November 6, 2014
Trans-Atlantic Interests in the Asia Pacific In 2025

The Future of U.S.-Asia Security Relations
Moderator: Damon Wilson,
Executive Vice President, Atlantic Council
Speaker: Kurt Campbell,
Chairman and CEO, The Asia Group

Global Trade Agenda
Moderator: Paula Stern,
Founder and Chair, The Stern Group
Speakers:
Kanji Yamanouchi,
Minister for Economic Affairs, Embassy of Japan;
Jeffrey Schott,
Senior Fellow, Peterson Institute for International Economics;
Annette Heuser,
Executive Director, Bertelsmann Foundation;
Damien Levie, Minister Counselor and Head, Trade Section Delegation of the European Union to the United States

A New Model of Great Power Relations
Moderator: Barry Pavel, Vice President and Director,
Brent Scowcroft Center on International Security, Atlantic Council
Speakers:
Michael Green, Senior Vice President for Asia and Japan Chair,
Center for Strategic and International Studies;
John Negroponte,
Distinguished Fellow and Senior Lecturer, Yale University;
Kori Schake,
Research Fellow, Hoover Institution

Location: 1030 15th Street, NW, 12th Floor (West Tower), Washington, D.C.
Time: 1:20 p.m. EDT
Date: Tuesday, October 7, 2014

Transcript by
Federal News Service
Washington, D.C.

DAMON WILSON: All right, if I could go ahead and welcome everybody back, I'm Damon Wilson, executive vice president here at the Atlantic Council. I'm going to be your moderator for this as we kick off the afternoon session with a conversation with someone who's done more thinking about this region than almost any other set of actors in Washington right now. So we're really delighted to welcome Kurt Campbell back to the Atlantic Council.

We're going to continue the conversation on thinking about the future of trans-Atlantic relations with the Asia-Pacific. It's in the context of trans-Atlantic interests in the region in 2025. So we've got a decade-long timeframe that we're parsing here, particularly as we think about the rise of Asia, especially China and the U.S. pivot of the trans-Atlantic agenda, and we're going to get into some key issues I think over the conversation, a way to think about these issues, some of the opportunities and challenges as well as the potential disruptions.

For the strategic perspective for the seminar today, we're just delighted to have Kurt Campbell. He's the founder and CEO of The Asia Group, as well as a founder and co-chair of the Center for New American Security, one of our great partner think tanks just up the block. He served, of course, as assistant secretary of East Asian and Pacific affairs in the Obama administration from 2009 to 2013 and in that capacity was really one of the key architects for the so-called pivot to Asia. He's played a central role in the U.S.-China relationship but also in our alliances in the region as well and in fostering a dialogue with Europe on these issues of Asia.

So I'm going to turn to Kurt to kick it off and help us begin to navigate how the United States and Europe can work together to manage the seemingly inexorable rise of Asia over the coming decades. So with that, please, we're in your hands and we'll pick it up as a conversation with all of you after his opening remarks.

KURT CAMPBELL: Thank you, Damon, and it's great to see so many friends around the table. I want to thank Barry in particular, the admiral and hopefully I'll just begin a conversation today that we can then follow up on subsequently. Let me just say that I think the interlocutors there at The Atlantic Council with us visiting from Europe, you all were in many respects the driving force for taking the initiative that would advance a dialogue between the United States and Europe over Asia going forward.

Now, clearly the efforts to date are incomplete and we're at the very early stages of the process. But I would say beneath the surface the process has begun substantially. So let me give you just a sense from my perspective about the overall engagement, how it's taking place to date and how it can be effective and more successful going forward.

So just in terms of policymaking inside the U.S. government in the United States, 99 times out of a hundred, if you come up with what you think is a big idea and you roll it out, it disappears immediately and you try to point to it and say, look, this is an important idea and people are saying, well, what are you talking about, I don't even know what you're referring to. And then, you're frustrated and you think, God, I wish I'd have done that differently.

On the very rare occasions – and I mean, it's only happened to me once or twice in my entire life – where you roll something out and then it takes on a life much bigger than anticipated and you're dealing not only with what you hoped was a big idea or a big set of – sort of the mission statement, but then you deal inevitably and invariably with the unintended consequences of that overall approach. So about halfway through the beginning of the Obama administration, a small team of us at the State Department worked with Secretary Clinton on a series of speeches and then an article which the editors of the journal decided to take from our embedded paragraph the word "the pivot" and described it as this basically repositioning of American strategy, more focus on the Asia Pacific region going forward. The initial reaction inside our own government was fascinating, right?

So there was a group of people that were deeply committed to the word and this becomes almost a semantic argument. But you know where you sit by what language you choose. And so, there was a group of people that said, you know, how dare you use the word pivot. A better word is rebalance, you know, so the idea of rebalance is subtle reapportionment of time and attention. I think we originally had chosen the pivot, the idea almost of a basketball player that could move back and forth. But I think the visual image that came to people's mind was not this sort of nuanced ability to kind of geographically transition back and forth during periods of particular interest but rather some sort of a turning of your back and moving away from particularly Europe and the Middle East.

And so, I have to say, quite honestly, if you have to lay blame on the rollout and the initial conceptualization, this is where it stops. And so, I would say if I could go back and do it again, I would have done – tried to do a lot more to articulate that what this was really about more than anything else was a recognition that we are involved in incredibly consequential difficult challenges in the Middle East and South Asia.

But somehow over time, we had to find the capacity to invest more time and attention in what is going to be the defining issues of the 21st century in the Asia Pacific region and that as a nation, it is hard to imagine a set of circumstances in which a country is as poorly prepared both in terms of the focus in the U.S. government, time and attention, money, resources, everything for these coming realities as the United States is now focused with respect to the United States. And so, this was meant to be kind of a clarion call of a recognition that over time we had to shift more of our capacity to the Asia Pacific region.

In truth, the fundamental belief that was embedded in the article but was completely lost, if you look at the United States over the course of the last 50 years, and in fact long before that, everything the United States has ever done of consequence we've done with Europe, everything, and that as we conceptualized this process of thinking about our destiny, that we wanted to do this more in consultation with European friends and partners, not only individual nations but the EU as a whole.

And so, over the course of almost five years, I spent an enormous amount of time meeting with European ambassadors. In fact, I got in enormous trouble because I met with more European ambassadors than the assistant secretary responsible for Europe. In fact, I got a call saying, you know, you're not supposed to meet with ambassadors that much. And I'm saying, why not, I think that's what we're supposed to do, to meet with the ambassadors. No, no, if you meet with them, you spoil them. They feel bad. They start to feel like they have a role. You've got to treat them badly. And so, I found it to be incredibly –

MR. WILSON: That's my role.

MR. CAMPBELL: Incredibly valuable, the sit-down and the interaction with a handful of ambassadors here in Washington that I think helped drive the agenda both in Europe and the United States. I will say it felt a little bit like some of these campaigns where we were not well-armed but we had a strong idea. And we would often find ourselves trying to prepare for high level meetings. So for instance, we negotiated over a very painful year a joint statement between the United States and the EU about a statement of purposes and objectives that the United States and Asia would work together on, the United States and Europe would work together on an Asia, air coordination, macroeconomic discussions, questions around the rise of China, India's role. We had a very elaborate – which was difficult to negotiate, to be quite honest – a lot of suspicions and uncertainties.

But in the final analysis, we got it done. I was at the meeting between Lady Ashton and Secretary Clinton, and I have to say it was exciting. But this was a classic metaphor for a larger relationship. During this hour and 20-long-minute meeting, 98 percent of it was on developments in Afghanistan, in Iraq, the recent negotiations around Iran, questions associated with climate change, problems in the trans-Atlantic relationship more generally and then at the very end, a few sort of throwaway views on how the United States and Europe should work together in Asia.

So it was the classic, the, you know, immediate forcing out the longer term and important. Nevertheless, I believe the process is now underway for a much more comprehensive dialogue and discussion between the United States and Europe on Asia. And I think that the reservoir of interest is extremely large and the areas of reinforcing competence are also important. Now, one of the things that I find striking in the discussion is many times Europeans downplay their role and their experience and what they bring to the table in Asia and I would just – I'll just lay out very quickly.

As a combined group, the countries that provide the most wherewithal in terms of aid and assistance in Asia is not the United States. It is not Australia. It's not China. It is the EU as a collective, and I would say in terms of the implementation of that assistance and the coordination of it is very sophisticated. So they've brought enormous lessons learned, learned often the hard way in places like Africa and they've applied those lessons I think very effectively, particularly in the lower Mekong region and also with respect to the application of very hard decisions with respect to the Pacific.

I also think that it is the case that behind the scenes the secret – the true secret of what transpired at the outset in terms of engagement with Myanmar, or Burma as it's sometimes called in the United States, was the very close coordination between the United States and Europe about sanctions lifting. At every step of the way, we had detailed discussions about if the junta at that time, and then subsequently the government, took particular steps with respect to letting Aung San Suu Kyi out of prison or her home arrest or allowed for a certain kind of dialogue with some of the political armed groups along the border areas, then certain sanction steps would be taken. And that coordination was remarkable going forward.

And I also believe that if you look at what the next step of U.S.-Asian relation will be at the core, it is about building institutions in Asia and how durable and strong those institutions are will tell us a lot about the future trajectory of Asia as a whole. My own personal experience is that there are few countries better able to apply lessons learned from recent experience as Europeans. And so, the experience of what has transpired in both initial organizations that basically traversed the Cold War, more recent experiences in the EU more generally bring a lot to bear with respect to what Asia's all about.

And I'll give you one particular example. What really is going to happen in Asia in terms of the next steps is not what new members are added or what is the particular agenda associated with either the East Asia Summit or the ASEAN Regional Forum. What's really going to determine the way forward is the establishment of secretariats, and I know that sounds hopelessly bureaucratic. But in fact, it is the establishment of these year-round functioning bureaucracies that bring together players from around the region is when you first start to see momentum associated with the establishment of multilateral institutions. No other experience brings that to light as clearly as what transpired in Europe in the 1980s and 1990s.

So I think there's an enormous amount that Europe brings to the table there. It is not as well understood by most Europeans – most Asians. Most Asians believe one some level that the European experience is wholly alien to Asia and in fact that somehow that these experiences are in no way transferable.

I think that is fundamentally incorrect and I think the ability, particularly of France and Germany, to overcome not just decades but centuries of anxiety and distrust has many applicable determinations and applications in Asia going forward and in fact I think the ability to deal with some of these local and nationalist issues in Asia can be informed substantially about what's transpired in Europe as a whole. It is also the case that more coordination between the United States and Europe is going to be necessary if we are to deal with problems that are basically besetting all of our industries.

Now, it was the case just a year ago I remember having some discussions with some very senior officials, and I will say this, with Mercedes Benz and they were like, look, we don't want to get involved in all your troubles in China because we're doing fine. We've got a great joint venture. It's been up and running 27 years. We've never had a problem. We want your technology firms and others to have problems. We want to basically sit on the sidelines and it's also the case sometimes we find in terms of macroeconomic policy either in the G-20 or the G-8, sometimes Europeans are like, look, look, we don't want to get in a big fight about currency because we're so hopeful that Germany ultimately will bring money to the table with respect to bailing out European economies.

Don't hold your breath on that in particular. But I would simply say that at a general level, more coordination between the United States and Europe on common challenges associated with cybersecurity, the status of the rule of law, questions associated with dispute resolution, these are all issues that require more dialogue between the United States and Europe going forward and I think it can be extraordinarily valuable in finding common approaches more generally.

Ultimately, and Damon basically indicated this at the outset, I think our biggest challenge going forward with respect to the United States and Europe – so I think we're at a point. I don't know what metaphor you use. But I think we're very close to escape velocity. I believe that with one or two new leaders in Asia – excuse me, in Europe, we will be able to turn the corner towards a much more substantial set of dialogues associated with the way forward.

Now, I will say that my – so I think there are two issues at play that we'll have to discuss going forward, Damon, and these are challenging matters more generally. There is a substantial gap between the approach of the EU, particularly on democracy and human rights and individual states. And that gap can be quite confusing not only to countries in the region but institutions as a whole and how that plays out over time is going to be critical. But I think the real challenge is what I would call a philosophical one and it is a challenge that frankly we struggle with here in the United States more directly.

So let me give you an example. The people that make Asia policy in the United States, it is a very small group of people over the course of the last 40 or 50 years. They are generally almost like a priesthood. They are not divided by Republican and Democrat. In fact, the divisions generally fall around much more subtle issues that are not widely discussed publicly, in fact are carefully kept in sort of smaller circles.

What am I referring to? So basically, until quite recently, there were basically two schools of thought. And there are some smaller schools of thought, but basically two schools of thought in the United States. The first school, very prominent in White Houses and among senior foreign policy elite and that essential concept was that Asia can best be managed if U.S.-China relations are solid and that you should spend your time like a pinwheel focusing on China and that basically other matters will take care of themselves and that are kind of beneath diplomacy, high level diplomacy and where you really want to focus your time is on U.S.-China relations.

This view now is completely prevalent in Europe, particularly in senior walks. I'll tell you what I think what are the challenges associated with that perspective. I think it makes much more sense to embed China in a larger regional discussion, and I'll explain why in a moment. But that view still is quite prevalent and it has basically dominated the strategic thinking in the United States for a long period of time.

There is a second school that has essentially coexisted with the first. But trust me, you know who the players are in both sides. And the second school is much more affiliated with the Pentagon and occasionally with the State Department. But it is clearly the view that the best way to manage the challenge of Asia, tensions on the Korean peninsula, potential difficulties between China and Taiwan, larger problems that could arise, have at its core an effective alliance management structure.

And so, you spend your time making sure that the U.S.-Japan relationship, the U.S.-Korea relationship, the U.S.-Australian relationship and perhaps to a lesser extent the relationships between Thailand, Philippines and some quasi allies like Taiwan and Singapore, are managed effectively, right, and that at that core is a recognition that you're better able to deal with the rise of China and problems on the Korean peninsula.

The problem with this group is that it's not nearly as senior and distinguished and not as close to power as the former. And it's also the case that the stuff that you deal with in this second group are things like status of forces agreements, where the palm trees are located near the airport, how wide are the gears that are going down the road and whether you're responsible for road repair. The admiral knows. He's got a smile on his face because he understands all of the things that are involved in true alliance management. Alliance management may sound sexy but it's in the details, right, whereas U.S.-China relations never gets in the details. It's always up in the ephemeral clouds.

Now, I would say those two groups essentially made policy in the United States and essentially coexisted now for almost 40 years. now, I would say what I think Secretary Clinton tried to do and others around her is articulate that neither of those approaches are any longer sufficient and that we need a comprehensive new framework to be more effective in Asia as a whole.

First, a recognition that alliances are still relevant and despite questions about whether they're, you know, viable or necessary, our view would be absolutely the question is yes, they are and they take the time and attention that they deserve and they should be orchestrated in such a way as to maximize American staying power and commitment. Number two, a strong recognition that a U.S.-China relationship has to be sustained, has to be worked on, but a clear recognition that we're entering a new phase. I often will go to the meetings with architects of the original U.S.-China relationship. This fall is the 40th anniversary. Ambassador Gelbard knows many of these people. They are very, very distinguished Americans. Usually when you're in meetings with them, they can't help but they look down at you.

