Stanley O. Roth, Assistant Secretary for East Asian and Pacific Affairs, U.S. Department of State, Testimony Before the House International Relations Committee, "Challenges in U.S.-Asia Policy" Subcommittee on East Asia and the Pacific, Washington, DC, February 10, 1999


Introduction

Mr. Chairman, thank you for the invitation to speak on challenges
in U.S.-Asia policy as the 106th Congress and your subcommittee
begin your work of this session.

In 1998 we witnessed a period of great change in Asia. Many
previously accepted norms have given way. First, the notion of a
permanent "Asian miracle" -- a notion fueled by years of high
growth rates -- evaporated as several key economies contracted
sharply and many others cooled down or slipped into recession.

Second, as the Asia-Pacific region suffered the consequences of
the economic crisis, a demand for new political leadership
emerged in many countries. This included, most notably,
Indonesia, where President Soeharto was toppled by street
violence after 32 years in power. Only a year-and-a-half after
the onset of the economic crisis, the previously stable landscape
of Asian political leadership has been altered by the rise to
power of many new leaders: in Indonesia, President Habibie; in
Japan, Prime Minister Obuchi; in Korea, President Kim Dae Jung;
in New Zealand, Prime Minister Shipley; in the Philippines,
President Estrada; and in Thailand, Prime Minister Chuan.

Third, 1998 proved to be a challenging year for the regional
institutions of APEC and ASEAN/ARF, which struggled to
demonstrate their relevance in the face of the economic crisis.

The people of Asia face a more uncertain future, but, in the long
run, not necessarily a worse future. This period of change has
been, and will continue to be, difficult for some time to come.
But it would be a mistake to believe that 1999 will be a repeat
of 1998.

In these initial remarks today, rather than attempting to be
comprehensive, I would like to concentrate on two cross-cutting
issues and four country-specific priorities.

The Asian Financial Crisis

Without in any way underestimating the need to deal with the
still-serious social and humanitarian consequences from the Asian
financial crisis, it should be recognized that 1999 will be
different from 1998.

In each of the three countries most seriously affected initially
by the crisis -- Thailand, Korea, and Indonesia -- 1999 should
witness improved economic performance. The most dramatic
turnaround is anticipated to occur in Korea, where the
International Monetary Fund -- the IMF -- recently forecast a 2%
growth in GDP.

December IMF figures indicate that the Thai economy contracted by
8% in 1998. The outlook for 1999 is better, with some Thai
officials even predicting a return to positive growth by the end
of the year. Even in Indonesia, which is less far along in its
recovery, the 15% negative growth rate of 1998 should slow to a
less-calamitous IMF-estimated negative 3.4% in 1999 as the
economy begins to bottom out.

Asian economies which were, relatively speaking, less impacted by
the financial crisis -- Singapore, the Philippines, Taiwan -- are
likely to continue in that trend. The IMF expects the Philippines
to have a 2.5% growth rate; down from its pre-crisis rates, but
nonetheless positive. Singapore, likely to experience continued
recession in the first half of 1999, nevertheless does not expect
to drop into negative growth rates for the year as a whole.
Taiwan, whose export-led economy is particularly vulnerable to
the overall health of the region, is hoping to maintain growth
rates near last year's 5% level.

Obviously there is much that could disrupt this guardedly
positive outlook. First and foremost will be what the countries
of the region do for themselves. Asian economies still face
immense challenges in areas such as bank and corporate
restructuring, areas essential for the restoration of sustained
growth. Political instability associated with the June Indonesian
elections or the adverse impact on investor confidence based on
economic developments in other regions -- the contagion factor --
also immediately come to mind. The state of the Japanese economy
will be critical as well.

Despite significant steps by the Japanese government to address
its banking crisis and stimulate its economy, it remains unclear
if these measures will be sufficient to lift Japan out of
recession. With the Japanese economy representing more than half
of Asia's GDP, the state of Japan's economic health -- or failure
to regain it -- will be critical to the region's overall economic
health.

The Significance of Regional Institutions

One of the main accomplishments of the Clinton Administration in
Asia has been vigorous support for the establishment and
strengthening of regional institutions. We were the catalyst for
the first Leaders Meeting in APEC, and strongly supported the
initiative of the Association of Southeast Asian Nations -- ASEAN
-- to establish the ASEAN Regional Forum.

