China often uses as a trump card. We need to do

more, particularly on a bilateral basis with both the European Union and Japan, to achieve a

united front on issues of common concern — market access being one such area.

The Trans Atlantic Business Dialogue (TABD) is a promising forum for exploring common

interests with the E.U. It should be used in regard to China’s WTO accession, market access,

transparency, and trading rights. It could also serve as a vehicle for frank discussions on how to

deal with China’s policy of playing us off against each other.

Additional Statements
Lawrence M. Johnson and Ko-Yung Tung,

“Toward a Prosperous Pacific”

In either the global or regional context, the scattered Pacific Islands hardly constitute a major

market for the United States. However, the island-states are located between the world’s two

largest and most dynamic economic regions, Asia Pacific and the United States, and by virtue of

their location assume their important role. The tranquility of the islands is critical to the safety

and tranquility of the Pacific Ocean through which passes, by both air and sea lanes, 40

percent of U.S. foreign merchandise trade. This proportion will grow in the years ahead.

Further, the islands of the tropical Pacific offer unique qualities primarily as tourist

destinations, are in particular instances the sources of important commodities, control vast

exclusive economic zones with their present uses and future potential and are sometimes pools

of low-cost but eager labor.

As a part of the territory integral to U.S. strategic and economic interest in both the short and

long terms, the Pacific Ocean must be considered a special case. This means the United States

must be willing to pay a small price to keep the Pacific Ocean peaceful and to help its small

economies prosper. The capital needed to raise living standards in the Pacific Island economies

will not come to the region on the basis of criteria that apply to large economies. However, this

is not a reason not to invest in the region if one’s focus is on the longer term. The more the

United States gets connected to the larger Pacific Rim countries via trade and investment, the

more important it becomes to keep the Pacific Ocean economies prosperous and secure.

Self-sufficiency is not a practical goal for the majority of these economies. Instead, less

spectacular but realizable goals are increased local productive capacity and self-reliance

supported by direct easy access to large markets both for selling and for recruiting capital and

other resources. Forward-looking programs must take into account the rapid population growth

rates in the Pacific Ocean which are among the world’s highest. The Pacific Island economies

should aim at staying afloat financially, slowing their population growth rates so they can

stabilize their living standards, and adjusting their communal structures to help make market

mechanisms work. U.S. policy should actively encourage trade with and investment in the

islands, both among those with which we have close ties historically and those in the South and

Southwest Pacific, where some of the best investment opportunities are to be found.

We recommend that President Clinton elevate the Joint Commercial Commission into a new,

formal regional economic cooperation program exclusively for the United States and the

region’s economies to expand American private sector interest in the region. This will require

increased coordination and support of existing federal programs and resources that collectively

make up the apparatus to support American economic interests in the region. 

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

54
Pacific Island Fact Sheets
56

PACIFIC ISLAND FACT SHEET

U.S. DOLLAR-DENOMINATED ECONOMIES

Population Land Area Notable Distance (In Micronesia, except (1993 (square Geographic from

for American Samoa) or later) miles) Characteristics (miles) Currency

GUAM 153,700 212 One island. Major U.S. naval Agana: U.S. dollar

base and regional trans- Honolulu 3,800

shipment center at Apra Tokyo 1,600

Harbor. In hurricane path.

COMMONWEALTH 63,000 177 Saipan the largest island, Garapan, U.S. dollar

OF THE Tinian and Rota next, Saipan:

NORTHERN 14 others in the chain. Honolulu 3,700

MARIANA ISLANDS 125 miles north of Guam. Tokyo 1,500

(CNMI) U.S. territory closest to Asia.

FEDERATED 109,200 270 607 islands and atolls, Kolonia, U.S. dollar

STATES Pohnpei 130 square miles, Pohnpei:

OF other major islands Kosrae, Honolulu 3,100

MICRONESIA (FSM) Yap and Chuuk. The 4 FSM Hong Kong 3,100

states span 1,700 miles from

east to west.

REPUBLIC 16,900 170 343 islands, the main group Koror: U.S. dollar

OF encircled by a hundred mile Honolulu 4,600

PALAU reef. Babeldaob 136 square Tokyo 2,000

miles. 8 other inhabited Hong Kong 1,700

islands. Rock Islands.

REPUBLIC 59,800 70 34 coral islands, 870 reefs, Majuro: U.S. dollar

OF THE highest elevation 33 feet Honolulu 2,300

MARSHALL above sea level, average Guam 1,800

ISLANDS (RMI) elevation 7 feet.

AMERICAN 58,900 77 5 islands, 2 atolls. Pago Pago, U.S. dollar

SAMOA Pago Pago Harbor. Tuitila:

Home of newest U.S. national Honolulu 2,600

park. In hurricane path. Los Angeles 4,800

TOTAL/AVERAGE 461,500 976

NON-DOLLAR ECONOMIES

(Papua New Guinea, Solomons, Vanuatu, New Caledonia and Fiji make up Melanesia. Nauru and parts of Kiribati

are in Micronesia. The other islands in this group, with the Hawaiian islands and American Samoa, are Polynesia.)

FRENCH 229,200 1,609 130 islands, mostly atolls Papeete, Tahiti: French

POLYNESIA in 5 archipelagoes. Tahiti Honolulu 2,700 Pacific

the largest island, 400 Los Angeles 4,100 franc

miles square, maximum Paris 10,400 (F CFP)

elevation 7,464 feet. Tokyo 5,900

NEW 196,800 7,376 Main island, Grande Terre Noumea: French

CALEDONIA 250 miles by 30 miles (larger Honolulu 3,900 Pacific

than the Hawaiian Islands Paris 10,400 franc

together), mostly mountainous. Brisbane 900

Several small islands.

WALLIS 14,800 106 2 main islands, highest Wallis Island: French

AND elevation 2,493 feet. Honolulu 2,700 Pacific

FUTUNA Paris 10,000 franc

PAPUA 4,141,800 179,490 Eastern half of the island of Port Moresby: Kina

NEW New Guinea. Largest by far Honolulu 4,300

GUINEA Pacific island-state land mass. Cape York,

(PNG) Other main islands New Australia 300

Ireland, New Britain and Tokyo 3,100

Bouganville. Hong Kong 3,100

SOURCES: Cartographic Division, National Geographic Society, “Islands of the Pacific,” map 1:18,000,000, Washington, DC, 1974; Central Intelligence
57

GDP/GNP Per Major Major

(U.S.$ Capita Major Sources Sources

Major million GDP/GNP Income Political of External of Future

Languages current) (U.S.$) Sources Status Investment Income

English, 3,128.0 20,351 Tourism, U.S. territory since 1898. U.S., Tourism, 

Chamorro, military, Guam Organic Act of 1950 Japan, services

also Tagalog, trade and conferred U.S. citizenship. Korea

Japanese services Some push for commonwealth status.

English, 550.2 8,733 Tourism, After WWI under Japanese Japan, Tourism,

Chamorro, garment mandate. In 1947 became Korea, services

Carolinian manufacturing, part of U.S. Trust Territory of Hong Kong,

trade and the Pacific. Since 1978 a U.S.

services Commonwealth of the U.S.. 

Islanders are U.S. citizens.

English, 203.1 1,860 U.S. payments, After WWI under Japanese U.S., Compact

8 major government mandate. In 1947 became Japan status unlocal services, part of U.S. Trust Territory. certain as 

languages fisheries, Became sovereign in 1979. of 2001.

tourism In compact of free associa- Fisheries

tion with U.S. as of 1986. development,

Compact ends 2001. tourism

English, 98.2 5,813 U.S. Compact After WWI under Japanese Japan, Compact

Palauan, payments, mandate. In 1947 became U.S. money,

Sonsorolese- tourism part of U.S. Trust Territory. tourism

Tobian Became sovereign in 1994,

in compact of free association as of 1994. Compact 

ends 2044.

English, 95.6 1,598 U.S. payments, After WWI under Japanese U.S., U.S. military. Marshallese Kwajalein Missile mandate. In 1947 became Japan Compact 

dialects Range, govern- part of U.S. Trust Territory. status unment services, Became sovereign in 1979. certain as 

copra, fisheries In compact of free associa- of 2001.

tion since 1986. Fisheries.

English, 253.0 4,295 Tuna canneries, U.S. territory since 1899. U.S. Canneries,

Samoan government Samoans are U.S. nationals. remittances,

services, remit- U.S.

tances from entitlements

Samoans overseas

4,328.1 9,378

French, 3,418.3 14,914 Payments from French controlled from the Metropolitan French

Tahitian Metropolitan 19th century. Overseas France transfers,

France, tourism, territory of France since tourism,

Tahitian pearls 1957. Active independence pearls

movement.

French, 3,017.0 15,330 Payments from 1853 became a French Metropolitan French

30 Kanak Metropolitan possession. Overseas France transfers,

dialects France, nickel, territory of France since nickel, 

agriculture and 1946. Relation to France tourism

ranching, tourism, under review. agriculture,

aquaculture aquaculture

French, 25.0 1,689 French transfer French controlled from Metropolitan French

East Uvean, payments, the 19th century. Overseas France transfers

East Futunan trochus shells territory of France since

1961.

English, 4,600.0 1,111 Minerals, Under Australian & German Australia, Minerals, oil,

Melanesian oil and gas, control before WWI. An UK timber,

Pidgin, forestry, Australian trust territory after fisheries,

Hiri Motu, agriculture, WWII. Self-governing within tourism

hundreds of tourism the British Commonwealth

dialects since 1975. Strong separatist

movement in Bouganville.

David Stanley, South Pacific Handbook, 5th Edition, Chico, California, 1993; State of Hawaii Department of Business and Economic Development, Data
58

PACIFIC ISLAND FACT SHEET (continued)

Population Land Area Notable Distance

(1993 (square Geographic from

or later) miles) Characteristics (miles) Currency

COOK 19,600 92 15 widely dispersed islands Rarotonga: New

ISLANDS including volcanic peaks and Honolulu 3,000 Zealand

atolls. Rarotonga the largest Wellington 2,000 dollar

island 26 miles square. In 

hurricane path.

WESTERN 170,000 1,158 4 inhabited islands, 5 Apia: Tala

SAMOA uninhabited. Highest point Honolulu 2,600

6,100 feet, Mt. Silisili on Suva 700

Savai‘i. In hurricane path. Brisbane 2,500

FIJI 800,500 7,055 320 islands. Viti Levu 4,000 Suva: Fiji

miles square, Vanua Levu Honolulu 3,100 dollar

2,100 miles square. Major Sydney 2,000

islands are mountainous Tokyo 4,500

and forested to windward.

KIRIBATI 82,400 266 33 islands scattered 2,400 Tarawa: Australian

miles east to west, 1,300 miles Honolulu 1,300 dollar

north to south. Almost entirely Tokyo 3,900

low-lying atolls, Christmas 

Island the largest.

SOLOMON 395,200 11,197 850 mile long double island Honiara, Solomon

ISLANDS chain. 6 mountainous main Guadalcanal: Island

islands, Guadalcanal 2080 Honolulu 3,960 dollar

miles square. Port Moresby 900

TONGA 99,000 386 Some 150 coral atolls, Nukualofa: Pa‘anga

36 permanently inhabited. Honolulu 3,100

Brisbane 2,000

VANUATU 173,900 4,707 80 scattered islands, several Port Vila, Efate: Vatu

active volcanoes. Largest Honolulu 3,500

island Espiritu Santo 1,500 Tokyo 4,100

miles square, highest point 

6,158 feet.

NAURU 11,200 8 A single island with a 100 Nauru: Australian

foot high central plateau of Honolulu 2,800 dollar

now nearly exhausted phos- Banaba, Kiribati

phate-bearing rock. 200

NIUE 2,500 101 Coral island rising 65 feet Alofi: New

from the ocean and another Wellington 1,800 Zealand

130 feet to a central plateau. Suva 800 dollar

TOKELAU 1,800 4 3 atolls with islets 10 to 16 Nukunonu: New

feet above sea level. Honolulu 2,300 Zealand

In hurricane path. Wellington 3,800 dollar

TUVALU 10,200 10 5 atolls, 4 coral islands, Funafuti: Australian

maximum elevation 16 feet Suva 700 dollar

above sea level. Sydney 2,500

TOTAL/AVERAGE 6,348,900 213,565

GRAND TOTAL/AVERAGE 6,810,400 214,541

HAWAII 1,186,000 6,423 4 main islands. Island of Honolulu: U.S. dollar

Hawaii 4,028 miles square, San Francisco

highest point of Mauna Kea 2,400

13,796 feet. Mauna Loa and Los Angeles 2,600

Kilauea on Hawaii both active Washington 4,800

volcanoes. Maui 727 miles Tokyo 2,500

square, Oahu 597 (Waikiki), 

Kauai 552. In hurricane path.

SOURCES: Cartographic Division, National Geographic Society, “Islands of the Pacific,” map 1:18,000,000, Washington, DC, 1974; Central Intelligence

Agency, The World Factbook, 1994; Norman and Ngaire Douglas, editors, Pacific Islands Yearbook, 17th edition, Suva, 1994; Europa, The Far East and

Australia, 1994; Gary L. Fitzpatrick and Marilyn J. Medlin, Direct-line Distances, International Edition, New Jersey, 1986; International Monetary Fund,

International Financial Statistics, June 1996; David Stanley, Micronesia Handbook, Chico, California, 1989; 
59

GDP/GNP Per Major Major

(U.S.$ Capita Major Sources Sources

Major million GDP/GNP Income Political of External of Future

Languages current) (U.S.$) Sources Status Investment Income

English, 50.9 2,596 Government Self-governing since 1965 New Tourism

Polynesian aid, services, in association with New Zealand

dialects tourism Zealand. Cook Islanders

are citizens of both Cook

Islands and New Zealand.

English, 170.0 1,000 Agriculture, Under German control before New Agriculture,

Samoan remittances from WWI, New Zealand after. Zealand, tourism,

abroad, tourism, New Zealand Trusteeship Japan light

manufacturing after WWII. Independent manufacsince 1962. turing

English, 1,801.1 2,250 Sugar and other Annexed by Great Britain Australia, Agriculture,

Fiji, agriculture, in 1919. A republic within New tourism,

Fiji Hindi tourism, forestry, the British Commonwealth Zealand, mining, light

fishing, mining, since 1979. EU, manufacgarment industry Japan turing

English, 54.6 662 Agriculture Annexed by Britain in 1919. NA Fisheries

Micronesian (copra), A republic within the British development

remittances, Commonwealth since 1979.

aid

English, 208.9 529 Agriculture, British protectorate as of Australia, Agriculture,

pidgin English, timber sales, 1873. Politically independent Japan fisheries,

more than 80 fishing and fish within the Commonwealth tourism

vernaculars canneries, aid since 1978.

Tongan 124.9 1,262 Agriculture, British protectorate as of NA Tourism,

tourism 1900. Independent monarchy agriculture

within the Commonwealth

since 1970.

French, 187.4 1,078 Agriculture and Anglo-French New Hebrides Australia, Tourism,

English, ranching, tour- Condominium in 1906. Japan agriculture

Beshlama ism, Offshore Republic of Vanuatu within

Finance Center, the British Commonwealth

services established in 1980.

English, 80.7 7,205 Phosphates and From 1919 administered by NA Investments

Nauruan investments Australia. Became an from

from independent republic in phosphate

phosphates 1967.

English, 7.1 2,825 Subsistence Self-governing since 1974 NA Tourism

Niuean activity, in free association with

government aid New Zealand.

English, 1.2 667 Subsistence Non-self-governing territory NA Subsistence

Tokelauan activity, administered by New activities,

government aid Zealand beginning 1925. government

aid

English, 3.8 373 Subsistence Independent state within NA Subsistence

Tuvaluan activity British Commonwealth activities,

government aid since 1978. government

aid

13,750.9 2,166

18,079.0 2,655

English, 32,724 27,592 Tourism, Taken as a U.S. territory in U.S., Tourism,

Hawaiian services, 1898, became a U.S. state Japan, defense,

trade, in 1959. Australia services, 

government trade,

government

David Stanley, South Pacific Handbook, 5th Edition, Chico, California, 1993; State of Hawaii Department of Business and Economic Development, Data

Book 1995, Honolulu, 1996; Peter W. Thomson, Trade and Investment in the South Pacific Islands, Honolulu, 1989; World Bank, World Development

Report, 1996; various Bank of Hawaii economic reports, 1992–96, and other sources.
61

Statement of Dissent by Commissioners Morton Bahr, Kenneth

Lewis, and Ron Sims from the Report of the Commission on

U.S.-Pacific Trade and Investment Policy

This nation has reached a critical juncture in the formation of its thinking and policy regarding

trade and investment and the time has come for a fundamental reassessment of the goals and

objectives of U.S. policy and of the strategies and tactics used to achieve them. The problems

that have created this crisis are particularly acute in Asia, but they are common to the whole set

of U.S. trade and investment relationships, including our participation in the WTO and

numerous other trading arrangements. We were not able to persuade a majority of the

Commission of this view. For the reasons presented below, we are compelled to disagree with the

report and many of its recommendations.

While the Commission report acknowledges the challenges posed by the trade and investment

barriers and by the government interventions in private markets that are rife throughout the Asia

Pacific region, the findings and policies recommended simply do not respond to these problems

in a meaningful or useful way.

We have a number of specific objections to the structure, content, and language of the report

that we have expressed throughout the meeting and drafting process for this Commission. In the

first section of this statement, we present a synthesis of our objections. In the second section, we

present an alternative set of five recommendations that we believe will improve U.S. trade and

investment with Asia. We conclude with a set of specific comments on the ten recommendations

presented in the majority report.

The Basis of Our Dissent

The Commission report’s conclusions are out of touch with the economic concerns of the

majority of the American public. By and large, the recommendations focus narrowly on the

interests of U.S. investors, not U.S. workers. Thus, the report fails to fulfill the President’s

mandate to recommend policies that would increase U.S. access to Asian markets “in such a way

that a maximum number of high-wage jobs are created and maintained in the United States.”

Dissent
There are five major areas in which the report is deficient. First, instead of defining the specific

national interest in expanding trade with the Asia Pacific nations, it asserts a series of platitudes

about the virtues of free trade. Second, the report fails to adequately address the causes or

consequences of the United States’ massive structural trade deficits with Asia. Third, the report

simply assumes that additional foreign direct investment in Asia will generate substantial benefits

for U.S. workers and companies, without seriously examining the costs, benefits, or problems

associated with such investments. Fourth, while the report recognizes the importance of

including labor, human rights, and environmental standards in future trade agreements, it does

not go far enough on these issues. Finally, rather than a clear strategy that flows from a sensible

analysis of the economic relationship between the U.S. and the other Pacific nations, the report

offers a list of misguided proposals which give little hope for improving the economic conditions

of working Americans through trade. 

As written, the report could have some negative unintended consequences. By treating the

serious issue of the impact of Asia Pacific trade and investment on American living standards

carelessly, the report may well reinforce the widely held perception that the country’s political

and business leaders care much more about the opportunities for multinational investors than

they do about the economic security of Americans struggling to make ends meet. The report

could end up strengthening the very forces of protectionism that the majority of the Commission

so fears.

We will address each of these issues in turn, before turning to our policy recommendations.

The National Interest

Trade is not a goal in and of itself. It is a tool of economic development. It is sometimes a “winwin” proposition and sometimes a “win-lose” proposition. And there are even times when it is a

“lose-lose” proposition. Winners and losers in trade are not just nations as a whole, but various

groups—investors, workers, industries, regions, etc.—within nations. The assertion that “trade is

good for everyone” is simply not true—even by the standards of conventional economic theory.

We do not endorse the proposition that a “win-lose” situation is acceptable when the United

States is the loser, as some in the Administration contend.

Trade policy and trade activity must therefore be measured against national economic objectives.

The most important of these are the generation of jobs and rising incomes for working people.

Other reasonable objectives include corporate profits, capital accumulation for domestic

reinvestment, access to technology and industrial inputs, the maintenance of reasonable levels of

domestic price competition, and environmentally sustainable growth.

Access to cheaper imports can raise the real income of consumers and improve U.S.

competitiveness, but these gains must be balanced against the economic costs of adjustment and

the effects of trade on the level and distribution of wages. Income and adjustment cost issues are

virtually ignored in the Commission’s majority report.

The existence of net trade deficits with Asia Pacific nations suggests that, as currently structured,

current trade and investment relationships are harming rather than helping the goal of full

employment at decent wages. Massive and continuing trade deficits matter. First, when an

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

62
economy is operating below full employment—as the U.S. economy usually is—such trade

deficits cost jobs. Second, such trade deficits exacerbate the normal dislocation of workers (and

thus families and communities) that occurs in a market economy. Third, such trade deficits with

nations whose governments keep wages lower than justified by productivity levels inevitably lower

wages in the importing country. Countries that repress labor unions, exploit children, and

compete with prison labor are not practicing fair trade.

By ducking the issue that trade liberalization, particularly with fast-growing, low-wage Asian

countries (such as China, in particular), has had negative, regressive distributional consequences

for American incomes, the report ignores the central political issue regarding our current trading

relationship with Asia.

