MAIN PAGE | SPEECHES & EDITORIALS | 2001 | CHINA TRADE
PACIFIC BASIN ECONOMIC COUNCIL
MAIN PAGE | SPEECHES & EDITORIALS | 2001 | CHINA TRADE
|
A Business Assessment of China Trade
Arnold Brenner Presented at the 2001 Annual Policy Conference
GOOD MORNING. It was interesting to me yesterday, as I was reviewing my remarks for today's panel, I had one ear tuned to C-Span as they were broadcasting the Senate Finance Committee's confirmation hearings of Robert Zoellick for USTR. What caught my attention was some of the comments by the trade hawks on the committee, who believe that China is backsliding on their November '99 bilateral agreement with the U.S., and who seem to be looking for a reason to deny China entry to WTO. Others expressed their strong support for sanction tools - such as the carousel provisions in Europe or the use of 201 sanctions. Robert Zoellick is an experienced trade negotiator, and I'm sure that he knows negotiating with China is not the same as with Europe, or Japan. But my experience, although mostly with Japan, has taught me what I think is a very valuable lesson. I believe that there is one constant in any trade negotiation, and that is you have to step into the other guy's shoes and find the key points that will benefit the other side. The threats of trade sanctions don't work very often, and the implementation of sanctions has seldom produced the anticipated results. Motorola perspectives on China's WTO accession Motorola has been and remains a strong supporter of China's accession to the World Trade Organization. Our support is based on our long-term commercial interests: partnering with China - Chinese suppliers, workers, managers, and investors - to build a successful global business. Our strategy in China was born well before WTO accession was considered an operational possibility. While we do view WTO accession - and the pro-competitive market oriented obligations that accession entails - as critical to our success, it is not because it will make it make it easier for Motorola to sell into China, but rather, because these reforms are critical to China's effort to sustain rapid and long-term growth, a fact not lost on the Chinese leadership. Three years ago, at a Chamber of Commerce meeting here in Washington, I had the opportunity to ask Chinese Foreign Minister Shi Guangsheng, in light of the most favored nation status they had with the U.S. which had been renewed for some 17 years, without demands to reform their system of import restrictions, quotas, and the like, why did the Chinese want to take on such a formidable set of obligations as WTO accession requires? His answer was simple; because it benefited China. He expanded his remarks about having a seat at the world trade table, and how they knew that the only way China was going to compete in the outside world was to engage the best competition they could muster in their home market, but the message was clear, they were not going to sign bilateral trade agreements because of outside pressure; it was because they knew it benefited them. Motorola in China Motorola has a large stake in China (see slide 1). Starting from scratch in 1987, we've built our business to the point where today we have 2 wholly foreign owned enterprises, 8 joint ventures, 26 branch offices, numerous service centers and 25 R&D facilities located around the country. We are the largest foreign investor in China with nearly $4 billion committed in registered capital. Our annual sales in China are now over $4 billion - more than 10% of our global revenues and larger than any other single country market outside of the United States, including Japan (see slide 2). More important to the Chinese is that we increased our local sourcing to $870M, exported $1.6B of goods, and invested $160M in R&D last year. (see slide 3). Why China? It's self-apparent now, although it was less so 14 years ago when we were first getting started. China represents a tremendous market, and an attractive production base for serving the domestic and international markets. Just a few stats: In 1980, China's teledensity rate was 0.4% with 4.1 million fixed lines. By 2000, teledensity had risen to 13% representing about 110 million lines. The growth in wireless has been even more dramatic. China is currently adding more than 1 million subscribers per month, and the pace is accelerating. China will have more than 100 million wireless subscribers by the end of this year. That's a lot of phones. China's attractiveness for semiconductors and broadband communications is similar. In sum, China is one of the largest, and fastest growing markets in the world for mobile phones, cellular infrastructure, semiconductors, and broadband products such as cable modems and set top boxes. Support for WTO Motorola has been a strong and constant proponent of China's accession to the WTO. Clearly it is in our interest as a means for gaining normal trading status on a permanent basis. But frankly, the actual risk of NTR being denied or withdrawn was slim, so that alone was not sufficient to galvanize us, let alone nearly all of US industry, to support China's accession. Rather, our support for China's accession is premised on the belief that WTO membership provides a means for driving the reform agenda - to set in motion the systemic changes necessary to transform China from a traditional command (planned) economy to a true market directed economy. It is our belief that these structural changes are prerequisite for future development and sustained growth. It is increasingly understood - in this country and elsewhere - the magnitude of demands that the WTO is placing on China involve nearly every aspect of economic life in China. Together with