1998 was, admittedly, a difficult year for ASEAN. With its most
populous member, Indonesia, preoccupied with internal problems,
with difficulty arriving at consensus with its expanded
membership, and with the rise of bilateral tensions between some
of its members, ASEAN certainly appeared less robust than in
previous years. These problems spilled over into the ASEAN
Regional Forum (ARF), which had difficulty bringing attention to
bear on security issues such as the South China Sea.

Some observers, generalizing from these experiences, have been
quick to conclude that ASEAN is permanently weakened. I do not
share this view, and believe instead that ASEAN's deft response
to the delicate 1997-98 Cambodian situation is more predictive of
its future utility. I expect to see ASEAN's effectiveness
increase as the region's general vitality returns.

Similarly, cries of the irrelevance of the Asia-Pacific Economic
Cooperation, APEC, seem misplaced to me. What APEC is, and will
remain, is the best vehicle through which we can make it easier
for business to do business in the region. Founded on the concept
of trade and investment liberalization, APEC was never intended -
- or structured -- to be an Asian IMF.

APEC leaders did, however, embrace a comprehensive strategy to
strengthen national financial systems, to improve transparency
and accountability, and to help restore sustainable growth in the
region. In addition, at Secretary Albright's initiative, APEC
will work to develop a social framework for growth to help those
most vulnerable to the hardships arising from the crisis. Leaders
also adopted the vision of an integrated gas infrastructure for
the region, pushed forward efforts to promote and facilitate the
development of electronic commerce, and renewed their commitment
to advance sustainable development including programs on
sustainable cities, cleaner production, and protection of the
marine environment.

The President's planned participation at the September APEC
Leaders Meeting in New Zealand will help to re-affirm APEC's
dynamism. So too, I believe, will our efforts to define a solid
work program intended to highlight APEC's unique ability to
promote trade and investment liberalization.

Japan: Cornerstone in Asia

It is not an accident that I address Japan as the first of four
bilateral focal points: Japan remains the cornerstone of U.S.
security in Asia. President Clinton's trip at the end of 1998 was
successful in emphasizing this point and in strengthening our
bilateral relationship. 1999 should see further improvements.

We are presently positioned to make good progress on a range of
bilateral security issues in 1999. Senior Japanese elected
officials have assured us of their commitment to passage of
legislation to implement the Defense Guidelines. Recent Okinawa
election results bode well for progress on crucial base issues,
including the relocation of Futenma Marine Corps Air Station. We
expect that the Diet will approve funding for research
cooperation with the U.S. on Theater Missile Defense (TMD).
Perhaps most important, the relevance of our security
relationship in the post-cold war period has been amply
demonstrated by our close cooperation -- both bilaterally and
trilaterally -- on Korean Peninsula issues.

Our partnership on global issues of mutual concern -- our "Common
Agenda" -- is also faring well. Launched in 1993 by President
Clinton and then-Prime Minster Miyazawa, the U.S. and Japan are
now working together around the world -- in more than 200
projects -- to fight disease, study climate change, and protect
the environment.

The strength of our traditional security relationship and our
emerging global issues agenda does not diminish, however, our
concerns about Japanese economic issues. In 1998, the robustness
of the U.S. economy helped to buffer the effects on Asia of the
weakened Japanese demand for goods and services, but clearly, for
its immediate neighbors, there is no substitute for a healthy
Japan.

Since coming to power in July of 1998, Prime Minister Obuchi's
government has taken significant steps to address Japan's banking
crisis and stimulate its economy. While Japanese officials
believe that these measures will be sufficient to avoid a banking
crisis and lift Japan out of recession in 1999, persistently
sluggish private demand and worrisome rises in interest rates
give reasons for concern.

For the fiscal stimulus of this year to translate into sustained
positive growth in the longer term, Japan needs to deregulate and
open its markets further. It has taken some steps in this
direction, notably in the financial sector, but structural
changes need to go broader and deeper. We are looking for
positive results this spring in the second year of our bilateral
"Enhanced Initiative on Deregulation."

