Transcript of the Interview with Charlene Barshefsky

China Boom Project, Asia Society 2009

Charlene Barshefsky

Former U.S. Trade Representative

Industry: Government

Ambassador Charlene Barshefsky served as the US Trade Representative (USTR)—the chief trade negotiator and principal trade policymaker for the United States—from 1997 to 2001, and acting and deputy USTR from 1993 to 1996. As the USTR and a member of the President's Cabinet, she was responsible for the negotiation of hundreds of complex market access, regulatory and investment agreements with virtually every major country in the world. Barshefsky is best known internationally as the architect and chief negotiator of 's historic WTO Agreement. She is recognized as a central figure for international business and international economic and trade issues. Barshefsky sits on the board of the Council on Foreign Relations and has also served as a director at a number of well-known multinational firms, including , Estee Lauder, , and Starwood Hotels. She has written and lectured extensively both in the US and abroad. ------

Transcript

Interviewee: Charlene Barshefsky Interviewer: Orville Schell Date: April 23, 2009 Place: Saigon (Vietnam)

10:33 Q What were the major aspects of your involvement? Just so we know who you are and what your role in this Odyssey has been.

10:45

CB I entered into the China story in 1993, when I was appointed by President Clinton as the Deputy United States Trade Representative. The US Trade Representative is the agency that negotiates all of the trade agreements for the United States and that makes trade policy for the United States obviously in consultation with other cabinet secretaries, but ultimately is accountable only to the President. I was Deputy USTR at that time, became USTR in 1996, through the end of ’s term, which was 2001.

11:31

When I entered the US government in 1993, I had as one focus, for my own attention, getting China into what was then the GATT, which is the forerunner entity of the WTO. And I had felt for many, many years, that this was a major gap in the global trading system. It always struck me as odd that China, that more effort wasn’t brought to bring China into that global system, and indeed I felt the same about Russia. And the reason for that was that the WTO system, the global trading system, uh, uh, negotiates and then solidifies a set of rules to be observed globally with respect to trade and commercial transactions, and increasingly also with respect to certain domestic policy norms – intellectual property protection, investment, so on and so forth.

12:48

China, as such a major country, although poor, seemed to me to be positioned well as its own internal reform process was going on. And as that process coincided in many interesting ways with norms that were accepted internationally, should be brought into this system in a more formal way, with a series of commitments akin to what other countries agree to do in the WTO. In the case of China of course, that would mean major internal economic reform, which would also have the added benefit of course of cementing its own internal reform process and accelerating that process, which in turn would accelerate growth.

13:44

So I embarked on a negotiation with China in a very serious way in 1993. China had for a number of years previously embarked on sporadic negotiation to enter the global trading system, but in no serious way. In 1993, we embarked on a more serious negotiation, which by 1996, 1997, was extremely serious, with ultimately the agreement coming into being in 1999, and China joining the WTO ultimately as a formal matter, in early 2001.

14:35

So it was quite an Odyssey, and of course, because of its own internal reform program which had been in place for perhaps a generation beforehand, cemented but extended drastically by its WTO commitments and entry. China’s growth really took off in an extraordinary way. Today, of course, China is a major global power. On a per capita GDP basis of course it remains a poor country, because the denominator is so large, but in the aggregate and as a matter of aggregate GDP, China is now one of the world’s major economies. So this is an extraordinary transition for China, and an extraordinary transition for the rest of the world, raising any one of a number of structural questions for the global economy, not just in a pure economic and trade sense, but also in a macroeconomic sense, and in a foreign policy sense.

15:49

Q So if you look at this extraordinary Odyssey, you’ve marked this moment of entrance into the as a critical moment. But if you back up a little…I mean for decades we’ve looked for the secret of economic takeoff for developing countries. So if you go back a bit, what do you see as the key moments when China sort of turned corners in this boom that we now are seeing the results of.

16:21 CB I think there are a number of key moments, starting from the rejection, essentially, by Deng Xiaoping of China’s own isolation, its disassociation from the global economy, its lack of technology – at that time rudimentary – but nonetheless lack of technology, its exceptionally poor population, its overdependence on inefficient agricultural production as a basis for growth, and any one of a number of factors that held back what had been historically one of the world’s great inventive nations. So certainly one turning point is Deng Xiaoping and the reforms that he instituted, including de-collectivization, including greater urbanization on the part of China, including in a geopolitical sense, China’s renewal of ties within Asia itself.