Causes and Consequences of Trade Deficits

To acknowledge that trade deficits matter is not to argue that every bilateral trade relationship

must always be in balance. But persistent and growing bilateral deficits do indicate the existence

of structural problems—hidden or overt trade barriers, managed and chronically undervalued

currencies, or other distortions to free trade. Since the Commission is charged with, among

other things, identifying trade impediments, it is especially peculiar that the report pays so little

attention to trade balances. According to the Commission’s figures, the U.S. trade deficit with

ten Asia Pacific countries (Japan, South Korea, Hong Kong, Taiwan, Singapore, the Philippines,

Malaysia, Indonesia, Thailand, and China) will grow by an additional 15% by the year 2000,

reaching $138 billion, as shown in Table 1.1 It is estimated that in the years 1995 through 2000

the cumulative, combined trade deficit of the U.S. with these countries will exceed $750 billion.

Such trade deficits are harmful to the American economy and are unsustainable in the long run

(See Thurow, 1996).2

Dissent

63

1 Note that the forecasts shown in Table 1 are based on highly optimistic estimates of export growth to the countries in

this study. For example, in 1996, exports were forecast to grow by 12.6%, but actually increased by only 2.9%. Imports

were forecast to grow at 8.6%, but actually increased 5.6%. Thus imports grew faster than exports in fact, while exports

were forecast to grow faster than imports in the DRI/McGraw Hill model used by the Commission.

2 Thurow, Lester, The Future of Capitalism: How Today’s Economic Forces Shape Tomorrow’s World, (William

Morrow & Co., 1996), p. 17.

Table 1

U.S. Trade with Asia, 1995 to 2000

1995 1996 1997 1998 1999 2000

Actual Forecasts:

Exports 174.2 196.2 213.6 236.2 258.5 282.4

Imports 294.3 319.6 345.6 369.7 395.8 420.4

Trade (120.1) (123.4) (132.0) (133.4) (137.3) (138.0)

Balance

Source: Calculated from DRI/McGraw Hill World Trade Report (3rd quarter 1996)
The report states uncritically that, “The opening of markets creates better jobs for U.S. workers.”

This is often true. But it is also often true that the loss of markets at home to imported goods

destroys American jobs. The question is: What is the net balance? 

The answer is shocking: Between 1979 and 1994 twice as many high-paying jobs in the U.S.

economy have been lost to imports as have been gained from exports. Under present

circumstances, lopsided and unreciprocal trade (accompanied by growing deficits) is displacing

more jobs than it is creating. In response to this job loss, the report cites Commerce Department

figures that the average export job pays 20% more than other non-farm, private-sector jobs. But

this statistic is based on a misleading comparison between manufacturing jobs and the rest of the

economy (including low-paid service and retail jobs). When all jobs gained through exports,

including those in agriculture and services, are compared to jobs lost to imports (which are also

heavily concentrated in manufacturing), the so-called export premium virtually disappears,

rendering any claim of highly paid export job creation invalid. The Commission notes that “[b]y

the end of 1996, U.S. exports of goods and services supported an estimated 11.3 million jobs.”

However, it fails to point out that imports eliminated an even larger 14.8 million jobs or job

opportunities, for a net loss of 3.5 million jobs.3

It is true that consumers benefit from cheaper goods. But in a modern society, living standards

ultimately depend on one’s ability to earn a paycheck. Experience also shows that the benefits of

cheap overseas production are often not passed along to consumers, but are absorbed by retailers

and wholesalers. The question is, are we losing good-paying manufacturing jobs to imports

because we are locked into an unfair trading and investment relationship with the Asia Pacific

region countries?

The job-destroying potential of imports is widely understood as common sense by the general

public, and increasingly admitted by even ardent free trade scholars. Thus, in a recent article in

the Brookings Papers on Economic Activity,

4 Harvard University economists Jeff Sachs and

Howard Shatz report their findings that the increase in net imports (exports minus imports) can

account for about 39% of the loss in manufacturing jobs between 1978 and 1990. This comes to

about 1.2 million jobs, most of them lost to trade with developing countries. And there is an

emerging consensus in the economic profession that imports from low-wage nations are an

important factor in the growing inequality of earnings—with estimates ranging from ten to fifty

percent of the problem. Moreover, none of these studies take into account the impact of threats

by employers to move overseas (which is more credible the larger that trade looms as a share of

the economy) in order to force American workers to take lower wages and benefits. 

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

64

3 These figures use the multipliers implied in the export-jobs figure quoted in the majority report, using 1996 total U.S.

exports of $611.7 billion (on a balance of payments basis, as reported by the U.S. Department of Commerce). The same

multiplier is applied to 1996 total imports, which were $799.3 billion.

The most recent report from the Commerce Department’s chief economist (June 21, 1996, preliminary data release,

“U.S. Jobs Supported by Exports of Goods and Services”) suggests that a multiplier for goods of approximately 14,000

jobs per billion would be more appropriate than that used by the Commission (18,473 jobs per billion, based on the

calculations in the preceding paragraph). Using the smaller multiplier yields job totals of 8.6 million for exports and

11.2 million for imports, for a net loss of 2.6 million jobs.

4 Sachs, Jeff and Shatz, Howard, “Trade and Jobs in U.S. Manufacturing,” Brookings Papers on Economic Activity,

Vol 1., pp. 1-84 (Washington, D.C.: Brookings Institution, 1994).
The Benefits and Costs of Foreign Direct Investment in Asia

The report fails to acknowledge that most U.S. investment in Asia (outside of Japan) is for the

production of goods that are exported back to the United States, not for local market access

(because consumers in these markets lack the wherewithal to purchase significant amounts of

these products or the freedom to organize to increase their wages). Furthermore, conditions

imposed on foreign direct investment in these markets often leads to the loss of U.S. jobs and

critical technologies, which can lower incomes in the United States. Finally, many of the goods

being exported to Asia are intermediate parts and inputs, which are used in U.S.-owned factories,

and then re-exported back to the United States.5

U.S. firms such as General Motors, Motorola, Mattel, and Boeing have made massive

investments in Asian countries. Some of these countries require that a majority of goods

produced by foreign investors be exported. Exports back to the United States from these plants

increase the trade deficit and eliminate jobs in the United States. The threat of moving plants to

such locations is often used in contract negotiations here to extract wage and benefit concessions

from U.S. workers. 

Firms are also being enticed to invest in Asia in order to makes sales in these countries.

Offsets—export sales agreements that require a firm to perform a certain amount of work in the

purchasing country—have increased dramatically in recent years. Offsets have led to increased

parts imports and a transfer of production to foreign markets, especially in Asia. These sales

deals often include technology transfers as well, which require U.S. firms to share proprietary

information with foreign firms and help them learn to use it. These “performance requirements”

are increasingly common in defense and commercial aerospace production and in other hightech industries. U.S. companies are being compelled to transfer technology to obtain current

sales in these markets.

Because of more stringent performance requirements, and a general tendency to outsource

production, almost 30% of the new Boeing 777 aircraft is composed of foreign-made parts and

Dissent

65

5 For example, Mataloni, Jr., Raymond J. and Mahnaz Fahim-Nader, “Operations of U.S. Multinational Companies:

Preliminary Results from the 1994 Benchmark Survey,” Survey of Current Business, December 1996, 11-37, report

imports and exports from U.S. multinationals, to and from their foreign affiliates. A foreign affiliate is one in which the

firm has direct investment which controls 10 percent or more of the voting securities of that affiliate. Table 19 reports

U.S. exports to and imports from these foreign affiliates. These include:

($millions)

Exports to Imports from Trade

Year foreign affil. foreign affil. balance with

Malaysia 1994 1,291 2,219 - 928

Philippines 1994 337 595 - 258

Singapore 1993 4,033 9,087 -5,054

China 1994 456 176 277

Total 6,114 12,077 -5,963

Note that imports from China may be artificially depressed because of requirements that exports be channeled through Chinese state trading

companies. In addition, Chinese exports to the U.S. grew rapidly in 1995 and 1996, as did U.S. investment in China. 1994 data for Singapore

were not available because of disclosure limitations.
components. China has been particularly aggressive in its pursuit of offsets. It has used its

national airlines to entice Airbus and Boeing into a bidding war that will rapidly increase the loss

of jobs and critical technologies. Boeing recently lost a competition with Airbus for a partnership

to jointly design and produce a small (100-seat) plane in China. This consortium could be the

next entrant in the world aircraft industry.

The terms of these bidding wars are not limited to jobs and technology transfers. U.S. firms in

China, for example, have been asked to help China influence their own government’s domestic

trade and foreign policies. Last spring, Boeing held a board meeting in Beijing where it met with

Chinese Premier Li Peng. Afterwards, Boeing CEO Philip Condit endorsed the Premier’s views

on what U.S. trade policy to China ought to be.

Offsets are hollowing out U.S. supplier industries. Imports of parts are rising rapidly and are a

growing share of commercial aircraft production. If past trends continue, the import share of

domestic output could rise from 11% in 1994 to 14% in the year 2000. Up to 25,000 jobs in

aircraft parts could be eliminated if these trends continue.

Exports of parts to U.S. factories in Asia are often used to supply U.S. plants making the same

products. McDonnell Douglas now ships parts, rather than assembled aircraft, to China. Some of

the planes made in China are now exported back to the United States. Thus, looking at the

growth of exports only provides a distorted view of the effects of trade on the domestic economy

and leads to overestimates of the number of jobs created through reduced trade barriers. Parts

shipped to a McDonnell plant in Shanghai, which used to go to McDonnell’s plant in Long

Beach, do not create new jobs in this country.

The Commission report assumes that expanding foreign direct investment in Asia generates many

benefits, including growing exports. The effects of investment on trade, employment, and wages

are more complex, and more mixed, than portrayed in the report. The report does not look at the

total impact of such investments on the U.S. manufacturing job base.

Labor Rights, Human Rights, and Environmental Standards in Trade Policy

Protecting workers’ rights is both a moral and an economic imperative. The U.S. is best served by

a comprehensive trade policy that seeks to develop common norms around all elements of the

production process, from accessing distribution channels to intellectual property rights to basic

labor market standards. Foreign firms should not be allowed to gain competitive advantage by

flouting international labor standards and sanctions must be vigorously pursued against firms

that do so.

In addition, our approach to workers’ rights must be based on the understanding that promoting

labor standards with our trading partners helps to develop markets for U.S. companies. Higher

standards of living which enable foreign workers to consume U.S. goods develop more quickly

and more broadly when foreign workers can freely join trade unions, can participate in collective

bargaining, and are protected by adequately enforced labor laws.

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

66
To its credit, the Commission has called for several unilateral and multilateral measures to

monitor and promote labor rights. While pursuing workers’ rights in multilateral fora is one

appropriate strategy, we must not abandon a bilateral strategy. The majority report is silent on the

issue of bilateral strategies for promoting labor rights and environmental standards. Workers’

rights must be a principal trade negotiating objective and we must insist in all trade negotiations

that worker rights provisions are included. Those provisions include the prohibition of forced and

prison labor, guarantees of freedom of association, the right to organize and bargain collectively,

and nondiscrimination in employment. Rules should be established to insure a safe and healthy

workplace, prevent child labor, and establish appropriate standards concerning hours of work. We

must fully utilize and enforce worker rights provisions in existing law, including Section 301 and

the GSP and we should continue, as the Commission recommends, to seek to begin an

examination of worker rights through the WTO.

Just as trade and economic growth do not automatically lead to higher wages and improved

working conditions, freer trade does not reflexively lead to a freer society and a greater respect

for human rights. The hope that the mere presence of U.S. companies in Asian nations will

cause political repression and human rights abuses to wither away is not realistic. However, as

with workers’ rights, pursuing an internationally recognized human rights agenda underscores the

existing overlap between trade and human rights policies. Promoting the rule of law,

transparency of procedures, accountability of public officials, freedom of expression, and similar

policies aids both U.S. companies trying to operate in a particular region and indigenous

campaigns for human rights. Rather than give in to political posturing that charges the United

States with imposing its own values on other countries, the U.S. should promote a role for Asian

Non-Governmental Organizations (NGOs) in various trade groups, to make clear that human

rights policies reflect domestic constituencies in Asian countries. Other options include

supporting cross-border protections of human rights, such as when Asian governments protest

mistreatment or detention of their citizens who are guest workers in other countries, and working

with governments, such as South Korea, the Philippines, and Japan, that accept a more

universalist interpretation of human rights as an issue transcending international boundaries.

The Majority’s Contradictory Recommendations

The report’s recommendations section contains at least two major logical contradictions. First, it

tells the reader that the nations of the Pacific are steadily embracing free trade, that the progress

to free trade has become stalled despite the openness of the U.S. markets, and that the way to

get it moving again is to offer even more trade concessions to nations that have not kept their

promises in the past. This is simply not credible.

Second, the report recommends that the U.S. government encourage even more American

business investment in Pacific nations. If, as the report asserts, the U.S. is at a fundamental

disadvantage because its low savings rates retards domestic investment, it is nonsensical for the

U.S. to be encouraging even more diversion of investment out of this country. In addition, when

investment does occur, mechanisms are needed to discourage U.S. firms and foreign

governments from using such overseas facilities as platforms for outsourcing U.S. production or

for re-exporting goods produced in such plants back to the U.S.

Dissent

67
Instead, the report should make it clear that if these markets are ever going to be opened to U.S.

goods, the U.S. will have to use every bit of leverage it has, from sanctions that close our markets

to Chinese goods to withholding WTO status for China until it adopts fair trade practices

required of other WTO nations. It is naive to think that a nation like China is going to

voluntarily dismantle its state-operated mercantilist and military-driven industrial policies out of

gratitude for being allowed even more unrestricted access to the U.S. market and the enhanced

status and protection of WTO membership.

Our Recommendations

The time has arrived for a fundamental shift in emphasis and strategy in our approach to trade

and investment. Based on our analysis of the problems in the world trading system in general,

and in U.S.-Asia Pacific trade and investment relations in particular, our policies must move

from an emphasis on multilateral agreements (especially through the WTO) to negotiations with

individual countries and groups of countries. The latter will vary depending on the trade issue or

problem that must be addressed. In addition, policy and strategy must shift from an emphasis on

rules, and leveling the playing field, to a consideration of outcomes and results. With this general

perspective in mind, we have developed five specific, positive recommendations for U.S. trade

and investment policy.

Recommendation 1: The U.S. should identify the goals of trade and investment policies

and undertake a strategic reassessment of the relationship of these

goals to existing U.S. and international trade laws and practices.

The U.S. should adopt S. 465, the End the Trade Deficit Act.

In 1996, Senators Dorgan and Byrd introduced S. 1978, the End the Trade Deficit Act. On

March 18, 1997, these two Senators, along with Senator Sarbanes, reintroduced that bill now

numbered S. 465. This bill would establish a commission to develop plans to end the trade

deficit in the next ten years and establish a new, more competitive trade policy for the next

century. In introducing this bill in 1996, Senator Dorgan noted that many economists had

predicted that the trade deficit would fall as the federal budget deficit declined between 1992

and 1996. Yet the trade deficit has expanded rapidly and reached a record level in 1996. The

Senator cited estimates from Data Resources, Inc., that the U.S. trade deficit will nearly double,

to $331 billion, by the year 2010.

The commission would examine five broad areas, including:

1. The process through which the United States establishes and administers its fundamental

trade policies and objectives;

2. The causes, consequences, and persistence of the United States’ overall trade deficit, and of

specific bilateral deficits;

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

68
3. The relationship of the trade deficit to the competitive and comparative advantages of the

United States;

4. The relationship between investment flows (inward and outward) and the trade deficit; and

5. The identification and evaluation of policies and alternative strategies that the United States

can use to systematically reduce the trade deficit and improve the well-being of its people.

This bill recognizes the conflicts and challenges which are discussed above. It is appropriate to

address these problems in a global reassessment of the type recommended by Senators Dorgan,

Byrd, and Sarbanes.

Recommendation 2: The U.S. should intensify its use of bilateral and unilateral trade

policies in order to correct the structural problems in our trade and

investment relationships in Asia, and actively seek out new fora for

addressing these problems.

The U.S. should step up its self-enforcement efforts in specific cases where countries are

unfairly restricting sales of imports from the U.S. through formal or informal policies, or through

toleration of collusion and other forms of non-competitive behavior by their own domestic firms

and groups of firms. These policies should include aggressive enforcement of U.S. “301” and

“Super 301” trade actions. 

The U.S. should also explore new options for restraining unfair trade practices. For example, as

noted above, China has been particularly aggressive in its pursuit of “offset agreements” in

commercial aircraft and a wide range of other high-technology industries, despite the fact that it

has specifically promised not to engage in such actions in formal “Memoranda of Understanding”

with the U.S. government. One way to respond to these infractions is to reach an agreement with

the European Union that would prohibit private firms from offering offset agreements in

exchange for sales. This policy could be tested first in the aircraft industry (where only U.S. and

European firms compete), and then expanded to other industries and regions.

Recommendation 3: The U.S. should make the achievement of new mechanisms for the

inclusion of enforceable labor rights and environmental standards

in the WTO its number one priority in this organization. The U.S.

should also place a high priority on the inclusion of such rights and

standards in bilateral and regional trade agreements.

As recognized in the Commission’s report, labor issues are “important economic issues and relate

quite properly to trade.” Indeed, there is every reason to argue that trade between countries is

unfair when labor rights in one country are repressed, children are enslaved, or prisoners are

used to produce products for export. Citizens groups and NGOs have begun to take action

against the most abusive forms of such trade, but these measures can never substitute for formal

government policies to discourage such abuses in the strongest terms possible. There is no

Dissent

69
reason why labor rights or environmental standards should not be enforceable with trade

sanctions, when restrictions of investor rights (e.g., performance requirements) are granted such

protection.

While it may be difficult to incorporate such measures into the WTO rapidly, great progress

along these lines can be made in regional and bilateral trading arrangements, in which the U.S.

possesses much more leverage. Progress and experience with labor rights and environmental

standards in local and regional agreements can also pave the way for more extensive multilateral

agreements in the future. Efforts to keep these issues out of these agreements will only delay

their incorporation into more inclusive institutions.

The U.S. must demonstrate that it is willing to make sacrifices in order to obtain progress on

labor rights and environmental standards. It has been willing in the past to make trade

concessions (e.g., the elimination of the Multi-Fibre Arrangement in the Uruguay Round) in

order to obtain further protection for intellectual property and investor rights. In particular, it

may be useful to consider linking offers of expanded development aid or debt relief to the

completion of agreements on these issues.

Recommendation 4: The U.S. should substantially increase its levels of public investment

in education, infrastructure, and research and development.

The U.S. has been financing tax and budget cuts by consuming its seed-corn for more than two

decades. Real public spending on education, infrastructure, and R&D has fallen steadily, as a

share of output (gross domestic product), throughout this period. We agree that increased

investment is needed to enhance U.S. productivity and competitiveness. However, numerous

studies by private economists6 have shown that it is extremely difficult to increase savings or

investment in the private sector through changes in public policy, including such measures as tax

cuts, capital gains tax preferences, and changes in the tax structure (e.g., individual retirement

accounts). None of these measures has been shown to have any significant effect on private

savings. Increases in public savings and investment are the most feasible and successful means

available for increasing the overall level of national savings and investment in the U.S.

Recommendation 5: The U.S. should continue to oppose China’s membership in the WTO

until it has completed those reforms of its economy needed to

achieve compliance with all existing international agreements and

WTO disciplines.

We are opposed to the admission of China to the WTO until China assumes and abides by the

same obligations required of other WTO nations. Our mushrooming trade deficit with China, the

pervasive role of the state and state-guided yet nominally privatized industries, and the

fundamental conflicts between our two economic systems are the clearest possible example of a

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

70

6 There is a large literature on these questions. Charles L. Schultze, Memos to the President: A Guide Through

Macroeconomics for the Busy Policymaker (Washington, D.C., The Brookings Institution, 1992) provides a useful

synthesis and analysis of the technical literature. Schultze, a former chair of the Council of Economic Advisors,

concludes that “tax devices are not likely to generate a large increase in [private] national savings” (p. 262). He also

argues that the “skeptics are more likely to prove correct” on proposals for cuts in capital gains taxes (p. 282).
case where the United States must retain all possible leverage for future bargaining. We must not

repeat the mistakes made in entering into the WTO treaty, which greatly reduced our ability to

take unilateral action against egregious violators of international trade norms.

There is no good reason to rush China into the WTO, and every reason to wait until it reforms

its trade, investment, and exchange rate practices. Our imports from China are four times as

large as our exports to China, giving us great leverage in trade disputes. Furthermore, many of

our exports to China supply U.S. plants making products for re-export. It would not be in China’s

self-interest to restrict imports of intermediate products that will ultimately contribute to its

trade balance. Finally, some have suggested that we use WTO membership as a carrot to extract

concessions from China regarding its treatment of Hong Kong when it returns to Chinese

control later this year. In this regard, it is important to remember that China has violated

international treaties, agreements, and obligations, including those involving offsets, copyrights,

apparel, and even nuclear proliferation. Giving China what it wants, at this time, will only reduce

our leverage.

The report fails to explain why 42% of China’s exports went to the United States in 1993, while

only 10% of their imports came from here, or why the United States has experienced a massively

growing trade deficit with China while the European Union has maintained balanced trade with

China. Part of the explanation is found in the ability of the EU governments to work in

partnership with their own firms in negotiating with the Chinese government for market access,

and in the EU’s willingness to establish formal and informal limits on imports of Chinese

products. The United States must recognize that China’s dependence on exports to the U.S.,

which provided more than 10% of all growth in China’s economy in 1994, is our source of

greatest leverage in negotiations. We lose this leverage the moment China is admitted to the

WTO and is granted permanent MFN status.