In addition to macroeconomic policy, trade issues remain a very
serious concern. In 1999, the U.S. trade deficit with Japan could
reach a new record of over $66 billion. I know that the members
of this committee follow trade issues -- such as our discussions
concerning deregulation and competition policy, Japanese steel
exports to the U.S., Japanese government procurement, and WTO-
related concerns -- closely. In each of these diverse areas the
U.S. is not seeking undue access or special treatment. Rather, we
seek a level playing field. And in doing so, it should be
emphasized -- as President Clinton did in his trip to Japan --
that Americans will not be the primary beneficiaries of a more
open Japanese market place. Ultimately, it is the Japanese
consumer who will benefit from greater selection, greater
competition, and lower prices.

Given the strength of our security relationship and the
convergence of our international interests on so many issues, I
think it is incorrect to conclude -- as some have argued -- that
the U.S.-Japan relationship is, or will be, characterized solely
by economic issues. The challenge in 1999 will be to maintain the
proper balance in the relationship. I look forward to Prime
Minister Obuchi's trip to the U.S. in May, and the opportunity it
represents to underscore the robust and diversified nature of
this cornerstone relationship in Asia.

U.S.-China Relations

Many experts consider China the greatest foreign policy challenge
facing the U.S. today, and with good reason. China's remarkable
economic achievements, increasing diplomatic prominence, and
growing military strength over the course of the past decade have
made the utility of constructing a cooperative relationship with
China all the more pressing.

Before turning to U.S.-China policy, I would like to set the
context with a few observations about internal developments
within China. The bottom line is that 1999 will be a difficult
year. The Asian financial crisis is beginning to have a
noticeable impact on the Chinese economy. Implementation of
previously announced reforms, including privatization of state
economic enterprises and getting the military out of the economy,
have not been fully achieved. The banking system continues to
experience considerable difficulty. The cumulative impact of all
of these factors has been a marked slowdown in growth, which in
turn has affected social stability as evidenced by protests by
laid-off workers and hard-pressed farmers. Recent terrorist
activities in border provinces associated with separatist
movements have contributed to leadership anxiety. The overall
picture, then, is of a China that is experiencing considerable
problems in its ongoing path towards modernization.

The Administration's China policy must deal with this complex
reality. Our efforts are geared to facilitate the emergence of a
China that is stable and non-aggressive; that cooperates with us
to build a secure regional and international order; that adheres
to international rules of conduct; that has an open and vibrant
economy; and that works to protect the global environment. We
work to achieve these goals by engaging China.

Engagement, as Secretary Albright has often noted, is not the
same as endorsement; it is not about turning a blind eye to
practices at odds with our principles or about forsaking
democratic ideals in the name of political expediency. Engagement
is quite simply a way to move beyond the sterile shouting match
which had characterized U.S.-China relations after Tiananmen by
establishing an overall strategic framework based upon the
growing intersection of shared interests, thereby increasing
opportunities for cooperation and improving the prospects for
resolving differences.

This strategy, and the political will to implement it on both
sides, has helped to put U.S.-China relations back on a more
productive track. The exchange of state visits between President
Clinton and President Jiang personified this progress, but it
also provided momentum for movement forward on issues of mutual
concern. Among the successes we can point to are tangible
progress on promoting stability on the Korean Peninsula and in
South Asia, and resolving the Asian financial Crisis.

We are encouraged by China's serious study of membership in the
Missile Technology Control Regime. We look forward to productive
cooperation towards a Biological Weapons Convention Protocol and
implementation of the Chemical Weapons Convention, and we are
pleased with the substantial steps China has taken in recent
years to bring its nuclear non-proliferation practices into line
with international norms.

The strategy has also helped create a positive environment for
the resumption of discussions between Taipei and Beijing. In the
past year, we have welcomed important developments in cross-
strait talks that have enhanced the prospects for peaceful
resolution of cross-strait issues. The October 1998 visit of the
top Taiwan negotiator, C. F. Koo, to Shanghai and Beijing and the
upcoming visit of the P.R.C. negotiator to Taiwan are both
positive and promising developments.

But even as the U.S. and China find new ways to move forward with
such strategic cooperation, we must also make progress on
resolving difficult problems. Human rights is an important case
in point.