They think, we did a lot better job than you guys are doing right now and the truth is that the – that the opportunities and challenges presented by the policy choices 40 years ago, as you're trying to lure China out of a self-imposed impoverished isolation, right. Those choices and policy tools are extremely different than the policy tools that you use today when you're trying to manage the choices, challenges and opportunities of the fastest growing country in the history of the planet, much more decisive than the arrival on the scene of the United States at the beginning of the last century.

And I will also say it has very much been aided and abetted by several aspects of American policy: one, the peace and stability that the United States has prepared and supported for 50 years. No country has been more supportive of China than the United States and more inadvertently over the last 20 years, their process of the rise in China's immediate neighborhood has been supported by American preoccupation elsewhere in a way that I don't think we as Americans fully understand or appreciate. So understanding that both one and two are not tradeoffs, they are component pieces that are necessary.

Third, a stronger recognition that too much of our policy has been based in Northeast Asia. We need a much stronger engagement in Southeast Asia. This would be my current critique. We need to sustain a process of high level engagement with ASEAN as a group but also individual states in it. If you made a list of the countries that were most important to the United States, to the United States that we didn't even recognize were important, Indonesia would be number one, also Vietnam, the arrival on the international stage of Myanmar/Burma, extremely important. So Southeast Asia has to play a larger role in our regional diplomacy going forward.

Fourth, the role of institutions, building those stronger institutions and interlocking them with shared missions and destinies, incredibly important. Fifth, the recognition that an economic component I absolutely essential and that the United States really has to have the confidence to compete commercially and the Trans-Pacific Partnership is going to be the litmus test for the United States, whether we like it or not.

If we do everything wrong in Asia, offend people, cancel meetings and get TPP in the next two years, we get a B, B-minus. If we do everything right, every meeting, every celebration, every dance festival and don't get TPP, we can't get a passing grade. That's how important it is for us going forward. But it doesn't end there. We have to have other follow-on initiatives, much more ambitious strategy for engagement with China economically, bilateral investment treaty and the like.

And then, last two issues, a much more diversified military strategy in which an essential component of this is civilian leadership. Too much of what's transpired in Asia is determined by narrow service interests and there is not an overarching framework for how we need to focus. And the biggest challenge for the United States going forward is the shifting of resources. If you asked yourself what is the worst possible preparation for the next 50 years in Asia, well, that would be 55 years of Cold War, black and white, completely unsettled engagement with the Soviet Union followed by 15 years of ground war in the Middle East, right? It is the exact wrong kind of preparation for the kind of nuance and subtlety that will be required of the United States.
Those are words that you sometimes do not see associated with American character or approach. But they will be necessary. But as part of that is a massive shift of resources from the Army, from some of our special forces, much more towards our power projection capabilities, our Navy and our Air Force. With respect, I will tell you one of the real experiences of the last several years is the Army has really found its voice and some of the other services have lost theirs. There is not – and so, there is bared-knuckle bureaucratic infighting under way right now.
I can't tell you how man invites I get on a weekly basis to come to a conference that the Army talks about their upcoming role in the Pacific, right, and they don't like to hear that their biggest role is to do less while other services do more. But that's something that they're somehow not as interested in, right. So this is the Navy's time. This should be the renaissance of the Navy and the Air Force and the Marines and figuring out how to seed that in such a way that creative ideas and concepts, more, you know, dispersion of our capabilities but also more partnerships with other nations. It's going to be extremely important, linking concepts between the Indian and Pacific Oceans and with European friends, very important.

And then the last two points I would say, and one is really bringing in new partners, working with Asia, by far and away the most important is Europe. And that needs to have more attention at a fundamental level. And it cannot be left to the assistant secretaries, right. It cannot be left as something on the side. It has to be at the central parameters of national power in each of our countries, a recognition that this is our destiny and this has to require more focus. And I will tell you the only countries to beat the United States to the idea of the pivot, even though it was so offensive at the time, was Europe itself. If you look at every aspect of diplomacy and commercial interaction, Europe was ahead of the United States over the last years, particularly in some key capitals.

Last, this is a region that understands and knows power, right. I sometimes worry that sometimes friends in Europe believe that if you're really nice and you get really low to the ground, that that's best way to get the outcomes that you want in certain capitals in Asia. That is not accurate in fact. That in fact invites misunderstandings and problems. And the essential feature of American diplomacy going forward frankly is going to be American strength and there are more questions about the United States' staying power and capacity right now than I've seen probably since any period since the Vietnam War.

But I will tell you that almost every five or 10 years, there are questions about American decline and concerns about our capacity and whether we've got the wherewithal to get it done. I will tell you during that 50-year period – read Jeffrey's book – one of the interesting things is those who bet against the United States have lost a shitload of money. And all I would say is we have the capacity in terms of our ingenuity, our capacity to surprise people and we will be a dominant power in Asia for decades to come. We will be more effective if we could work with European friends going forward.

I could not be more enthusiastic about this dialogue. I could not – I do not believe – this is an area that is absolutely central to our going forward promise of prosperity, rebuilding middle classes and good jobs and sustaining exports. It is absolutely essential as we go forward and I'll tell you anything I can do to help the dialogue, I'll do it. Thank you, Damon.

MR. WILSON: Thank you very much. That was just a terrific and powerful tour de force of the region, and a real strategic way to think about these issues. I want to pull out a few questions to deepen our conversation and then welcome the guests around the table who are going to have a lot of feedback, a lot of – I want to hear a lot of European reactions to what you said as well as from the region and Asia Pacific itself. But let me ask a couple of things first.

You said one of the key factors here, both strength and power but also this institution-building. Bring those together in the context of how you think about alliances and alliance structure. We have some Europeans around this table that are very much part of an alliance structure in Europe, a multilateralized sense of U.S. power and alliance engagement in Europe. And as you think about the growth of institution-building, obviously a range of institutions you are referring to, but our alliance structure in East Asia is dominated by bilateral arrangements.

So we're thinking a decade out, a decade forward. How do you see the U.S. alliance structure evolving in the region formally or informally in terms of the nexus and connections, not only between America's Asian allies but among America's Asian and other allies globally?

MR. CAMPBELL: Yeah.

MR. WILSON: NATO's global partners, or America's allies in Asia as well?

MR. CAMPBELL: Yeah. Damon, it's a great question. I think this is probably – I think there are going to be other people around the room that have more to bring about – to this than I do, frankly. I find that it's either a lack of imagination or knowledge on my part. But I am wary of the idea of trying to bring certain NATO-like functions into Asia. I think that will be badly misunderstood by certain countries in Asia, and I don't think it will even be welcomed by a number of our key allies. And so, I think it's a mistake.

I think it has a lot to do with mission overstretch. And I think it risks deluding essential purposes not only of our bilateral relationships in Asia but, perhaps more importantly, the ultimate role of NATO. So when I think about institution-building in Asia right now, and again this could be my own limits of my own imagination, I see it primarily in terms of political engagement and economic. And also, I do believe an area that we've not discussed is questions associated with disaster relief, humanitarian support and also the necessary issues associated with climate change.

MR. WILSON: And if you took out NATO from this conversation, back to the issue of increasing leakages among America's Asian allies.

MR. CAMPBELL: Yeah, I'm going to talk about that. So if you'd asked me this question two years ago, I would have been very bullish because the steps that we have essentially taken – and the admiral was a key player in a lot of this – is so we have these two incredibly strong bilateral relationships, one with Japan, one with Korea. And if you think about what that looks like in practice, it looks a little bit like – I think this is called an isosceles triangle, right? It's two long legs and then, you know, a shorter leg, the one between Korea and Japan.

So what we had tried to do over time with instability planning, with a variety of scenario issues and, you know, general coordination disaster relief is, if you will, trilateralizing certain aspects of these two bilateral relationships. So three years ago, in fact, if I had to look at my most intense negotiations when I was in government, they – you know, it wasn't with the generals in Myanmar. It wasn't with the Chinese over a blind dissident. It was with the Koreans and the Japanese about whether it was possible to come up with a collective security statement in which an attack on one would be seen as an attack on all three, right.

Actually in one meeting, I didn't think was possible, I made representatives in both Japan and Korea cry at a meeting which, you know – so, you know, I think – and that's not unhappiness. That's like deep frustration, deep sense of, like, how difficult this is. What we've seen, jump forward two years later. So imagine a situation where there's just been this big announcement that there's going to be a return to dialogue, which we all support, between South and North Korea. Great to see what's possible.

There's more high level dialogue now between North and South Korea than there is between South Korea and Japan, right. That is a terrible, terrible condemnation of what's going on between those two nations and there's a lot of reasons for it. And you know, you can't start to get into the details of who did what and whose interpretation of history. I will tell you that the general perceived wisdom of most of the Asia sort of followers is to leave this alone and let people work this out themselves.

I could not disagree more. I think that is completely wrong and that the idea was that this would sort itself out. We are now in a situation where the relationship is terrible and trending worse. We as a close friend to both nations owe it to them and to us to make clear enough and that we need to work to try to resolve some of our difficulties and build stronger ties again between Seoul and Tokyo and also subsequently between Tokyo and Beijing, right, as difficult as that is.

And I think we can do it and walk that line between, quote, quote, "taking sides." It is ultimately the case though right now these alliances are primarily bilateral and at the key to the initial trilateral dynamic would be the Korea one, which has not happened. There is a little bit more between the United States, Japan and Australia. But those are very distant, difficult to coordinate too much. We have some stuff that takes place in Hawaii in terms of ship engagements and the like.

But ultimately the process of this kind of military engagement in Asia is likely to take place around functional issues like disaster relief, like dealing with challenges that basically – piracy and the like which afflict all the countries of the Asia Pacific region.

MR. WILSON: So let me pick up the Beijing element where I think that you've said that, or written that we're entering a new phase perhaps in the way of China's approach. If you take, for example, the South China Sea where in the past accidental issues would develop into things that needed to be politically managed, that now perhaps they are carefully choreographed rather than having haphazard incidents, part of this a reflection of China's new leadership, President Xi Jinping. Talk to us, if we're looking over the next arc of the next decade, how you see China's ambition and its approach, strategy in the region changing.

MR. CAMPBELL: Look, you know, you can have a whole other section on Xi Jinping and his leadership style. It's clear he's the strongest leader we've seen at this early stage of his tenure probably in China's history. He is primarily focused – despite all of the anxiety about issues associated with territorial matters, he's primarily focused on the internal dynamics inside China, what's going – massive attempt to basically move away from state-led growth and export-led growth to a consumer, domestically driven process. That will be – if he's successful, he will be the first Asian country to make that transition. But it is escaping the lure of sort of state capitalism is a very – it's a seductive siren's call and it's going to be difficult for China to do it.

And right now, as we head into the plenum, there is a major debate between those people that are arguing for, look, let's keep with reform, even if it means lower growth and some systemic disruption, and then another group saying, we can't do it. We've got to get right back to the business of prodding the economy. We need another stimulus, right. And that – and if I had to guess, China in its way will try to do both, at least for a period of time, which will essentially be in favor of the stimulus, right, and that basically holds off issues associated – real issues associated with structural reform.

My guess is that there is a – we saw it a lot over the last four or five years. There is a group that is arising in the Chinese establishment, navy, air force, some party organs, some think tanks. And they're basically, you know, arguing, Damon, that it is China's time. And they have to basically be clear about what their expectations are with respect to issues that are playing out very close to China's borders. And they believe they have a very good model in this and it's called the United States during the Monroe Doctrine.

Now, we can go through the historical differences and the challenges there. But there is a fundamental, you know, kind of that was then and this is now, right, which is very unsatisfactory to Chinese friends. The real problem has been that on many of these issues there are no easy answers and there's no real diplomatic solutions other than to export the problem into the future, right, to export the problem into the future for a new, hopefully wiser generation of people to deal with in the future.

China had generally been satisfied with that approach until quite recently. And so, the essential Chinese approach has been on many of these issues something like this, Damon. You know, we support the status quo. We support the status quo. We support the status quo. But this time, it's a little bit more this, right, and the status quo better acknowledge that we own these places, right.

And what I was struck by more than anything else is the issues of maritime legality. I've never seen more white knuckles among diplomatic interlocutors across Asia. And these are issues that are not simply Chinese issues. You can go to any capital and find completely contradictory approaches about when is it owned outright by us, when should we go to an international arbiter. You know, so China is not unique in this. China's attempts to use force or, you know, to coercive means –

MR. WILSON: Coercion.

MR. CAMPBELL: – is perhaps more unique. But still, the position is not – sort of a toughening, hardening of national position is not unique with respect to China. My guess is that these trends are going to increase over time and that what China is basically saying is that there is an area around China that is essentially going to be a sphere of their influence and they're in the process of trying to negotiate what the parameters of that will be, like for the United States, right.

MR. WILSON: So you mentioned – you mentioned disruption in that context. That's obviously a focus. We've got Mat Burrows here who runs our strategic foresight initiative and part of the effort of looking ahead is looking at disruptions. Hong Kong, what's happening on the streets of Hong Kong today? What are the implications of how this plays out as a potential challenge, disruption, opportunity for what we're seeing in China?

MR. CAMPBELL: Yeah. I mean, Damon, the truth is the last three days have really been a – look, we cannot know. We don't fundamentally know. But my guess is that China has followed a very sophisticated strategy. First, what is not widely understood is they basically said to most of the people of Hong Kong that if you continue along these lines, you're going to have a criminal record. Now, that doesn't mean – you go, OK, a criminal record. But in Hong Kong, a country that really requires international travel, if you have a criminal record, it makes it almost impossible for you to travel to the United States, to Japan, to Australia, right.

So this is not lost on these kids. And so, in the last – basically the last three days, about 60 percent, maybe 70 percent of the demonstrators have left the fold. And you have a much smaller group of hardened guys. But I think it has also dawned on them that there is not much more that they can get. They've gotten – the chief executive has agreed to talk with them. They've agreed to let workers go into their offices. So there is a form of negotiation around the general parameters. But they will not yield I don't believe on issues associated with universal suffrage.

Now, the question, lots of debates about what was agreed to in 1996, 1997. I think China will say, look, we have a different understanding of what, you know, universal suffrage means. Ultimately I think the interesting thing about Hong Kong is that the process of local democracy is alive and well and it has lots of implications. And what it has demonstrates to China is that it limits their room or maneuver. I think in the past they probably would have contemplated a much more brutal reaction. But they know that they have bigger fish and if they did that in Hong Kong, you can write off any hope for what they might have over the long-term with respect to Taiwan, right.

So there is a – this issue's been very closely watched across Asia. And I think China is going to be forced to play the let's wait this out, let's – you know, we can stomach, you know, smaller demonstrations and the like. I think the other thing we've seen in the last three or four days is a substantial change in the tone of the reporting in China about Hong Kong, depicting Hong Kongers as spoiled, as not really truly Chinese and stuff. And that has actually been very effective in the psychology in China as a whole.

MR. WILSON: We have until about 2:30 and obviously I want to bring in our team around the table. Let me start with I think, Johan. You wanted to come in. Please introduce yourself, pose a question, and I'll come to you, Ambassador Gelbard, right afterwards.