17:36

When you think about Asia, China had always been a lynchpin of the region for thousands of years. But it you look at the brief period of history in which most of us grew up, you see a China that was isolated – isolated itself – from Asia, with the rest of Asia developing relatively rapidly, particularly after World War II. With China, post-Communist revolution, remaining very poor, highly agrarian, lacking money, lacking technology. But what it did have was large manpower reserves and very low cost.

18:23

And so, as a second major turning point for China, in addition to Deng’s internal reform process, you had a China that began to reengage with that other half of Asia from which it had disassociated itself. So first Japan, in 1972, so that by 1979, China was getting massive amounts of overseas development assistance from Japan, creating in 1980, the early economic zones in China. And then you see China reestablishing relations with the other major wealthy countries in the region, with Korea, with Taiwan, with Hong Kong, which of course reverted in 1997, and others. And as I said with Japan of course.

19:25

So what did that do? Well, these other Asian countries had the two things China didn’t. They had wealth and they had technology. And what you had once you saw this geopolitical realignment was the marriage of money and technology with large manpower reserves and low cost. And this marriage created, in my mind, an extraordinary turning point for China, and it undertook an atypical pattern of development.

20:05

That is to say, its development rise – or reemergence, I should say – was much more rapid, much more sophisticated at many levels. Its openness to inward investment ensured not only additional money but sources of expertise, of know-how, of manufacturing prowess, in a very short period of time. China using those resources, I think, very skillfully, developing those coastal regions, developing the infrastructure for trade and economic engagement in those coastal regions, created extraordinary capacity on the part of the country as a whole.

20:59

Now, the interior of China of course was a separate country in many ways. There are all sorts of reasons for that, including the way tax revenues were collected, including the way in which central budget allocations were made, including failed attempts at industrialization in rural areas. There are many, many reasons, including over time dreadful environmental degradation, which reduced the quality of agricultural output in China, so on and so forth. There are many reasons why you had almost two Chinas. Of course, the central administration now has been trying to correct that, trying to shift more investment into the central part of the country, so on and so forth.

21:43

But this marriage – and if you think about it, the wealthy Asian nations still account for about two thirds of all the investment that goes into China – this marriage has created an extraordinary structural shift in global trade. So, as an example, the last time China traded more with – Japan traded more with China than the US was 1873. Japan trades more with China than with the US. The whole of Asian trade has realigned around China, China as the central hub.

22:20

Dangers of that model are very apparent now. Which is to say, export dependency as a model is an unbalanced and unsustainable model, and it is the Asian model in essence, practiced by every Asian nation. And we see the limits of that model, just as we see the limits in the US of a hyper consumption model.

22:50

But, that having been said, what you see is a country that embarked on its own series of internal reforms, accelerated, intensified by a geopolitical realignment in Asia, and a reestablishment of what had been much more like the Asian norm, rather than the anomalous situation that existed for 50 years. And today of course, you see China, for those reasons and many other reasons, an extraordinary international power.

23:33

Q So where did all this come from? Did this spring out of the head of Deng Xiaoping like Athena out of the head of Zeus? How did we get to that odd situation where a Marxist-Leninist state that had believed in self-reliance, that had waged class warfare, that had campaigned against the United States, capitalism, imperialism, how did it happen?

23:57

CB Well, you’re the historian of course. But from my own perspective, a leader looking at China, at where it was post-Cultural Revolution, and in the years following immediately, couldn’t possibly look at the country and decide it was successful relative to other countries around the world. Deng, as one example, was not ignorant of other countries around the world and of the extraordinary difference between those countries and their living standards and their future prospects, and that of China in the situation in which he found himself. So certainly one factor would have been, in the case of an autocratic regime…granted consensus, etcetera, etcetera…but also autocratic in a fundamental way – that is, a regime, a country used to imperial rule, rule from the top, which was no different than Mao – one couldn’t help but see the difference and see the potential. And it seems to me that’s one factor that led to a shift. I am sure there are thousands of other factors, and if I were a historian I’m sure I could think of many, many others.