The Administration is deeply concerned about the recent arrests
and prosecution of prominent democracy advocates. Secretary
Albright recently addressed the heart of our concerns when she
said:

"I could not fairly represent [the American people] if I did not
emphasize America's belief that organized and peaceful political
expression is not a crime or a threat; it is a right that is
universally recognized and fundamental to the freedom and dignity
of every human being. Accordingly, we are profoundly distressed
by the unjustified prison sentences recently imposed upon a
number of Chinese who tried to exercise that right."

China's detention, trial, and sentencing of democratic activists
is deplorable. We continue to press for improvements in China's
human rights situation. We raise individual cases and systemic
issues, including China's ratification and implementation of key
international covenants that it signed over the last two years.
Last month Assistant Secretary Koh held a three-day dialogue on
human rights with Chinese officials. Next month we will be
working in Geneva at the UN Human Rights Commission where we also
intend to express our views clearly and forcefully.

We are pressing for improvements in the human rights situation
throughout China, including in Tibet. We continuously urge the
Chinese government to engage in substantive dialogue with the
Dalai Lama and to preserve and protect the unique cultural,
linguistic, and religious heritage of Tibet. We were disappointed
that there has not been P.R.C. follow-up to President Jiang's
overture to the Dalai Lama at the June 1998 summit. We urge the
Chinese authorities to establish a meaningful and productive
dialogue with the Dalai Lama or his representatives.

Turning to economic issues, in 1998 the U.S. trade deficit with
China -- second only to the U.S. deficit with Japan -- was $58
billion. Against this backdrop, we have begun to see new Chinese
protectionist measures. Long-standing trade irritants over
agricultural products -- wheat, meat, citrus -- remain
unresolved. I hasten to add, however, that the news is not all
negative. U.S. exports to China last year rose 11%, and U.S.
companies increased their market share compared to their foreign
counterparts.

The Administration believes the best way to address these
problems and to give American businesses fair access to China's
markets -- just as China has access to U.S. markets -- is to bind
China to the rules and standards of the World Trade Organization.
We are working hard to move China in this direction by
negotiating a commercially meaningful agreement with them.

The Administration is also very mindful of the issues raised in
the Cox Committee's report. Clearly, we need to maintain
effective measures to prevent the diversion of U.S. technology
and prevent unauthorized disclosure of sensitive military
information. We welcome the committee's recommendations on
ensuring effective export controls and strong protections in the
context of our national security, foreign policy, and economic
objectives.

The Korean Peninsula

There is no greater threat to peace and stability in the Asia-
Pacific region than the situation on the Korean Peninsula. The
combination of the discovery of a suspect underground facility
and the August 31 test of a Taepo-dong missile has raised
tensions in the region and raised questions about the viability
of the Agreed Framework if these issues are not satisfactorily
resolved.

In response to these developments, the Administration has held
several rounds of negotiations with the D.P.R.K. concerning the
suspect facility. We have made several points absolutely clear:

-- Unless this issue is resolved the Agreed Framework will be at
serious risk;

-- This issue can only be resolved by full access to this suspect
site and that one visit won't be sufficient; and

-- The United States will not "buy" compliance with the Agreed
Framework.

In every negotiating session with the D.P.R.K., we also make it
clear that a second long-range missile test would have serious
consequences and could jeopardize KEDO funding and other aspects
of our relationship.

At the same time, we have reiterated our intention to continue to
supply food aid to North Korea in 1999 on a humanitarian basis,
in response to World Food Program appeals.

While our most recent discussions in Geneva on the suspect
facility showed some movement, they have not yet come to closure,
and we expect to hold another round of talks in February.

The D.P.R.K. has been less forthcoming on missile talks. The
Administration is pressing the D.P.R.K. very hard on this issue.
We expect another round of talks soon.

As we continue to seek progress on these two issues, the United
States and our two key allies have agreed that funding for KEDO
should continue. The termination of such funding while
negotiations are underway would only provide an opportunity for
the D.P.R.K. to leave the negotiating table, on the grounds that
we were not fulfilling our obligations under the Agreed
Framework.

