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 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. ------------------------- 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 Bill Clinton’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 World Trade Organization 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.