The majority report recommends immediate Chinese accession to the WTO if China provides a

“substantial down payment” as a condition for accession and agrees to all WTO disciplines. The

Commission recommends that the U.S. be flexible on the timetable for China to meet the WTO

disciplines. It also recommends that a U.S. decision on granting permanent MFN status be

deferred until after China joins the WTO, but is silent on the timing of MFN status. We are

pleased that the majority would require a “substantial down payment” from China and believe

that it indicates movement in the right direction. A down payment, however, is not sufficient;

China must pay its whole bill. We would not offer China WTO membership or MFN status until

after it has reformed its economy.

We have developed these recommendations to illustrate the kinds of approaches which we

believe will improve U.S. trade and investment with the Asia Pacific region. In the following

analysis, we provide detailed comments on the recommendations in the majority report.

Dissent

71
Comments on Majority Recommendations

Majority Recommendation 1: China

This recommendation comes in three parts. The first element concerns efforts to integrate China

into the global economy. We support the proposal to revive the U.S.-China Joint Committee on

Commerce and Trade. This type of communication can facilitate adjustment, when combined with

other policy measures. However, we are opposed to ending restrictions on aid to China from the

U.S. Trade Development Agency and from OPIC. These and other forms of aid should be used to

gain leverage in negotiations with the Chinese for improved market access and an end to

discriminatory practices, such as offset requirements.

The second and third elements of this recommendation concern China’s accession to the WTO

and MFN treatment for China. However, the recommended strategy will not solve the problems

described in the report. We are opposed to the admission of China at this time, as explained

above in our recommendation 5. 

Majority Recommendation 2: Japan

We oppose this entire section, which includes several broad recommendations, and then

proposes a study of the feasibility of negotiating a “Comprehensive Market Agreement.” For over

20 years the U.S. and Japan have been in conflict about Japan’s structural trade surplus with the

U.S. Only two measures have been shown to have any significant effect on this surplus: massive

devaluation of the U.S. dollar (52% since 1980) and sectoral agreements with specific, explicit

trade and market share targets.

However, Japan has grown increasingly resistant to sector-specific, managed trade agreements in

the last few years, as its trade surplus has declined. In addition to giving in on targets, recent

administrations have softened the terms of the agreements to measure sales by U.S. firms, rather

than exports to Japan or improvements in the trade balance. As a result, sectoral agreements

have become less effective in the 1990s. For example, despite several massive pacts in vehicles

and parts that were negotiated by the Bush Administration (totaling $10 billion in targets), and a

large overall decline of the U.S. dollar relative to the yen, the U.S. trade deficit with Japan in

these sectors actually worsened by $5 billion between 1991 and 1994. As a result of the increase

in the value of the dollar between mid-1996 and early 1997, Japanese vehicle exports have

surged, and in January 1997 increased by 75%, relative to levels a year earlier.

We believe that the Administration must return to the successful policies and firm bargaining

position of the mid-1980s, if we are to have any hope of correcting Japan’s structural trade

deficit. Beyond this, broader strategies may be required, such as invoking the GATT balance of

payments exception (see Scott, 1996; Greider, 1997; Thurow, 1996).7

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

72

7 Greider, William, One World, Ready or Not: The Manic Logic of Global Capitalism (New York: Simon &

Schuster, 1997). Scott, Robert E., “Trade,” in Reclaiming Prosperity: A Blueprint for Progressive Economic

Reform, Todd Schafer and Jeff Faux, eds. (Armonk, NY: M.E. Sharpe, 1996), pp. 245-61. Thurow, ibid, n. 2. 
Dissent

73

Majority Recommendation 3: Fast Track and Economic Balance of Benefits Study

The majority report recommends broad, unconditional fast track authority for a period of at least

four years. Over the past four years, the Administration has negotiated over 200 trade

agreements. Despite these efforts, and a substantial decline in the U.S. budget deficit (which has

been alleged to cause trade deficits), the U.S. trade deficit has mushroomed in this period. In

addition, wage inequality has continued to increase in the U.S., and in many of our closest

trading partners. These are symptoms of an approaching crisis in the world trading system

regarding sustained, structural trade imbalances and the growing global costs of trade expansion

and financial integration. 

Given this global context, the U.S. needs time to assess the causes of our trade problems, and to

analyze the successes and failures in the 200 agreements signed in the past four years. At most,

fast track should be authorized for a short period, for specific purposes, with clear conditions

reflecting the concerns of Congress and the public. In particular, given the growth of labor and

environmental problems associated with globalization, any fast track authority should include

provisions and an enforcement mechanism for addressing worker rights, labor standards, and

environmental protection. These provisions must be part of the core agreement and subject to

the same dispute settlement procedures available to other covered issues. These concerns must

be given at least as much concern as investor and intellectual property rights, as suggested in our

recommendation 3.

On this basis, fast track could be used to negotiate specific agreements with individual countries

or regions, such as Chile or the Caribbean Basin Initiative countries. These measures could then

become the model for incorporating such provisions into other trade agreements (including

NAFTA), and ultimately the WTO.

The majority report also recommends that “balance of benefits studies” should be completed

after major trade agreements are negotiated. This recommendation is sensible, as far as it goes.

Better information could improve the quality of public debate on the merits of trade agreements.

By emphasizing the “net” benefits, the Commission has recognized the importance of the

adjustment costs that result from trade agreements. It would also be useful to support

independent analysis, by several different groups, for especially important agreements such as the

Uruguay Round implementing legislation. 

Additionally, a more balanced evaluation could be obtained if reports were required at regular

intervals (e.g., 3, 6, and 10 years) for each agreement. This will require much more data

collection and analytical capability than is available at the U.S. International Trade Commission.

These functions should be incorporated into a new, cabinet level international trade agency.

While the need for such an agency, which was discussed during the WTO debates in the

Congress, is beyond the scope of our recommendations, it is an issue that should be considered

by a commission of the type discussed in our recommendation 1, above.
Majority Recommendation 4: Competition Policy

We are opposed to most of the recommendations in this section (other than annual reporting). The

Commission essentially recommends that the U.S. attempt, through negotiations, to force other

nations to adopt business and institutional structures similar to those in the U.S. This reflects,

again, the belief that by encouraging our trading partners in Asia to pass laws and set up new

bureaucracies and legal procedures, we can force them to have an open, competitive market like

that of the United States. While this approach has had some success in Europe, it is simply wishful

thinking in the case of Asia.

The fundamental differences in business practices, both between Asia and the United States and

among the Asian countries themselves, which are well documented in the majority report,

suggest that new approaches are needed. We believe that government-to-government, industryspecific negotiations, of the type which have been used most successfully with Japan, offer the

best hope for reducing the structural trade imbalances which are discussed in this dissenting

statement.

Majority Recommendation 5: Human Rights, Worker Rights, and the Environment

We support, with reservations, the Commission’s recommendation on human rights. We are

concerned because, while the Commission supports human rights in principle, in practice the

support is devalued by the condition requiring the U.S. to work with Asia “in a manner balanced

with U.S. commercial interests.” We find this qualification curious. How are “commercial

interests” to be defined? Are they profits, and patent and royalty income? Or are they U.S. jobs,

wages, and the trade balance? How are tradeoffs among these objectives to be considered? The

meaning of this recommendation is somewhat unclear.

We strongly endorse the majority recommendation on worker rights and labor standards. The

Commission has done well in generating this recommendation, overcoming substantial internal

opposition before it could agree on this general statement of support. In particular, we support

two key provisions of the majority’s recommendation: continued U.S. support for a WTO labor

rights working group and annual reporting on working conditions abroad.

However, the recommendation should be stronger and more specific in at least three ways. First,

trade agreements, including the WTO, should include provisions and enforcement mechanisms

for addressing worker rights and labor standards. Second, these provisions must be part of the

core agreement and subject to the same dispute settlement procedures available to other covered

issues. Finally, these concerns must be given at least as much concern as investor and

intellectual property rights, as suggested above. In addition, these measures must be incorporated

into other existing bilateral and multilateral trade and investment agreements. 

Environmental protection should also be incorporated into the core provisions of the WTO, in

the ways discussed above. Again, the majority recommendation in this area does not go far

enough.

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Majority Recommendation 6: Foreign Direct Investment Liberalization

We support the Commission’s recommendation opposing forced technology transfers.

We are opposed to the Multilateral Agreement on Investment because it will severely limit the

ability of federal, state, and local governments in the U.S. to regulate the activities of foreign

companies operating here, and to develop industrial policies in the future. Given the legalistic

basis of our culture and governmental institutions, the U.S. places itself at a serious disadvantage

vis-à-vis our trading partners in Europe, Japan, and elsewhere in Asia if we accede to this

proposed agreement. It will allow others to achieve trade and competitiveness goals through

formal and informal programs which we would be unable to match. For example, Europe

effectively demands high local content and keeps out imports from Eastern Europe and Asia in a

wide range of industries today, despite WTO prohibitions on quotas, voluntary restraint

agreements, and investment performance requirements. 

The U.S. should not unilaterally disarm itself of weapons and remedies that could be needed to

resolve trade disputes in the future. New approaches are called for to analyze the costs and

benefits of foreign investment and capital flows of all kinds. These should lead to new

approaches and strategies for improving the performance of the global economy. Further study of

these issues is required before policy recommendations can or should be developed in this area.

Majority Recommendation 7: Multilateral Solutions to Asia Trade and Investment

Problems

We oppose this recommendation because it is confused and internally contradictory. The

recommendation has three parts. The first recommends the use of WTO remedies to solve trade

problems. The second declares that the fundamental structure of the WTO, and its two core

principles of Most Favored Nation status and National Treatment, are insufficient to ensure

equivalent access for U.S. firms in foreign markets. It then suggests that future trade agreements

should be based on “mutuality and contestability.” 

The last point reflects the U.S. emphasis on reciprocity in trade negotiations, which resulted in

the failure of the recent negotiations for a financial services agreement. In that case, other

countries were unwilling to provide sufficient guarantees of market access to satisfy the U.S.

industry and trade negotiators.

A fundamental problem with the U.S. approach is that it will never correct the trade imbalances

discussed above. The U.S. had a services surplus of only $73 billion in 1996, versus a goods

deficit (on a BOP basis) of $187 billion, and most of this services surplus was offset by net

payments to foreign investors and other outflows on the current account. Our services exports

were $224 billion, versus imports of $950 billion. Services will never catch up, and their

production involves few jobs (especially of the high-wage variety), in any event. 

New approaches are needed to correct the structural imbalances inherent in the WTO and

current world trade patterns, as suggested above. It is not enough to demand reciprocity only in

new agreements.

Dissent

75
Majority Recommendation 8: APEC and Selective Free Trade Areas

The U.S. should re-examine the assumptions behind using APEC as the fulcrum for our trade

policy in this region. The world economy is moving towards the creation of regional trade blocks

that are based on geography and common interest. Europe has achieved much more successful

and positive regional integration by helping neighboring countries to raise levels of economic

development and political freedom before bringing them into the EU (e.g., Greece, Spain, and

Portugal). In addition, it is not clear that the countries of APEC are willing to take meaningful

steps to open their economies, or to use that organization for concrete trade or investment

negotiations. 

Regional trade agreements can be useful, but they must include the labor and environmental

standards discussed above under our comments on majority recommendations 3 and 5. In

addition, such agreements are more likely to work when based on proximity in terms of

geography and development levels (e.g., U.S.-Canada).

Majority Recommendation 9: Exchange Rates

We support this recommendation.

Majority Recommendation 10: Greater Priority to Asia Pacific

We support some of the thinking behind this recommendation but believe that it is both

premature and too narrowly focused. As written, it reflects the fundamental flaw in the

Commission’s analysis: the assumption that by simply expanding future exports to Asia, the U.S.

will obtain the benefits envisioned in the President’s charge to the Commission in Executive

Order 12964 (see Annex B). This charge included creating and maintaining a “maximum number

of high-wage jobs.” It also required the Commission to use “realistic measurements of trade and

investment activity in Asia and the Pacific, which consider all relevant factors, including the

composition of trade and intracompany trade and investment patterns.” Presumably, this analysis

should have included the net effects of increasing exports on the trade balance, and problems

associated with outsourcing production in low-wage, offshore locations by U.S. multinationals.

We have demonstrated, using the Commission’s own forecasts, that the U.S. trade deficit with

Asia is expected to grow, not decline, destroying, not creating, the high-wage jobs called for in

the President’s charge to the Commission. The sophisticated analysis called for in his executive

order has not been developed in the majority report.

The Commission’s final recommendation calls for a shift in priorities and resources from other

areas of the world (and the federal budget) to promoting U.S. exports to and investments in Asia.

While we agree that the growing importance to the U.S. economy of the Asia Pacific region

merits some resources being devoted to enhancing U.S. exports to the region, it is premature to

propose the substantial increase in resources that the Commission recommends, especially in an

era of extreme budget tightening. A much more thorough, comprehensive, and sophisticated

review of the costs, benefits, prospects, and risks of foreign trade and investment for the U.S. is

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76
required before judgements can be made about the allocation of scarce resources. We also note a

crucial caveat to supporting export enhancement: U.S. government resources should not be used

to support exports to the Asia Pacific region which are then re-exported back to the U.S.

Neither should government resources be used to promote U.S. investment in Asia Pacific

countries until those countries eliminate performance requirements and without a deeper

analysis of and careful response to the consequences of moving production overseas.

Dissent

77
79

Kenneth D. Brody - Chairman

Mr. Brody is the Founding Partner of Winslow Partners LLC, a private equity investment firm

and the Chairman of the Board of Directors and a founder of Chartwell Health Management

Inc. From 1993 to early 1996, he served as President and Chairman of the Export-Import Bank

of the United States (Ex-Im Bank). In this capacity, he guided the Clinton Administration in

setting a new and aggressive national export strategy to help U.S. exporters become more

competitive in the global marketplace. His activities at the Ex-Im Bank led to substantial

involvement with many of the Asia Pacific countries. He also led the revitalization of the Ex-Im

Bank into a customer-oriented, private sector-like financial institution.

Prior to his government service, Mr. Brody spent twenty years at Goldman, Sachs & Co. In

addition to various investment banking assignments, he founded and headed the high-technology

investment banking group, headed the real estate investment banking group, and co-headed the

firm’s long-term principal investing activities. He was a partner and a member of the firm’s

management committee.

Mr. Brody is a member of the Boards of Directors of Alex Brown Incorporated, Quest Diagnostics

Incorporated (formerly known as Corning Clinical Laboratories Inc.), and Yurie Systems, Inc.

Mr. Brody is also a member of the Boards of the American Red Cross and St. John’s College and

is a member of the Council on Foreign Relations. Mr. Brody received a Bachelor of Science in

Electrical Engineering degree with high honors from the University of Maryland and a Master of

Business Administration degree with high distinction from Harvard University. He lives in

Washington D.C. with his wife and their two children.

Clyde V. Prestowitz, Jr. - Vice Chairman

Mr. Prestowitz is the founder and president of the Economic Strategy Institute (ESI), a nonprofit research center specializing in international trade and competitiveness issues. Mr.

Prestowitz brings to the Commission extensive expertise in trade issues and U.S.-Asia economic

and business relations as the result of a career in international business and government. As a

Annex A: Background on Commissioners
businessman he worked as Director of European operations for Scott Paper Company, Vice

President-Japan for Egon Zehnder International, and Director of International Marketing for the

American Can Company.

As a government official, Mr. Prestowitz served successively as Deputy Assistant Secretary of

Commerce, Acting Assistant Secretary of Commerce, and Counselor to the Secretary of

Commerce, from 1981- 1986. In this period, Mr. Prestowitz was actively engaged in high level

trade negotiations with Japan, South Korea, and other Asian nations. After leaving government,

Mr. Prestowitz became a senior associate at the Carnegie Endowment and a Fellow at the

Woodrow Wilson International Center for Scholars, where he authored his best selling book on

U.S.-Japan relations, Trading Places. Mr. Prestowitz is on the board of the Pacific Basin

Economic Council where he serves as Vice Chairman. He has a B.A. degree with honors from

Swathmore College where he was a McCabe Scholar, an M.A. in East-West Politics and

Economics from the East-West Center and Keio University in Tokyo, and an MBA from the

Wharton School of the University of Pennsylvania.

Morton Bahr

Mr. Bahr serves as President of the Communications Workers of America (CWA). Under Mr.

Bahr’s leadership, and through his emphasis on organizing workers in new industries and

pursuing mergers with unions in related media fields, the CWA has grown to represent 600,000

members. In the course of establishing close relations with other unions in the Asia Pacific

region, Mr Bahr has traveled extensively throughout Asia. He has addressed the Japanese

Electrical Workers (Denki Roren). The CWA and the Japanese Telecommunications Workers

(Zendentsu) have a mutual assistance agreement and have supported each other’s efforts in

dealing with multinational employers, and the CWA recently conducted a joint education

conference on information technology with its counterpart union in the Philippines. President

Bahr serves as Vice President of the world executive committee of the Postal, Telegraph and

Telephone International, representing 4.5 million telecommunications and postal workers in 115

countries.

Jason S. Berman

Mr. Berman serves as chairman and chief executive officer of the Recording Industry Association

of America (RIAA), a trade organization whose member companies create, manufacture and/or

distribute approximately 90 percent of all legitimate sound recordings produced and sold in the

United States and 60 percent worldwide. 

Under Mr. Berman’s guidance, the RIAA continues to make substantial progress opening markets

and reducing record piracy in Asia. He is a member of the board of directors of the International

Federation of Phonographic Industries, and is actively involved with the International Intellectual

Property Alliance. He also serves as a member of the U.S. Trade Representative’s Investment and

Service Policy Advisory Committee.

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On behalf of the United States recording industry, Mr. Berman has actively participated in the

negotiations with China on intellectual property protection and was part of the official U.S.

delegation at the signing of the February 1995 agreement. He has also been a participant in

negotiations with Japan on record rental and its TRIPS implementation obligations on

retroactivity, and with Thailand and Hong Kong on their copyright laws and enforcement.

Mr. Berman’s leadership has led to the passage of the Audio Home Recording Act of 1992, the Digital

Performance Right in Sound Recordings Act of 1995, the creation of the Special 301 section of the

U.S. trade law, and the strengthening of international copyright law. 

Lawrence M. Johnson

Mr. Johnson has been a lifetime resident of the Asia Pacific region. Based in Hawaii and

Chairman and CEO of one of the region’s largest financial institutions he has developed an

unusual appreciation for the opportunities that exist in Asia. His company, Bancorp Hawaii, Inc.,

and its principal subsidiary, Bank of Hawaii, has a business presence in twenty one Asia Pacific

countries including Japan, South Korea, Hong Kong, Taiwan, Singapore, and the Philippines. He

has traveled extensively throughout the region and is well versed in the political, social, and

economic attributes of the Asia Pacific region. Mr. Johnson serves on the board of the East-West

Center and is Chairman of the Hawaii Business Roundtable. He is a member of the U.S.-Japan

Business Council and the Japan-Hawaii Economic Council. 

Robert Z. Lawrence

Mr. Lawrence is the Albert L. Williams Professor of International Trade and Investment at the

John F. Kennedy School of Government, Harvard University, and the New Century Senior Fellow

at the Brookings Institution. Professor Lawrence has been a senior fellow in the Economic

Studies Program at the Brookings Institution. He has served as a consultant to the Federal

Reserve Bank of New York, the World Bank, the Organization for Economic Cooperation and

Development (OECD) and the United Nations Conference on Trade and Development

(UNCTAD). He is also a research associate at the National Bureau of Economic Research and

has served as a member of the advisory committees of the Institute for International Economics,

the Panel of Foreign Trade Statistics of the National Academy of Sciences, the Committee for

Economic Development, the Overseas Development Council, and the Panel of Economic

Advisors of the Congressional Budget Office. 

Professor Lawrence has written or co-authorized books on domestic and international economic

problems which include Regionalism, Multilateralism and Deeper Integration; A Vision for the

World Economy: Openness, Diversity and Cohesion; Single World, Divided Nations: Trade and

OECD Labor Markets; Can America Compete?; Saving Free Trade: A Pragmatic Approach; and

Primary Commodity Markets and the New Inflation. He has co-edited Barriers to European

Economic Growth: A Transatlantic Perspective; U.S. Living Standards: Threats and Challenges; An

American Trade Strategy: Options for the 1990’s and North American Free Trade: Assessing the

Impact. Dr. Lawrence’s current research focuses on global integration and the impact of trade on

the labor market.

Annex A: Background on Commissioners

81
Kenneth Lewis

Mr. Lewis had over 30 years experience in the international shipping industry before he retired in

1994 as President and CEO of Lasco Shipping Co. In his positions at Lasco, Mr. Lewis worked

extensively with the business communities of the Asia Pacific region. Over the course of his

tenure at Lasco, and starting in the 1960s, he made over 100 trips to the Asia Pacific region. As

a buyer, he arranged for the construction of vessels from shipyards in Japan, South Korea, and

China and for the purchase of existing vessels from shipping and trading companies in Japan. As

a seller, he arranged for the chartering of vessels to companies in Japan, South Korea, China,

and Taiwan. The vessels operated by Lasco carried cargo throughout the world, but focused

mainly on trade with Japan, South Korea, China, and Taiwan.

