Skip to main content

This is Part 2 of the transcript of an interview with Barshefsky. For Part 1, click here.

Andrew Morse

: I'd like to ask you -- the United States is not the only country negotiating with China at the moment. The Europeans are also going to be returning to the negotiating table with the Chinese --

Charlene Barshefsky

: Mid-May.

Andrew Morse

: Reportedly, they're asking for greater market access in a variety of sectors than the U.S. had, most significantly in telecommunications, where the Europeans are reportedly trying to secure 51% ownership of Chinese telecom corporations. The U.S. deal will only provide 50% ownership. If the Europeans are successful, will this put American companies, for example,

Motorola

(MOT)

, at a disadvantage, are you worried about that?

Charlene Barshefsky

: Not at all and here's why: Under WTO rules, as in every accession, at the end of the day, everyone who negotiates with the acceding country puts their deal into the WTO secretariat. And the secretariat puts together a single unitary composite market access agreement, which then is the market access agreement that governs China's relations with the world.

Under WTO rules, there's the MFN principle. You cannot discriminate among countries.

Andrew Morse

: Right.

Charlene Barshefsky

TheStreet Recommends

: The way the composite deal is put together, is to take the best of what any single country got, and apply that to the world. So the best, meaning, if you've got 51% in telecom and we only got 50%, the global deal will be 51%.

Andrew Morse

: So in some ways, the Europeans are carrying our water?

Charlene Barshefsky

: No. Because the EU won't get 51%.

Andrew Morse

: You mentioned the PLA in response to an earlier question, saying that they're concerned that the army is concerned about reform in China, but the army also has a lot of business operations, including mobile telephony.

Charlene Barshefsky

: They do, and here's how we've handled that. First of all, China's committed to the global telecom deal, which imposes many, many restrictions on the behavior of monopoly service providers, including the regulated entity, the telecom company, cannot also be the regulator. That's the current situation in China. That will have to change.

In addition, because we'll be able to set up payroll operations on a 50-50 basis but can also negotiate for management control on a contractual basis, there will be introduced in China for the first time competition against the monopoly provider. And that will be very, very positive.

As to the purchase of equipment by the government-owned telecom company, we have a separate series of rules governing how purchases are to be made by state-owned or state-invested enterprises, that is that purchases of equipment and services must be on nondiscriminatory terms and must be made on a commercial basis, at the price, quality, delivery and so on.

So we have a variety of mechanisms, that's just a sampling. But a variety of those and other mechanisms start to break the back, if you will, of what is a very highly restrictive telecom situation now in China. And this is, as you may have known when we did the global telecom deal about two years ago, this is a very, very, very difficult area for most countries because governments are very, very jealous of relinquishing any authority with respect to being the monopoly service provider.

Some countries consider it part of their national patrimony. On the other hand, the fact is, monopoly providers tend to be inefficient, and tend to be in the longer term, money losers for governments.

And, one positive benefit of the Asian financial crisis, and God knows there were no positive benefits, but if I might find one small, silver lining, governments began to see that money, that is, especially, private investments, is a finite resource. And what you saw was a combination of financial prices, and the need to upgrade monopoly service providers, and the amount of money that takes, is that governments around the world have begun in a very serious way to liberalize the provision of telecom services to allow for much greater competition. You're going to see exactly the same pattern in China. It's too expensive, otherwise. They just can't be competitive if you keep the monopoly provider intact.

Geoff Lewis

: I wanted to jump in on the tail end of that. There was a lot of stuff written last summer about access for Internet companies, that area of business which our readers are extremely interested in. What are you doing on that front?

Charlene Barshefsky

: For the first time, China will allow direct investment in the provision of Internet services, 50% equity, for the Internet -- satellite services are also included.

I think this is very significant, not just in a commercial sense, but you see what rapid explosion the Internet is doing in our own country.

And we're the most open major society in the world. Last year, in China, you had about a million Net users. This year, I've seen estimates that range anywhere between 9 and 12 million.

Next year the estimate is for 30-plus million. I was talking to a couple of CEOs from New York yesterday, talking to a couple of Internet CEOs yesterday who are predicting that by 2004, there will be approximately 120 million users of the Net in China.

Now, I know the Chinese government wants to control content. Good luck. They're not going to be able to do it, and so the idea of being able to spawn the development of the Internet and the use of the Net has such profound implications, again, not just on the commercial side, but on the whole question of greater information flow in China and ultimately, we hope, over time, greater political pluralism. I won't say democracy, but a more pluralistic society, which would be a remarkable achievement. Not guaranteed, to be sure. I don't want to overstate, but I think we could all appreciate the possibility that's presented by the technology and by the pattern of use within China.

