US-RP Relations and China
Morton Holbrook III
De La Salle University
March 11, 2004

I want to express appreciation to my De La Salle University hosts for inviting me here today. I had a good talk with three of your American Studies majors in our Embassy recently, and I appreciate the opportunity to return their visit by coming here today -- does this make me an honorary LaSallian? I also welcome the opportunity to discuss US relations with two countries that I have recently served in, the Philippine and China, and to try to make some comments on how China's emergence on the world scene might affect relations between the US and the Philippines.

The United States today enjoys excellent relations with the Philippines. After our bases here closed in 1992, there was a pause in bilateral relations, as both countries considered what kind of a relationship we wanted in the future. And we both came to the same conclusion: that we wanted an equal and mutually beneficial relationship that promoted security and prosperity. I believe that we have succeeded. The Visiting Forces agreement in 2000 provided a framework for our two military forces to continue to cooperate in defense matters. The events of 9/11 served to emphasize our common opposition to terrorism.

And following the Asian financial crisis of 1997, US-Philippine economic relations have rebounded. The United States is the Philippines largest trading partner, with about $17 billion in two-way trade in 2003, while the Philippines is one of our most important trading partners. In addition, the United States is the largest foreign investor in the Philippines. American companies here not only provide employment for thousands of Filipinos here. Many of these companies are also heavily involved in corporate good citizenship activities, helping the communities where they are located in areas such as the environment, education, and health.

The strength of our relationship was symbolized last year by the State Visit of President Macapagal-Arroyo to the United States in May, and President Bush's reciprocal state visit to the Philippines this past October. These visits produced results, including increased US military and economic assistance to the Philippines, a Philippine commitment to provide humanitarian assistance in Iraq, and a bilateral Science and Technology Agreement between our two countries.

The results of bilateral visits, including agreements, are important because they facilitate the real substance of US-Philippine relations, contacts between our people. There are about 130,000 US citizens residing in the Philippines, one of the largest overseas concentrations of US citizens. There are about 2 million Americans of Philippine descent in the United States, many of them in California or Hawaii. Our visa section at the US Embassy in Manila is one of the largest in the world; in the last fiscal year, we issued nearly 130,000 nonimmigrant or visitors visas to Philippine citizens, and over 31,000 immigrant visas. Our goal is to maintain secure borders while keeping our doors open to legitimate travelers, and these figures show there have been a lot of legitimate travelers!

So US-Philippine relations today are strong and broad-based: economic, security, cultural, and scientific.

Now, let me turn to the other country we want to discuss today, which is China. Since we established full diplomatic relations with China in 1979, US-China relations have encountered some stumbling blocks, but the overall trend has been towards stronger and broader ties. We initially looked at establishing relations with China as a means of countering the influence of the Soviet Union. But as China changed its policies and permitted more trade and foreign investment, bilateral economic relations increased. Thousands of Chinese students went overseas to study, many of them to the United States. We have signed many bilateral agreements with China, very similar to the web of agreements that we have with the Philippines, particularly on the economic side. Today we have a broad-based relationship with China.

At the same time, we recognize that China is not a democracy. We always make clear our concern about human rights problems in China that come to our attention, whether concerning the peaceful expression of dissent, or the practice of religion, or the treatment of minority nationalities in China. We have also expressed concern about proliferation of weapons and weapons technology from China, and have encouraging tighter export controls. And we continue to make clear our view that China and Taiwan should resolve any disagreements by peaceful means.
The United States also has growing economic ties with China. In 1978, China was an inward-looking country at a low level of economic development. The Chinese economy was not just protected, it was well-concealed: Foreign Investment was not allowed. There was only a low level of foreign trade. Since that time, the Chinese economy has opened up. China is now the number one destination in the world for foreign investment, exceeding even the United States. China is also a major trading country, the fourth largest trading country in the world. And now China has joined the WTO. We can see the results of opening up, the results of globalization with Chinese characteristics: real growth approaching ten percent annually for over twenty years.