Mr. Lewis received his B.A. from Princeton University (Woodrow Wilson School of Public and

International Affairs) and his J.D. from Harvard Law School.

Mr. Lewis was appointed to the Port of Portland Commission by Republican and Democratic

Oregon Governors. While serving as President of the Port of Portland Commission, he helped

negotiate the first agreement with China for Portland to become a major port of entry for

Chinese goods coming to the United States.

James C. Morgan

Mr. Morgan has been chief executive officer of Applied Materials since 1977. Applied Materials

is a Fortune 500 global growth company providing core capabilities that enable the emerging

global Information Age. The company is the largest producer of wafer fabrication systems and

services for the world wide semiconductor industry. As a major exporter, 69 percent of Applied

Materials’ fiscal 1996 sales were overseas, with more than 50 percent of total sales to Asia. 

Mr. Morgan is a recipient of the 1996 National Medal of Technology for his industry leadership

and for his vision in building Applied Materials into the world’s leading semiconductor

equipment company, a major exporter and a global technology pioneer. Mr. Morgan served on the

National Advisory Committee on Semiconductors, which advised President Bush and Congress

on a national strategy to strengthen competitiveness of the U.S. semiconductor industry. Mr.

Morgan’s experiences in gaining access to Asia Pacific markets for semiconductor equipment are

reflected, in part, in his co-authored book, Cracking the Japanese Market: Strategies for Success in

the New Global Economy.

A member of a number of civic and global business organizations, Mr. Morgan is a Director

Emeritus and past president of Semiconductor Equipment and Materials International (SEMI),

the first global trade association, and is a past board member of the American Electronics

Association (AEA). From 1986-1991 he was a co-chairman of the Japan-Western U.S.

Association. 

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

82
Harold A. Poling

Mr. Poling served as Chairman and CEO of Ford Motor Company from 1990 to 1994.

Throughout an active career with Ford, Mr. Poling has been involved with every segment of the

company’s operations. He has served as Vice President and Chairman of Ford’s European

subsidiary. Mr. Poling is one of the foremost authorities on the world auto market and has won

many prestigious awards for his commitment to the industry. His experiences in the Asia Pacific

region include working very closely with Mazda in Japan, Kia Motors of South Korea, as well as

working with the U.S.- Japan Council and recent contacts with Japanese business and

government officials.

Ron Sims

Mr. Sims was recently elected King County (Washington) Executive, after serving three terms on

the Metropolitan King County Council. He chaired the Economic and Development and

Regional Governance Committee. Through his work on this committee and other experiences he

developed a background in trade and investment, particularly with the Pacific Rim, reflecting a

metropolitan area perspective. He recently participated as a delegate to the Intercity Study

Mission in Hong Kong. The mission was organized to examine the international success of Hong

Kong, its organizational strategy, investments, infrastructure, education, housing, and to build

ties between the two entities. Mr. Sims has also participated in a sister-county mission to Taiwan

and South Korea with the Trade Development Alliance. Mr. Sims continues to work very closely

with Seattle’s most active Asian trading partners to strengthen economic and cultural ties

between similar metropolitan areas of Asia and the King County area.

Bruce E. Stokes

Mr. Stokes is a Senior Fellow and Director of Trade Programs at the Council on Foreign

Relations. He is author of numerous articles in the National Journal, Foreign Affairs, Foreign

Policy, International Affairs, Foresight, Politique Estrangere, The New York Times and The

Washington Post. Mr. Stokes is the co-author of the chapter “Asian Regionalism and U.S.

Interests” in the book The United States and Japan in Asia. He is also the author of numerous

shorter studies, including Japanese Investment in the United States: Its Causes and Consequences

and The Inevitability of Managed Trade. From 1987-89, Stokes was a fellow of the U.S.-Japan

Leadership Program. 

Jackson Tai

Mr. Tai is J.P. Morgan & Co. Incorporated’s senior officer for its business in the Western United

States. Prior to this assignment, Mr. Tai was senior officer for the Asia Pacific from 1992 to

1995, based in Tokyo. As Chairman of the Asia Pacific Management Committee, he was

responsible for coordinating J.P. Morgan’s businesses in Japan, South Korea, China, Hong Kong,

Taiwan, Singapore, Malaysia, Indonesia, the Philippines, Australia, and New Zealand. 

Annex A: Background on Commissioners

83
From 1986 to 1992, Mr. Tai was Managing Director and head of J.P. Morgan’s Real Estate

Department, which provides financial and advisory services to corporate, institutional, and

private clients in Europe, the Americas, and Asia. From 1983-1986, Mr. Tai was Executive

Director and Chief Representative of J.P. Morgan Securities Asia, Ltd. in Tokyo. In that capacity

he was responsible for all capital markets activities in Japan. Mr. Tai received a B.S. from

Rensselaer Polytechnic Institute and a M.B.A. from Harvard University. 

Yah Lin Trie

Mr. Trie has lived in Arkansas for 21 years and has owned and operated a chain of successful

dining establishments in central Arkansas and Texas. Mr. Trie created Daihatsu International, an

import/export company involved in Asia Pacific. For many years, Mr. Trie has worked to promote

goodwill and understanding between the people of Asia Pacific and the United States. Mr. Trie

was instrumental in establishing sister city relations between Changchun, China and Little Rock,

Arkansas.

Ko-Yung Tung

Mr. Tung is Chairman of the Global Practices Group for the international law firm, O’Melveny &

Myers LLP. Currently Mr. Tung’s practice consists primarily of representation of multinational

clients in mergers and acquisitions, banking finance, real estate and commercial matters, with

particular emphasis in trans-Pacific transactions. Mr. Tung received his B.A. from Harvard

College, J.D. from Harvard Law School, and graduate fellowship from the University of Tokyo.

From 1975 until 1988, Mr. Tung was an Adjunct Professor of Law at the School of Law of New

York University teaching courses on international business transactions and Japanese law. He

serves as the Chairman of the Board of Governors of the East-West Center, a federally

established educational and research institution in Honolulu, Hawaii devoted to the promotion

of better understanding between the United States and the Asia Pacific nations. He is a member

of the Trilateral Commission, the Council on Foreign Relations, Asia Society, Japan Society,

Overseas Development Council, United States National Committee for Pacific Economic

Cooperation, National Committee on United States-China Relations, the United States-China

Business Council, Advisory Council of Human Rights Watch/Asia, the Board of Directors of the

Asian-American Legal Defense and Education Fund. 

Harriett M. Wieder

Mrs. Wieder has 30 years of public policy experience. She served 16 years as an elected County

Supervisor in Orange County, California and in that capacity three times as Chairman of the

Board. Other experiences in local government include 10 years as an executive-assistant to the

Mayor of Los Angeles and 4 years as Mayor and a City Council member of Huntington Beach,

California. During her 16 years with the Orange County Board of Supervisors, she established

the Office of Protocol with the objective of increasing trade and investments for Orange County

businesses.

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84
In the private sector, Mrs. Wieder has served the past 4 years on the Advisory Council and Board

of Directors of The International Forum for Corporate Directors. The goal of the Forum is to

increase business activity with the Pacific Rim countries. She also holds the position of Vice

President for Communications of the International Women’s Forum. Mrs. Wieder is also Vice

President of Overseas Marketing Exchange, an importing and manufacturing business.

Robert A. Wilson, Jr.

Mr. Wilson is one of the leading American businessmen in the Asia Pacific region. Mr. Wilson

has worked for Citibank, N.A. for 17 years, including the last 11 years in South Korea,

Singapore, and Thailand. In 1996, Mr. Wilson assumed his current position as General Manager

and Country Corporate Officer for Citibank, N.A. in South Korea. Previously, he served as

Regional Manager for Citibank activities in Thailand, Vietnam, Burma, Laos, and Cambodia.

Prior to that position he was the Regional Credit Officer for Southeast Asia and South Asia. Mr.

Wilson is intimately familiar with financial service sector developments, trade and investment,

and sovereign risk issues throughout the Asia Pacific. 

Mr. Wilson served as President of the American Chamber of Commerce in Thailand in 1995 and

1996. Mr. Wilson currently serves as Chairman of the Asia Pacific Council of American

Chambers of Commerce (APCAC) and represents the interest of American industry throughout

the Asia Pacific region before the Congress and the Administration. In particular, Mr. Wilson

worked with Administration officials and the Congress to lift the U.S. trade embargo on Vietnam

in February 1994, to normalize diplomatic relations between the United States and Vietnam in

July 1995, and to sign a convention between the United States and Thailand for the Avoidance of

Double Taxation in November 1996. Mr. Wilson is a frequent spokesman for American business

in the Asia Pacific region on diverse issues such as funding for U.S. export assistance programs,

the Asia Pacific Economic Cooperation (APEC) forum, and Universal Business Principles for

American business overseas. 

Meredith Woo-Cumings

Ms. Woo-Cumings is an Associate Professor of Political Science and Director of the Roundtable

on Political Economy at Northwestern University. She specializes in comparative politics and

political economy, with emphasis on East Asia. She has authored and edited four books,

including Race to the Swift: State and Finance in Korean Industrialization (Columbia University

Press, 1991); Past as Prelude: History in the Making of the New World Order (Westview Press,

1991); Ungoverning Capital: Financial Liberalization in Comparative Perspective (Cornell

University Press, 1996), and The Developmental State in Comparative Perspective (Cornell

University Press). The first book, Race to the Swift was published under the name Jung-en Woo. 

Professor Woo-Cumings was born in 1958 in Seoul, Korea, and raised in Tokyo, Japan, where

she attended an international high school. She received her B.A. in English and History from

Bowdoin College and Ph.D. in Political Science from Columbia University. Before joining

Northwestern University in 1989, she taught at Colgate and Columbia Universities.

Annex A: Background on Commissioners

85
87

Establishment

The Commission on U.S.-Pacific Trade and Investment Policy (“Commission”) was established by

Executive Order 12964 on June 21, 1995 (as amended January 31, 1996 by Executive Order

12987, and December 26, 1996 by Executive Order 13032) to examine trade barriers, trends and

issues in trade and investment policy in Asia Pacific, and make recommendations to the

President and Congress on steps the United States should take to achieve significant market

opening of Asia Pacific markets to U.S. business. The functions charged to the Commission are

stated as follows: 

On or about February 28, 1997, the Commission shall report to the President on the

steps the United States should take to achieve a significant market opening of Japan,

China and other Asian and Pacific markets to U.S. business. The report also shall

identify trade and investment impediments to U.S. business in Asian and Pacific markets

and provide recommendations for reducing the impediments. The report’s

recommendations shall reflect the goal of securing increased access for U.S. business to

Asian and Pacific markets, by the turn of the century, in such a way that a maximum

number of high-wage jobs are created and maintained in the United States. The

Commission also shall recommend to the President (1) measures to strengthen, if

necessary, ongoing programs for regular monitoring of progress toward this goal,

including the periodic assessment of the nature and scope of trade and investment

impediments; and (2) realistic measurements of trade and investment activity in Asia and

the Pacific, which consider all relevant factors, including the composition of trade and

intracompany trade and investment patterns. 

Members

Made up of seventeen individuals with a broad range of expertise regarding Asia Pacific and/or

trade issues, the Commission includes representatives from large and small businesses,

academia, labor, local government, and journalism. A broad range of perspectives has been

Annex B: Commission Background and

Record
brought to the Commission’s work by the inclusion of members who have experience in:

manufacturing; service industries; entrepreneurial ventures including importing and exporting;

the foreign and trade policy communities; export promotion and finance; investment and

intellectual property rights; the international legal community; labor and environmental issues.

All members have either lived, worked, actively traveled or studied the region for years. Four

members bring Asian American heritage and a knowledge of Asia Pacific cultures, history, and

economic and social challenges of the region to the Commission’s work. One member has

represented the views of American firms operating on the ground in the region by serving

simultaneously as the President of the Asia Pacific Chambers of Commerce and as a member of

the Commission.

Overview of the Commission’s Work Program

At their first meeting, members recognized the breadth and depth of their expertise, but also

noted areas where their individual and collective knowledge needed further development. With

this in mind, the Commission developed an initial four month study program focused on

obtaining input from specialists on a number of important issues. After the initial study period,

the Commission began a detailed examination of the primary issues and barriers. In an effort to

supplement the Commission’s work program, eight Commission members traveled to Japan,

Hong Kong, Indonesia, Thailand, Taiwan, and China at their own expense. They met with

American business leaders who had responsibility for specific countries and the region. They also

met with Asia Pacific business and government leaders. After returning from the trip, the

Commission began to develop its findings and recommendations. The Chairman, Vice-Chairman,

and individual members also met with representatives of Congress. 

Meetings

From the first meeting on April 23, 1996 to the completion of its work, the Commission met 15

times in formal session. A synopsis of each of these meetings, the subject matter addressed, and

the witnesses and experts with which the Commission met is provided below.

April 23, 1996: At the initial session, the Commission was charged with its responsibilities in a

ceremony conducted by Secretary of Commerce Mickey Kantor, Acting United States Trade

Representative Charlene Barshefsky, and Senator Jeff Bingaman. The Commissioners

immediately entered into working sessions focusing on initial overviews of the political/security

setting, economic and trade picture in Asia Pacific, the last 15 years of bilateral trade

negotiations with key trading partners in Asia Pacific, the current U.S. government trade and

investment policy structure, and the tools currently available to American trade negotiators to

address trade and investment barriers. 

Expert Witnesses

Michael Kantor, United States Secretary of Commerce

Charlene Barshefsky, Acting United States Trade Representative

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

88
Jeff Bingaman, U.S. Senator, (D-NM)

Central Intelligence Agency - Asia Branch

Ira Shapiro, Senior Counsel and Negotiator, Office of the United States Trade

Representative 

Lee Sands, Assistant United States Trade Representative for Japan and China

Robert Cassidy, Assistant United States Trade Representative for Asia and the

Pacific

Jennifer Hillman, General Counsel, Office of the United States Trade

Representative

Patrick Cronin, Senior Research Professor, Institute for National Strategic Studies,

National Defense University 

James Delaney, Senior Associate, Institute for Defense Analysis

May 14, 1996: The Commission began to address specific topics at the May meeting.

The agenda focused upon Asia Pacific perspectives of the region, the various Asia Pacific

economies, and the U.S. economy. Other agenda items included key trends and issues in

U.S. economic relations with Asia Pacific, particularly Japan, the U.S.-Asia Pacific

foreign policy and security context, assessment of the effectiveness of U.S. trade and

investment policy tools and leverage, APEC and its trade and investment role, and the

application of game theory to economic and trade issues. 

Expert Witnesses

Meredith Woo-Cumings*, Associate Professor, Northwestern University

Jackson Tai*, Managing Director (Western U.S.), J. P. Morgan 

Kozo Yamamura, Professor, University of Washington

Ezra Vogel, Professor, Harvard University

Clyde Prestowitz*, President, Economic Strategy Institute

Robert Z. Lawrence*, Professor, Kennedy School of Government, Harvard

University 

Paul Wolfowitz, Dean, Paul H. Nitze School of Advanced International Studies, the

Johns Hopkins University

Alan Wolff, Partner, Dewey Ballantine

Judy Bello, Partner, Sidley and Austin

Sandra Kristoff, Special Assistant for Asian Affairs, National Security Council

Nancy Adams, Commission Executive Director and Assistant U.S. Trade

Representative for APEC Affairs

Annex B: Commission Background and Record

89
Fred Bergsten, President, Institute for International Economics

Barry Nalebuff, Professor, Yale University

( * denotes Commission member)

May 22, 1996: (Informal Commission session with Asia Pacific business representatives of the

Pacific Basin Economic Council.) Commission members met with Asia Pacific business leaders

to hear their views on U.S. trade policy. The discussion concentrated on the effectiveness of U.S.

policy approaches to the region and what Asia Pacific business leaders consider to be U.S.

priority issues in the future. 

Participants

Kim Ki Hwan, Chairman of the Board, Korea Trade Promotion Corporation (Korea)

S.R. Cho, Chairman, Hyosung Business Group (Korea)

Sozaburo Okamatsu, Long Term Credit Bank of Japan (Japan)

Toyoo Gyohten, Senior Advisor, Bank of Tokyo Mitsubishi Ltd. (Japan)

Tommy T.B. Koh, Ambassador at Large (Singapore)

William Falconer, Barrister (New Zealand)

Thomas Arai, Chairman, Systems International Inc. (Japan)

June 12, 1996: The meeting concentrated on human rights and trade, trade and the

environment, the views of the Commission on problems and solutions, and relations with China.

Commission members also received a briefing by Laura Tyson, National Economic Advisor to the

President on past experiences and the future of trade relations with the countries of the Asia

Pacific region. 

Expert Witnesses

Sidney Jones, Executive Director, Asia Division, Human Rights Watch Asia

David Schorr, Senior Officer, World Wildlife Fund

Robert Morris, Senior Vice President, U.S. Council for International Business

Laura Tyson, National Economic Advisor to the President

June 26, 1996: The areas of high-technology, intellectual property rights, agriculture and

biotechnology are of great importance to the U.S. economic presence in Asia Pacific and the

future of American competitiveness. In order to assure that the Commission received adequate

input from these industries, the Commission held its June 26, 1996 meeting at Silicon Valley in

Santa Clara, California. 

Expert Witnesses

Regis McKenna, President, Regis McKenna Inc.

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

90
Richard Elkus, Chairman & Executive Vice President, Tencor Instruments

Andy Procassini, former President, Semiconductor Industry Association

Michael Borrus, Co-Director, Berkeley Round Table on the International Economy (BRIE). 

John Zysman, Co-Director, Berkeley Round Table on the International Economy (BRIE). 

James Morgan*, Chairman and CEO, Applied Materials

Irving Ho, Founder, Etron Integrated Circuits

Craig Barrett, Executive Vice President and CEO, Intel Corporation 

George Sollman, President and CEO, Centigram Communications 

Mike Morrissey, KLA Instruments

Daryl Hatano, Semiconductor Industry Association

Debra Waggoner, American Electronics Association

Robert Holleyman II, President, Business Software Alliance

Carol Brookins, Chairman and CEO, World Perspectives, Inc.

Ann Veneman, Secretary of Agriculture, State of California

Lew Platt, Chairman and CEO, Hewlitt Packard

July 17, 1996: The meeting provided an opportunity for the Commissioners to hear from leaders

representing industries that have intensively pursued access to Asia Pacific markets. The speakers

described the success and the frustration of their firm’s attempts to enter these markets as well

as the obstacles, domestic and abroad, that hinder these efforts. The meeting continued with a

panel discussion of experts providing information on worker rights. To address investment issues

related to Asia Pacific, the Commission heard from three investors who have been active in Asia

Pacific, representing both portfolio and foreign direct investment interests. The speakers

discussed the opportunities and the strategies for investing in Asia Pacific and gave their input on

the role they would like to see the U.S. government play in addressing foreign investment issues.

The meeting concluded with a closed session discussion with the Deputy Secretary of the U.S.

Treasury assessing our relations with the countries of the region. 

Expert Witnesses

Frank Shrontz, Chairman, The Boeing Company

Andrew Card, President, The American Automobile Manufacturers Association 

Arnold Brenner, Executive Vice President, Motorola 

Morton Bahr*, President, Communication Workers of America

Mark Anderson, Director, The Task Force on Trade AFL-CIO

Thea Lee, Economist, The Economic Policy Institute 

Annex B: Commission Background and Record

91
David Fisher, Chairman, The Capital Group

Charles Frank, Vice President, GE Capital

Anthony Fernandez, Executive Vice President, ARCO

Lawrence Summers, Deputy Secretary, U.S. Department of Treasury

July 31, 1996: The Commission continued its efforts to identify issues that affect U.S. trade and

investment policy in Asia Pacific. Areas of discussion included constructive engagement with

China and the other Asia Pacific nations, a thorough evaluation of our trade tools and their use,

the U.S. government’s trade promotion efforts and what the European Union is doing in the

region. Presentations on competition policy and antitrust provided the Commission with more

knowledge regarding the problems of competition in the Asia Pacific region, and the status of

bilateral, regional, and global debates on competition policy, antitrust and anti-competitive

behavior.

Expert Witnesses

Robert Eaton, Chairman and CEO, Chrysler Corporation

George Fisher, Chairman and CEO, Eastman Kodak

Stuart Eizenstat, Under Secretary of Commerce

Jeffrey Lang, Deputy U.S. Trade Representative 

Anne Bingaman, Assistant Attorney General for Anti-Trust

August 8, 1996: The Commission began internal deliberations to synthesize the information

obtained and assess the progress made in examining trade and investment issues. The

Commissioners identified the additional resource materials needed to further define the road

map for the report. In order to further expand the members’ knowledge of Asia Pacific markets,

the Commission determined that between September 16-28, 1996 the Commission would visit a

number of Asia Pacific countries. Meetings would be arranged with government officials, U.S.

business representatives in the region, local business leaders, and entrepreneurs to learn their

views on trade and investment within the region. These meetings covered specific topics tailored

to the circumstances the United States faces in each country. Members visited Japan, Hong

Kong, Thailand, Indonesia, Taiwan, and China. Following the trip to Asia Pacific, a number of

the Commission members attended a dinner hosted by Leslie Gelb, President of the Council on

Foreign Relations on October 1, 1996 to discuss the Commission’s preliminary findings and

receive some feedback from experts on foreign policy and international business. 