Q: Yes, hello. I'm Johan Raeder. I'm defense adviser at the Embassy of Sweden here in Washington. Just going back to Damon's first question on NATO and what the alliance can do, I think it is clear that you need to choose which path to walk down when it comes to the relationships in Asia, whether to have a set of bilateral relations or whether to multilateralize them. I think also that of course what you're saying about avoiding to emulate NATO in that region makes a lot of sense because the specifics of Europe is not the specifics of Asia.

At the same time, if you want to have an increased European engagement in this area and to follow through with a pivot, so to say, or the rebalancing, I would say that in the years between 2001 and 2004 NATO pivoted to Asia, to Afghanistan. And it was not something that came naturally to NATO. It took a lot of discussion and it took a lot of convincing. But it was done because there was a realization that this is in our combined or collective interest to do this. I think a similar process is needed now, a dialogue within the alliance to agree to where are the challenges of tomorrow. And when that is done, I think the prospects for collective action is greater. NATO has pivoted back to Europe. I think that is wise given the circumstances.

But there needs to be a continued dialogue within NATO on where the challenges are. And NATO has changed. NATO is not only an organization for European security. It still is but it is also an organization of global security and a pivot to Asia with NATO being a part of that pivot I see as quite natural. That doesn't mean that we should emulate NATO and have a NATO-like structure or an absorption of this region into NATO. But to have Sweden as partner to NATO or Slovakia, for that matter, to engage in the Pacific doesn't make much sense if they have to view that as part of a bilateral relationship to that region. But as part of this bloc or alliance or partnership of nations with a common interest, I think that would be possible.

MR. WILSON: Terrific. Let me bring in Ambassador Gelbard who, I think, just back from Indonesia, might have a word to build on your focus on Southeast Asia in addition to Northeast Asia.

Q: Well, first, as something of a connoisseur of the difficulties of policymaking and implementation within the American government, I want to say that I admire enormously what you were able to accomplish because it dramatically has changed the architecture and involvement of the United States government. It's a series of major steps for the better. Second, going back to what you started to say about the need to focus more on Southeast Asia, while you talked about the Chinese side of issues related to the movement forward, you didn't address the other side of the equation, which is absolutely necessary.

And while there have been positive steps by the United States government and now by other governments to work more closely with ASEAN and with individual members there, there still is a nation-by-nation kind of approach in dealing with what China's doing and an inability on the part of groupings or subgroupings of countries to respond, whether it's to the nine-dash line or to other kinds of problems. How do you see there might be possibilities of trying to work – get countries to work together, have the countries by themselves work together to try to present much more of a common front, whether it's on these issues, working with India perhaps which has a similar kind of problem, or on other kinds of serious security threats?

MR. CAMPBELL: Thank you, Ambassador. Let me just – just two comments. Thank you. Just one back on – this is a definitional issue and I don't want to sound like a British cartographer. But if you ask most Asians, they would say Afghanistan, it's an important country but it's not in Asia. It's in South Asia. And so, they would take a very different view. I do think there is a role for ASEAN with dialogue and the like.

But my primary advice to you would be to tread carefully because misperceptions – I think you probably know about both how Russia and China would perceive the idea of a more active, dramatic increase in regional responsibility of NATO in Asia. But it would also be the case that a lot of the allies would like to know more as well. They want associations. They want to learn. But the question would be how does it – you know, show me how it works, right. And so, again, it may be my own lack of knowledge and understanding. But I think this is something that requires substantially more thinking, both conceptually and practically.

MR. WILSON: Kurt, can I --

MR. CAMPBELL: Yeah.

MR. WILSON: Before you go to Southeast Asia, can I just build on Johan's point, because the current focus of the alliance, recognizing – if you look at Afghanistan, for example, 98 percent of all the forces there were either NATO or European forces and the United States. And it's thinking that in future potential conflicts there will just be a broader group of countries working together. So the instinct is not at the headquarters for NATO to be in Asia. In fact, there's not a lot of appetite for that frankly.

MR. CAMPBELL: Yeah.

MR. WILSON: It's how does this emphasis on interoperability and NATO setting the standards so that everybody that's an ally with the United States is working on the same set of standards, of interoperability, of interaction so that wherever it may be, whether they're Arab allies, Asian allies, European allies, we have discretely multilateralized our alliance structure without formally doing any multilateralization.

MR. CAMPBELL: Yeah. Well, what is not widely understood is that one of the great successes, particularly of the Bush administration but it's also been followed on, is getting Asians to have an out-of-area interest beyond its narrow backyard. So some of the biggest contributions, mostly in civil society, but in other areas as well, special forces and the like, was Asian commitments in both Afghanistan and Iraq.

To date, one of the largest supporters of teachers and education is Japan in Afghanistan and Pakistan. And we had substantial contributions from across Asia in both campaigns. I think I agree with that completely and how to make that, you know – and I think the best way to find is those areas that unite that are not as divisive perhaps, having to do with disaster relief, how you respond in Ache, how you respond, you know, accordingly.

To Ambassador Gelbard's very good question, I would say that first, what everyone needs to recognized at a very fundamental level is that all countries in Asia want a better relationship with China. It is just a fact, and that if you're going to construct a strategy you better understand that at its core, right. And by the way, the United States is probably included in that as well. It is also the case that you have a better chance of having a better relationship with China, a more balanced one, if there are outside powers and countries that are actively engaged in the particulars and activities of the region as a whole. And I think that's our primarily calling card in Asia more generally.

What Ambassador Gelbard's referring to, even though ASEAN as an organization now, is coming into its – is it 20th year or 15th? It's 22nd, year, right? Yeah, so I apologize the exact date. But it has substantial institution-building. But it is a very narrow set of interests on which they are united, and oftentimes you will see subtle divisions between what we call maritime ASEAN and landlocked ASEAN countries that have land borders with China tend to have different views about certain things than the maritime countries do. I think two years ago when frankly China very effectively split ASEAN like a core of wood in Cambodia on issues associated with the South China Sea, it was seen as almost a horrifying event by many ASEANs.

But I would say it's an important step in growth, right. You know, you have to – so they were really unhappy that they'd never once had this kind of disagreement and how it was handled. This is what maturation is about, dealing with hard problems, understanding that it's going to be difficult, it's going to force things out into the open. I think that process is essentially healthy and we also have to recognize, to the ambassador, that these are countries that have gotten an enormous amount out of China.

I think the mistaken occasional perceived wisdom in the United States is that because China has occasionally been brutal to these countries, that it's going to drive them somehow to the United States. That's just not accurate. They want a good relationship with the United States but they can only do it if there is a perception that U.S.-China relations are relatively stable and that their own relations with that country with China are relatively positive. And so, I personally think that over time there will be a very sophisticated set of interactions between various countries.

And I think my own sense is that China has learned some hard lessons about how it's handled Vietnam in the last couple of months. I also think that there is a recognition increasingly, you know this much better than I do, that Indonesia's essential approach over the last several years perhaps has not worked as well as they'd like. It's not clear into the new government that they'll want to take this on in the short-term.

But these are issues that require a stronger perspective on the part of various ASEAN states. And I think the general approach or the general insights learned in Malaysia, Indonesia, Singapore in the last couple of years basically are all on the side of we've got to be firmer and clearer going forward. But at the same time, they all know that China's the giant in the backyard. So they require institutional, you know, curtains to allow for joint action and a strong role for the United States and other countries.

MR. WILSON: Terrific. We've got about 10 more minutes. I want to bring in Barry and Bob. Cliff, did you want to come in as well?

MR. CAMPBELL: He's just resting his hand.

MR. WILSON: Oh, oh that was just his – OK, sorry.

MR. CAMPBELL: It's his boxer's hand.

MR. WILSON: Got it. Got it.

MR. CAMPBELL: The next – the ultimate fight, he's going to get that healthy again.

MR. WILSON: Let me come to Barry and Roger.

Q: Thanks, Kurt. I really was – I found your introductory remarks extremely insightful and substantive. So thanks very much for your candor. The last panel of the day is on a new model of great power relations. But since you're not on that panel, I'm going to cheat and ask you about it, if you don't mind. And I'll package it in the following way, which is going to be very an inaccurate analogy but I think it's interesting. You know, Russia proposed a new approach to European security a while back which the United States and its allies rejected because it was a nonstarter. It would have usurped NATO and a number of other problems. Russia's a declining power. But they're going down swinging. China's a rising power and President Xi, as you said, the most powerful president perhaps in Chinese history, is proposing a new model of great power relations. How should we approach this proposal and is there anything in there or should we make the most of it?

MR. CAMPBELL: Well, I mean, look, President Obama and the White House team, you know, has accepted the concept generally as sort of a mantra. You know, basically over the course of the last 15 or 20 years, we've spent an enormous amount of time on these frameworks and they are basically like banners that kind of go over a town entrance, right, and they're supposed to kind of give you a sense of what to expect. We had, you know, mutual partner – we've had a series of language over the course of the last 20 years and there's an expectation that you will recite them.

My own personal view is that we're entering a different period in which we should spend less time on what I would call these sort of almost ephemeral identity statements and much more time on building what I would call the habits of cooperation. And what is troubling to me is I cannot tell you how many times I tried to get real, true cooperation with China on aid projects, on issues associated with disaster relief, on training.

It's almost impossible. And there are a lot of reasons for that. There's suspicion. There's bureaucratic problems. There are issues associated with, you know, perceptions of power dynamics, maybe the United States declining, may be not necessary, you know, that kind of – so there are a lot of things that animate that. We have to be relentless about our insistence that building these patterns of cooperation is going to be essential.

So the Holy Grail in U.S.-China relations has always been if we could ever have like a strategic dialogue of the kind that Kissinger had with Mao or other senior – Zhou Enlai. It is the – it is seen as this peak on a hill that's shrouded in clouds and it's you're constantly climbing towards it and then you have your own dialogues and they're just quite different.

But my experience – my experience is, first of all, you know, so we talked a lot about strategic dialogue between President Obama and President Hu Jintao. And I remember during one of these meetings – Barry, you were in it yourself – like they'd sit down and President Hu had this enormous binder, this enormous book. And I could see the tabs, that there was oil on the tabs because they'd been turned so many times and so quickly.

And so, what really strategic dialogue became was how quickly could you get to the tab that you could read the talking point of whatever was raised. So there was remarkably little true sort of, you know, you know, kind of off the cuff stuff. However, where you will really see it up close and personal is when you negotiate the joint statement, right, and that's really strategic dialogue. And so, I got to do it twice – got to, assigned by the White House, basically like the worst possible assignment in history, right. But it only can be – but if you go into it with a plan and you prepare and you realize you're going to be up all night for two weeks running, you can really learn a lot.

And so, the one that I negotiated with very good colleagues in 2011, we set out to do a couple of different things. The previous one has this concept of core interests. We thought that that was probably misunderstood. And so, what we really wanted was a series of parallel commitments that China – that we would recognize China's arrival, its importance and that China would recognize that we had an enduring role in the Asia Pacific region, right. And it's very interesting, these negotiations. They took place, for the first week, lots of questions.

But it became very clear that China could not sign off on a document that welcomed an enduring American role. And it was all very subtle. It took a long time to figure out, lots of reassurance from the United States that we accept a strong, undivided rising China. But the idea that China would accept and support an enduring role in Asia over time, not clear. And so, basically what I think most of these dialogues come down to is the reason that I think my colleagues at the White House liked the idea of a new great power relationship is I believe they thought it sent a message clearly that we were not destined to end up in conflict, right.

This whole idea of hegemonic engagement, right, and a rising state and an established state. And I think that was meant to send a very clear message that we are not destined to follow through on the – you know, basically the tragedy of earlier history, particularly the German experience, right. And so I think that was the clear message that was animating decision-makers in the White House. I think I can't put myself in the shoes of Chinese friends. But my guess is this.

I think basically in most of these documents, what China's really looking for is an understanding from the United States about these spheres, right, that you will recognize that there are areas where we have a dominant interest in, whether it's Tibet or Taiwan or Hong Kong or now larger areas, and those are meant to be described almost as no-go areas.

And I think what we've tried to do is enlist China in a different kind of dialogue which is essentially about sustaining the most effective operating system in the history of mankind, which is the operating system of Asia that has given China 40 of the best years of its life, right. And that has been undergirded by very strong support from the United States of China, very open markets in the United States and peace and stability in Asia that we have played some role in over time.

And we're asking China to join with us in that, to sustain that peaceful resolution of disputes, sanctity of contracts, issues associated with diplomacy, transparency and the like. I think we will get some areas of satisfaction. But it is unrealistic for us to expect that China, like any other rising power, will accept whole hog the tenets and foundations of the preexisting order. China will want to put its own mark on it. We have to be clear though that that mark cannot be subjugating nations into a set of circumstances where they don't have a role in determining their own security.

MR. WILSON: What a terrific way to begin to bring this to a close.

MR. CAMPBELL: Thanks.

MR. WILSON: I want to close out the conversation right there. It's not just the order that exists. But we're out to build the next phase of that and you yourself said TPP is the pass or fail assessment benchmark for what we're doing in Asia and that --

MR. CAMPBELL: Can I say one last thing, Damon, just on this?

MR. WILSON: Yes.

MR. CAMPBELL: I'm sorry. I know you want to – but the real challenge for the United States is not just the time and energy of our senior leadership. We have spent the last 20 years. So I know more of the State Department now. The admiral knows the Navy and the military. Ambassador Gelbard knows the State Department. Others around the table would know the CIA. We have spent an enormous amount of time creating capacity.

So if you ask me can you identify 10 people that can build a well and a civic cooperation entity and Helmand Province, we could bring you the best four-stars, the great – you know, tremendous language capabilities, enormous on-the-ground experience, tons of money, right. You ask me today to identify the key players inside the U.S. government that really understand Asia, not very many. We've not invested in that capacity and I see it. Most of our senior officials in U.S. government never visited Asia before coming to power, right. The chairman of the Joint Chiefs of Staff never to Asia. The secretary of Treasury, never to Asia, right.

You know, we can't have that and, to be honest, Bob will tell you this about the State Department. Our bureau, the bureau that he and I served in with, you know, enormous pride, we've been very comfortable to have our little Asia tea things and our little tiny get-togethers and let other people run the State Department. We can't have that anymore. We've got to run the State Department because that's where resources then end up. And if you've landed from Mars, you'd think that the State Department was run out of some wonderful villa in Italy, which is great, but – (laughter) – but we really need to recognize the 21st century. Sorry.

MR. WILSON: Victoria is actually in Ukraine this week, not Italy. (Chuckles.) But so just to close out, you said TPP was really the benchmark for pass or fail in terms of American strategy in the region. Our next discussion is all about the trade agenda. So to tee us up for where we're going, but that's TPP – no American official, I think someone here earlier said, has ever said it's aspirational that China be in that, be a part of that. Connect that for us, please.

MR. CAMPBELL: First of all, look, I fully expect – look, Paula knows much more about that. She'll talk about it. Every trade agreement goes through the darkest of the dark, the worst chemotherapy imaginable. We're right in the middle of that. And so, I think the consequences of not getting and are so horrific that I think we'll get it. That's my hope. Please God, I hope we'll get it.

MR. WILSON: We're with you on that.