25:46

Q Are you suggesting perhaps that in a kind of cryptic way, the authoritarian system, under a good pragmatic leader, allowed the country to make this kind of shift in a way that perhaps another country couldn’t have?

26:00

CB I do wonder about that, actually. I’ve thought about that quite a bit. How could a country that had valued the arts, literature, the process of invention, of thoughtful reflection, a country of great sophistication in so many ways, devolve as it did into a diminished, crude, cruel, ignorant – with a celebration of ignorance – country as it did? And then come out. And what I have often thought – and I have no basis for saying this other than random musings – is that China had always been a dynastic country. And there was always the Emperor, wielding great power. Perhaps it is a Confucian cultural attribute. But always wielding great power. And the question has always arisen in my mind, whether that really is in essence, what happened during China’s what I can only think of as decrepitude. And that is a country that responded to imperial rule in a way in which culturally it had for thousands and thousands of years.

27:55

I am sure that’s terribly simplistic and it may be entirely wrong, but its very hard in my own mind, to come up with some explanation that is more satisfying than a response to authority so embedded in the DNA of this country, when one also considers that modern tools, as they exist today, information flow and so on, did not exist. I just often wonder whether that really is what happened. And notions of Mao as the liberator were no different.

28:51

Q Well could it have been too, that Mao, the destroyer, in the Cultural Revolution for instance, did get rid of all of the obstructing, old cultural impediments so that when they finally did come out, Deng Xiaoping’s pragmatism, there was sort of no – there was less resistance?

29:14

CB Well, I suppose, yes. I mean, I suppose yes. The cost of that is breathtaking. And I can’t imagine it’s anything that Mao envisioned. So it may be that either as a matter of coincidence, or – if I can use this word in the context of such suffering – blind luck, that that was in fact that the case. Some in the IT space you’d call it disruptive technology – that some fundamentally disruptive action had to take place before China could jump from a kind of command control economy to something quite extraordinary. But I hate to think that that is what was necessary to make that happen.

30:10

Q I mean, could you also make the argument that 1989 also played a role, that after that the party had to do something really dramatic to keep power?

30:21

CB Could be. Absolutely. I think that’s a very, very fair point. A very, very fair point. And I suppose you see some replay of that when you consider this drive toward western growth, the drive toward interior growth, because pockets of dissention, as ‘89 would show, take on a life of their own, can be explosive, can be exploited, can grow in extraordinary ways – all the more so today, given modern technology and the organizing power of technology and the convening power of technology, which, in 1989, was in rudimentary form compared to today. And so one could imagine putting aside humanitarian and other potential goals which I’m sure are there, that internal stability being of paramount importance, that one could imagine that as pockets of dissent arise, the party understands that its leadership depends on stabilizing those pockets, and in an economic sense, delivering whatever needs to be delivered to ensure greater stability.

31:52

Q Well, aren’t in an effect, aren’t we sort of seeing that today, in the sense that now this sort of model of authoritarian capitalism in the wreckage of American financial markets, does seem to have something of a model blush to it, does it not? Could we say this perhaps once again a kind of asset of China’s development?

32:22

CB I think China is the strongest advertisement for capitalism I can think of.

32:28

Q But capitalism with a rather, well-organized authoritarian political structure.

32:34

CB Well, capitalism that is organized in the sense that, the central government understands it needs – or needed – manufacturing prowess, which is both a job creator, the single best job creator, as well as the ability to tap foreign markets in an effective way. It recognized to get that it needs know-how, it needs factories, it needs to have a variety of pieces of infrastructure that need to be put into place, and work to make that happen. Recognizing now on its indigenous innovation push, that manufacturing, being the world’s workshop is not enough. And in fact, China over time will become less competitive rather than more competitive relative to cheaper nations. So innovation becomes the watchword, greater innovative prowess will become important, so you see a massive influx into R&D spending.

33:50: Andrew interrupts. Discussion about Ms. Barshefsky’s schedule.