October 8, 1996: The Commissioners examined issues related to the World Trade Organization

(WTO), the WTO dispute settlement process, the process that the United States follows for all

WTO accession negotiations, the ramifications of the WTO accession process, and an analysis of

the obligations which Taiwan and China must meet to enter the WTO. 

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

92
Expert Witnesses

Jane Bradley, Assistant U.S. Trade Representative for Monitoring and Enforcement

Dorothy Dwoskin, Assistant U.S. Trade Representative for WTO and Multilateral Affairs 

October 18, 1996: The Commission heard from Senator Jeff Bingaman of New Mexico who was

instrumental in the creation of the Commission. He voiced concern over the growing trade

imbalance we have in the Asia Pacific region and discussed the views on Capitol Hill regarding

trade and investment issues. To further examine the utilization of trade tools, the Commission

met with an official of the U.S. International Trade Commission. The discussion on trade

remedies and anti-competitive practices provided the Commissioners with a detailed explanation

of the interaction of trade tools and their uses. The remaining portion of the meeting focused on

developing the report’s recommendations and the framework of the document.

Expert Witnesses

Jeff Bingaman, U.S. Senator, (D-NM)

Lyn Schlitt, General Counsel, U.S. International Trade Commission

October 30, 1996: To ensure that the major areas of concern had been addressed, the

Commission asked Ambassador Charlene Barshefsky, Acting U.S. Trade Representative, to

discuss the Administration’s view of certain key issues and to seek her reaction to some of the

Commission’s preliminary recommendations. The Commission, then, continued its deliberations

on the recommendations of the report.

Expert Witness

Charlene Barshefsky, Acting U.S. Trade Representative

November 8, November 25, December 16-17, 1996, February 28, 1997: The Commission

continued deliberations on the findings and recommendations. This process, which occurred

over several months, allowed the Commission members to examine testimony, data, and

information, and to finalize its conclusions.

Annex B: Commission Background and Record

93
95

1981-1984 THE FIRST REAGAN ADMINISTRATION

OVERVIEW:

• As the Reagan Administration took office, trade constituted only 10 percent of gross national

product. The trade deficit, valued at $3.4 billion, merited little attention. Trade policy centered

on the implementation of the Tokyo Round of Multilateral Trade Negotiations. Completed in

1979, the Tokyo Round was the seventh round of trade negotiations in the General Agreement

on Tariffs and Trade (GATT). Other important negotiations in this period included: a

counterfeit code; a North-South Dialogue in the United Nations; a series of commodity

agreements; and an agreement in the Organization for Economic Cooperation and

Development (OECD) on subsidy elements in official export credit schemes.

• The five central components of the Reagan Administration policy were: restoration of noninflationary growth; reduction of self-imposed export disincentives; better management of

government export promotion programs; effective enforcement of U.S. trade laws and

international agreements; effective approaches to industrial adjustment problems; and the

improvement and extension of international trade rules.

• By 1982, the United States proposed a new trade initiative at a GATT Ministerial Conference

to address all the unfinished business of the Tokyo Round including negotiation of new

disciplines, safeguard actions, agriculture, trade-related performance requirements, trade in

services, trade in high-technology goods and differential treatment for developing countries.

Unfortunately by November 1982, when the meeting was held, many GATT members were

already mired in recession and were unwilling to make concessions to liberalize world trade.

• 1983 witnessed a demand for trade restrictions with a force that had not been felt since the

1930s. Continued recession in many countries, a rise in unemployment and the financial

difficulties of companies that were no longer internationally competitive fueled the trend. The

Annex C: Brief Review of United States

Trade Policy and Asia Pacific

Trade Relations, 1981-19961

1 Annex IV was compiled from Annual Reports of the President on the Trade Agreements Program from 1980 - 1995.
volume of world trade declined by 2% and the Mexican peso crisis underlined the interdependence of trade and financial policies. As multilateral consensus for trade negotiations

became increasingly elusive, the United States began to pursue negotiations with “like-minded”

countries to achieve higher levels of trade discipline. The U.S. Trade Representative informally

proposed a free trade area to the Association of Southeast Asian Nations (ASEAN), but

discussion did not proceed. Committed to completing their own regional integration first, these

countries believed that this type of bilateral initiative was premature. Instead, in November

1983, the United States and Israel agreed to negotiate a free trade area. In a similar vein, the

United States and Canada set up working groups to explore sectoral free trade. 

• Pressure for protectionist legislation in Congress mounted as the trade deficit grew and tradesensitive industries such as iron and steel failed to reap the benefits of the economic recovery.

Various initiatives were consolidated into the Trade and Tariff Act of 1984 that extended the

Generalized System of Preferences (GSP), improved the administration of U.S. countervailing

and dumping laws, granted the United States authority to negotiate a free trade area with Israel

and created “reciprocity” measures for investment and services. 

• In the area of investment, the U.S. government developed a Bilateral Investment Treaty (BIT)

program to augment its treaties of Friendship, Commerce and Navigation (FCN). The BITs

provided for the better of national or most-favored nation treatment, standards for

expropriation and compensation, free transfer of capital and profits and dispute settlement

mechanisms. Internationally, the United States spearheaded efforts in the OECD and the

GATT to create international disciplines on performance requirements.

ASIA-SPECIFIC POLICIES

Japan

• The most prominent sectoral trade problem was the confluence of rising imports of Japanese

automobiles and the declining health of U.S. auto producers. The U.S. International Trade

Commission (USITC) denied import relief to a section 201 petition brought by the United

Auto Workers and the Ford Motor Company. Instead, the Japanese Ministry of Trade and

Industry announced a voluntary restraint agreement (VRA) that limited the exports of

passenger cars to the United States for a two-year period. This unilateral restraint was extended

to a third and fourth year. In November 1983, the House of Representatives again passed an

automotive domestic content bill, although the Senate took no final action. 

• With Japan, a growing imbalance in bilateral trade (1981 $15.789 billion deficit) called

attention to a perceived lack of equity in market access. High import penetration of Japanese

autos, consumer electronics, and machine tools was characterized as a threat to U.S. workers,

exacerbating already high unemployment. A series of sub-Cabinet and lower level bilateral

committees were created to address market access and high–technology. Two GATT cases were

filed by the United States on leather and Japanese certification procedures. Bilateral

agreements were negotiated on manufactured tobacco products, fisheries, leather,

telecommunications standards and procurement and forest products.

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

96
• Negotiations with Japan repeated a pattern of trade complaint, liberalization and

implementation with attendant difficulties at each stage. In addition to tobacco and machine

tools, agricultural exports faced impediments. The United States began GATT dispute

settlement procedures on quantitative restrictions on 19 agricultural products.

• In 1984, a U.S.-Japan Investment Committee, formed by President Reagan and Prime Minister

Nakasone, met for the first time to encourage greater two-way investment flows. The agenda

included Japan’s prior notification system for foreign investment and our unitary tax system.

• In June 1984, the U.S. Electronics Industry Japan Office was opened to help U.S. electronics

companies penetrate the Japanese electronics market and improve the worldwide

competitiveness of U.S. electronics companies. The office was funded by the U.S. Government

and various U.S. electronics and scientific apparatus organizations.

China

• With China, the most significant event in this period was the approval and implementation of

the U.S.-China Trade Agreement which allowed the Administration to give Most-FavoredNation treatment (MFN). The bilateral agreement took effect in 1980 and must be renewed

every three years. The agreement contains safeguards against market disruption and commits

each party to protect intellectual property. China’s MFN status is extended on an annual basis

through Presidential waivers under the Jackson-Vanik Amendment and section 402 of the 1974

Trade Act. With this first grant of MFN tariff treatment, total trade doubled in one year. A Joint

Economic Commission (JEC) was established to implement the agreement.

• As U.S. investment in China grew ($300 million in 1983, of which $50 million was equity), the

Administration began talks to establish a Bilateral Investment Treaty. These talks never led to

an agreement.

• Textiles proved to be the first dueling ground for the two countries. When the two sides failed

to renew a bilateral textile agreement, the United States invoked unilateral restraints, as

required by law. In response, China banned the purchase of all man-made fibers, cotton and

soybeans from the United States and threatened to reduce purchases of other agricultural

products. An agreement was signed six months later after a significant decline in U.S.

agricultural exports. 

South Korea, Hong Kong, Taiwan, and ASEAN

• U.S. policy-makers began to focus on trade with the developing countries of Asia Pacific in the

early 1980s. U.S. exports with these countries had grown at an average annual rate of 20

percent or the previous decade. Bilateral trade dialogues were established and expanded with

South Korea, Taiwan and ASEAN. With Taiwan, the United States initiated a series of

reciprocal tariff negotiations. It supported Thailand’s application for GATT Accession.

• Closer trade ties also led to disputes. These disputes included: a ban on importing cigarettes

for use by South Korean nationals; a 1983 decree making it impossible to export small

computers and peripherals in the absence of a plan for local production; and impediments to

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the importation of frozen potatoes for fast food outlets. The United States made gains on

liberalizing import licensing restrictions on manufactured and farm products.

• Taiwan also drew its share of 301 cases. In 1984, U.S. industry filed a case alleging a

tightening of restrictions on the importation and exhibition of U.S. films. A second 301 was

filed alleging that Taiwan had displaced U.S. rice in third-country markets through export sales

of subsidized rice. The petitioners withdrew their complaints once the two governments

reached agreement.

• Also in 1984, Taiwan responded to U.S. tariff concerns by liberalizing duties on 59 items of

interest.

• With ASEAN, the United States began to monitor trade measures taken to alleviate balance of

payments problems. When Indonesia moved beyond the traditional import surcharges to

mandated counter trade, the United States allied with other trading partners and the World

Bank Group to convince Indonesia to end this practice.

• In July 1984, the United States and Indonesia signed a Memorandum of Understanding

(MOU) on investment as a first step toward strengthening bilateral investment relations.

1985-1988 THE SECOND REAGAN ADMINISTRATION

OVERVIEW:

• September 1985 marked the next great change in U.S. trade policy. The underlying policy theme

was an assertion that free trade was, by definition, fair trade. All sides must abide by the rules. To

implement this policy, the President instructed the USTR to self-initiate a series of unfair trade

cases under Section 301, an historic first.

• Other aspects of the policy change included: creating a war chest of $300 million to support

mixed credit loans to counter foreign government subsidies; influencing World Bank/

International Monetary Fund lending based on the trading practices of other nations; setting

time limits for negotiations on market access with Japan; establishing an inter-agency task

force to uncover unfair trade practices and develop strategies to eliminate them; and expanding

assistance to those who lost jobs as a result of trade.

• The last element of the policy was to seek legislative authority to negotiate trade initiatives,

improve intellectual property laws, enlarge anti-dumping and countervailing duty laws to cover

non-market economies, and amend trade laws to place deadlines on dispute settlement.

• The results of these policy initiatives included: a reduction of the trade deficit by 40 percent in

real terms; the launch of the Uruguay Round of multilateral trade negotiations; the conclusion

of the U.S.-Canada Free Trade Agreement; a series of bilateral agreements in settlement of

section 301 cases; and the enactment of the Omnibus Trade and Competitiveness Act of 1988.

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ASIA-SPECIFIC POLICIES

Japan

• Rather than enacting new trade restraints, Japan was glacially slow in lifting existing non-tariff

barriers. Barriers increasingly took the form of governmental regulatory rules or rigid Japanese

business practices. Disputes proliferated to such an extent that President Reagan and Prime

Minister Nakasone agreed in January 1985 to create bilateral teams led by senior officials to

remove barriers in four sectors: forest products, telecommunications, electronics and medical

equipment, and pharmaceuticals. A fifth export sector, auto parts, was added in 1986. These

Market-Oriented Sector Specific (MOSS) talks resulted in a series of agreements.

• In the automobile sector, Japan unilaterally undertook a voluntary export restraint in 1985,

which remained in place through March 1989.

• In September 1985, the President instructed the USTR to accelerate a case against Japanese

prohibitions on imports of our leather and leather footwear. Another case was self-initiated

against Japan for discriminatory restrictions on the sale of tobacco products. The tobacco case

was resolved in a settlement agreement in 1986.

• The United States also urged Japan to stimulate domestic demand and reduce its trade deficit.

• In 1987, the United States and Japan agreed on new procedures for supercomputer

procurement by Japanese governmental entities including national universities and laboratories.

This agreement was designed to reduce Japan’s bias which had excluded U.S. firms from the

public sector market.

• By 1988, the United States and Japan reached agreement on eliminating Japanese quotas on

beef, citrus and several other agricultural products. Other agreements allowed foreign lawyers

to practice in Japan; provided access to Japanese construction contracts; compensated the

United States for Japan’s restrictive practices on leather and leather footwear; and significantly

increased Japan’s import quotas on certain fish products.

• In the same year, in unprecedented fashion, the United States resorted to retaliatory action

under section 301 of the Trade Act of 1974 in a dispute with Japan on semi-conductors. The

President increased duties to 100 percent ad valorem on $300 million worth of Japanese

products.

China

• In July 1986, China indicated interest in GATT Contracting Party status. China wished to

“resume” its previous GATT membership on the basis of tariff negotiations alone and as a

developing country. The United States and other GATT Contracting Parties agreed to negotiate

with China only in the context of a protocol of accession that would address non-tariff issues

including the non-market aspects of China’s economy. 

• The United States proposed a five-point framework for China’s accession as follows: a single

national trade regime; increased transparency through a public and published trade law;
removal of GATT-inconsistent non-tariff barriers; Chinese commitment to completing price and

trade reforms; and pending this completion, a selective safeguard provision to protect against

possible market disruption caused by China’s non-market pricing and production practices.

• The United States negotiated a voluntary restraint agreement with China on steel and an

orderly marketing agreement on tungsten and ammonium paratungstate in 1987.

South Korea, Hong Kong, Taiwan and ASEAN

• In September 1985, the President directed the USTR to open an investigation against South

Korea for laws that prohibited fair competition for U.S. insurance firms.

• From 1985 through 1988, the U.S. mounted a market access campaign in South Korea. The

goal was to reduce high tariffs and import licensing restrictions on nearly 1,000 products of

interest to U.S. manufacturers and farmers. By 1988, South Korea had announced tariff

reductions on more than 1,100 products. However, import bans and quantitative restrictions

continued to prevent market access for many agricultural products. To obtain meaningful

agricultural market opening, the U.S. abandoned its product-by-product negotiating approach

and instead proposed that South Korea’s entire import licensing system be liberalized by 1990.

Additional negotiations eliminated South Korea’s feed ingredient import quotas and increased

market access for processed wood products. 

• By 1988, the United States and South Korea had concluded agreements relating to insurance,

investment and intellectual property protection. Both insurance and intellectual property rights

were self-initiated 301 cases. The investment agreement addressed a forced divestiture policy

that required companies to sell at least 30 percent of their stock to the public. In May 1988,

South Korea agreed to cut the tax on imported cigarettes, allow cigarette imports, retail sales

and advertising. Just as these cases were resolved, an additional series of 301 cases were filed

by industry on wine and beef.

• In the area of telecommunications, maritime services and advertising, South Korea cut tariffs,

eased restrictions on foreign equity participation and eased approval procedures and reduced

tariffs on related products as a result of intensive negotiations with the United States.

• In the case of Taiwan, the President acted under Section 301 even though U.S. industry had

not requested such action and the USTR had not conducted a formal investigation. These

cases concerned: customs valuation practices inconsistent with Taiwan’s obligations under an

existing bilateral trade agreement; and practices restricting U.S. beer, wine and tobacco sales in

Taiwan’s market. In both cases, Taiwan agreed to cease these practices.

• In 1987 Taiwan had, after Japan, the second largest bilateral trade surplus with the United

States. In response to U.S. requests, Taiwan cut tariffs on 4,577 products. As a result, Taiwan’s

nominal average tariff rate fell from 20 percent at the beginning of 1987 to about 12 percent

in 1988. Taiwan eliminated import bans on several items, improved intellectual property

protection and expanded access to service industries including banking, securities, maritime

and insurance.

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• Economic relations with ASEAN, which included the nations of Brunei, Indonesia, Malaysia,

the Philippines, Singapore and Thailand continued to improve as trade, investment and

technology transfer increased. In 1988, as part of an ASEAN-U.S. Initiative, the two sides

examined tariff and non-tariff barriers and measures that facilitated or impeded the flow of

capital and technology. The United States signed a bilateral agreement on intellectual property

protection with Singapore and negotiated with Malaysia, Indonesia, the Philippines and

Thailand on this subject.

• In 1988, the President decided to remove or “graduate” Hong Kong, South Korea, Singapore

and Taiwan from the Generalized System of Preferences (GSP) due to their remarkable

economic advancements and improved trade competitiveness. The GSP is a program of dutyfree preferences that the U.S. grants to developing countries. In this same year, the United

States also removed Brunei from GSP because its per capita income exceeded the statutory

limit for GSP beneficiaries. 

1989-1992 THE BUSH ADMINISTRATION

OVERVIEW

• The Bush Administration began its tenure with a clear goal: to create a world in which

entrepreneurs, not government bureaucrats, determine how industries and farms compete and

how nations trade. A three-pronged strategy was designed to achieve this vision: commitment to

conclude the Uruguay Round by December 1990; pursuit of market-opening initiatives with

key trading partners, such as Canada, Mexico, Japan and the European Community, and use of

the domestic market to open foreign markets and expand trade. Of the three elements,

successful conclusion of the Uruguay Round was deemed the highest priority because one

third of world trade, or more than $1 trillion in goods and services, took place outside

internationally agreed rules.

• In parallel, as the Uruguay Round extended beyond its original 1990 deadline, the Bush

Administration undertook a series of bilateral initiatives including the North American Free

Trade Area (NAFTA) with Canada and Mexico, the Enterprise for the Americas Initiative with

Latin America, the Structural Impediments Initiative with Japan and the agreements granting

Most -Favored-Nation treatment to the Soviet Union and Eastern Europe. In order to achieve

some of these goals, the Administration obtained a two year extension of fast track authority

from Congress.

• To implement the 1988 Omnibus Trade and Competitiveness Act (“1988 Trade Act”), the

Administration made determinations under the Super 301 (trade liberalization priorities),

Section 301 (unreasonable foreign government practices) and Special 301 (protection of

intellectual property) provisions of the statute. In 1989, the Administration designated 25

countries for attention under the Special 301 provisions of the 1988 Trade Act. Of the eight

countries judged to have the most egregious practices, half were Asian (South Korea,China,

Taiwan, and Thailand). Yet another statute, Sections 1374 and 1377 of the 1988 Trade Act,

required USTR to determine whether a country complied with telecommunications trade

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agreements or otherwise denied mutually advantageous market opportunities to U.S. firms.

South Korea and Japan were identified under these statutes and concluded agreements on

telecommunications network equipment and cellular radio transmitters.

• Other long term goals included South Korean membership in the Organization for Economic

Cooperation and Development (OECD), Taiwan’s participation in the GATT, graduation of

ASEAN countries from developing country status, and creation of a regional organization that

could serve as a vehicle for improved economic cooperation in the Pacific Rim.

ASIA PACIFIC-SPECIFIC POLICIES

Japan

• In 1989, the Administration implemented for the first time the Super 301 provision of the

1988 Trade Act by announcing its trade liberalization priorities. These included Japanese

barriers to satellites and supercomputers and Japanese forest products barriers. Sectoral

discussions and negotiations were held with Japan on semiconductors. In construction services,

Japan agreed to discourage collusive bidding, increase available information on projects to

foreign bidders and not to interfere with company decisions to form joint ventures. Also in

1989, Japan signed a bilateral agreement to open the market for mobile communications

systems. In 1990, Japan agreed to open government procurement of all satellites, except

research satellites. In addition, the United States and Japan negotiated agreements on

supercomputers, wood products, amorphous metals, sound recordings, and

telecommunications.

• In 1991, antitrust investigations were undertaken in Japan on the paper, flat glass, auto and

auto parts sectors. By April 1992, the two sides had signed a market access agreement on paper

and paperboard products. In the same year, Japan committed to a number of specific actions to

open its market for flat glass. Japan either resolved or established a process to resolve 49

discriminatory non-automotive standards, certification and testing procedures which had

impeded market access for U.S. goods.

• In 1992, the U.S. and Japan renewed the Nippon Telephone and Telegraph (NTT)

Procurement Agreement for a 3-year term.

• Structural Impediment Initiative (SII) talks were launched to address systemic barriers to

competition and trade. SII talks covered six issues: savings and investment, exclusionary business

practices, pricing measures, land use policies, keiretsu (a practice of formal and informal interfirm ties) and the distribution system. Stated U.S. expectations included a “blueprint” for

concrete structural change and a “down payment” of substantive first steps. A key milestone in

this effort was reached in June 1990 with the issuance of the Joint Report of the U.S.–Japan

Working Group on the SII. The Japanese Government commitments included: increased

investment in public sector infrastructure, more vigorous enforcement of Japan’s antimonopoly

laws, the liberalization of the Large Scale Retail Store Law, and increased shareholder rights,

among others.