MR. CAMPBELL: Then we'll be phase two and that's going to be as important as anything else. And the two most important phase two countries are Korea and particularly China. And I believe we've already had dialogues with China about TPP. TPP was never meant – so the reality – TPP went from being the most pathetic, tragic little institution, I can't believe this is what you're interested in, to a mammoth containment exercise, right, almost overnight. And the truth is it is neither.

It is a modest agenda-setting initiative that if we can engage China over time, it will be in our best strategic interests. The model here, what China is watching is the experience of Abe and his industrial and agricultural groups and China's own experience. And what Abe has done is used this foreign lever, this crowbar to go after some of his domestic concerns. And I think it's not inconceivable at some point that China, that Xi will want to do the same with recalcitrant state-owned enterprises. But I fully expect that that could be in round two.

But frankly, that's just a million miles from now. What we've got to do is get through this very dark tunnel and figure out a way forward to get TPP passed, right, which is going to be hard and brutal and Paula's going to tell me. I'm encouraged by the fact that I'm told by Republicans and Democrats it's the only thing that people on the Hill can agree upon. I hope that's right and I would like to see that come to pass. And Paula's going to tell us whether that's accurate.

MR. WILSON: So you started off by saying it's such a rare opportunity for someone to roll out a big idea and it actually did become a big idea. I think after listening to this powerful expose today, it's no surprise that your big idea became bigger than perhaps you expected, so --

MR. CAMPBELL: I will tell you a truth though. So after this concept, and Bob's heard this, about the pivot came out, of course there was a lot of people that were really unhappy with the use of the pivot. And so, many of us were sent to reeducation camps. I had to wear a red scarf. I dug in a little, you know, a little hut for years. So I even today struggle using the word pivot, even though the president likes it. Parts of the White House do not like it.

This is true. I have a six-year-old daughter. So does ballet. This is true. About, you know, two months ago I'm sitting waiting to pick her up and her lovely teachers – you know, lovely 21-year-old woman is telling all these girls, now girls, pivot, pivot on her left foot. And I literally am getting more and more uncomfortable and I almost said to her, you mean rebalance, so. (Laughter.)

MR. WILSON: Well, as you can see, we are intent on making sure we do it with our closest allies and our global partners. So we're bringing Europe with us. Please join me in thanking Kurt Campbell for this terrific talk. Kurt, thank you. Thank you so much, truly. (Applause.)

PAULA STERN: Well, good afternoon. I'm Paula Stern, and I have the privilege and pleasure of moderating this panel, our afternoon panel that's going to go until – frankly, I think I may have to leave right before 4 o'clock to get my car off the street before someone like the D.C. government gets it off the street. So just let you know that, you may get out five minutes early – on the global trade agenda. And we have a fabulous panel.

When I looked at the list that, Barry, the staff under your leadership pulled together, I cannot think of a panel that is better than this one in terms of being informed, expertly informed, balanced, balanced not only – I was thinking more from a political point of view and able to see all of the, you know, competing interests that go into any kind of a trade agenda discussion. But given what Kurt Campbell just said in the previous panel, also very balanced and rebalanced and able to talk about the pivot or the rebalance, depending on how you want to use that term.

So you have the bios in front of you. We are going to change around the order in which we're going to have opening comments. And I've already seen how agile our participants are. Because Kurt Campbell, again, in the previous panel kind of cued up the discussion, particularly for TPP, I would like to ask if Minister Yamanouchi would start first rather than Annette. Annette is very modest and says that, you know, others know the numbers better, et cetera. But I'm doing this not only because Annette asked me to but also I think the flow is better if we go to TPP first and then we'll get our expert in particular on the TTIP.

So Minister Yamanouchi, demonstrating his diplomatic skills, did concede that he would take the leadership. In fact, I already said to him before we started that what Kurt Campbell had told us which is that if we get – if we fail at TPP, we basically fail in this entire strategic approach that we've all been gathered here to discuss today.

So and I also expressed my point of view which is that Japan is just critically important here, not only for the numbers in terms of bringing out, you know, what the benefits might be but far more important to demonstrate, as Kurt Campbell seemed to again suggest, that this is – that China is looking at Japan to see the road a nation takes in moving away from state capitalism to a more open reformed economy that's more market-dominated and that the actors are more open to trade from the outside in. So Minister Kanji Yamanouchi, would you start us off with your observations? You just gave us some news in fact that perhaps the others in the audience don't know about Ambassador Cutler's plans.

KANJI YAMANOUCHI: Thank you very much. Good afternoon, everyone. My name is Kanji Yamanouchi. I'm the minister for economic affairs of the Japanese embassy stationed here. And it's been about a year and two month since I got here this time. Then I'm very honored to be part of this panel and I think that the United States is a country of lady first but somehow Paula asked me to go first. So I follow your instruction.

MS. STERN: Thank you.

MR. YAMANOUCHI: Then I think that this is the panel discussion. So I try to be very short. But I would like to mention three points of TPP. The first point is TPP is probably the biggest ever tried free trade agreement, except the TTIP. And it accounts for 40 percent of the world GDP. Of course, the U.S. is biggest and Japan is second – third largest economy and among the TPP 12 countries we are the second largest. So it's a very, very big one and also the beauty of TPP is comprehensiveness. It's not actually the market access. By the way, the media is always focusing on the rice or beef or pork or agricultural things.

But the beauty of TPP is including market access but also the rules, the very wide range of rules, individual property rights, state-owned enterprises, environmental standard, labor standard, free flow of data, all those are included. Therefore, the negotiation is very tough and very sensitive and takes long time. But now, we are heading for the last moment. Then and among those 12 countries and it may be safe to say that the U.S.-Japan negotiation on a bilateral basis of some multiyear market access and some of the old and there is an – (inaudible) – measures. The approval is key at this moment.

So two weeks ago, our Minister Amari came to town and he had a very tough negotiation with his counterpart, Ambassador Froman. Then you may have read some of the articles, obviously a description of the negotiations two weeks ago. So I felt the kind of the gloomy feeling towards what's going on between the U.S. and Japan negotiations. But I have one good news, slight good news this morning. You may have heard that Acting Deputy USTR Wendy Cutler is going to Tokyo to conduct the groundwork for the negotiation between our two countries on market access of agriculture and also the non-tariff measures regarding autos.

So we are again engaged and we are very much serious about our negotiations. So this is going on and I'm hoping that we will be able to have some progress and also an official announcement was not yet made. But we expect chief negotiators meeting following by the ministerial meeting will be held not before long, probably before the APEC meeting. So now we are engaging very seriously to conduct these negotiations. That is one, point number one.

And point number two I would like to mention this afternoon is this TPP is a very important part of Prime Minister Abe's new economic policy known as Abenomics and Abenomics consists of three arrows. First arrow is very famous, easy monetary policy which is just like our Fed is doing and governor of Bank of Japan is very, very forthcoming to – (inaudible) – money and the second arrow is fiscal policy. This is like a stimulus package to boost the Japanese economy. But the most of the third arrow has been focused a lot and this is in Japanese we say new strategy for growth.

But Americans, they call it like a structural reform and it includes the corporate governance or the corporate tax cut or some of the reforms in strategic areas like agriculture or biomedical innovation, that kind of thing. It's including almost everything about structural reform. Then TPP is a kind of symbol and the prime minister is very serious about these things. So TPP is also the pillar of his economic policy. So he's been doing so seriously and introducing the related legislation to the National Diet. So this is the sort of the things, of the different dimension of the TPP in our domestic politics.

And third, I would like to mention that TPP should be measured in totality. And as I just mentioned, the media usually loves confrontation. So they only focus on some sort of the things. But if we see the TPP and TPP has the enormous strategic connotations, that's why Kurt Campbell things this is very important.

And this TPP is of course about fair trade and investment. But the TPP itself has enormous strategic and geopolitical connotations. That's why I think this U.S. administration put this TPP as sort of a centerpiece of its Asian policy. So we cannot fail, of course. And if we see the totality and U.S. and Japan have been working together so much about the – one example is intellectual property right and some of the American pharmaceutical companies are very serious about these intellectual property rights.

And if you take a look at the 12 countries of TPP countries, 10 countries basically for generic medicines, there's only two countries which are very serious about sort of developing research for new medicines. That is U.S. and Japan. Those countries requesting the longer period of protection, patent protection and data protection. But other 10 countries are requesting shorter period because that is good for them. But in terms of sort of the pharmaceutical companies or organizations which have been engaging development and research, it requires a lot. Therefore, the patent protection and data protection is very, very important.

So in this sense, U.S. and Japan are two allies to other – (inaudible) – the importance of this part. But not many media is focusing on this nice correlation, always focusing on this confrontation of the negotiation. So we have to see totality and the other things. And also, when it comes to the rules, which is the beauty of TPP and we can't fail because that is sort of the ground rules for the future, for the Asia Pacific. So I think this is three points I would like to make for my kickoff comment. Thank you.

MS. STERN: Well, that's very helpful. Thank you so much. Jeff, I would like to turn to you and stay on the TPP, drill down a little bit more and then we'll, as it were, pivot back to Europe, or rebalance back to Europe and talk about the TTIP. And I'd love it, Jeff, if you would also talk a bit about the domestic politics here in the United States, what's at stake here for the president and the timing, considering the fact that the president does not have trade promotion authority which has generally traditionally been required to be granted by the Congress.

And I'd also love it, Jeff, if you would pick up, if possible, on the last point regarding IP, intellectual property rights. And in particular, not so much on the pharmaceutical issue but on this general issue that we heard in the earlier discussions that Kurt also talked about, the importance of rule of law, dispute resolution and generally international standards setting and how this potential agreement in TPP will resonate throughout the globe multilaterally.

And I'll just last but not least, I am aware, having chaired the U.S. International Trade Commission and stay still very much involved in particularly the patent issues, section 337, that the whole issue of standard essential patents and the role China has tried to play in the past in setting its own standards that hopefully will become global and really what role this TPP negotiations of these 12 nations is taking that into account in terms of setting our, if you will, global standards or standards for the TPP nations that then would kind of meet this other standards that the Chinese have tried to boost in the past.

That may be too technical a question. But it's just one that as national champions and as we're thinking about strategic futures of 2025, that to me is such an important one when we talk about the 21st century as the innovation economy. So Jeff, that's a lot of please do's. But do it. I know you can do it because I've known you so long and have such a terrific respect and affection for you.

JEFFREY SCHOTT: Thank you very much, Paula. Those are all excellent points and issues to discuss. They have nothing to do with what I prepared.

MS. STERN: Oh dear. (Laughter.)

MR. SCHOTT: But that's OK.

MS. STERN: Good. I knew you could do it.

MR. SCHOTT: Because you told me to do it, I will do it.

MS. STERN: Thank you.

MR. SCHOTT: But I will only do a couple because that would take too much time to go through most of it.

MS. STERN: Fair.

MR. SCHOTT: I should say that unfortunately I didn't hear Kurt. But I suspect from the things that you've said that I disagree with him on a number of important points.

MS. STERN: Oh, OK, great.

MR. SCHOTT: Now, first, in terms of the prospects for TPP, as most sophisticated people in this room know, when you get to the endgame negotiations, you don't read what's in the press because the press is used as a channel of negotiation. And that clearly happened after the Amari-Froman dustup two weeks ago. A lot of misinformation put into the press through various channels. Fortunately, the smoke has cleared and it's a very positive sign, as the minister said, that Wendy is going to Tokyo to reengage the talks. But clearly, what came out of the talks two weeks ago was there was lack of clarity in the perceptions of what is needed.

A comprehensive deal has to be supportable in the Diet and in the Congress and in the legislatures of the other 10 countries. It has to be – provide substantial new market access. It can't just be better than what Japan has done in the past because in the area of agriculture Japan hasn't done very much in the past. So that's a very low threshold and I think perhaps the way the issue was discussed early on was to imprecise, too ambiguous and left important omissions in the negotiating process. That I think is being clarified.

I don't think there is any interest in the United States in reducing its offer. I think the view for the endgame negotiations is how do you top up to get to a deal that will be economically meaningful for all 12 countries and will enable the substantial reforms required in agriculture which are only, as the minister said, a very small part of the overall deal to go forward. For Japan, the investment provisions, the intellectual property provisions are far more important for the Japanese economy and for economic growth in Japan than the agricultural reforms. But the agricultural reforms are a necessary part of this overall restructuring of the Japanese economy.

But then, the Japanese can say, well, what are you doing because the U.S. has some protection too and you don't hear much about U.S. sugar policy or U.S. dairy restrictions, which have to be put on the table as well. And I'm sure there will be some changes in those programs, though not the dramatic reforms that New Zealand wants. But then again, they will provide an additional market opportunities just as the United States is asking for additional market opportunities for Japanese pork and beef but not totally free trade in this products.

That process is likely to move forward. It will be restrained by uncertainty about what the U.S. and Japan will eventually agree to, which is why Wendy's trip is so important this week, to try to accelerate preparations for the chief negotiators and ministers meeting at the end of this month in Sydney.

I think the fact that there are substantial preparations going on for that ministerial meeting is an indication that countries want to move forward and indeed are making substantial progress on the rulemaking part of the agenda, including intellectual property, including labor, including environment, including state-owned enterprises. In all these areas, they're getting closer to an agreed text. But of course no one will talk about that publicly or sign onto anything, any of those commitments without knowing the broad aspects of the market access package. So that's where that stands.

That's very important for the domestic process here. While there is some hope that trade promotion authority could be considered and reauthorized in the lame duck session, that would be the preferred way to go. The preferred way to go would be to have it already in the president's pocket.

I think there is a possibility but a very slim one and much more likely the new Congress in January will start picking it up and I suspect that the Republicans will regard that as a priority and the president will require that – will set that as a priority as well because moving forward with the trade promotion authority I think will be a necessary step to sign the TPP, not that the Congress will substantially influence the final outcome of what is remaining on the table. But certainly the Congress has the authority, and that must be recognized in the political process in the United States, to act first and provide the instructions before the agreement is signed. I think that congressional action would provide just the right impetus to go over the goal line and so, I'm still quite optimistic that that can work. So that would be the timeframe.

Perhaps some very positive and somewhat specific announcements in Asia when the TPP leaders meet next month, looking forward to hopefully a conclusion of the negotiations in early 2015. That's my own personal assessment and guarded forecast. I think I do not represent the views of the U.S. government. I try to influence the views of the U.S. government and the other TPP members as well. I've spoken a bit. Let me just finish on one point and it actually deals with the last point that Minister Yamanouchi mentioned and that is the totality of benefits.

When TPP countries got together, just as the TTIP countries have gotten together, they recognized that the venture was more than a commercial exercise. There was important strategic implications for strengthening the alliances that are already very substantial in the region. And indeed, if we have a chance, I'll get back to this later when we talk about TPP implications for TTIP. But that's for the other panelists to touch on.

In economic terms, if you look at the projections of the TPP reforms for the 12 countries, Japan is far and away the biggest absolute winner in terms of the increased output and exports that would accrue to Japan from undertaking – from fully implementing TPP reforms. Vietnam would be the biggest in percentage terms because it's poorer and also has to undertake massive reforms. But Japan is a big winner and it's mostly for the reasons that Minister Yamanouchi said, that it has big implications for Japanese exporters, big implications for Japanese investors in foreign countries and also big implications for investment in Japan which drives the productivity growth.