34:30

Yes, we can say, that there is direction. But look at what the direction is toward: it’s toward greater and greater output, one of the effects of that and of productivity increases has been higher wages – until now, because you’re in a recessive crisis, or depressive crisis. You see output toward greater innovation, improvements in the university system. You see a push toward education abroad, particularly at post- graduate level, PhD and post-doc level. So you see in some sense, an interesting direction by the central government, which I suppose is the socialism part, toward capitalism as quickly as possible. And it’s a very interesting combination. But I see less command and control than one ever could have anticipated even 10 years ago. Even 10 years ago.

35:49

Q So when you sat in the White House with on that final day, what went through your head in terms of the effect of the WTO on China? What did you expect? What, in retrospect, how do you look back on the years?

36: 12

CB I saw what Zhu Rongji saw. He saw WTO as a way to accelerate domestic economic reform. As a way to cement it. And hold China accountable for it, internationally, which puts additional pressure on China simply as a matter of face. He certainly believed in a more rapid acceleration in growth. I don’t know that even he could have seen how rapid that acceleration was. I always thought, in line with this, that there would be an acceleration in growth. I didn’t see how extraordinarily rapid and robust [said with emphasis; 37:12] it would be. Because this has been largely sustainable growth – although and I’m sure we’ll talk in a minute about the fact that as a structural matter the pattern’s going to change. It has to, as it has to for the United States. But it has been, as you look at this period of 10 or 15 years, extraordinarily stable growth at high rates.

37:38

You know, it is, in many ways a real privilege to see countries develop, to see countries pull people out of poverty, to look at a country that recognizes the future generation will indeed be better off than the current generation. These are in some ways very American notions to an American, but they’re universal notions. And, as I look at China, it is with extraordinary regard for the Chinese people and what they’ve accomplished, for their own families as well as for the country at large. And it is that underlying economic foundation envisioned by the leadership, envisioned certainly by the US and other nations that helped push China toward these more common international norms that I think set the stage for extraordinary improvements in the lives of hundreds of millions of people.

39:15

Q So what’s the next great push, from within and without, in terms of keeping this whole amazing proposition viable?

39:27

CB You know, as I look at China now, certainly internal security dominates, as we’ve been talking. Certainly, the more aggressive outward deployment of China’s assets is evident, particularly its natural resources push, but in other ways as well, including foreign aid, some of which is untied. Which then leads to the notion that apart from internal stability, China needs to ensure its continued economic competitiveness and its economic stability and sustainability in the face of what is always intense global competition. The question in my mind is, what is next? Certainly military modernization is a part I think of the notion that China values security, whether it is economic security, internal security, whether it is defensive security.

41:05

The question for me is: how will all of that be projected into the future? What does it actually mean in the future? I don’t know. It’s not entirely clear to me that China knows. Certainly, Deng Xiaoping would have said don’t lead, keep your head down, listen, [41:38: interviewer interjects with “feel your way”] feel your way, and hide your capabilities. And the question is, given what we see as China’s, if I can use this term, the vascularization of China’s wealth and prowess, its size, what exactly is it intention? One might say entirely benign, one might say not benign. If not benign, I’m not exactly sure what that means.

42:29

It does seem to me that, particularly for the US, a concentration on what makes our country unique, in an absolute sense and a comparative sense, is the strongest offense and defense to whatever it is that China becomes as the years go by, with respect to whatever intentions it has as the years go by. The worries that many have about China becoming a super power, hyper power, aggressive militarist, uh, may be true, may not be true. But other than through skillful diplomacy and the building of trust, its not much that can be controlled. So from my point of view, apart from strong dialogue between the countries, apart from a building of trust, which still does not exist, but a building of trust, apart from cooperation on as many fronts as possible, including military to military, apart from all of that, the US ought to be minding its own store a bit, and getting itself back in a position of shepherding its uniqueness and using that in positive ways in the future.

44:27

Q I know you have to go, but lets quickly just turn to Vietnam. You’re here in Ho Chi Minh City, and talking about China, but when you look at Vietnam, how do you compare it to what you know of what happened to China? Do you see similarities or differences?

44:52

CB Well, I think some similarities, many differences. It is popular to say that Vietnam is China 15 years ago or 20 years ago. I think Vietnam has some strengths that China didn’t have then, including the benefit of a quite accessible global economy, quite evident to the Vietnamese people, apparent to its leadership, that can be aspirational, threatening as well, but that is available on a very broad basis to the country as a whole to look at, to see, to read about, to get on the net and explore. That was certainly not China 20 or 30 years ago. That’s to Vietnam’s, I think, benefit, very much so.