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• In October 1989, the United States and Japan renegotiated a voluntary restraint agreement on

Japanese steel exports to the United States and concluded a bilateral consensus agreement

dealing with trade distorting practices.

• The voluntary export restraint program, limiting shipments of Japanese autos to the United

States, was extended through March 1990.

• The MOSS process of bilateral trade negotiations initiated in 1985 under the Reagan

Administration turned toward monitoring the commitments and undertakings made.

• The U.S. government used a Section 301 petition filed by the U.S. shipbuilding industry

against four shipbuilding countries including Japan to initiate a negotiation with OECD

countries to eliminate subsidies to the industry.

• U.S.- Japan agreements on lawyers, beef and citrus, and market access for 2 categories of

agricultural products were monitored to ensure implementation of the Agreement’s provisions. 

• In 1991, the U.S. and Japan concluded a new Semiconductor Arrangement to accelerate access

for foreign firms to Japan’s market and to deter injurious dumping. By 1992, the review of the

Arrangement found that “insufficient” progress had been made by Japan to improve market

access.

• Also in 1991, the two sides negotiated an agreement to provide expanded access for U.S.

suppliers of computers (hardware and software) to the Japanese federal and local government

markets. To implement this agreement, the countries met twice in 1992 with the U.S. side

highlighting concerns with bidding procedures of the National Institute of Fusion Sciences.

• The United States and Japan completed a new and improved Major Projects Arrangement in

1991 improving access to the $26 billion Japanese construction market. The United States

continued to monitor this agreement in 1992 and sought to add new products to the coverage

list.

• In January 1992, President Bush visited Japan and received pledges from the Japanese auto

industry to expand their purchases of foreign autos and parts by $10 billion over the next three

years. This complemented a commitment by the new “Global Business Partnership”, a group of

23 Japanese companies that agreed to increase their imports by $10 billion by 1993. 

• Also in the same year, agricultural talks were launched to open markets for rice, citrus, corn

feedgrains, and a variety of other products. These talks also advanced the dialogue on food

safety.

China

• In 1989, the United States concluded a Memorandum of Understanding (MOU) with China to

improve intellectual property rights protection. Pursuant to the memorandum, China agreed to

introduce copyright legislation, including computer software protection.

• In January 1989, the United States signed an agreement with China on international trade in

commercial space launch services. Two other related agreements were signed on technology

safeguards and liability.

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• In September 1989, the United States renegotiated and initialed a voluntary restraint

agreement on steel. 

• In 1991, USTR initiated two section 301 actions against China —- one on deficient protection

of copyrights, patents and other IPR, and the other on market access barriers, including high

tariffs, quotas, and non-transparent regulations. The IPR negotiations were resolved favorably

in January 1992, when the United States signed an MOU with the Chinese Government to

improve protection of copyrighted works, including computer software, sound recordings and

trade secrets. Pursuant to the MOU, China joined the Berne Convention and the Universal

Copyright Convention. China also amended and greatly improved its patent law and issued

regulations for U.S. patented pharmaceuticals and agri-chemicals.

• The market access negotiations concluded in October 1992 with a commitment that China

would remove significant non-tariff barriers. Approximately 75 percent of all import licensing

requirements, quotas, controls, and restrictions were to be eliminated in two years. Also, as

part of the agreement, China agreed to cut selected tariffs, to increase transparency of its trade

regime, to curb import substitution policies and to eliminate standards and testing

requirements as barriers to trade.

• In addition to the 301 investigations, the Customs Service and USTR investigated textile fraud

and goods made with prison labor. 

South Korea

• During this period, the Administration used Section 301, Super 301 and Special 301 to obtain

market access with South Korea. In January 1989, South Korea agreed to provide foreign wine

and wine producers with nondiscriminatory and equitable access to the South Korean market,

terminating a Section 301 investigation. This was followed in May 1989 with an agreement to

eliminate foreign investment restrictions, improve access for agriculture, and decrease

protection for South Korean infant industries. By November 1989, South Korea announced

that it would no longer justify its agricultural trade barriers in the GATT based upon “balance

of payments” problems and would phase out these barriers. South Korea accepted a GATT

panel ruling that its beef import restrictions were GATT inconsistent. In the same month, to

avoid designation as a priority country under the Special 301 statute, the South Korean

government created a task force to improve interagency coordination among its ministries on

IPR and created an enforcement unit of police and prosecutors.

• Negotiations with South Korea in 1990 produced agreements on liberalization in the

telecommunications sector and market access for beef; stronger enforcement of IPR;

implementation of past agreements on cigarettes, wine, and elimination of agricultural

quantitative restrictions; and resolution of standards issues affecting agricultural products.

• In 1991, the United States concluded agreements with South Korea providing significant

additional market access for telecommunications services and obtained South Korean

government commitments to eliminate anti-import rhetoric and actions, in line with the

government’s proposal to “internationalize” South Korea’s economy. In February 1992, the

United States and South Korea concluded a comprehensive telecommunications agreement,

building upon understandings concluded in 1990 and 1991. 

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• To address a range of problems in doing business in each others’ markets, the U.S. and South

Korea agreed to establish the Presidents’ Economic Initiative in 1992. The hope was to effect

significant changes in South Korea’s import clearance procedures, standards-making and

regulations, investment and technology. The working group agreed to discuss issues such as

land acquisition, the role of the South Korean Fair Trade Commission, off-shore financing and

deferred payments for imports.

Taiwan

• The Administration also used the provisions of Section 301 of the Trade Act of 1974 to achieve

significant market opening measures with Taiwan. Taiwan lowered tariffs and removed other

trade restrictions as part of a four-year action plan and concluded a tariff agreement with the

United States to increase access for U.S. beef. Additional negotiations resulted in increased

licenses for U.S. insurance firms. The Administration continued to monitor Taiwan’s

enforcement of intellectual property rights.

• Consultations were held with Taiwan throughout 1991 in an effort to encourage Taiwan to

bring its trade policy regime into greater conformity with GATT standards. Taiwan announced a

Six-Year Development Program offering significant opportunities for U.S. firms to win

procurement contracts for infrastructure improvements and telecommunications.

• Improvement in Taiwan’s enforcement of intellectual property rights resulted in an

understanding reached in June 1992. USTR revoked its designation of Taiwan as a priority

foreign country but continued to monitor implementation.

• Consultations were held on maritime and intermodal transportation to enable U.S. carriers to

own and operate trucking for land transportation of containers as part of the intermodal

movement of cargo.

• In November 1992, the GATT convened the first meeting of Taiwan’s accession working party,

beginning the process of formally initiating Taiwan into the international trading system.

ASEAN

• The United States cooperated closely with the ASEAN members of the Cairns Group

(Indonesia, Malaysia, the Philippines and Thailand) to improve the agricultural offers in the

Uruguay Round. A high priority was placed on achieving the active participation of ASEAN in

the Uruguay Round market access and financial services negotiations.

• In December 1990, the U.S. signed a memorandum of understanding with the six ASEAN

governments to facilitate trade and investment. This memorandum established an annual

ministerial-level trade meeting and a senior officials group to explore ways to enhance trade.

The private sectors of both sides were allowed to participate in portions of the meetings.

• In 1989 and 1990, USTR used its Section 301 authority to initiate investigations against

Thailand. Cases were brought against Thai cigarette restrictions and Thailand’s failure to

protect intellectual property rights. The cigarette case was resolved through an adverse GATT

panel finding against Thailand. On IPR, Thailand undertook to increase raids and seizures on

pirated products and to amend its patent law to provide product patent protection for

pharmaceuticals.
• The United States and the Philippines signed a framework agreement in November 1989

lowering trade barriers, protecting intellectual property rights and addressing foreign investor

concerns. However, by 1992, the USTR elevated the Philippines to the Special 301 priority

watch list, in view of unresolved concerns with intellectual property laws and their

enforcement. 

• In March 1989, Indonesia signed a bilateral copyright agreement and in October, Indonesia’s

Parliament passed the country’s first patent law. Indonesia also agreed to allow greater access

for U.S. motion pictures through understandings reached in 1991 and 1992.

• In 1990, Malaysia agreed to adhere to copyright rules set up by the Berne Convention

• The United States and Singapore signed a Trade and Investment Framework Agreement, laying

the groundwork for consultations and cooperation to expand market opportunities.

APEC

• The Asia Pacific Economic Cooperation forum (APEC), consisting of 12 Asia Pacific

economies, held its initial meeting in Australia in 1989. The United States spearheaded an

effort in APEC to coordinate Uruguay Round participation. Ministers met for a second time in

Singapore to discuss broad issues of cooperation, including human resource development.

• The APEC process held its third ministerial meeting in Seoul and established principles for

APEC’s continued development as a forum for regional economic cooperation. China, Taiwan

(“Chinese Taipei”) and Hong Kong joined the APEC process, bringing APEC’s membership up

to 15.

1993-1995 THE FIRST CLINTON ADMINISTRATION

OVERVIEW

• In President Clinton’s first foreign policy address on February 26, 1993, he characterized the

greatest challenge facing this generation of Americans as the imperative of American leadership

in the face of global change. Speaking of the need to compete in today’s economy, the

President said: “Open and competitive commerce will enrich us as a nation... And so I say to

you, in the face of all the pressures to do the reverse, we must compete, not retreat.” 

The Administration set out several policy pronouncements as follows: 

• Trade policy must be part of a coordinated and integrated economic strategy, since no amount

of negotiating can overcome or offset the burdens placed on U.S. companies from misguided

economic policies.

• The policy is oriented toward expanding trade through market opening measures backed by the

rigorous enforcement of U.S. laws. 

• The United States expects its trading partners to live up to their commitments so that their

markets become comparably open. The expectation is that our trading partners should share

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responsibility for maintaining and expanding the global trading system to a degree

commensurate with their new economic strength.

• The United States will offer trade relief to its companies where appropriate, but will expect

that, in return, those seeking relief undertake reforms designed to boost their future

competitiveness. 

• The U.S. will no longer automatically subordinate its economic interests to foreign policy or

defense concerns. Our national security is closely bound up with our economic strength at

home.

• Completion of the Uruguay Round and the North American Free Trade Area were assigned the

highest priority as were bilateral and regional initiatives encouraging increased trading

opportunities. Newer issues in trade policy — notably environmental protection, competition

policy and technology policy — were to be addressed as integral parts of the agenda. 

• The policy toward Asia Pacific centered on the realization that the region was virtually the only

region of the world where economic growth was thriving. To ensure that U.S. producers and

investors were able to take advantage of this growth, the U.S. government decided to secure

improved intellectual property rights, market access for goods and services and reduced

investment restrictions. The APEC forum was identified as a particularly promising new trade

opportunity. At the same time, particular attention was focused on Japan and China as these

countries represented roughly $83 billion of the $120 billion merchandise trade deficit in

1993. 

• One year into the Administration, the United States enjoyed its most successful and important

year in trade history. The Uruguay Round, after years of gridlock, was concluded. The NAFTA

and its supplemental agreements on labor and the environment were approved by Congress.

The NAFTA created the largest and most dynamic market in the world. In addition, the

Framework for a New Economic Partnership was concluded with Japan in July 1993. The

President also hosted a successful APEC leaders’ meeting –– the first-ever comprehensive

meeting of Asia Pacific leaders — in Seattle. These two events culminated a year-long effort to

expand trade with Asia.

• In the 1994 review of trade policy, the goal of the President’s economic strategy was further

defined as raising the standard of living of all Americans by creating high-wage jobs, sustaining

healthy growth and stimulating investment in America’s human and physical resources.

Opening markets around the world was deemed critical to the achievement of this goal.

• 1994 was a year of historic agreements. Congress approved and the President signed the

results of the Uruguay Round of multilateral trade negotiations, the broadest trade agreement

in history. Duties on manufactured goods were reduced by one-third. When fully implemented,

the Round Agreements were projected to add an estimated $100 billion to $200 billion to U.S.

output. APEC leaders reached agreement to create free and open trade and investment by

2020 in the Asia Pacific. An equally historic event was the U.S.-hosted Summit of the Americas

in Miami, which forged agreement among the nations of the hemisphere to create a Free Trade

Area of the Americas.
• In the 1995 review of trade policy, the Administration announced that it had concluded over

180 trade agreements under the President’s leadership and that these agreements were to be

vigorously implemented, monitored and enforced. In three years, the Administration concluded

20 trade agreements with Japan. In the goods sectors covered by these agreements, U.S.

exports to Japan grew by nearly 80 percent, nearly 2.5 times greater than growth in other U.S.

exports to Japan.

1996 Events

• In 1996, USTR will create a permanent Monitoring and Enforcement Unit devoted exclusively

to monitoring implementation of U.S. trade laws and trade agreements, determining

compliance by foreign governments with their trade agreement obligations, and pursuing

actions necessary to enforce U.S. rights under those laws and agreements. Priority will be given

to: promoting high dollar, high volume U.S. exports; supporting U S. export industries;

eliminating barriers that adversely affect job creation and existing jobs; eliminating barriers that

are wide-spread and represent recurring patterns of export barriers covering many markets; and

keeping small and medium sized U.S. businesses competitive.

• The WTO will hold its first ministerial conference in Singapore December 9-13,1996. The

Agenda will involve areas for further negotiation, the report and recommendations of the

Committee on Trade and Environment; and an Information Technology Agreement. New items

that might be added to the Agenda include the relationship of trade to internationallyrecognized labor standards; foreign direct investment ; competition policy and anti-corruption

efforts in international trade, particularly in the area of government procurement.

ASIA PACIFIC SPECIFIC POLICIES

Japan

Framework Agreement

• Setting a trade policy with Japan, the United States’ second largest customer and most

challenging competitor, was one of the Administration’s highest priorities. Among the many

trade issues identified for action were: adherence to the Semiconductor Agreement; market

access for autos, auto parts, insurance and other services; problems in government

procurement including supercomputers, computers, major projects, and satellites.

• On July 10, 1993, President Clinton and then Japanese Prime Minister Miyazawa signed the

United States-Japan Framework for a New Economic Partnership. The Framework represents a

comprehensive approach to macroeconomic, sectoral and structural issues, aimed at addressing

fundamental economic imbalances as evidenced by its persistent large trade and current

account surpluses. The Framework commits Japan to pursue a “highly significant” decrease in

its global current account surplus, and a significant increase in its global imports over the

medium term. The United States committed to pursue a reduction of its fiscal deficit,

promotion of savings, and a strengthening of its international competitiveness. In five “baskets”

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of sectoral and structural issues, the Framework addresses major barriers encountered by

foreign firms seeking to sell into the Japanese market. The baskets are: government

procurement, regulatory reform and competitiveness, other major sectors such as auto and auto

parts, economic harmonization and existing agreements and measures.

• Under the Framework, the Clinton Administration achieved significant trade agreements with

Japan. Intellectual Property Rights (IPR) agreements were concluded on January 20 and

August 16,1994. On October 1,1994, the United States and the Government of Japan (GOJ)

announced agreements under the Framework in the priority sectors of government

procurement of medical technology and telecommunications, including purchases by Japan’s

government-owned phone company (NTT), and insurance. At the same time, the United States

and Japan reached agreement to open the flat-glass market in Japan. An agreement on financial

services was announced in January 1995. In all of these agreements, the GOJ for the first time

committed to using quantitative and qualitative criteria to evaluate the progress made. Outside

the Framework, the U.S. and Japan reached agreements on construction, cellular phones and

apples. Under the Uruguay Round, in addition to reduction or elimination of a wide range of

tariff and non-tariff measures, Japan opened its rice market, harmonized chemical tariffs and

reduced tariffs on copper. 

• The Government Procurement Agreement on Telecommunications Products and Services

(October 1994) included a set of five qualitative and five quantitative criteria and an annual

evaluation of progress to assess implementation. Highlights of the Agreement included: use of

international standards, where such exist; publications by entities of invitations to suppliers to

express interest; and commitment to reduce the use of single tendering. The NTT Agreement

resulted in an improvement in procurement procedures, adopting measures similar to those in

the Telecommunications Government Procurement Agreement. The Medical Technology

Arrangement, yet another agreement under the Framework, was designed to improve access to

Japan’s $2.5 billion government procurement market. A key element of the agreement is the

requirement that Japanese procurement be made on the basis of overall greatest value instead

of the current minimum price system. Reviews were done of these agreements in 1995 to

assess the degree of market access.

• Following 15 months of intensive negotiations under the Framework, the United States and

Japan signed an agreement to open Japan’s insurance market. The GOJ committed to enhance

the transparency of the regulatory system, strengthen the role of antitrust enforcement in the

industry, and liberalize specific aspects of the insurance business. The GOJ agreed to

deregulate in a three stage process. In addition, the GOJ agreed to avoid radical change in the

”third sector” (where foreign companies are the strongest) until meaningful and substantial

liberalization takes place in the life and non-life insurance sectors. The Japanese Diet passed a

new Insurance Business Law in May 1995. This law provided the legal structure for many of

the market opening commitments made by Japan under the Insurance Agreement, however,

there was serious disagreement between the two countries over implementation of key

provisions of the insurance agreement affecting the “third sector”.

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• On December 12, 1994, as a result of another Framework Agreement, the United States and

Japan agreed to open the Japanese flat-glass market to foreign suppliers and to avoid

discrimination based on capital affiliation. This market had been controlled by three Japanese

firms for decades. The first semi-annual review of the Agreement revealed an increase in the

purchase of U.S. glass in Japan, as well as the initiation of industry-wide surveys to measure

the extent of use of foreign glass in Japan.

• On intellectual property, the two Framework Agreements achieved reforms of the patent

application process and ended the practice of awarding dependent patent compulsory licenses,

which force patent holders to license the use of their technology to competitors.

• In the area of financial services, the Framework Agreement removed impediments to market

access for foreign financial providers in the areas of asset management, corporate securities

and cross-border capital transactions. The agreement provided complete, unrestricted access to

the $200 billion public pension fund market for investment advisory companies.

• During this time frame, Japan announced actions in line with its pledge under the Framework

to significantly reduce its current account surplus. These included a 10-year, 630 trillion yen

stimulus package, implementation of a 5.5 trillion yen income tax cut in Japan Fiscal Year 1995

and 1996, and a 3.5 trillion yen cut thereafter.

• Under the Framework, the United States and Japan discussed deregulation and competition

policy. In November 1994, and again in November 1995, the U.S. Government submitted to

the Government of Japan (GOJ) lengthy and detailed papers addressing specific deregulation,

competition policy and administrative reform matters in Japan. Investment, buyer-supplier

relationships and access to technology issues were the subject of another Framework dialogue.

On investment, the United States sought action in six areas: government facilitation programs,

tax incentives, deregulation measures, support for mergers and acquisitions, direct promotion

programs and land and labor cost reduction. On buyer-supplier relationships, issues under

discussion included: energizing and promoting industry-to-industry dialogue, supporting the

development of Japanese corporate policy statements and codes aimed at promoting open and

equitable dealings with foreign suppliers, and facilitating the joint investment and co-location

by a group of U.S. firms in a “technology village” near Tokyo. In the access to technology talks,

the U.S. sought better access to GOJ-sponsored research projects.

• On July 20, 1995, the U.S. and Japan finalized an Arrangement on Investment and BuyerSupplier Relations. This arrangement is already beginning to help reduce the high costs foreign

firms face upon entry. 

Enforcement and Implementation of Agreements

• In April 1993, Japan was identified under Title VII of the 1988 Trade Act as a country which

discriminates in its public procurement of architectural, engineering and construction services.

Deadlines for imposition of sanctions were postponed twice as the GOJ devised an “Action

Plan on Reform of the Bidding and Contracting Procedures for Public Works”. Under the

Action Plan, adopted in January 1994, the GOJ committed to adopt an open and competitive

bidding system to replace the closed designated bidder system. The GOJ also agreed to

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110
eliminate requirements for project bidders to establish joint ventures, to strictly apply its AntiMonopoly Law, and to adopt a comprehensive and effective complaint mechanism. Additional

reform measures were announced in October 1995 by the Ministry of Construction. The

Agreement and the competitive atmosphere that it fosters has contributed to the recent

successes of U.S. firms on a number of new projects. 

• On February 15, 1994, the U.S. Trade Representative found that Japan had violated Section

1377 of the Omnibus Trade and Competitiveness Act (dealing with telecommunications trade),

by failing to honor a 1989 agreement to provide competitive access to the Japanese market for

cellular phone service. Negotiations to resolve the issue were begun and preparations were

made for taking sanctions. On March 12,1994, the United States and Japan reached

agreement to provide U.S. technology access to the Japanese cellular market comparable to

that enjoyed by Japanese technologies. 

• On October 1,1994, the USTR announced initiation of a Section 301 investigation of the Japanese

“aftermarket” for auto replacement parts. Discussions with Japan focused on three major areas:

access to Japan’s motor vehicle market, auto parts purchases in Japan and in the United States by

Japanese motor vehicle makers, and deregulation of the Japanese auto parts “aftermarket”.

Following two years of intense negotiations to remove barriers in this market, in May 1995,

President Clinton announced that he would impose nearly $6 billion in sanctions on imported

Japanese luxury automobiles unless Japan agreed to open its market. On June 28, 1995, the two

sides reached an historic agreement that promised significant market access based on 17

quantitative and qualitative objective criteria. In August 1995, the U.S. established a monitoring

mechanism, involving an unprecedented degree of cooperation between the U.S. public and private

sector. 