If TPP fails, then Japan in some ways is a big loser, in part because there will be some opportunity cost, lost opportunities in terms of increased sales, some trade diversion accruing from other trade agreement, including the Korea-China free trade agreement that's under negotiation. China would certainly gain strategically in the region and that's something I don't know if Kurt made a big point of. That's in his wheelhouse.

But from my perspective, the debate about the U.S.-Japan dustup gave very short shrift to the fact that it would lessen Japan's role in the region tremendously and give a big boot to China. And it would also have rather negative implications for unfreezing of China-Japan economic relations. So covered a lot of ground, not half as much as you wanted me to. But I didn't want to spend the whole day on it.

MS. STERN: No, it was terrific. Thank you so much, Jeff, and that last point is a very interesting one which I think Kurt, you know, did take the whole totality of the strategic dimensions there. But he didn't drive home as hard as you and I might on Japan, on it being one of the biggest losers and potentially, as you just pointed out, the biggest gainer.

We're now going to pivot, as I said, to Mr. Damien Levie, if we might. And we'll talk about TTIP. As you can see from the bio, we have the privilege of hearing from the minister counselor and head of the trade section for the delegation of the European Union, who has been called to the U.S. after a great deal of involvement including in the TTIP negotiations themselves as the deputy chief negotiator.

I'm wondering where we should expect things to go in 2015 now that we've had this shift in the leadership at the EU and we've had the European parliamentary elections and we've even benefited from a lot of commentary, including from our next speaker, Annette Heuser, about the public opinion in Europe. So if you would, tell us what the stakes are for – again, let's think beyond 2015 to the future. Do we – what are the prospects of TTIP being a final negotiation at some point and what might it look like?

DAMIEN LEVIE: Thank you very much. I'm delighted to be here. Just arrived in D.C. two months ago. Just a few words first to as context for our trade policy. In the European Union over the last five years, trade policy has been seen as an important instrument of economic policy. I mean, a bit like – I liked your introduction, Kanji, because monetary policy is kind of almost exhausted when you look at the European Central Bank. It's creative and each time it's more creative. But I mean, there's only – there's a bottom to what you can do in terms of interest rates. Fiscal policy, we know where it is. I mean, we are in a period of a drastic fiscal consolidation. And we'll see where the exit will be from that policy

So what's left? I mean, there isn't much left and so I think that's one of the reasons why in the European leadership, be it the heads of state in government, be it parliament or commission. There was a strong consensus until recently that trade policy is an important element of economic policy. And all the predictions show that 90 percent of future economic growth will be outside the European Union. So we need to ensure that European companies can get their share of those growing markets.

And so, that translates into 17 ongoing parallel negotiations for the moment, six in Asia plus two investment agreement negotiations with China and Myanmar and we just concluded a CETA negotiation with Canada. The biggest trade deal so far by the European Union, by the way, slightly bigger than the deal with Korea. Now, despite this overstretch of activities, our priority remains WTO. We are in our DNA multilateralists. We need to also take the necessary conclusions from the state of play at the WTO.

And even if we were to conclude the DDA one day or the main arm of the DDA, when you look at the agenda of the DDA, it's basically the leftover from the Uruguay round. And so, we still need to update the global trading rules, whether you look at state capitalism, you look at intellectual property rights and some other issues. The boundaries of competitive advantage of nations in labor and environment are also some other areas. There's nothing on those areas in the DDA.

Now, I like what Kurt said concerning the fact that Europe is punching below its weight, economic weight in Asia. I think it's quite true. And we are kind of perceived to be inactive now. I won't list the FTA negotiations that we have ongoing in Asia. But I think it's there, maybe under the radar. But we are pretty much active, like, you know, we started with Japan a good year ago, most of the same time as we started the TTIP negotiations.

Now, in our view, these mega regional trade agreements can be a lever to the global trading system. I don't think it's necessary for my introduction to say what is in TTIP. We can talk about that later. But maybe just the conditions for that – for these negotiations to be a lever to the global trading system. It's clear that the strategic importance of, for example, TTIP cannot be disconnected from the content. And so, when we look at the three pillars of the negotiations, being, you know, the market access part, being regulatory one, which is what we tried to do to increase regulatory convergence, either looking at the stock of existing rules in sectors like cars, for example, which is an important element of our trade, bilaterally or trilaterally, or chemical and pharmaceuticals, or the third area which is rules. It's clear that negotiators are looking at and will continue to look at the strategic dimension of TTIP which is going beyond the bilateral trade and investment relationship between Europe and the United States.

The second condition, it's quite clear and we need to think past this message time and again that TTIP is not an agreement against any third country. We will engage and we are engaged with other emerging countries, either bilaterally or through the WTO. Sometimes Commissioner de Gucht, current and soon previous trade commissioner – I was on his team of advisors – used to say, well, TTIP is not against China. It's just to make sure in the regulatory area, for example, that given the size of its market, China would not be the standard-setter if we don't agree, EU and U.S. together, and that's quite clear I think that globally if the European Union and the United States do not agree on a number of issues, then there will be no global deal.
Now, the prospects for TTIP next year, first of all, the hearings are not over. The parliament may need a bit more time. But I think overall if you've watched the hearings of commissioners designated, it's amazing that in 10 days' time, we hear all the leadership of the European Commission and then within a few weeks, there'll be a vote in one go and then that's over. And so, the new commission will start very soon. It's a priority both for President Juncker and the future trade commissioner, Cecilia Malmström.

We have a rough time ahead in public opinion and I look forward to debate. But there's a strong leadership and a strong commitment to finish when, you know, substance will prevail over time and we will see. USTR Mike Froman used to say that he has two kids and TPP is just a bit older than TTIP and so he expects the one to graduate first.

MS. STERN: (Off mic) – helpful. Thank you, and welcome. We will enjoy continuing dialogue and I appreciate the fact that you're leadership at the very top really does see this as a standard-setting exercise, both with a capital S and a small s, standards on, say, cars and chemicals and pharmaceuticals but also very broadly standard with regard to, again, intellectual property rights, antitrust rules and phytosanitary rules and every other set of rules in between.

Annette, we have moved you from first to last, at your request. I know you didn't want to go first, but I put her last because it all made sense I think and after you hear Annette you'll see that I was right about that too. She has been a wonderful contributor to the U.S.-European dialogue, a leader, a thought leader and she's also a member of the Atlantic Council and so we can claim her as our own as well as that of Bertelsmann Foundation. Annette, love to hear your take not only on European public opinion but much broader since you are so much broader in your coverage and thinking on where you see not only the TTIP but the whole global trade agenda needing to go.

ANNETTE HEUSER: Thank you so much, Paula. It's a pleasure to be here and also I have adjusted a little bit my remarks for this panel right now. I think it's very interesting to see right now when we look at TTIP and TPP that both are the result quite clearly of a very inefficient global trade framework provided by the WTO so far. And what we see right now is a new trade dynamic not only when it comes to these mega agreements, TPP and TTIP, but also other regional trade dynamics.

Think about the Pacific Alliance in Latin America and also the negotiations underway between the EU and ASEAN are quite an example for that. And these two mega agreements put, I would say, also a positive pressure on these other regional trade agreements that we see right now on the agenda. And don't forget TTIP and TPP, if conducted, have the potential to account for 60 percent of the global trade and that would mean for the United States that the United States for the first time can negotiate and finalize rules and regulations set by the U.S.

And this is of course a huge trade, and also I would argue geopolitical, advantage of the United States that can't be underestimated here. And at the same time, if both are conducted and concluded in the next years, TPP and TTIP, that would also put the BRIC countries under enormous pressure and I would also argue isolate the two biggest players among the BRICs, which are Brazil and China of course. And this needs to be further discussed I think in particular between the U.S. and Europe, how we deal with that in the future.

A second point, I think there is no doubt among the key players in Europe that TTIP is the best growth stimulus program that the European Union can hope for at the moment because I think Damien indicated quite rightly so, you know, we are far away from being out of the euro crisis right now and we will hear during the starting IMF/World Bank meetings this week in Washington that there is a lot of concern regarding having deflation on the horizon in the Eurozone, having no real program in place for not only the Eurozone but the EU as a whole when it comes to a new reform package that would spur growth and provide the necessary investments first and foremost in infrastructure and R&D.

But at the same time, I would say there is a real question mark if this new commission and even if the incoming commissioner for trade is from Sweden, a very trade-friendly country, Cecilia Malmström, if in this new commission and also with this parliament it is possible to move TTIP forward and have it concluded as we expected it to be by the end of 2016 because, don't forget, the latest results in the European election have elevated parties that operate at the fringes of our society at the left and the right. And they are extremely anti-American, most of them, and they are extremely protectionist. So we have to take this into account when it comes to the TTIP negotiations right now

And that brings me to the next big problem, which is the public opinion. I think it's very interesting to see, in particular when you put TTIP and the public opinion in the context of the global trade agenda and how the ASEAN negotiations are perceived or TPP is perceived in the Pacific, that so far I would argue that if TTIP is the first free trade agreement that has become a public issue and where the political players in Europe, first and foremost, because it's not a real issue here – TPP is much more in the public spotlight and at the top of the discussions on the Hill and so on, but TTIP has become a public issue in Europe and first and foremost in some key member states and fortunately particularly in my home country, Germany.

And for the first time, you have the general public talking about the impact that such a free trade agreement can have and it got to a certain extent completely out of hand. It spun completely to the negative side. So the chlorinated chicken right now is the kind of – has become unfortunately – I'm sorry for the chicken – the poster child for everything that you can project when it comes to negative perceptions towards such a free trade agreement. And I think this is a lesson learned for the current negotiations also on TPP and for other negotiations that are coming up.

In the future, even if this is not a big issue right now in Asia – I know in Japan there are some concerns when it comes to NGOs and agriculture and so on. But this will come even more so in the future in Asia and also in the U.S., that the public wants to have a seat at the table and the politicians, the negotiators have to find very early on a way how to give them this seat at the table and include them because otherwise these free trade agreements will not pass and I think that's a very important lesson.

The next point that I would make, I was very surprised that Jeffrey was so positive regarding TPA. This is the biggest question mark I think from the European side right now when it comes to this administration. You know, people are asking in the key capitals in Europe and in Brussels right now is this administration and is the president willing to spend his political capital, if he has capital left so far, if he is willing to spend this capital on TPA in the next two years.

And I'm not very certain about this, given all the other things that are on the political agenda from policy-wise and also domestic-wise, if this will become his key issue after the midterm elections. So if this is not the case, we probably talk about a timeframe that is more – for TPA that is 2016-plus for a new administration I would argue. But we will see.

And just to conclude, I think TPP and TTIP, I see them both as very complimentary agreements and also the ongoing negotiations between the European Union and the ASEAN countries and TTIP is for me the kind of – if I think about it like a necklace – the kind of clasp that puts the other free trade agreements together and therefore is also making the point that in the 20th century, the major lines between countries and the world order was defined by geopolitical issues, 21st century, I think these trade agreements that we see right now on the horizon, these mega trade agreements and regional trade agreements will define the world order. Thank you so much.

MS. STERN: Well, thank you so much. I've got to say, you know, I told you so. We have just a fabulous panel here and we've put a lot of interesting thoughts on the table. I think we all come out much better informed as to where the negotiations are very short-term between now at least with regard to the president's going to the APEC meetings after the midterm elections and then potentially a little longer term, either 2015 or 2016, depending on who's right on TPA, the trade promotion authority.

But I would like to open the floor now and also point out however that one of our first bullet points for today's discussion was how will the U.S. and Europe compete with Asian technological innovation. Will they be competing with each other by 2015 or not? I would bet that they will not be competing because there's so much cross-investment.

But whether they'll be outcompeted by China, again, as the enormous growing more rapidly economy I think the challenge still remains as who's going to be setting the standards in individual industries, particularly the high tech industries and that's why I go back to, for example, standard-setting bodies which aren't even part of the WTO but which, you know, dominate without our knowing it very much the rules of the road in the most important technologies which will spell the future of economic, commercial, strategic and military leadership.

So with that challenge to the panel, if they want to take a crack at that one too, I would like to now invite our very attentive audience to ask any questions as well as to of course our esteemed colleagues who are in this square that we're sitting in. Thank you, Richard?

Q: Thank you. I'm Richard Wenzel (sp) from the office of strategic analysis in the Swedish MFA. I thank you for many interesting points regarding the negotiations. But I would add perhaps a bit of a longer term perspective and also looking beyond the two processes and therefore it would be very nice to have the panel reflect on, first of all, the RSEP process, what's in that, how important is it, China included, how strategically important is that. And second, a point that both Damien and Annette touched on and that would be the inefficiency, I think you said, Annette, of the multilateral trade system and, Damien, you talked about a level for – the regional agreements or process being a lever for the global system.

How do you in the panel view the future of the WTO as an organization? What is the future role and relationship to these agreements that I think are cases of open regionalism? They could be expanded further, and that also leaves a question in the end of what about countries, BRIC countries but also many other countries that are not part of these processes. Do you foresee any alternative processes or countries in, for instance, Africa doomed to somehow just try to play a part of whatever comes out of this system? Thank you.

MS. STERN: You mentioned Damien. So I may, if nobody else volunteers. But I want to say something also just for the record because Annette talked about the implications for the exercise that we're discussing today, TPP in particular, of isolating China and Brazil.

I have liked to emphasize that it's my reading that the public language from the U.S. with regards to TPP is that this isn't, you know, an open process for those who are up to the standards, if you will, and that hopefully it is seen more as an incentive, as a carrot, as an encouragement for China to undertake many of the structural reforms, which also, by the way, Kurt talked about, under the new leadership that is in China. So I just wanted to get that on the record. I really don't see TPP as isolating. I see it hopefully as an incentive for better action.

MR. YAMANOUCHI: Can I be blunt here?

MS. STERN: I beg your pardon?

MR. YAMANOUCHI: Can I be blunt here –

MS. STERN: Yes, please.

MR. YAMANOUCHI: – to the question –

MS. STERN: OK, and then you, Damien, after that?

MR. LEVIE: Yes.

MS. STERN: Thank you, and then Jeff.

MR. SCHOTT: No, go ahead. Go ahead.

MS. STERN: OK.

MR. YAMANOUCHI: Thank you very much for mentioning the RSEP and probably you know that the RSEP is negotiations among eight and 16 – 18 and 16 countries, yeah, 16 countries, ASEAN 10 countries and China, South Korea and Japan, Australia, New Zealand, India and so on. Then the figure is amazing and population is 3.4 billion people and that is half the population of the world is in the RSEP. And the GDP is about $20 trillion. It's about 30 percent of the world's GDP. And the total volume of the trade among these RSEP countries is also $10 trillion. That is about 30 percent of the whole world trade. So this is gigantic and this negotiation of RSEP has been accelerated by the state of the TPP. And the other thing related to RSEP is, you know, the APEC.

This is sort of the meeting, Asia Pacific Economic Cooperation meeting, which the United States and some Latin American countries also participated. And according to the APEC joint communique, that is, say, that they are choosing – they are creating the free trade agreement in Asia Pacific, what we call APFTA. There are two avenues, I'd say. One avenue is TPP. Now, TPP is going ahead. But this RSEP is also considered as a very specific avenue to create to the future RSEP. So in that sense, this TPP is clearly related to this RSEP and that is also including the China and other sort of emerging countries.