45:59

The question, I think, is one of leadership. It’s popular in the US to say it doesn’t matter who is president. Oh it matters entirely who is president. And it matters for virtually every country I can think of what the quality of leadership is at the top. And I think for Vietnam, which is still feeling its way, the quality of leadership, the vision of that leadership, will be of utmost importance. China was very lucky. And for me, there are two extraordinary figures. One was Deng Xiaoping. But the other was Zhu Rongji, who took China into the modern world in a way unthinkable ten years before he did it.

47:09

Q Have you seen him since?

47:12

CB Several times, but not most recently. And, who had the sheer fortitude, the guts to press forward, to persuade within his own government, of that vision. Vietnam certainly has had very, very good leadership. But, as with the US, there are only a few Presidents you remember. The same will be true of China, and I think the same will be true of Vietnam. It is that vision, unalloyed, unalloyed. Zhu Rongji did not have a vision as a political matter. He had a vision in a very different way, as a non- ideological, rational [said with emphasis: 48:20], ultimately rational way.

48:22

It is that kind of unalloyed vision, not political directed, but directed in a manner best suited the economic growth of the country, to the proper deployment of the nation’s resources, to the proper reform of entities that need to be reformed, to the use of wealth in a way to achieve initially, rapid growth with job creation, and then spreading that growth in the country as best as possible – these things, in sort of hyper-form are still yet to come into being.

49:16

Q Are you suggesting that Vietnam needs a Deng Xiaoping to really…

CB

49:22 No, but I do think it needs leadership. I don’t think it needs a strong man per se. I do think it needs a leadership that recognizes genuinely what the challenges are, that can decouple political patrimony from those challenges, and the responses to those challenges, and then move forward on a plan. And you see this in Vietnam already, in various pockets of activity. The question will be to weave those pockets of activity together and really propel the country forward. I have a lot of optimism about Vietnam. It looks at China, it looks at India, and it does wonder why that’s not it. And I think that aspirational quality and the availability of that aspirational quality in very tangible form to the government and the people will make an extraordinary difference for the country as time goes by.

50:29

Q Well, good. I know you have to go…

Charlene Barshefsky

Bio Ambassador Charlene Barshefsky served as the US Trade Representative (USTR)—the chief trade negotiator and principal trade policymaker for the United States—from 1997 to 2001, and acting and deputy USTR from 1993 to 1996. As the USTR and a member of the President's Cabinet, she was responsible for the negotiation of hundreds of complex market access, regulatory and investment agreements with virtually every major country in the world. Barshefsky is best known internationally as the architect and chief negotiator of China's historic WTO Agreement. She is recognized as a central figure for international business and international economic and trade issues. Barshefsky sits on the board of the Council on Foreign Relations and has also served as a director at a number of well-known multinational firms, including American Express, Estee Lauder, Intel, and Starwood Hotels. She has written and lectured extensively both in the US and abroad.

Source: http://www.wilmerhale.com/charlene_barshefsky/

Highlights - Key turning point was Deng’s decision to de-collectivize and reengaging with the rest of the world, especially Asia. 17:36 - China’s reengagement with Asia was a crucial aspect of its boom, because of the marriage of Japanese, S. Korean, Taiwanese, and HK capital and know how with Chinese manpower and low cost: “So, as an example, the last time China traded more with – Japan traded more with China than the US was 1873. Japan trades more with China than with the US. The whole of Asian trade has realigned around China, China as the central hub.” 21:43 - The example of other Asian countries’ economic development was crucial to China’s decision to reform, since China was so obviously and desperately poor and underdeveloped in comparison. 23:57 - Chinese leaders, particularly Zhu, saw the WTO as a way of advancing and cementing reforms internally, if only because they forced China to make commitments it could not break without losing face. 36:12 - Good leadership was vital and China was very lucky in this area, with Deng and especially with Zhu, who “who took China into the modern world in a way unthinkable ten years before he did it.” 47:14

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*The full-length video of this interview is available in the online repository of Rutgers University Libraries: http://rucore.libraries.rutgers.edu