China's announced policy on converting thousands of State Owned Enterprises (SOE's) to private ventures, these changes will not come without significant social costs. I suggest it may be easier for the regime in Beijing to blame this upheaval on obligations to an outside influence such as WTO, rather then as an internal product of a personal reform agenda of a political leader. In this regard, Motorola's interests coincide with China's: We support WTO accession because it is in China's long-term interests. And creating wealth in China means a healthy market. It will also create competition, but that's inevitable whether we support them or not. The broader point tends to become obscured when Motorola, like other companies, analyzes the accession package. As illustrated in slide 4, we tend to focus on concrete and specific market access issues (trading and distribution rights, tariff reductions/ITA, phase out of non-tariff measures such as quotas and import licensing, and foreign investment in telecom services). But it is important to see the forest through the trees. Market access is important, but that is not what is most significant about this agreement. In a more historical context, the significance of China's accession has more to do with changes in China's domestic economy, the rule of law, institutional adjustments, and the elevation of private-sector interests - all of which are critical to reforming and transforming China's economy, and maintaining high growth in the future. Failure to adopt these steps not only undermines American market access, but the ability of China's economy to continue to grow, create new jobs, and create wealth for a new generation of youth with rising expectations. Outlook I think a lot of folks - inside government, on the Hill, and in the business community - have grossly underestimated the significance of what China is undertaking; by the same token, they are grossly overreaching in their short-term expectations. China's accession to the WTO will not resolve all market access barriers. Japan has been a member of the WTO for 46 years, and to this day market barriers still exist between the U.S. and Japan, as they do with the EU and others. The bilateral trade balance will remain far in deficit from the US perspective for a number of years. At the same time, China has its own built-in expectations of what WTO membership will bring, including some relief from protectionist practices amongst its major trading partners, and a stimulus to foreign direct investment. It is likely that both American companies and Chinese officials are going to be unsatisfied with the early phases of WTO implementation. That means it is necessary that the U.S. government work closely with American firms to manage both the controversies and the expectations. Returning to Motorola's perspective, I do not envision a major change in our approach to China. From the very beginning, we have built our business in China on a four-point strategy (see slide 5):
This four-point plan was appropriate prior to China's accession. It will remain appropriate in the near-term post-accession. In addition, we identified other success factors not directly associated with WTO obligations (see slide 7). Motorola is not unique in understanding these strategies, but we did begin implementing them from the very beginning of our business in China, and they have paid off. We will continue to partner with China. In the past, we did so because we had to, as a means to gain market access. In the future we will continue, because it makes commercial sense. Finally, we also have a corporate responsibility to be a good citizen in all of the countries in which we conduct business (see slide 8). China is no exception, and we have tried to do our share to help the Chinese to help themselves. Anyone who has traveled to China over the past ten or fifteen or twenty years, and I know many of you have, have seen a remarkable improvement in the standard of living. I believe that American companies, with programs like I've outlined have done much to contribute to this change. In closing, let me speak from a somewhat broader perspective. America's relations with China are complicated, and they will only become more so over time. Managing that complexity is in the interests of both governments, and of the commercial sector in both countries. If we imagine that the WTO dispute resolution process is our first line of defense in trade issue management, we will be making a big mistake. We need to find ways of reinforcing Chinese institutions and practices that foster solutions and provide remedies short of the intervention of the two governments. In fact, escalation of disputes to the point that they require formal governmental intervention should be a last resort. There is evidence that the Chinese leadership supports increased reliance on rule-based processes. Just as it takes time and perseverance to achieve business success, the same qualities will be required of our efforts to support creation of a more predictable, rules-based environment. But the trend is favorable. American companies face uncertainties 1) when there is a change in the basic direction of the economy or 2) when there is a change in our government, with all the associated questions about regulatory direction and budget priorities. We now face both conditions. From Motorola's perspective, it is crucial that China policy be consistent and that it build on the advantages created by the progress of the past decade, when PRC growth shot up 340 percent. We intend to work hard to support a persistent, patient and constructive approach to China that continues to deepen reforms, to the advantage of Motorola's stakeholders. |