So TPP, Paula, you were right, TPP does not mean to isolate anybody. If any country which can meet with the standard of TPP, the TPP will be pen. Of course now we are in the process of the first round of negotiations. So after completion of negotiations, then if the TPP is created, then the TPP will be open for the other countries. And already the countries like the Philippines, South Korea and some other ASEAN countries showed their interest in joining the negotiations of TPP. So these are all related things. Thank you.

MS. STERN: Jeff?

MR. LEVIE: A couple of remarks. First on the standards, just a word of caution in a way. What we observe in TTIP is an interesting phenomenon. Most chapters of a trade deal, you trade. You have concessions on both sides. In the regulatory part, first of all, we bring all the people to the table who actually don't like us to be at the table. Those are regulators on both sides. Many of them have worked together for a long time and they tried to build win-win deals. But real win-win deals, not I lose here, I win there but, you know, no, we win in what we agree on, i.e., we save resources. We don't need to inspect pharmaceutical plants on both sides going all over the place. We can rely on what you do here and you will rely on what we do there, for example.

On cars, for example, we're looking at data of accidents to see whether or not certain – the standards of each part of a car – and there are many, many standards – lead to equivalent results. And that's a process that actually is almost leading a life of its own and the challenge will be to harvest in the negotiation when you see the results at the end and the work on the regulators and then to chart the way forward for both what I mentioned as the stock of existing rules where we will not have identified, you know, equivalent, mutual recognition or other solutions and structures to work together in the future. That's just on standards.

I think it's an important element and we haven't gone very far in CETA standards and I think we still need to see what we will do in detail with our Japanese partners in the EU-Japan agreement. So in a way, in TTIP we are exploring new ground and bringing new people to the table.

Second, I mean, the future the military trading system at its – we can write – (inaudible) – but I have a short-term concern is, you know, we need to have these trade facilitation agreement implemented. We need to get out of the impasse and think there we've been passing very forceful messages in Geneva between the United States and Europe and some other partners, Japanese I think as well. So we need to implement that and then we can work on the work program of other issues, but first trade facilitation. And we're willing to look at how to accommodate some of the requests by India. But renegotiating what was agreed in Bali would be opening a Pandora's Box.

Your open regionalism, you know, we have not taken a position on TTIP, whether or not TTIP should be an open agreement. We have number one challenge for Europe which is our customs union with Turkey. If we conclude a trade agreement with a trading partner, the goods of the trading partner enter the European Union and Turkey without paying tariffs. But the Turkish export to that country still pay tariffs. So they lose, and that's a problem that we usually address by asking this partner to also negotiating an FTA with Turkey and some countries are doing it. Some haven't. Mexico refused. Canada and Korea embarked on the exercise.

So one question will be what do we do with Turkey. But we have some time to deal with the issue. And then, we have some other countries in Europe, Switzerland and Norway in particular but I suppose also Iceland, interested to join at some point because they understand that they have no choice but joining. And then, we need to see the third concentric circle of countries. But as I said, we have not taken any position on the matter. We've noted the comments of Ambassador Froman who said, yeah, TTIP is an open platform if the Europeans are willing to agree to that. But we haven't heard any articulation of the idea of the open platform.

MR. SCHOTT: Well, I generally agree with what Damien just said about the multilateral trading system. It's not inefficient. It's inoperable right now and Gary Hufbauer and I are finishing up a project and with recommendations on how to revive the multilateral process, linking in the work that's being done in plurilaterals as well. But you're absolutely right. If this current state of affairs in Geneva continues, the poorest countries will suffer tremendously and they will be locked out of global value chains. And so the deepening divide between rich and poor will just become intolerable.

On RSEP, let me say something rather pointed. I take the same view on RSEP as China does. It's not very important in economic terms. It's not going very far or very fast. It has political significance. Its biggest economic importance is in accelerating the integration of the ASEAN countries themselves. But because of Indian policies and frictions between India and China, it's not going to achieve very much beyond the most basic level of a trade agreement in the near term. And so, no one thinks that TPP and RSEP are comparable.

They are not incompatible and indeed almost half of the RSEP countries are participating in the TPP because they realize if they want to get the advantages of economic reform, they have to go further than what they're going to do in RSEP. And indeed, among the other countries that are considering TPP membership in the future, perhaps in a second tranche of membership, include several other RSEP countries. And most importantly, China is doing a lot of homework about TPP and looking at how TPP reforms in areas including state-owned enterprises are consistent and reinforcing of the type of domestic reforms that they have started introducing since the third party plenum a year ago.

It doesn't mean that we'll come to a point where China is absolutely ready to join. But they are moving strongly in that direction. There are a number of areas where there's still a big gap. There is big mistrust of the sustainability of commitments to that reform. But it is an important consideration and one that would be incredibly important for the global trading system. If China decided that it was worth its while to bridge that gap between RSEP standards and the TPP standards, that would set the global standard because the TPP and TTIP are very close together, as Annette was saying. This would be a way you basically say if we're going to have China in this with Europe and the United States, then why don't we just multilateralize it and there will be a great deal of pressure for the poorer countries to support that because otherwise they completely get cut out.

MS. STERN: OK. Other questions? I see one right here, and before I call on you, I just wanted to put in my two cents again. My takeaway from this last go-round is that at least short-term we are with our negotiations at the TTIP and the TPP, we're laying out directional goals that we would like to see the rest of the world, including even some of the members that are actually still negotiating, to go. But in particular for China. Yet at the same time, I see this as a very – as typically sclerotic trade negotiations and I just don't know in this age – technological age of the 21st century whether the government, which always lags the market, will really just become increasingly irrelevant.

And I took away, Damien, your point about the standard-setting activities in different industries, living the life of its own, which as – at one time with Ricardo Peritade (sp) I was the acting chair of the standards body, regulatory reform body for the Trans-Atlantic Business Dialogue when the business community saw this sclerotic governance and decided to try to push with a life of its own.

And I would but the international standards-setting bodies, which are also industry-led, not government-led, as being very important and I keep trying to put them back on the table so that we will have a discussion about what we look like in 2025. But that said, and I do think it's important because that is really kind of the future think, the foresight that we're supposed to be considering to be said. But Roger – no, not Roger – yes, you had your card up. Please?

Q: Yeah, I just wanted – this is a question for Minister Yamanouchi or anyone else on the panel who wants to comment on it. Realizing that the TPP negotiations aren't complete yet, so we don't know exactly what it's going to look like, but for Japan in particular, how significant are the economic reforms that Japan would have to make in order to be in compliance with the TPP that looks like it's shaping up?

MR. YAMANOUCHI: As I told you, the prime minister has been engaging himself to conducting his new economic policy, Abenomics, and the first and second arrow are very conventional, the monetary policy and fiscal policy. And the third arrow is structural reform. And this TPP is closely related to that. The one example is agricultural reform. So already he introduced several measures to change it, like in Japanese Nokio (sp), it's agricultural cooperate. It had enormous sort of influence of the various decision-making of the farmers.

But now, and he's trying to change it, so more initiative from each farmer, can introduce new ideas of new business. That change has already taken place. And if you take a look at all those rules related to trade and investment across the board, this TPP new rule is coincide with reform of inside. That's why I think that based upon sort of the estimate done by the various organizations that TPP would have enormous impact to the Japanese economy output. So that is the thing.

MS. STERN: Further questions? Yes, please? Would you identify yourself? You don't have a card.

Q: Sure. I'm Amy Studdart with the William Simon chair in political economic at CSIS. I'm also a recovering BrazilWA (sp). So this is a kind of political insidery question for Damien. de Gucht and Cecilia Malmström are very different people. De Gucht has sort of been quite controversial in Europe and sort of overseas he's been seen as anti-China. He's been controversial in European capitals. Cecilia Malmström, on the other hand, is sort of a fresh start and she's already come out as being against ISDS which might help with the public opinion question. How do you see this transition changing the political will to pass TTIP first of all? And secondly, how is it going to make your job easier or more difficult?

MR. LEVIE: Thank you. First of all, for the record, I don't think Cecilia Malmström said she's against ISDS. I think – and I watched the whole hearing. She said whether ISDS will be in TTIP, I don't know. She did not say –

MS. STERN: What's the acronym for the rest of us?

MR. LEVIE: Sorry. It's investor-to-state dispute settlement.

MS. STERN: Oh, yes.

MR. LEVIE: Now, it's a mechanism whereby states waive their immunity and agree that companies can sue them. And that mechanism has been in bilateral investment treaties since 1959, starting with a bilateral investment treaty between Germany and Pakistan. And it is in 3,000 treaties already, 1,400 signed by European countries, more than a hundred by Germany, for example. And what's interesting to watch is that many people actually ignore this. Many people, say, oh TTIP will bring all these bad things but it's already there and it doesn't produce any bad. And that's a real challenge in terms of public opinion.

Now, your question is particularly difficult for me, having worked three years on a daily basis with Karel de Gucht and because I will tend to stress also the positives of Karel de Gucht. I don't think trade policy has achieved as much as last five years. Look at the record. But anyway, we won't do that. I think the arrival of Cecilia Malmström offers new opportunities and I think her – I will need to see how it will play out. She knows the European Parliament very well. She has been for almost 10 years member of the European Parliament. That's important. She's been in government and she's been in the commission.

So I think she has – and she has experience doing negotiations. She negotiated TFTP, so the Swiss agreement with the United States and the umbrella agreement with the United States. So she has some experience with that as well. We'll need to see. The challenge is I think the trade policy and globalization is much less popular in Europe than it used to be. And we don't have the support that we used to have. And so, it will be interesting to see how the European Parliament will vote on trade agreements, starting with CETA. But CETA won't reach the parliament next year. It's going to be – it will reach the parliament in 2016. So we have a bit of time to work on that and I hope by then things will have calmed down. But I'm not sure. I'm not sure.

One of the challenges we have in Europe is that the governments have entrusted European Union institutions to negotiate on their behalf with the rest of the world. But they feel alienated by our trade policy and there is no ownership of it. And that's a real challenge and there's more ownership of trade policy in parliament than in the council. Karel de Gucht would meet MEPs all the time but trade ministers of the member states much more rarely also because they didn't bother to come and see. And so, they've left the parliament occupy center stage on European trade policy. Very interesting, and that's a main challenge that we have. So we'll see.

MS. STERN: OK, well Annette, real quick before we wrap up?

MS. HEUSER: Yeah, also when – yeah, when it comes to the issue of the new commission and how this will affect the public opinion on TTIP, I think one thing is clear. You can't change the public opinion on TTIP in Europe by bringing in new commissioners, with all due respect to the new commissioner. And also Karel de Gucht I think we would all agree has done a pretty good job as trade negotiator. But he completely underestimated the importance of including the key NGOs in Europe and we've seen it at the beginning of the year when he and the commission came so much under pressure that they had to open these open consultation process on ISDS and also had to add a kind of NGO advisory body to the European Commission.

And I think this is important to realize in this debate that the debate in Europe is shaped right now by perceptions and not by facts and ISDS is a perfect example for that because, as Damien indicated, Germany is a champion when it comes to ISDS agreements in the world. And yet, Germany is – or the German public and the core politicians in Germany, are opposing ISDS in TTIP because it's very easy to gain ground on that right now politically. So anyway.

MS. STERN: Yes. Very, very helpful. We've come around to domestic politics, which always dictates particularly trade policy but even more generally our foreign policy. So with that, I thank you very much. Our individual panelists were superb and I thank the audience for their questions.

(Break.)

BARRY PAVEL: Well, why don't we start the last session here? And for those of you in the chairs, there's some spaces around the table. Feel free to fill those in, and we'll 3-D print you some name cards. Well, I'm really looking forward to this last panel. You have all of the panelists' biographies. This is a very esteemed and distinguished and experienced panel, albeit I think all of them will come at this central question from different perspectives. I think the key issue here, as I – for those of you who were here before, as I cheated and asked Kurt Campbell during this luncheon conversation, is this new model of Great Power relations proposed by President Xi Jinping, essentially a very receptive White House.

Number one, does this have any meaning? Is there some traction here? Number two, even if not yet, could it? Is this something that could help avoid the most catastrophic scenarios and potentially even lead to more productive outcomes? But even beyond this particular identity or bumper sticker, is conflict inevitable. When I look at major bilateral and in this case trilateral relationships, there's always various forms of what I call the three Cs, conflict, cooperation and competition, or the potential for all three anyway. And I think it's really the question of how do we look at that balance among the parties that we're discussing this about today. Fourth, where are things headed out to 2025? That's the title of this overall conference.

So we'll talk about it today but also going forward roughly 11 years, with not too much precision. And as I thought about it, heading out to that timeframe, are there rocky shoals, Scarborough or otherwise, or calmer seas, just to keep things hopping here in the last panel. And then last, but particularly very importantly, the overall framework here is Europe and the U.S. and Asia and how even with this new model framework, how can we get Europe in particular to fit into this construct because certainly there is a strong desire to pursue common interests. So I threw a lot of that on the table. There's even more to come. But I want to now turn to our panelists, and I'll start with Ambassador Negroponte. Ambassador, the floor is yours.

JOHN NEGROPONTE: OK. Thank you very much. Is Great Power relations a useful construct for understanding? I'm going to go from the program here. The relationship between the U.S., Europe and Asia, how do Japan, Europe, India and Russia fit into that construct? I think whatever happens in the future is going to be some blend of the different kinds of arrangements we've had in the past. I mean, by that I mean, for example, to the extent that we can, I'm sure that we're going to want the Bretton Woods institutions, the United Nations, the different arrangements that we've worked on so assiduously for the last 70 years to continue to the extent possible.

So the question then arises, you've got this new power rising, China and is it going to be possible to bring them into that order, make them cooperate with it. Bob Zoellick, my predecessor as deputy secretary of state, spent a lot of time talking to the Chinese about being responsible stakeholders. I think we're seeing – getting some sense by recent Chinese behavior that that may just not be quite enough. And I haven't sorted out in my own mind – and I think it'd be foolish to try to come up with answers to these very profound questions too quickly because I think they're the questions that are going to be addressed by the next several generations. I don't think it's something that just confronts us today.

Look at the way Henry Kissinger wracks his brain about this whole question. What's the world order going to be? Can a rising – if you've read his book about China and/or the world order, he talks about the Crowe Memorandum of 1907 when the British Foreign Office official basically said, well, the war between England, the U.K. and Germany is inevitable because of the nature of the situation. And so, Henry raises the question about whether it's going to be the same thing with respect to China. No matter what we do, are we inevitably destined to come into some kind of conflict?

And I think what most people come up with in order to address that question is that we've got to manage that relationship very carefully and at several different levels. But one of which is to incentivize China to believe that the existing world order – and by that, I mean the one that we sort of invented at the end of World War II – has got enough in it for them that they want to play along. And so, we make gestures sometimes. Like we say, well, we'll change the distribution of votes in the IMF so that China will have greater weight in that institution. And then our Congress sort of procrastinates about that.

And so, I think what one senses from countries like China and others is that the order that we created – U.N. reform's another example. I was at our representative – perm rep to the Security Council and I think the irony – the name of the committee that dealt with U.N. reform was very ironic. It was called the open-ended working group. (Laughter.) And it's still called the open-ended working group.