I want to assure the committee that the Administration is fully
aware of the provisions in the legislation enacted last year
conditioning KEDO funding on progress with respect to both the
suspect facility and the missile talks. Beyond the legal
requirements, the point I would like to stress is that the
Administration shares the same concerns as the Congress. The
Agreed Framework and KEDO are not ends in themselves; their
purpose is to freeze the D.P.R.K.'s existing graphite-moderated
nuclear reactors, the reprocessing facilities, the spent fuel
storage, and other related facilities at Yongbyon in order to
stop a serious proliferation threat. Unless our concerns about
the suspect facility are addressed, we will have to address the
question of whether the Agreed Framework is working.

It is for precisely this reason that Dr. William Perry, the
former Secretary of Defense, has been asked to undertake a
comprehensive and thorough review of our North Korea policy. I am
confident that his close consultations with Congress, outside
experts, our allies in Seoul and Tokyo and other countries, will
result in a meaningful contribution to our North Korea policy.

Indonesia

Indonesia, the fourth-most populous country in the world, has
been the hardest hit by the Asian financial crisis. The country
straddles vital international shipping and air lanes, has vast
natural resources, and wields significant influence in Southeast
Asian politics. All this makes it of strategic importance to the
U.S. Although many reasons for concern remain in Indonesia, much
has been accomplished since President Soeharto's forced
resignation last May.

The most dramatic and welcome development in Indonesia in 1998
was the rapid emergence of many aspects of democratic government,
including a free press and the right to organize political
parties. The upcoming June elections have the potential to be the
first truly democratic elections in Indonesia in more than 40
years. Or, putting it another way, that makes these elections the
first since 1955 where the outcome is not known in advance.

The success of the elections constitutes our highest short-term
priority for Indonesia, since they constitute a necessary, if not
sufficient, condition for the restoration of political stability
and economic recovery. The newly passed election laws have been
accepted by all of the major opposition leaders in Indonesia as
sufficient to allow for free competition. The growing spectrum of
diverse political parties -- all of which currently believe they
will win in the elections -- is another indicator of a healthy
political process.

Nonetheless, there are any number of challenges facing the
elections, including the possibility of manipulation, boycotts,
and discontent with the retention of un-elected parliamentary
seats by the military. Working with USAID, we have allocated more
than 20 million dollars towards supporting the elections. But
this is far short of the amount needed, and we are working
closely with other potential donors to ensure that additional
necessary monies are made available to Indonesia on a timely
basis.

Another positive change under President Habibie has been the
willingness of the Indonesian government to participate in
serious negotiations for a political resolution to the East Timor
situation. The two major proposals offered by the Indonesian
government, broad-based autonomy and independence, certainly
provide a basis for negotiation and potentially for resolution of
the issue, although other outcomes may well emerge in the UN-
sponsored negotiations.

However, it should be emphasized that any viable solution in East
Timor must seek to avoid the type of bloodshed that occurred in
1975 when Portugal withdrew. For this reason we are deeply
concerned by numerous reports that the Indonesian army has been
arming pro-integration militia groups. When I met with Defense
Minister Wiranto in Jakarta last week to express this precise
concern, he indicated that he supported a proposal by Xanana
Gusmao to disarm all paramilitary forces on East Timor. While I
welcomed his statement, implementation remains key.

Even as I emphasize several important areas of positive change in
Indonesia, I do not mean to ignore the numerous difficult
problems that remain. First and foremost is the problem of
containing the violence that has arisen in so many parts of
Indonesia, including but by no means limited to East Java, Aceh,
Ambon, and East Timor. The Indonesian government is obligated to
protect the lives and well-being of all of its citizens,
including those of Chinese descent.

A second set of issues revolves around the economy, which
experienced 15% negative growth last year and will continue to
contract this year, albeit at a slower pace. Indonesia must do
its share to continue its implementation of its economic reform
program agreed to with the IMF, World Bank, and Asian Development
Bank, and which is essential to restoring confidence and growth
to its economy. At the same time, it is crucial that the
international community remains committed to seeing the economic
recovery process through and to addressing social safety net
programs to help Indonesia's poor.

Conclusion

I know that this subcommittee has great interests in Cambodia,
Burma, Malaysia, and other countries in the region which I have
not highlighted in these opening remarks. I look forward to
discussing these with you.


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