To be sure, there are significant economic problems in China. Not everyone has benefited equally from this spectacular growth; some people in rural areas, and in areas away from the coast remain mired in poverty. The banking system is weak. Many large state enterprises, which formerly dominated the economic landscape, operate inefficiently. Generally, the most protected areas of the Chinese economy, and in particular the state enterprises, are the least efficient.

But despite lingering problems, the story of China's economy in recent years is a clear success story, one that is reflected in better lives for millions of Chinese citizens: better food, better clothing, and better housing. It is a success story for the policies of opening up and lowering barriers to trade and investment.

I suggested that China's economic growth is also mirrored in the growth of US-China economic ties. The United States is now China's second largest trading partner, and China, in turn, is the third-largest US trading partner -- two-way trade totaled $180 billion in 2003. The US is also one of the leading foreign investors in China, with about $35 billion in investments, in about 20,000 different joint ventures and wholly-owned enterprises.

In addition, Chinese-Philippine economic ties also show significant growth in recent years. I'll rely on my colleagues from the DFA to provide more details, but my understanding is that trade volume between the Philippines and China grew an average of 23 percent per year between 1995 and 2002, reaching a total volume of several billion dollars in 2002, when China ranked as the Philippines 9th largest trading partner.

There is also a growing amount of Philippine investment in China, particularly in Fujian Province (Xiamen), Guangzhou, and Shanghai, although I have been unable to find an estimate of its volume. There appears to be growing Chinese investment in the Philippines, but official Philippine statistics show only 346 million pesos in new investment in 2002, in contrast with 28.4 billion pesos in total foreign investment that year.

In addition to growing economic ties, political relations between China and the Philippines appear to be relatively stable in recent years -- as I say that, of course, I also defer to the authority of the DFA speakers on that subject. But I note that as a member of ASEAN, the Philippines signed the Declaration on the Conduct of Parties in the South China Sea between China and the member states of ASEAN in 2002. In this declaration, the parties promised to resolve territorial disputes by peaceful means, without the threat or use of force, and to "exercise self-restraint in the conduct of activities that would complicate or escalate disputes and affect peace and stability." The Declaration also calls for confidence-building measures and cooperative activities, such as marine environmental protection. The term "Spratly Islands" does not appear in the document, but it's clear that covers the disputes over who owns the Spratlys, as well as other islands that more than one country claims in the South China Sea.

I should say that the United States view is that we do not take a position on the merits of the various claims. However, we do believe that these territorial disputes should be settled in a peaceful manner.

Now, I've provided a kind of three-way description of US-Philippine, US-China, and Chinese-Philippine relations. What about the future? I do not see China as a threat to the Philippines, or to future US-Philippine relations; on the contrary, China presents opportunities for both countries. On the political level, both China and ASEAN appear to have generally adhered to the spirit of the 2002 ASEAN-China Declaration and have not made provocative moves in the Spratlys.

On the economic side, Chinese accession to the WTO opens markets in China to the Philippines, as it does to the United States. In addition, China and ASEAN have signed economic agreements calling for the establishment of a China-ASEAN Free Trade Agreement within ten years, including progressive lowering of trade and investment barriers.

I have no doubt Philippine industry and agriculture can meet the competition from China as well as from other countries. Competition can work to make the Philippine economy more efficient, and to improve consumer choices while lowering consumer prices. In addition, the Philippines, like the United States can and should take advantage of China's opening markets and find products that are in demand there -- whether agricultural, industrial, or in service industries. In that way, the future course of US-Philippine and Sino-Philippine relations can be guided by both the principles of the WTO and of the China-ASEAN political and economic agreements. If so, the result will be one that is in the interest of the US and the Philippines, as well as China: continued peace and increased prosperity in all three countries. That is my conclusion today, my hope for the future, and also -- while it is of course not guaranteed -- it's my best guess for the course of relations among all three countries over the next few years.

###