MS. STERN: That's so great.

MR. NEGROPONTE: And I don't know who the humorist was who invented that name about 20 or 30 years ago. So are we going to be able to make these adjustments or are countries like China going to have to sort of try to move the tectonic plates a bit so that we get a little bit more nervous and try to figure out how to accommodate. So I sometimes wonder to myself when you read a press announcement to the effect that the BRICs are going to create a new development bank, is that because they really want to create a development bank or is it that they want a bigger voice in the existing development institutions, and so on and so forth, the Shanghai Cooperation Association, different things. so it's a very complicated issue, how and whether we'll be able to evolve into some kind of meeting of the minds about how to come to terms with this relative – this change in the relative power between nations I think is going to be very difficult indeed.

But in the meanwhile, I would say yes, that there will be the concept of Great Power relationships will still be very valid because in the end, that's the default position. If all else fails, who is going to be able to keep the peace, except for one or several Great Powers and what is perhaps the most important prerequisite of peace, whether or not you succeed in building up more effective multilateral institutions, is going to be the ability of Great Powers to reach a meeting of the minds.

And I would put China foremost amongst them because if you take us and China together, that far and away represents the largest huge share of the global economy. I think you can count on our allies to be on side and I think the other non-allied players, with the occasional problems that surface from Russian behavior, are not nearly so consequential. So I think it's going to be China, China, China all the time as far as the future of our diplomacy is concerned.

MR. PAVEL: Thanks, Ambassador Negroponte. I just wanted to ask you one question before we turn to our other panelists.

MR. NEGROPONTE: Sure.

MR. PAVEL: There's a school of thought that says that China's power is growing by the year and there's various estimates of the size of its economy already being the largest but certainly becoming the largest economy in the world soon, et cetera. And in that framework, this school of thought says that time is not on our side in trying to strike these bargains and make these adjustments in the existing order, which China had very little say in, in developing. So is there some – should renewed urgency be given to these tasks? You can't force China to agree to these reforms and maybe you can't force the Congress to move but –

MR. NEGROPONTE: You can't force China to do anything. But you've got to – in fact, one of the things we could do is maybe a little less lecturing, as if we thought we could persuade them or force them to do certain things. I think the relationship has got to be put on a much more grand strategic level. I think when I see the so-called strategic and economic dialogue and I see 10 cabinet secretaries go out and then spearheaded by two, the secretary of state and the secretary of treasury and all 350 of them arrive in Beijing for meetings, I ask myself, well, what on Earth can be accomplished that fundamental in the relationship in that kind of situation.

You need it and it's an element of managing a relationship and it's certainly an element of managing a complex relationship. But at the same time, I think you need deep, deep discussions, fairly continuously by the highest levels of our leadership and I think that includes the president. I mean, in our system, given the importance of the president in our national security setup, basically he's everything, the leaders have to have deep discussions with each other. I don't know whether that really has happened yet.

MR. PAVEL: Great. Thank you very much. I will now turn to Dr. Schake. She's fresh back from Tokyo and so will give us her views on all of the questions that we raised.

KORI SCHAKE: So my short answer to the very good question Barry posed, which is, is there a new model of Great Power relations, is no. As the Chinese are – what the Chinese mean when they say that is that the rules of the international order that we have established and upheld for the last 70 years ought actually to be bent or modified to accommodate their interests which are not consistent with playing by those rules. And I think our answer to that is no and I think our answer to that should be no. But I want to start the long play version of this answer by answering the question Barry just asked about time on our side because I think that is the fundamental question.

And if you don't mind me recasting it slightly more like a pointy-headed intellectual, Barry, what you mean is, is authoritarian capitalism as a model able to be successful because if the Chinese actually represent a new model where the dynamic that we in the West have believed to be essential – that is, as societies grow more prosperous, their citizens grow more demanding of their government, more strongly believing that their government has responsibilities to them as well as them having responsibilities to their government. And there has emerged in political science circles in the last 10 years the notion of authoritarian capitalism, right. The Russians aren't democrats. The Chinese aren't democrats.

But their economies are going to go by gangbusters and it's kind of a continuation of the argument from the 1990s about Asian values, right. There was this idea that the peoples of Asia don't believe what we believe, right. They don't hold these truths to be self-evident and that they don't care that much about representative government that you can hold accountable. They want to get rich. They want to preserve their Confucian societies, and, right, what have we seen across the last 25 years? People all over Asia proving that untrue, right, because they actually do care about democracy. They care about getting rich. They care about Confucian values.

But they also care about responsive government. And I don't think there's going to be a new power – a new model of Great Power relations because I don't think authoritarian capitalism is sustainable. I think what is going to force the Chinese to adopt the norms of Western societies – and I include Japan in that category – is mothers of children demanding safe baby milk, right, and parents of kids whose schools collapsed during an earthquake saying this is intolerable and we want someone held accountable. It may be that the authoritarian system in China is so nimble and pliable and the people running it so brilliant that they're going to be able to crest that wave and not get it wrong.

But let me just point out to you that supposedly the smartest people in the Chinese system are the people running economics and its high level and they diversified from the dollar to the euro right before the euro crisis. So by which I do not mean that the Chinese aren't brilliant. There are many brilliant Chinese. But a system that counts on four smart people getting this right over the long run is not the way to bet your money compared to a system with lots of loud cacophonous voices and the government having to win the argument against its own population.

So I think U.S. strategy, mostly the United States government isn't capable of grand strategy. But on occasion, from time to time, once or twice a generation we are and one place where I think we have been is China policy. Across at least the last five administrations, the strategy towards China that Ambassador Negroponte outlined and that Bob Zoellick, you know, captured in that beautiful phrase "responsible stakeholder," that has been our policy toward China.

We want China to get rich. We want it to get powerful. We want it to be represented more in international institutions because we believe a strong China is naturally going to be our ally. And if you think authoritarian capitalism actually works, that's – a strong China is not going to be our ally. If you think China will face pressures for reform from within, and it doesn't have to be grand – baby milk is actually what's going to force this.

Then that's still the right strategy. Contain the Chinese where they are behaving badly, where they are breaking the rules that we have established in the order or imposing on our friends who are upholding the rules of that order and I think Europe has a central role to play in this because I do think the discussion about values is not only who we are. It's also who I think the Chinese are. It's just that their government needs to understand that they can't sustain themselves without engaging in that conversation with their own population.

And let me just give you my favorite example of the difference that governance makes and if authoritarian capitalism were brilliant, this wouldn't be true. In 1945, you had one Korea, not two Koreas. Now you have two Koreas. Here's the difference that governance makes. GDP per capita in North Korea is $1,800. GDP per capita in South Korea is $26,000. So Koreans are on both sides of that border. They are both intelligent, hardworking, industrious and creative and yet a conversation we and Europe should be having with the Chinese is look at the power that governance and freedom unleashed in South Korea. That's how rich you could be. That's how influential you should be.

So we ought to play to our long suit which is values and how they shape the international order and we ought to help our friends who are doing so because Chinese behavior in maritime Asia, and actually in landlocked Asia as well, is actually making us a much better looking ally than the United States ever deserves to be.

MR. PAVEL: I think I caught you right. Did you say that even on issues of maybe changing – making modifications to accommodate them, you said your answer to that was also no? I didn't catch that exactly.

MS. SCHAKE: I think there are lots of accommodations that can be made for the Chinese, but not – so I'm in favor of more voting shares at the IMF.

MR. NEGROPONTE: But not the Chinese getting to unilaterally declare air defense exclusion zones that would negate the existing international order or the Chinese being able to do by force what the court of arbitration in The Hague is now set to decide for between the Philippines and China. I don't think we ought to let them usurp the rules. I think we ought to be very much engaged in trying to persuade them that the rules are actually in their interest and the kinds of changes we think are inevitable for them are also in their interests.

MR. PAVEL: Thank you very much. That was exactly going to be my follow-on question. Thank you, Mr. Ambassador. And now, I'd like to turn to Michael Green for his views.

MICHAEL GREEN: Thank you. Good discussion so far. I'll try not to ruin it. Three points, is the new model of Great Power relations a useful construct for U.S. foreign policy? No, and I'll explain why. Second, should we be thinking about Great Power relations, and in particular multipolarity? And the answer is yes, and I want to say a little bit about multipolarity in U.S. strategy. Does all this mean that the U.S. and China are on an inevitable collision course and that we can cooperate on nothing? Of course not. There's a need to get our pattern of cooperation and expectations with China right. So let me touch briefly on each of those.

Xi Jinping has put forward this concept of a new model of Great Power relations, xinxing daguo guanxi, the characters, some of you know, daguo can be translated as Great Power or major power, depending on how robust the Chinese are feeling about their powerness. In the history of U.S.-China relations, the United States has never at a Cabinet-level embraced the Chinese formula for the bilateral relationship, nor has China embraced the U.S. model, with one exception.

Xi Jinping, when he came to the U.S. after Bob Zoellick's famous stakeholders speech, announced that China was a responsible stakeholder, which was not Bob's point, of course. He was trying to engage in a debate on how China could become one. But since the Nixon-Mao communique, we have never embraced China's four or six character phrase for the relationship. The communique is worth reading again and again. Ninety percent of it is Richard Nixon and his Chinese counterpart listing the unresolvable differences between the U.S. and China in terms of allies, values, Vietnam, North Korea.

But then the operative part at the end says we will move towards normalization and that was the part that really counted. So wise heads in U.S.-China policy have not embraced Chinese formulas for the future of U.S.-China relations. And in this case, it would have been wise for the administration not to have embraced the new model of Great Power relations.

The president never did but most of his national security Cabinet did, unfortunately. Why unfortunately? Because when Xi Jinping puts forward this new model of Great Power relations, he's not just talking about avoiding the fate of Europe in 1914. He's trying to return the construct for U.S.-China relations to the November, 2009, joint statement between President Obama and Hu Jintao in which both sides declared they would respect each other's core interests.

This is coming right after the financial crisis, panned in Delhi, in Tokyo, in Canberra. Why? Because the Chinese intent is to declare a bipolar condominium in Asia, in effect. Japan is not a Great Power. India is not a Great Power, or even a major power in this construct. Russia is. The U.S. is a Great Power. China is a Great Power. Russia's a Great Power and sometimes when the Chinese are feeling generous, the EU is a Great Power, which I'll come to in just a minute. So we in the United States have no business or no interest endorsing a vision for the future of Asia that's based on a bipolar condominium that reduces our key allies and the values we share to second tier status.

In fact, the Japanese government at these highest levels asked the administration to stop and it took several months before they did. Finally, Secretary Hagel last spring used the term a new model of relations and dropped Great Power, which is a very clever way to keep your job but change policy. And from that point on, the president and others I notice have been using a new model of relations, which is very logical. If we can build a new model of relations with China, that'd be good, as long as it's a model we like and of course it'll have to be a model they like.

China has strayed a little bit from the Deng Xiaoping orthodoxy that the U.S. relationship is the most important and that you bide your time, lay low, don't lead. Xi Jinping, and I won't go through all of the declaratory policy, but the most noticeable example was the CECA conference in Shanghai in May when this was the little known Kazakh-inspired conference – Bob is probably the only person in this room who knows what it stands for – conference on inter – conference building and inter-something exchange in Asia. It was pretty much a sleepy Central Asian thing until China hosted it in Shanghai and Xi Jinping gave a speech calling for new Asian security order without blocs, meaning without alliances. Very reminiscent for the Cold Warriors in the room to Gorbachev's Vladivostok speech in '86, which was similarly aimed at breaking up the hubs and spokes.

That's a little adversarial. They pressed our allies in the room to sign onto this as a joint statement. The Turks caved. The Israelis caved. But the Koreans, God bless them, held firm. And so, it was not a joint statement. It was a speech. That's not the basis for a new model of Great Power relations unless it's a model based on global multipolarity and regional bipolarity, which I think is a central concept for most Chinese thinkers on this. In other words, U.S.-China relations should be preserved and maintained, have to be based on a hedging or a hemming in of the United States by a global multipolarity but with a recognition that in Asia the emerging management of the system is going to be Sino-U.S. So let me shift to the second point which is multipolarity.

I think the Chinese have done us a favor if we start now thinking about the utility of multipolarity in international security strategy. The last really serious study on multipolarity was Richard Nixon in 1967. He wrote a piece in Foreign Affairs after traveling around Asia which was absolutely brilliant and which holds up to this day and he gave the early sort of hints about opening to China, about the importance of a rising India, of maintaining alliances. But he was essentially talking about how to maintain American primacy and American leadership and stability in an era when – this is before the open-end to China, by the bipolar Cold War order was problematic for us and relative U.S. power was declining.

Of course, what Nixon did was open up an era of tripolarity – U.S., China, Russia aimed at the Soviet Union and in Asia he tended to slip towards as bipolar dimension to relations with China and with some consequences for India and Japan. But his '67 piece in Foreign Affairs was brilliant and I think it is useful to think about today because of in a time of relative power decline, when you have other poles in the system that are more or less hewing to your values and concepts of order, you want multipolarity in Asia.

Now, the Chinese about 10 years ago, 12 years ago started in every foreign policy document talking about the importance of multipolarity in the international system. And what they meant was in those days bonding with Chirac and others to stop American hyper-plussence (sp), this sort of hyper, hyper spastic American unilateralism. But the Chinese were not talking about multipolarity in Asia. Multipolarity in Asia is useful for U.S. interests.

And in the Bush administration, we kind of got this when we made India a central part of our strategy, not thinking that India would align with us to contain China but recognizing that a rising Indian state in the multipolarity of Asia would stabilize the equilibrium and create a more stable overall system for us to operate in. This works because, as Kori said, the trends are in our favor. I mean, to sort of split the difference with the so-called Beijing consensus and the Washington consensus would be foolhardy right now.

We did a survey at CSIS in 2009 and just again in May where we asked about 500 strategic thinkers in think tanks across Asia about the future of regional order. And one of the questions we asked was what are the concepts or priorities that should drive the establishment of an East Asia community, because that was sort of the buzzword and everybody in Asia was in favor of an East Asia community, 80 percent of everyone. The Indians are 90 percent although no one ever called India East Asia. So everybody wants this community.

We asked what is it for. Looking forward, not today but 10 years from now. Number one answer, confidence-building, avoiding conflict. It's logical. And number two was economic cooperation, logical. The next four on the list were good governance, rule of law, free and fair elections and human rights. Then you got to energy, defense cooperation, da, da, da, da, da. The outlier of the 11 countries we surveyed in 2009 was China.

Interestingly, when we did the survey in May, there were two outliers: China and the United States because when American experts – and this is the Iraq hangover – were asked about good governance, human rights and so forth and the future of Asia, a large – not a large majority but a majority said, eh, can't do that anymore, even though every other country in the region other than China said these are high priorities. So we need to think about how multipolarity and how a general movement of norms in our direction helps us. Now, big caveat and an important one.

One question we asked was about how important the principle of noninterference in internal affairs is. It used to be a staple in American foreign policy until basically Jimmy Carter. And here, our democratic friends in India and Indonesia and Thailand split with us and sided a bit more with China in saying that noninterference is an important principle. And the advanced OECD democracies, U.S., Japan, Korea, Australia all said that's palooey (sp), we don't need to worry about it. So the lesson there is the trends are on our side. But as Ambassador Negroponte said, a heavy-handed sort of American approach is not necessarily going to work. And so, it's a puzzle actually how you operationalize foreign policy to take advantage of that.