So, this is a very exciting time and our telecom folks, our Internet service providers, are very, very excited by the possibilities presented by the agreement.

Justin Lahart

: I always worry about some sort of backlash by the government, or by elements of the Chinese government when they see a freer flow of information than they want. I worry that we might see them go back on some of these agreements. Is that something that concerns you?

Charlene Barshefsky

: Well, look, I think we have to decide that we're going to watch implementation of all of these agreements like a hawk. And the president has asked Congress in the FY 2001 budget request -- that's a request now pending on the hill, but it's for FY 2001 -- for about $22 million additional dollars, much of which would go specifically for enhanced monitoring of Chinese compliance with the full range of WTO agreements. And that's monitoring them by a combination of Commerce USTR, USDA, the Department of Agriculture and a little bit through Treasury. So that's the first point.

Second, I think the Chinese leadership has made something like the following calculations: They know they've got to modernize their economy and the reason for that not only has to do with global competitiveness, it has to do with job growth in China.

China needs to create about 12 million jobs every year to stay even. This is a huge, huge task. We've created 20 million, cumulatively, over the course of seven years. They need 12 million a year, every year. And we know that there's massive migration from the rural areas into the city.

One of the reasons WTO's accession is actually exciting on the Chinese side is it will allow them to bring investment into not just the wealthy coastal regions, but in the interior of China, where most of the people live but who now don't have access to capital, to expertise, to distribution, and so forth.

So, on the one hand, they know they've got to modernize, and to modernize, they've got to open up. On the other hand, I think, they think they can open up but still maintain this very repressive, and it is a repressive, political system. Their calculation, internally, must be, they can pull it off.

Our calculation is, they won't be able to, and I suspect, in the longer term, we're right, and will that engender a backlash in China? I don't know the answer. But I think with our various enforcement abilities to hold China to its agreements -- remember the pressure of the other 134 members of the WTO, whose market access will depend on our deal.

There'll just be the exertion of tremendous pressure on China to follow through. I'm not suggesting there won't be rough sailing, but I think we've tried to do everything we can to insure as much as it's humanly possible that the benefits to the agreement will in fact be realized.

Geoff Lewis

: I'd like to bring a question geared towards our readers that's a little bit different than maybe some of the policy issues. Assuming this all works out, the WTO deal goes through, we'll have one assumes a lot of investment going from the U.S., or from the West in general, more investment going into China.

How do you think this is going to play out for individual investors? Are they going to start participating through mutual funds and direct investment in companies that are China plays?

Charlene Barshefsky

: You know, I probably am not fully competent to answer the question because I think one of the things the Asian financial crisis shows is that you can't always predict the way investors will act, and you can't always assume that there is a rational investor that's out there, one way or another.

All I would say in general terms is that I think there will be a variety of possibilities, especially on the export side -- this is exports from the U.S. to China. When we look at the potential for investment in China, whether or not it increases, we have taken some action in the agreement that's very important to change the terms of that investment. And that may make China a somewhat more attractive investment opportunity for folks, but not necessarily. I say that because I just can't predict with any certainty how investors will think.

But what we've done is this. We've been long concerned about China's ability, through very restrictive investment practices, to drain jobs and technology from the U.S. to China.

Autos is a good example. China's mantra in many sectors has been if you want to sell here, you have to invest here, and, oh, by the way, if you want to invest here, then you've got to give us your technology.

What we've done to break that very vicious cycle is to say, No. 1, we want trading rights so we can send to you, regardless of what you think. We have that.

No. 2, China can no longer condition investments on technology transfer. This is very explicit. Now, if you invest in China, they can require that you export your output. They can require that you engage in trade balancing for currency purposes, they can require that you can only buy your input locally, from Chinese companies. All of that will be prohibited. And contracts that have those onerous restrictions in them will not be enforced with respect to those particular restrictions, not in general but with respect to those particular restrictions.

Some investors, I suppose, may find that that is extremely helpful were they to invest in China. From the point of view of the U.S. side, it's helpful to know that our investment that goes into China can't be used by government fiat to ship exports back from China to the U.S., from those foreign-invested enterprises. So it's kind of a win-win, both on the export side and then any fear of any ensuing flood of import side. It's another reason why we have the antisurge import remedy, in case we guessed wrong.

But the real focus of the agreement has been on enhancing our export capability from the U.S. That's really been the focus. There are some companies, who in their comments to us, under our Federal Register process, asked us to negotiate relaxed investment rules in China.