• Japan’s restrictions on market access for wood products and paper were identified as practices

that might warrant future identification as priority foreign country practices under the

provisions of Super 301. Other agreements monitored in 1994 and 1995 included: the

Network Channel Terminating Equipment (NCTE) Agreement; the International Value-Added

Network Services (IVANS); the U.S. - Japan Satellite Procurement Agreement; the U.S.– Japan

Semiconductor Arrangement; the U.S.- Japan Government Procurement Agreement on

Computers; the U.S. - Japan Wood Products Agreement; and the Amorphous Metals

Agreement. 

• In 1995, the U.S. became aware that Japan, in implementing its Uruguay Round obligations,

had failed to adequately address the protection of pre-existing sound recordings. The U.S.

consulted repeatedly with Japan and decided to initiate WTO dispute resolution proceedings, if

protection was not forthcoming.

• The Clinton Administration has placed high priority on the challenge of building an equitable

relationship with Japan and opening Japanese markets to competitive goods and services. The

Administration’s policy of achieving practical, market-based, “results-oriented” agreements

produced 20 trade agreements, 12 of which came under the context of the 1993 Framework

Agreement. With the growth of U.S. exports to Japan nearly five times as fast as the growth of

imports, the U.S. trade deficit with Japan declined 9.7 percent during 1995. 

Annex C: Brief Review of U.S. Trade Policy and Asia Pacific Trade Relations, 1981-1996

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• The Administration’s top priorities for Japan in 1996 will include: implementation of the

automotive agreement and other market access issues including semiconductors, film,

deregulation and competition policy. 

China

• The Administration began with a policy review of trade, human rights and weapons nonproliferation. The first issues to be identified with China were of a market-access nature. U.S.

goods faced high tariffs, licensing requirements, and quotas. The Chinese system still lacked

transparency in the promulgation and application of laws and regulations. Few services were

liberalized. The United States led efforts to secure China’s membership in the GATT in order

to encourage China to adopt procedures and attitudes consistent with the rules of the

international trading system.

• China reduced tariffs by an average of 50 percent on December 31,1993. Tariff cuts

encompassed agricultural and manufactured products.

• By early 1994, the Administration announced its intention to be particularly vigilant about

enforcement agreements signed with China in 1992. The ambitious intellectual property

agreement was highlighted, given widespread and flagrant piracy. On June 30,1994,

Ambassador Kantor authorized initiation of a Special 301 investigation into China’s IPR

enforcement policies and practices. The investigation focused on achievement of effective

enforcement measures, structural changes in China’s IPR regime, and market access for IPbased products. Piracy in China was rampant. More than 29 compact disc factories with a

production capacity of 75 million CDs serviced a domestic market of 5 million CDs.

• By February 4,1995, after 20 months of negotiations, the USTR determined that China’s IPR

policies constituted a burden on U.S. commerce and pledged to impose 100 percent tariffs on

$1.08 billion of China’s imports if outstanding IPR issues were not satisfactorily resolved. As a

result of a February 25,1995 agreement in which China agreed to take a number of measures

to crack down on piracy and to provide U.S. right holders with enhanced market access, the

section 301 investigation was terminated, the sanctions lifted and China’s status as a priority

foreign country revoked. However, compliance with this was uneven. The Chinese Government

took steps to eliminate piracy at the retail level, conducting thousands of raids and destroying

millions of pirated CDs, however, over 30 factories continued to produce illicit product. USTR

held many consultations to assess effectiveness of customs enforcement, the level of

investigation and prosecution of piracy and the level of penalties imposed and fulfillment of

commitments to open the market to legitimate computer software, motion pictures, sound

recordings and published product. 

• The United States and China agreed to renew their bilateral agreement on international trade

in commercial space launch services in January 1995. The renewed agreement limits the

number of China’s launches over the seven-year period of the agreement.

• In the area of market access, China implemented much of the 1992 Memorandum of

Understanding, substantially reducing non-tariff barriers, for example, and publishing

numerous regulations. However, China did not eliminate unscientific sanitary and

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

112
phytosanitary barriers to trade, nor published information related to products subject

to quantitative restrictions. In 1995, China took additional steps pursuant to the

MOU, such as eliminating non-tariff barriers, including quotas and licensing

requirements on 543 items. Despite this progress, problems with additional non-tariff

measures emerged such as registration requirements for electronic machinery

products, the auto industrial policy, and requirements for the procurement of medical

equipment. Problems with lack of transparency also affected market access. For

example, U.S. companies faced a number of unpublished, “internal use only”

regulations governing foreign trade. 

• With the establishment of the WTO, China’s accession negotiations expanded from

the traditional GATT 1947 framework to encompass Uruguay Round results.

Negotiations between China and WTO members reached an impasse in 1994 over

negotiations on China’s protocol commitments, the portion of accession dealing with

adherence to WTO principles.

• The Administration’s 1996 trade agenda for China will continue to focus on market

opening for goods and services and creation of a better environment for investment.

The Administration will concentrate on achieving full implementation of the 1995

Intellectual Property Rights Agreement, the 1992 Intellectual Property Rights

Memorandum of Understanding, and the 1992 Market Access Agreements. Special

emphasis will be devoted to the suppression of piracy of copyrighted materials,

patented works and trademarks. On market access, the Administration will focus on

phytosanitary issues, especially those affecting wheat and citrus fruit and barriers

specific to such key U.S. industries as computers and telecommunications. At the

same time, USTR will continue to strive for market access in the services sectors—

especially insurance and value added telecommunications services. The Administration

will insist that the terms of China’s accession to the WTO be commercially viable and

consistent with WTO provisions.

South Korea

• To address a range of problems in doing business in each others’ markets, the United

States and South Korea agreed to establish the Presidents’ Economic Initiative. One of

the first items of concern was South Korea’s import clearance procedures. Another top

priority was liberalization of South Korea’s investment restrictions. Issues of taxation,

competition policy and administrative procedures were also discussed during the oneyear dialogue. The exercise was deemed a modest success by both countries.

• In 1993, the United States and South Korea concluded an agreement containing

specific additional steps to open South Korea’s beef market fully. The agreement

strictly limits the South Korean government’s involvement in regulating importation

and distribution of beef. South Korea is the third largest market for beef exports. 

• In October 1993, the United States began discussions on South Korea’s formal and

informal restrictions on motor vehicle imports which sharply reduce U.S. exports to

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the sector. Discussions continued throughout 1994 when South Korea became the fifth largest

motor vehicle manufacturer in the world, yet imported less than 1 percent of the cars sold in

its national market. In September 1995, under the Super 301 review, the United States and

South Korea negotiated a Memorandum of Understanding on Market Access for foreign

passenger vehicles. South Korea agreed to lower its tariff to 8 percent, to liberalize financing

restrictions to allow foreign participation of up to 49 percent, to modify their standards

approval process, to increase TV advertising time and eliminate retail distribution restrictions. 

• In November 1994, USTR accepted a Section 301 petition filed by the National Pork

Producers’ Council, the American Meat Institute and the National Cattlemen’s Association.

The petitioners maintained that despite three bilateral agreements governing access to the

South Korean market, a number of South Korean practices, especially government mandated

shelf-life limits and long delays at the port, effectively prohibited meat imports. The case was

settled through consultations under the WTO dispute settlement process. 

• In 1995, USTR decided to cite South Korea again on the Special 301 “priority watch list” due

to ongoing large end-user software piracy; inadequate protection for well-known trademarks,

trade secrets, textile designs and trade dress; a proposal to adopt a broad decompilation

exception to copyright protection for computer software and inadequate enforcement. At the

end of 1995, South Korea lowered all duties on computer software to zero; decided against the

provision on decompilation and implemented its Uruguay Round obligations on intellectual

property early.

• In 1995, South Korean practices were cited by a number of companies during the Section

1377 review. South Korea agreed in an exchange of letters to resolve several company specific

problems, including allowing one major telecommunications company to bid in the 1995

procurement cycle. This procurement was postponed until early 1996.

• On June 1,1995, the Committee on Pipe and Tube Imports (CPTI) filed a Section 301 petition

alleging that South Korea restricts exports of domestically produced steel sheet, controls

domestic prices below world prices and restricts exports to the EU of pipe and tube products

which were then diverted to the U.S. market. The petition was withdrawn once South Korea

agreed to a consultative mechanism to increase transparency. 

Taiwan

• Throughout the first year of the Administration, the United States urged Taiwan to bring its

trade policy regime into greater alignment with GATT standards and to improve the

enforcement of intellectual property rights. As a result of progress made, USTR revoked its

designation of Taiwan as a priority foreign country under the Special 301 provisions of the

1988 Trade Act.

• The U.S. tabled aggressive market access requests of Taiwan in preparation for the accession

negotiations for the WTO. Substantial progress in these negotiations was recorded in 1994. As

part of the GATT/WTO accession, Taiwan is expected to render its IPR protection regime

completely consistent with the TRIPs agreement. 

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114
• The United States and Taiwan initialed a Trade and Investment Framework Agreement early in

1994 which advances trade liberalization.

• Pelly Amendment sanctions were imposed on select wildlife products from Taiwan in August

1994 because of Taiwan’s inadequate enforcement of prohibitions on trade in parts of

endangered species of tiger and rhino. The annual value of the trade was estimated to be $22.4

million.

ASEAN

• In November 1993, the United States and the six members of ASEAN announced the creation

of an “Alliance for Mutual Growth” (AMG), a joint government and private sector program

designed to generate economic growth. This initiative was followed by meetings of trade

ministers. AMG programs in 1994 included a high level “matchmaker” mission to bring

together companies in the auto sector.

• By 1994, the six countries of ASEAN had accelerated implementation of their preferential

trade arrangement to be fully implemented by 2003. Unilateral market opening was undertaken

by the Philippines as part of an overall effort to improve competitiveness and attract

investment. 

• Progress on intellectual property rights with Thailand and the Philippines in 1994 removed an

issue of major contention from the agenda, allowing the Administration to establish a range of

approaches to addressing major trade concerns.

• In February 1994, the USTR announced that a worker rights review of Indonesia would be

suspended (but not finally terminated). In November 1994, Indonesia announced a

comprehensive industrial relations program designed to improve enforcement of labor laws and

adherence to international standards. The Administration decided to monitor the

implementation of this plan closely. In the same month, Indonesia issued ministerial decrees

necessary to implement the 1992 film law; the decrees made it possible for the U.S. film

industry to effectively access the Indonesian video market for the first time.

• In August 1994, USTR conducted a round of bilateral trade consultations in Malaysia on

unilateral actions taken by Malaysia to raise duties. A dialogue on worker rights issues was also

part of the consultations.

• In December 1995, the seven ASEAN members agreed to expand significantly the scope of the

ASEAN Free Trade Area (AFTA) into new areas, such as intellectual property, services,

investment, and non-tariff barriers. Most members of ASEAN took steps in 1995 to unilaterally

lower their tariffs, both to other ASEAN members and on an MFN basis. In July 1995,

Vietnam was formally accepted as the seventh member of ASEAN, joining AFTA but with an

extra three years to bring tariffs down to the required 0 - 5 percent ad valorem levels.

• USTR made headway on a number of bilateral trade issues in ASEAN countries in 1995.

Indonesia announced steps to improve its intellectual property laws to make them consistent

with the TRIPS agreement. Indonesia also took action to implement its November 1994 action

plan on industrial relations, which aimed at improving labor conditions in the country. Not all

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116

aspects of the 1994 plan had yet been implemented. In May, Indonesia announced a

comprehensive deregulation package to lower barriers to trade and investment. Malaysia was

graduated from the Generalized System of Preferences, as it accounted for 27 percent of

imports from all GSP eligible countries. In the Philippines, failure to implement its agricultural

commitments under the WTO as required by July 1995, resulted in markets closed to U.S.

imports. In December 1995, Singapore enacted a new patents law bringing it into compliance

with the WTO intellectual property agreement. Thailand’s new copyright law went into effect

in this year, causing certain GSP benefits to be restored. 

APEC 

• By September 1992, APEC formally established a secretariat located in Singapore. Members

agreed to rotate the chairmanship of the group among themselves. The United States chaired

in 1993.

• At the U.S.-hosted APEC Ministerial Meeting in November 1993, ministers agreed to establish

a Committee on Trade and Investment. The Ministers also reviewed and endorsed the report of

the Eminent Persons Group, which had been commissioned by APEC to provide a medium to

long-term vision for trade in the region. APEC completed an Investment Guide to the policies

of its members and a Customs Guide. At Seattle, Mexico and Papua New Guinea joined APEC

and it was agreed that Chile would join in 1994. A three-year moratorium on membership was

also established. 

• The first APEC Leaders Meeting, hosted by President Clinton, also took place at this time.

APEC leaders issued a Vision Statement including overarching principles and goals and agreed

to establish a Pacific Business Forum. Other issues agreed to by leaders included: an initiative

to improve the competitiveness of small and medium sized businesses; an action program to

integrate policies on economic growth, energy security and environmental protection and

development of a non-binding set of investment principles.

• At the APEC meeting in Indonesia, held in November 1994, APEC leaders committed

themselves to a vision of free and open trade and investment by the year 2010 for

“industrialized” members and 2020 for ”developing” members. As complementary steps, they

agreed to expand and accelerate work on standards, investment principles, administrative

barriers to market access, and to establish a “voluntary consultative dispute mediation service.”

The Leaders also called on APEC Ministers to develop an action plan to be reviewed at their

next meeting in Osaka a year later.

• By 1995, the 18 economies that made up APEC accounted for more than half of world trade.

More U.S. goods and services flowed to these dynamic economies than to any other region in

the world. Sixty-three percent of U.S. merchandise exports went to other APEC members and

APEC accounted for two-thirds of U.S. imports.

• Meeting in Osaka, Japan in November 1995, APEC leaders adopted a detailed “Action Agenda”

for implementing Bogor goals of free and open trade and investment. The Action Agenda

detailed steps to be taken in 15 issue areas, ranging from tariffs and non-tariff measures to

government procurement and intellectual property rights. Active work programs continued in
Annex C: Brief Review of U.S. Trade Policy and Asia Pacific Trade Relations, 1981-1996

117

such areas as customs harmonization and alignment of standards. In addition to the Action

Agenda, APEC leaders announced a series of “initial actions” by individual APEC members that

serve as a modest down payment on the Bogor commitment. These steps, which vary according

to country, scope and nature, include: accelerated implementation of Uruguay Round

commitments, tariff reductions on an individual or collective basis, and investment

liberalization. 

• APEC’s Committee on Trade and Investment, established by Ministers in 1993, is the focus of

APEC’s Trade and Investment Work Program. Activities in 1995 included: completion of action

plans in the areas of deregulation, dispute mediation, Uruguay Round implementation,

investment, customs procedures, standards and conformance, and government procurement. In

addition, the Pacific Economic Cooperation Council (PECC) produced a survey of regional

trade impediments. Symposia were held on Investment and Customs to enhance cooperation

between government officials and the private sector.

• During 1995, APEC convened meetings of Ministers responsible for finance, science and

technology, telecommunications, small and medium enterprises and transportation.
119

Overview

An important element of the Commission’s mandate is to identify trade and investment

impediments to U.S. business in Asia Pacific markets. The Commission has taken a broad

approach to this task and has reviewed a wide variety of existing assessments of barriers to trade

and investment in Asia Pacific, including those prepared by the United States Government (the

Office of the U.S. Trade Representative and the U.S. International Trade Commission), the

World Bank, UNCTAD, the Pacific Economic Cooperation Council and the Asia Pacific

Economic Cooperation forum. It also supplemented these materials with information obtained

throughout its work, including testimony, observation and discussions with U.S. government

trade negotiators and American business representatives in the United States and in Asia.

It is clear from this survey of materials and information that the diversity that exists throughout

Asia Pacific with respect to political, security and broad economic relationships is also apparent

in the area of trade barriers. Levels of barriers, levels of commitment to and implementation of

trade liberalization, the range of traditional market access barriers and those non-traditional

barriers that occur primarily within markets all vary substantially in Asia Pacific. 

As a general matter, Hong Kong and Singapore are the most open markets in the Asia Pacific

region and among the most open globally. Brunei, Malaysia and the United States have removed

most trade and investment barriers and are considered relatively open markets by most observers.

Indonesia, South Korea, the Philippines, Taiwan and Thailand continue to have relatively

restrictive regimes, although even within this set of countries, wide variation exists in the overall

level of barriers, the sectors that are protected and the nature of the barriers. In Thailand, for

example, the United States actually has preferential access vis a vis all other global investors as a

result of a 1960 Treaty of Amity and Commerce. Japan, the only other fully developed economy

in the Commission’s region of inquiry, has substantially eliminated most barriers at the border,

but retains extensive non-tariff measures, particularly within its borders. China, as an evolving

“socialist market economy” and an applicant to the WTO, remains heavily regulated and

substantially closed relative to other Asia Pacific economies in terms of norms of international

trade behavior. 

Annex D: Summary of Barriers to Trade

and Investment in the Asia

Pacific Region
Important variations in levels of protection also exist between sectors. Trade in manufactured

products is generally more open than that in agriculture or services. Within the manufacturing

sector, the ITC has noted that processed foods, iron and steel, motor vehicles and parts,

pharmaceuticals, textiles and apparel and certain machinery are widely protected in the region.

Liberalization of trade in agriculture is in its early stages, particularly with respect to developing

economies and with Japan and South Korea. Similarly, barriers to trade in services in Asia Pacific

continue to impede access of services in which the United States has a comparative advantage,

particularly financial services, telecommunications and professional services. Important progress

has been made to provide effective legal protection in Asia Pacific for intellectual property, but

enforcement of commitments is an ongoing concern throughout the world, and particularly in

Asia Pacific. 

Some steps have been taken in the last year to liberalize unilaterally or to otherwise contribute to

liberalization through APEC or WTO initiatives. For example: Indonesia has offered to begin its

tariff reduction schedule on an MFN basis for each year between 1995 and 2003 under the

APEC framework; the Philippines has taken unilateral action in the area of standards and

conformance by committing to align with international standards, provide mutual recognition of

conformity assessment to foreign suppliers, and transparency of procedures. ASEAN’s efforts to

establish a free trade area (AFTA) by reducing or eliminating tariffs to a range of 0 to 5 percent

and eliminate non-tariff measures by the year 2003 on all processed goods produced within the

region has stimulated additional liberalization within Southeast Asia. Moreover, this competition

for investment between ASEAN and non-ASEAN newly industrialized economies, such as South

Korea, has also stimulated additional trade liberalization. Such efforts enhance the competition

to liberalize in the national interest. In addition, sub-regional liberalization has benefitted parties

outside the arrangements. Several ASEAN members have agreed to grant tariff liberalization

provided to their ASEAN Free Trade Area (AFTA) partners to all other WTO members. Taiwan

and China are preparing liberalization steps in their efforts to join the WTO. In both cases, some

liberalization has already been implemented during the accession process.

Barriers at the border, such as tariffs and non-tariff barriers like customs practices, standards and

conformance barriers, licensing restrictions and quantitative restrictions continue to exist in Asia.

Work needs to progress multilaterally, regionally and bilaterally to further reduce and eliminate

these barriers. The Commission believes that these barriers can be substantially addressed

through existing mechanisms including the on going work of the WTO, the APEC liberalization

process and selected bilateral negotiations and by capitalizing upon and stimulating trends such

as the competitive unilateral deregulation and liberalization trends underway in Asia. It is for this

reason that the Commission has focused its attention primarily upon non-traditional trade and

investment barriers, those which are not yet addressed by multilateral disciplines, such as

investment, and those experienced primarily, but not exclusively within markets, such as

industrial targeting and anti-competitive practices.

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Annex D: Summary of Barriers to Trade and Investment in the Asia Pacific Region

121

Tariffs

Tariffs in some Asia Pacific economies have been reduced substantially in recent years through a

combination of multilateral negotiations under the Uruguay Round, unilateral deregulation and

multilateralization of sub-regional trading commitments. Asia Pacific tariff rates, for example, are

lower than those in Latin America. Nevertheless, tariffs remain an important barrier to trade in

particular products or sectors in a number of Asia Pacific markets, including China, Indonesia,

South Korea, Malaysia, the Philippines, Taiwan and Thailand. As a general matter, applied tariffs

in Japan, Singapore, Hong Kong and Brunei, are low, however, tariff peaks on individual products

exist. South Korea, Taiwan, Malaysia, Indonesia, all have average applied tariff rates at or below

11 percent, while China, Thailand and the Philippines have average applied tariff rates between

20 and 40 percent.1 

The Uruguay Round also increased the level of security and the transparency of market access

barriers faced in Asia Pacific through a combination of increases in tariff bindings, the

“tariffication” of quotas, and establishment of minimum access for agricultural products.

However, not all Uruguay Round participants bound tariffs at applied levels. Many developing

economies, including those in ASEAN, bound tariffs at ceiling levels above those currently

applied. This permits them the flexibility to raise rates in the future, if necessary. It also adds to

uncertainty in the terms of market access over time. Nevertheless, ASEAN members have

expanded their efforts to reduce applied tariffs further since the conclusion of the Uruguay

Round. Several ASEAN members that are participating in the ASEAN Free Trade Area process

recently have committed to offering AFTA reductions on an MFN basis to WTO members. Most

ASEAN member countries (Brunei, Indonesia, Malaysia, the Philippines, Singapore, Thailand)

and other Asia Pacific economies (Japan, South Korea, Australia, New Zealand) also recently

committed to further reducing or eliminating their tariffs on information technology products

over the next few years in the context of WTO negotiations scheduled to begin in early 1997.

Rates on agricultural tariffs are generally higher than those for industrial products reflecting the

recent character of comprehensive agricultural trade negotiations and the approach taken to

ensuring gradual integration of the agricultural sector under global trade rules and disciplines. In

particular, tariffs that have been subject to Uruguay Round negotiations to “tariffy” non-tariff

measures often exceed those of the pre-Uruguay Round period because of the incorporation of

the non-tariff component into the tariff calculation. Nevertheless, Japan is notable for its

extraordinarily high new tariffs on some agricultural products, and its high post-Uruguay Round

tariff averages in agriculture relative to other industrialized economies (12.58 percent).2 PostUruguay Round average agricultural tariffs for Asia Pacific developing economies range widely

from zero in Hong Kong to nearly 140 percent in South Korea, which negotiated agricultural

liberalization in the Uruguay Round as a developing economy. 

1 Source: U.S. Internation Trade Commission (see table 1) 2 Source: USITC

3 Source: USITC
High tariffs remain one of the most important barriers in several industrial sectors that are

important to U.S. trade with Asia Pacific. These include textiles and apparel, processed foods,

fabricated metals, transport equipment and machinery. Tariff peaks also are prevalent in certain

agricultural products, notably dairy products, meat, wheat, rice, leather, fruits and nuts. Tariffs

for several other sectors will benefit from Uruguay Round zero for zero initiatives and within the

next decade will be reduced substantially or eliminated in a number of Asia Pacific economies.

These include agricultural equipment, construction equipment, furniture, medical equipment,

paper, pharmaceuticals, scientific equipment, steel and toys.

Non-Tariff Measures

Traditional non-tariff border barriers to trade also have been reduced somewhat over the past

decade, as rules requiring the elimination of most licensing requirements and virtually all

quantitative restrictions have been adopted, disciplines on subsidies and customs valuation,

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

122

Table 1

Summary of WTO Tariff Commitments by Asia Pacific Partners

Trade -Weighted MFN Tariff Averages

(Combined Industrial and Agricultural) 

Current WTO/Uruguay Round

Applied Rates Commitment (Bound)

ASEAN

Brunei 0.17 n/a

Indonesia 11.24 38.47

Malaysia 8.95 9.25

Philippines 20.74 20.89

Singapore 2.27 5.38

Thailand 35.54 28.30

JAPAN/SOUTH KOREA

Japan 4.08 3.61

South Korea 13.88 15.97

CHINA, HONG KONG, and TAIWAN

China 39.93 n/a

Hong Kong 0.0 0.0

Taiwan 8.94 n/a

UNITED STATES 4.7 3.16

NOTE1: USITC data is drawn from WTO’s integrated database. PECC data is generally drawn from the

APEC tariff CD ROM and represents simple rather than weighted averages. China and Taiwan

did not formally participate in the Uruguay Round, therefore, China’s informal UR offer is

provided unilaterally at present; binding is tied to accession; Taiwan’s rates were committed

bilaterally. While applied rates in Asia Pacific are generally lower than bound rates, the calculations above compare final UR commitment rates with current higher applied tariff rates. 

NOTE 2: This is based on country tariff submissions to the GATT in 1988 for Malaysia, Philippines,

Thailand, Japan, South Korea, and Hong Kong in 1989 for Indonesia, Singapore, and the

United States and in 1992 for Taiwan and China.

Sources: U.S. International Trade Commission and Pacific Economic Cooperation Council (PECC).

n/a = Not applicable
pre-shipment inspection and other barriers have provided greater transparency, gradual

reductions or elimination of barriers and rules to assure non-discrimination. Efforts to minimize

the trade distorting effects of standards and certification requirements are still in their infancy,

but have lead to a number of initiatives to harmonize standards where possible or to develop

“mutual recognition agreements” in other areas. Nevertheless, non-tariff measures are

particularly difficult to completely eliminate; as one barrier is removed, traders and governments

find other ways to protect their markets. Well intended measures designed for a particular

purpose, for example, protection of the safety of consumers, if ill defined, can serve as non-tariff

barriers to trade. Liberalization of non-tariff barriers, particularly those in Asia Pacific where

administrative systems and latitude of officials is broader, requires on-going efforts to monitor

markets access and close emerging gaps in global disciplines. 

In addition to expanded disciplines on non-tariff barriers, the Uruguay Round ensured for the

first time that all developing members were bound by the same rules and obligations undertaken

by developed country members. Timetables for implementation of these obligations vary. Japan,

as a developed country, is bound by commitments to implement Uruguay Round NTM

disciplines within two years, developing economies generally are permitted to gradually phase in

the disciplines over the next five to ten years, depending on the specific discipline. All developing

Uruguay Round participants in Asia Pacific must implement UR disciplines on quantitative

restrictions, subsidies, standards, customs valuation, safeguards, intellectual property rights and

trade related investment measures within five years. Phasing out of quantitative restrictions

under the Multi-fiber Arrangement will occur over a 10 year period. Japan, South Korea, Hong

Kong and Singapore also participated in a separate plurilateral agreement on government

procurement.

Barriers in agriculture were subject to new disciplines on agricultural subsidies, domestic supports

and import access (quantitative restrictions). Participation by Asia Pacific economies in these

disciplines varies depending on whether the economies were net importers or exporters, and

whether they were developed or developing. But even some developed economies have excepted

themselves in part from some obligations. Japan and South Korea, for example, have longstanding

concerns about food security. They were permitted to more gradually liberalize trade in rice rather

than immediately “tariffy” bans on rice imports. Developing Asia Pacific markets participated in

agriculture liberalization, but have been granted additional time to phase in liberalization.

Nevertheless, much work remains to liberalize trade in agriculture globally and in the Asia Pacific.

Agriculture, by any measure, remains highly protected. Uruguay Round negotiations began a

process of liberalization which will unfold in successive negotiations. WTO members already have

agreed to commence further negotiations on agricultural liberalization in the year 2000. 

Investment

Investment is increasingly seen as a positive contributor to globalization and integration of the

economies of the Asia Pacific region. As business has expanded between economies within the

region and with other trading partners, as growth has occurred and capital requirements have

Annex D: Summary of Barriers to Trade and Investment in the Asia Pacific Region

123
expanded throughout the region, attitudes toward foreign direct investment have begun to

change. Governments have begun to actively court foreign investment in many areas, often to

meet certain development goals, such as enticing development to more remote sections of the

country or to ensure employment in areas with few prospects for poor citizens, to obtain

technology and to develop a skilled workforce to promote advancement of the economy. 

Despite these changing attitudes, barriers to foreign direct investment are among the most

significant challenges remaining in the Asia Pacific region. Many countries in the region have

come from relatively recent colonial experiences and fear of dominance by foreigners in their

economies. Others, such as Japan and South Korea, have longstanding traditions of limiting

foreign investment and foreign influences in their cultures. With the exception of Hong Kong,

investment barriers exist in virtually all other Asia Pacific economies. 

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

124

Table 2

Summary Assessment of Levels of Traditional Non-Tariff Barriers

in Asia Pacific Markets

Country QRs Customs Standards GP IPR Regs/ Investment

Testing/ Business

Certification Practices

Brunei S S S

China M M M M M M M

Hong Kong

Indonesia S S S S S S

Japan S S M M M S

South Korea S M M S M M

Malaysia S S M S S

Philippines S S S M S S

Singapore

Taiwan S S S S S

Thailand S S S S M

QR= Quantitative Restrictions

GP= Government Procurement, IPR = Intellectual Property Rights 

S= Some remaining, significant impediments to trade and investment in sectors of interest to U.S.

M= Many significant impediments to trade and investment, especially in priority sectors

Blank= Few or no barriers

Source: U.S. International Trade Commission, USTR National Trade Estimates Report, USTR Special 301, Title VII and

Super 301 Reports, 1996 and consultations with USTR negotiators.
The most important investment barriers identified by the Commission and by PECC include:

sectoral prohibitions in access to investment; discriminatory processes and measures that distort

the investment process, such as arbitrary or non-transparent procedures, national preferences,

incentives and subsidies; trade-related investment measures such as local content, trade

balancing and equity requirements and technology transfer requirements; difficulties in

repatriating profits and a lack of access to arbitration in the case of disputes. Indonesia, South

Korea, Malaysia, the Philippines and Taiwan maintain some local content requirements in some

sectors. Negative lists prohibit investments in certain sectors in the Philippines, Indonesia, South

Korea and China. 

Neither levels of foreign direct investment nor the incidence of investment approvals are

accurate indicators of investment openness. For example, foreign investment in South Korea has

increased over the last two years. Nevertheless, American companies continue to indicate that

South Korea is one of the most difficult markets in which to invest. Similarly, China has been

actively soliciting investments in a number of areas or sectors and in the last few years has

become the third largest destination of foreign investment in the world. Investment approvals

have increased rapidly over the last five years, but many investors are becoming disenchanted

with uncertainties and lingering delays in their efforts to invest in China. 

Increased competition among Asia Pacific developing countries is leading to some investment

liberalization, as these countries strive to fuel their own growth and to develop. Investment

deregulation, streamlining and simplifying administrative procedures, reductions in lists of

Annex D: Summary of Barriers to Trade and Investment in the Asia Pacific Region

125

Table 3

Incidence of Major Impediments to Foreign Investment

Country Screening Restricted PRs Fiscal/ Priority Exchange

Sectors Tax Sectors Controls

Incentives

ASEAN

Brunei X X X X

Indonesia X X X X X

Malaysia X X X X X

Philippines X X X X X

Singapore X X

Thailand* X

China (PRC) X X X X X X

Hong Kong X

Taiwan X X X X X X

South Korea X X X X X

Japan X X X X

* The U.S. has a special bilateral investment arrangement with Thailand through U.S.-Thailand Treaty of Amity and Commerce which

provides preferential access to U.S. investors in the Thai market vis-a-vis other third parties.

Source: Pacific Economic Cooperation Council, Survey of Impediments to Trade and Investment in the APEC Region (1995).
prohibited sectors and movements to investment regimes that are biased in favor of more openness

in new sectors (“negative list” approaches) rather than a bias toward markets that are closed unless

otherwise indicated (“positive list”), all have occurred over the last few years in Asia Pacific markets

to some degree and with varying impact. 

IPR 

Creation of intellectual property is one of the strengths of American society that is derived from

the creativity of American workers and the flexibility of our economy. Therefore, protection of

intellectual property rights internationally represents one of America’s top trade priorities.

Intense U.S. efforts began in 1988 with the establishment of the Special 301 statute that

mandated annual reviews of foreign IPR protection and negotiations to improve the structure of

legal protection for intellectual property and the enforcement of IPR protection. These efforts

have been supplemented with multilateral efforts to expand IPR protection through negotiation

of the Uruguay Round Agreement on Trade-Related Intellectual Property Rights (TRIPs) and

NAFTA disciplines on intellectual property. TRIPs commitments for developed countries were

scheduled for implementation in January 1997.

Special 301 negotiations have been undertaken intensively in the Asia Pacific region for more

than a decade and, in combination with the TRIPs agreement, have significantly improved the

legal structure for IPR discipline in the region. In its 1996 Special 301 announcement, USTR

reported progress toward improving IPR protection, including new laws and measures or

commitments to improve copyright and industrial property protection in five Asia Pacific markets:

Hong Kong, South Korea, Japan, Singapore and Taiwan. Some Asia Pacific economies continue

to have relatively weak, though generally TRIPs-consistent, IPR laws that concern U.S.

businesses. These include China, Indonesia, Japan, South Korea, the Philippines, Singapore,

Taiwan and Thailand. Key issues of concern in these countries are insufficient disciplines on

protection of patents, trademarks and trade secrets and the narrow scope and duration of patent

protection, significant costs in obtaining protection.

Enforcement also has improved in some markets and for some types of intellectual property, such

as copyright and patents. Nevertheless, enforcement continues to be a significant, on going

challenge in Asia Pacific, as elsewhere. Enforcement of IPR protection has been a major source

of trade friction between the United States and China over the last few years, and diversion of

pirated products from China to Hong Kong and other Asia Pacific economies has undermined

progress in enforcement achieved in some markets. Weak enforcement by continues to be subject

to monitoring by U.S. Government authorities. 

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

126
Table 4: Summary of 1996 Special 301 Report for Asia Pacific Countries

Priority Foreign Country China

The IPR Enforcement Agreement concluded in February, 1995 in Beijing, committed China to

take strong measures to curb piracy — particularly of computer software, audiovisual works,

patented works and trademarks. In addition, China committed to increased market access for

computer software, motion picture, and sound recording companies. In April 1996, the United

States designated China as a priority foreign country because the 1995 agreement was not being

enforced effectively. In June 1996, the U.S. and China reached an accord outlining the steps

China has and will take to implement the 1995 agreement and to provide market access. As a

result, numerous plants have been closed, illegal material seized, and the number of cases taken

to the Chinese courts has increased substantially. Despite the recent steps taken by China to

eliminate IPR violations, much progress still needs to be made. Piracy at the manufacturing level

remains high and underground factories producing pirated products continue to proliferate.

Implementation of the 1996 Agreement is being monitored.

Priority Watch List Indonesia

Japan

South Korea

Key Problem Areas:

Indonesia: Enforcement actions generally need to be improved, in particular, those

related to the imposition of deterrent penalties for computer software and book

piracy. An action plan to improve enforcement efforts against copyright piracy and

require government ministries to purchase only licensed software continues to be

monitored. Protection of well-known trademarks also are reportedly a problem. 

Japan: Discussions with Japan have continued throughout 1996 on several patentrelated problems with respect to the uneven and overly narrow interpretation of

patent claims in Japanese courts and concerns about patent “flooding” practices

in Japan. These practices reportedly have limited the ability of U.S. patent holders

in a range of industries. Concerns also remain about the inadequate protection of

trademarks, trade secrets and end-user software piracy. The United States also

filed a WTO dispute regarding Japan’s failure to provide an adequate term of

protection for pre-existing sound recordings produced between 1946 and 1971.

Discussions are ongoing between USG and GOJ officials.

South Korea: South Korea continues to be a major concern with respect to

enforcement of IPR protection for trade secrets, software, textile designs and

trade dress. Implementation of administrative measures to enhance protection of

well-known U.S. trademarks has required close monitoring as has end-user piracy

of software. South Korea’s legal system also failed [initially] to provide full

retroactive copyright protection for pre-1957 works as required under TRIPs.

Annex D: Summary of Barriers to Trade and Investment in the Asia Pacific Region

127
Watch List, “Out-of-Cycle” Philippines

Reviews or Other Thailand

Monitoring Taiwan

Hong Kong

Key Problem Areas

Philippines: USTR reported progress in improving IPR enforcement under a

1993 U.S. - Philippines bilateral IPR agreement. However, certain legislative

commitments in that agreement and TRIPs had not been fulfilled. Progress in

limiting use of pirated software by government agencies also has been

monitored. Moreover, in October 1996, an “out-of-cycle” review under Special

301 indicated that computer software decompilation which limits reverse

engineering of proprietary software has now been included in the Senate

version of this legislation.

Thailand: Noted progress in advancing a modern copyright law was offset by

ongoing concerns regarding declining enforcement activity, lack of a TRIPs

consistent patent law and the need to ensure that deterrent penalties are

imposed on convicted pirates. Because Thailand has recently taken steps to

create legislation for the establishment of an IPR court, Thailand was not

listed on the priority watch list for Special 301 review.

Taiwan: Taiwan has made significant strides in improving protection of

intellectual property and was removed from a long standing place on the

“Watch List” in 1996. However, the U.S. government continues to monitor

Taiwan’s domestic plans to improve enforcement against cross-straits and

domestic piracy. 

Hong Kong: Ongoing concerns regarding Hong Kong’s efforts in combating the

flood of pirated compact discs entering its territory from China and

implementation of legislation to enable local prosecutors to pursue Hong Kong

investors in pirate plants in mainland China have been the focus of U.S.

government attention over the last year. Although Hong Kong is not officially

listed as a priority watch list country, continued monitoring to facilitate

legislative protection for IPR continues.

Source: Office of the U.S. Trade Representative, Special 301 Announcements 1996 and National Trade Estimates Report, 1995.

Services

While non-tariff barriers to trade in goods are difficult to fully eliminate, work in the GATT

and WTO on such measures has been underway for several decades. Services have just come

under WTO discipline with the conclusion of the Uruguay Round’s General Agreement on

Services (GATS). Broadly defined, the sectors covered include transportation,

telecommunications, banking, insurance, media, utilities, retail, consulting and professional

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

128
services. Negotiations on specific terms and conditions of market access for certain sectors

covered under GATS, for example, financial services, telecommunications, shipping, and

professional services, have been extended on several occasions or are subject to the WTO’s ongoing work plan (the “built-in-agenda”). Sectoral basic telecommunications negotiations, in

which Brunei, Indonesia, Japan, South Korea, Malaysia, and the Philippines made important

Annex D: Summary of Barriers to Trade and Investment in the Asia Pacific Region

129

Table 5

Overview of Industry-Specific WTO Services Commitments by Country

Services U.S. Japan P.R.C.** H.K. Taiwan** South Korea Thailand Indonesia Malaysia Philippines Singapore

Distribution X X X X X

Education X X X

Telecom X X X X X X X X X

(value added)

Telecom X X X X X X X X X

(basic)***

Financial X X X X X X X X X

Services*

Audio Visual X X X X X X X

Courier X X X X

Health Care X X X X X

Accounting X X X X X X X

Advertising X X X X X X X

Legal X X X X

Architectural & X X X X X X X

Engineering

Construction X X X X X X X X

Land Based X X X X X

Transportation

Note: “X” denotes that the country has scheduled full or partial commitments in the WTO to provide market access and national

treatment to foreign service providers. In the case of telecommunications, full or partial commitments may affect market

access for international services and facilities, satellite services and facilities, foreign investment or regulatory principles. 

* Sector is currently under active negotiation

** Not a member of the WTO

*** Commitments on Basic Telecommunications reflect results of the WTO Basic Telecommunications negotiations that concluded

February 15, 1997.

Sources: U.S. International Trade Commission and Office of the U.S. Trade Representative.
contributions, were completed on February 15, 1997. Barriers to services market access,

therefore, continue to exist in many markets and key sectors of importance to the U.S. economy.

The GATS provides an overall framework for services trade that applies to all members, it

provides more detailed rules and guidelines for individual sectors and it contains national

commitments outlining foreign access to services industry markets in a manner somewhat similar

to tariff schedules. Certain sectors, for example, air transport, are not fully incorporated in the

agreement at this stage, but further work in this area is possible in the future.

In Asia Pacific, countries with fledgling service industries and traditional monopolies have been

reluctant to liberalize barriers to services trade. Of the eleven economies included in the

Commission’s study, nine undertook specific service sector commitments, but the level of

commitment varied substantially. Japan and the United States each committed to liberalize over

100 sectors; Hong Kong, South Korea, Malaysia, and Thailand agreed to liberalize between 60

and 80 sectors; Singapore and the Philippines committed to 30 to 60 sectors; and Brunei and

Indonesia committed less than 30 sectors. The United States has not been particularly satisfied

with the level of commitment to services liberalization by Asia Pacific economies and has

endeavored to ensure Asia Pacific plays a greater role in finalization of sectoral agreements on

financial services and telecommunications, in particular. Telecommunications’ negotiations

concluded satisfactorily on February 15, 1997 with full or partial commitments from Brunei,

Indonesia, Japan, South Korea, Malaysia, the Philippines, Singapore and Thailand. Financial

services negotiations are still underway. More work remains.

BUILDING AMERICAN PROSPERITY IN THE 21st CENTURY

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131

Cited testimony before the Presidential Commission on U.S.-Pacific Trade and Investment:

Charlene Barshefsky, Office of the United States Trade Representative,

Oct. 30, 1996.

Arnold Brenner, Motorola, July 17, 1996.

Andrew Card, The American Automobile Manufacturers Association, July 17, 1996.

Robert Eaton, Chrysler Corporation, July 31, 1996.

David Fisher, The Capital Group, July 17, 1996.

George M. C. Fisher, Eastman/Kodak, July 31, 1996.

James Morgan, Applied Materials, June 26, 1996.

Frank Shrontz, The Boeing Company, July 17, 1996.

Ann Veneman, California Department of Agriculture, June 28, 1996.

Kozo Yamamura, University of Washington, May 14, 1996.

American Automobile Manufacturers Association. Motor Vehicle Facts and Figures, 1995.

Washington, D.C.: American Automobile Manufacturers Association, 1995.

Fred Bergsten and Marcus Noland. Reconcilable Differences? United States - Japan Economic

Conflict. Washington, D.C.: Institute for International Economics, 1993.

The Business Roundtable. The United States and the Asia-Pacific Region: Strategies for Economic

Progress. Washington, D.C.: The Business Roundtable, 1995.

Central Intelligence Agency. The World Factbook 1995. Washington, D.C.: Central Intelligence

Agency, 1996.

Council of Economic Advisors. Economic Report of the President. Washington, D.C.: Council of

Economic Advisors, 1996.

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