We did not do that, because our focus is in exports from here, our focus is not on making China a more attractive place in which to invest. But this issue of forced tech transfer of local content and export performance requirements, those are so pernicious in and of themselves that we decided they needed to be handled. I think we have very, very new strong rules that will be imposed against those practices once China joins the WTO.

Dave Kurapka

: You've talked a lot about how this was going to change China. Taiwan is also going to enter the WTO, and there are potentially a lot of changes with that. Taiwan will have a seat at one of the most important international organizations, they're obviously members of a few others, but this will be a big one. How do you see Taiwan entering the WTO? How is it going to change Taiwan? How is it going to change our relationship with Taiwan? How's it going to change the Chinese relationship with Taiwan?

Charlene Barshefsky

: I think all of those are a little bit imponderable. But what I think is fascinating and your question puts its finger on it, which is, in most big organizations like the UN, to be a member a country must be a state, capital S state, in international law terms. Taiwan is not a state in international law terms.

But in the WTO, you just need to be a customs territory. This is how Hong Kong has been a member for all these years. There are a number of other countries that enter not as states, but as customs territories. But once you're in the WTO, all members are equal.

There's no distinction based on whether you are a state in international law terms or whether you are a customs territory. So the interesting thing here, and it's something that could create a very dynamic situation, is that Taiwan would be entering after China. You would have, for the first time, in one of the big, major, multilevel institutions both China and Taiwan and Hong Kong, which because of the hand-over agreement maintains its separate status in the WTO as well, for another 50 years.

This is a fascinating situation. Perhaps the fact that both China and Taiwan are in this organization will help, over time, reduce cross-straits tension. One doesn't know for sure, but it couldn't hurt.

Dave Kurapka

: Well, let's step back for a moment. I just want to ask about the overall environment on trade these days. Obviously it's been a pretty controversial area with the whole Seattle situation and the fight over the Africa trade bill. This has not been a good time for trade, even with this agreement that you concluded last year.

Are you worried that the U.S. is retreating because of the opposition to trade in this country -- is retreating from its historic embrace and leadership in free trade? And if so, are you worried that that's going to hurt U.S. companies and our economy at large?

Charlene Barshefsky

: I don't think we are retreating in our leadership. If you look at the last seven years, we've concluded just shy of 300 trade agreements, one of which was NAFTA, one of which was China, one of which was the Uruguay round, and then another 297 agreements. Almost 40 market access agreements with Japan, for example.

This actually has been, ironically, the single most active period in trade policy and the negotiation of trade opening agreements that the U.S. has ever had. Look, we've seen -- and this isn't just because of trade agreements, obviously -- our exports go up 55% since 1992. Fifty-five percent, and that's even with the Asian financial crisis when our exports cratered for almost two years.

I do think that policymakers really have to pay attention to the concerns that are being registered, first, by separating legitimate concerns from a lot of silly rhetoric -- and there's an awful lot of silly rhetoric, sort of the "down with capitalism" variety making one wonder whether the model of the future is the East German model. I mean, it just gets silly at some levels.

But separate out the legitimate concerns from the illegitimate ones and I would put in the category of legitimate concerns the question of transparency of these big, multilateral institutions, whether the WTO or the Bank or the Fund, they simply need to be more transparent in the way in which their decisions are made. They need to be more accessible to the public.

With instant communication being what it is, these organizations are in a different world. Their own internal practices and the way in which they relate to the public at large has to move in line with the reality that is presented by simply, telecommunications technology. I think transparency is key.

Opening up the WTO dispute settlement process is important as well, and I do think this question of labor issues and environmental issues are matters of legitimate discussion in the WTO. Not because the WTO sets environmental standards. It doesn't, it surely never will. And not because the WTO sets labor standards. It doesn't, and it surely never will. But simply as points of discussion, as you look at an integrated global economy and as you look at the process of globalization itself. So I think some of these concerns are quite legitimate. And I do think the trading system needs to catch up a bit with public perceptions.

But, I think the more radical criticism -- dismantle the WTO, get rid of the World Bank -- are simply so far off the mark and so dangerous, if implemented, dangerous to our own prosperity, dangerous to our leadership, that they must absolutely be rejected without equivocation. That's how I look at it.

Dave Kurapka

: One last question: Is PNTR going to pass?

Charlene Barshefsky

: Yes.

Dave Kurapka

: OK, thank you very much.

Charlene Barshefsky

: Thank you all, so much, for spending so much time.

Dave Kurapka

: We wanted to have

Leonardo DiCaprio

conduct this interview, but he wasn't available.

Charlene Barshefsky

: You know what? Had you said he was, I would have said I'm not interested. On the other hand, had you said it was

Robert De Niro

, I would have given it quite a second thought.