But it has a lot to do with the distribution of power into multipolarity. A new model of Great Power relations that's bipolarity does not help us in Asia. It just does not help us. Last point briefly, I thought President Obama – I was five years in the NSC with Kori trying to come up with the ingenious construct for U.S.-China relations. I had a small role in Zoellick's stakeholder speech. I thought the best line so far, having beaten the administration up a little bit, was actually President Obama's when Hu Jintao came here when he said the U.S. has a stake in China's success.

And I think Kori was touching on this point if I heard her correctly. I think that's right. We are probably right to bet that for China to move its economy out of the middle income trap, it's going to have to do things about accountability, rule of law, the protection of intellectual property rights. So we should consider that a basis for a win-win outcome in China's future in which China succeeds and we all succeed with her. And I worry less about the 1914 analogy when it comes to the rise of China and more about the interwar Japan analogy of Weimar Germany analogy because Japan in the '20s was converging with the international economy.

And then, in the '30s, they weren't and the Japanese economy was failing, not succeeding. And what you had was a reaction against the prevailing international norms, a rejection of economic convergence, which the Deng Xiaopings of Japan had agreed to and war. So a weak – as Rich Armitage likes to say, a weak grumpy China is definitely not in our interests. And that's a basis, I think, for building partnership in key areas, as Kori suggested.

MR. PAVEL: Thank you very much, Michael. Let me ask you a follow-up question and then we'll skip across Eurasia in the panel and then we'll open it up. But your suggestion of an equilibrium was very, I thought, interesting and provocative and wanted to sort of push on that a little bit. So I think you were saying that with India rising also that that creates an equilibrium. But wouldn't it also potentially create conflict and it draws Pakistan in and I'm just trying to understand the basis for your suggestion.

MR. GREEN: So Ambassador Negroponte said earlier, if I heard correctly, we're going to have to have a mix of multilateralism alliances. Our playbook is going to be diverse, right. I don't think we think enough about the distribution of power and multipolarity in the system in that playbook. And an India and Japan and an Indonesia, Korea and Australia that are important poles in the system will reinforce some common values we have. We don't agree with everything on India. That's for sure. But reinforce some common values. But also prevent a sudden tilt of the regional system to a Sino-centric system that, you know, tempts the Chinese to think about revisionist behavior.

So that's why I didn't say containment. If you have a multipolar system with other poles that have a stake in much of the status quo, India less than Japan and Australia, but more than China in terms of the security system, that limits China's options and sort of sets up an environment where you're going to have more success with bilateral confidence-building with China, with multilateral institution-building and it will be reinforced by our traditional alliances. But the point you have to be careful about is precisely the one you raised, multilarity, if it becomes a multidirectional arms race, is not good.

MR. PAVEL: Yeah, and I would add arms races are sort of the things these days in Asia. If you look at the defense spending trends, there's a very significant – I don't know if it's an arms race but there's a lot of spending. Now let me sort of expand it a little bit and raise the Russia factor. Russia, as we all know, newly aggressive. There's also some sort of relationship between Russia and China. Sort of how does that – how should that factor play in to this discussion? Should we worry about what's at least a façade of Russian-Chinese cooperation? Could it grow deeper? Could we be surprised by that? Sort of how do you, Kori and Ambassador Negroponte in particular, think about sort of how Russia plays into this geometry?

MR. NEGROPONTE: Well, first of all, I remember when I was appointed ambassador to the U.N., the president – I had my job interview and when Colin Powell asked me if I wanted to be ambassador to the U.N., I said, yeah, sure. I said, is the pope Catholic? And then he said, well, we've got to take you down to the president and have a little interview and I spent about 20 minutes with him and he asked me only one question. He said, you know, how do you think we should deal with Russia.

And I guess my answer – and I don't think I would take it back – I said carefully. And above all, they're a nuclear power. They've got weapons and they're permanent members of the Security Council. But above all, don't paint them into a corner. And so, yeah, I think we're going to – first of all, I think we're obliged to try to take them into account and if we can get past the current crisis that exists in the relationship. But they're definitely a factor. Whether they're going to get much closer to China, I don't know. I mean, that's probably – I think there'll be some arrangements of convenience between them.

But I can't see anything that fundamentally bring them together. I'd like to comment on something that was said a little bit earlier about – on both sides about the democratization agenda and human rights and so on and so forth. I think we need to be careful about this and careful in the sense that we may maneuver ourselves into an intellectual trap where we think, well, you know, authoritarian capitalism can't possibly work because of this, this and that. And therefore, we don't think about the worser (sic) scenario that – in your mind worser case – but which may very well be what happens, that they will continue to have a growing, strengthening authoritarian system that has – that develops a larger economy and has a much larger defense budget.

I mean, I think that's the contingency that we've got to think about in terms of how we deal with China. What happens if they do go farther in some of these difficult military situations than we earlier anticipated? We underestimated in a number of instances in the past the willingness of authoritarian figures to take risks in international relationships. Japan, Germany, Khrushchev and, you know, what's the analog of that kind of behavior, excessive risk-taking because they're not sufficiently bound by their political system. So I mean, I worry about that part.

MS. SCHAKE: I too worry about that part. But I actually think it's an intellectually easier challenge, which is you enforce the rules, right. If China is Japan in the 1930s, we actually know what to do about that and it's awful and it's hard but it's also a problem we know what the solution set looks like and we're pretty good at the solution set, although we ought always to be improving our thinking and our creativity and our ability to minimize the threats that they raise. I do think though that the management of the interim period will have a lot to do with that outcome; that is, if we permit China to bully the Philippines, then we are likelier to end up with a China that is 1930s Japan.

MR. NEGROPONTE: Which is the scenario I'm talking about, right.

MS. SCHAKE: Yeah, and so our behavior plays crucially into this and we need to have a negative. We need to have sticks, which is the United States Navy, of which I am so fond. But we also need to have carrots, which I think you and Mike were both – were both really great on saying which is of course we could change voting in the IMF. Of course we can – like, there are benefits to buying into the order and we need to be the leader in making those benefits not just clear but possible, achievable for them, that I think China is a winnable country into being a responsible stakeholder. But we are not yet winning it.

On Barry's question about Russia, I think we Americans tend to underestimate the likelihood of bad guys hanging up on us and so this is a problem I'm worried about. I don't – I think the probability is relatively low because I don't see so much what's in it for China, that they need investment, export markets, lots of things.

They need secure sea lines of communication in the Malacca Straits and other places, things that we the community of Western countries can help them achieve. I don't see other than the satisfaction of being an anti-Western bloc and energy what it is that a Sino-Russian alliance would provide in the long-term. But I don't want to actually bet our security on a failure of my imagination in that part. So I think we ought to actually spend a fair amount of time worrying about that, although I believe it's relatively unlikely.

MR. PAVEL: What China would see in such an alliance, but I'll let Mike respond first.

MR. GREEN: Well, I mean, right now Moscow and Beijing have a marriage of convenience that's very inconvenient for us. It makes things harder. For example, the Russian air force in the Far East is sending up fighters against us and the Japanese all the time now and I suspect it is in part because the Chinese are sending up fighters and they're stressing us and they're both trying to increase their leverage with a little help from the other. And there are other examples like that, including I think we'll find some day the Snowden operation which I bet you some day will be revealed as a joint Russian-Chinese operation.

So you know, tactically and in certain ways there are advantages to them to work together. But 7 million Russians and he number keeps going down in the Russian Far East alongside 1.3 billion Russian Chinese, that's a pretty scary future for Russia. And if you think about it in terms of multipolar strategy, not now. We're in a bad place right now with Russia. But further down the road, Russia could be potentially another – it could be actually a helpful player in Asia, particularly if Russia and Japan, Russia and Korea are developing energy ties to sort of balance things out a bit.

The last point was really good and I think the reality is that the PLA knows that for some time in a big war they can't win because they are so dependent on overseas supplies that the U.S. Navy and possibly the Australian, Japanese, maybe Indian a navy can strangle them. They're not going to have undersea dominance for many, many decades most analysts would argue. But that was also true of Japan in 1941. And if the other starts thinking they can't win a short war but they may be able to break the American will to fight with a short strike, that's very dangerous.

So this is why these tests of wills in the island chain become so important because it's a reading of our willpower by both sides. And it has to be very carefully calibrated. And for the most part, although there's been some inconsistency, the administration I think is getting it right. But it matters in this bigger pictures. These are not just sort of rocks that silly kids are fighting over.

MR. PAVEL: Great. Now, let me expand the problem finally and then bring in the audience too. So please get your questions ready and let me know if you have one. But the theme of this is trans-Atlantic interests in the Asia Pacific region out to 2025. And so, with all of the discussion that we just had, which I think was a very, very good one already and set some nice foundational blocks for the remainder of it, how should the United States and Europe work together? Are there mechanisms that should be developed that aren't yet developed? You know, is it possible for the U.S. and Europe to be split from each other as Asia continues to rise? What's the – how should we strategize about this critical trans-Atlantic partnership?

MS. SCHAKE: So I think it's definitely possible for Europe and the United States to be split from each other in Asia in part because there is a tendency, on the part of many European countries, to have a commercial policy in Asia but not so much a foreign or national security policy in Asia. But as the former Norwegian foreign minister said, China isn't just rising for the United States. China is rising for Europe too. And it is a mistake on Europe's part to allow the weight of the security conversation in Asia to be an American-Asian conversation, not least because, two reasons.

First, Europe actually supports the rules of the existing order that the United States and its allies in Asia are enforcing and as commercial relationships deepen between Europe and Asia, the upholding of that order will be more and more important to Europeans. But second of all, in a lot of ways, Europeans keep the United States honest in the world, right, because you're the ones who are always tugging us to actually live up to our own values and to allow the rules that we apply to everybody else to also constrain our behavior.

And that's a not inconsequential good that Europe contributes to the international order and the United States should welcome it and Europe should actualize it because it's good for us. It's good for Europe and it's good for Asia. The last thing I will say on this subject is actually Europeans ought to have a particular sympathy to the experience of countries like Vietnam and the Philippines who are weak relative to a powerful neighbor that is behaving badly.

And this is where the sensibility of Europeans, who actually found a way out of this problem through cooperation, through integration can be helpful counselors, a useful example and interlocutors to the countries of Asia in which the United States actually can't. Those are all great benefits that Europe can bring to Asia at a time where Asia is growing increasingly important to Europe. And we ought to all celebrate them doing so.

MR. PAVEL: Mike?

MR. GREEN: As an Asia guy who spends most of my time thinking about the past, present and future of order in Asia, my number one request for the trans-Atlanticists would be get Ukraine right because everybody from China to North Korea is going to assess American global power and the power of the center, if you will, based on whether or not NATO and the trans-Atlantic partnership can stick together and manage this ongoing crisis.

When NATO came together to use force in Kosovo 15 years ago, the Chinese were stunned, stunned. And here was an alliance with multiple members coming together and agreeing to use force because – from a Chinese perspective, because of an abstract principle. And this really had a powerful effect on how the Chinese viewed American power generally. So if our alliances are weak in Europe and appear divided and weak in Europe, it will definitely be noted in Asia. And this goes for North Korea too, which watches American use of force and alliances very carefully. It's reason why the Syrian red line was so devastating for our credibility on the other side of the world in Asia.

The second thing is embrace multipolarity. The EU discussions hopefully will not be Chia, China, China, China. There needs to be a Japan strategy, an ASEAN strategy, an India strategy because that's good China strategy. And finally, and this one is beyond probably relative, but mean, the Chinese don't – although they sometimes talk about Great Powers and include the EU, they don't think of the EU as a Great Power.

They think of the EU as an easily divided and manipulated collection of squabbling countries. And so, if Europe's going to have a more effective policy in Asia, there's going to have to be more effort, you know, to come up with some consensus on issues of trade and human rights and others. That's a whole other bottle of wax I shouldn't open. But the reality is that's how China views Europe right now.

MR. PAVEL: Thanks very much. Let's open it up now to Hans-Christian Hagman.

Q: Well, thank you very much, Barry. First of all, thank you for a brilliant panel, outstanding. Just a quick one. Kori, I agree with you definitely on Europe and what we could do in Asia and should be doing more. And Michael, yes definitely on the Ukraine and we shouldn't stop leading there. We can do more in Asia as well and have a very much broader approach than just China. But things moving I think in the right direction.

But what I'd really like to ask the panel is one of the questions on the program on the definition of Great Power. And it's an honest question, that what defines Great Power, one thing how do we do it today but what do you expect more in the 10-year perspective? Which factors will become more important and which factors may become less important? I'm thinking of on a global scale, economic size, trade size, military protection capabilities, aid, access to big data, owning knowledge, CO2 emissions perhaps, but then also on a national scale, population, how important is population and number of votes you carry with you in, for example, national fora, human rights, economic solidity, resources or innovation and knowledge capital. Which ones of these do you see becoming more important in the future and which ones less? That'd be very, very interesting to hear you. Thank you very much.

MR. NEGROPONTE: I think it's – I can't see the economic and military factor changing that much. I mean, the size of an economy and the ability to project military power and in some areas we have I think a particularly strong advantage which is our logistical capability to deploy anywhere around the world. So one way of asking – another way of asking the question would be how many other countries do we think might pretend – have the pretense of being a global power 20, 30 years from now and will China, for example, try to play that role.

They say they don't. They have no hegemonic ambitions and no global pretensions. But that may change. I think that needs to be watched carefully. I think the other point I'd make is I think you will see more sort of regional powers in particular areas of the world and given that the global power or the hegemonic powers are no longer as powerful and influential as they used to be, I think you might see a rise of other powers in different regions of the world and you could think of which ones they might be.

MS. SCHAKE: So I would have two points. The first is that the very best article I ever read about globalization, other than Mathew's terrific study about the future, is by Richard Rosencrantz. He's a political scientist out of UCLA. It was in Foreign Affairs maybe in 1995 or '96. And what he argued was that the old metrics of power, you know, the size of your economy, the size of your population, your ability to control territory, the size of the territory you control, those are Industrial Age thinking and the shining model he holds up as the state of the future is Hong Kong. It's a financial center. It lives on intellectual capital. It lives on immigration.

And Rosencrantz's basic argument was that the nature of the state, the challenge for states is actually drawing and retaining talent. It's not territory. It's not demography. It's intellectual capital is going to be the name of high value economics and that's what all of us are searching for. And if he's right, and it looks to me like he is right, then, you know, we have a huge advantage. The United States has a huge advantage in that we're an immigrant country, right, and we're not everybody's favorite and we're tiresome in all sorts of ways. But an Argentinian software programmer, if she doesn't want to live in Argentina, we're at least her second or third choice, right.

The Bank of China just did this big study about Chinese citizens – Chinese millionaires all applying for the ability to become citizens in other countries and Canada's everybody's first choice and understandably so. But the United States comes in second. And so, we keep winning the talent pool and that's actually a lot more important than demography and both in the United States and Europe we ought to really be worried about the wellsprings of our own strength.

The United States, you know, economic mobility is becoming less the norm because educational opportunity is becoming less the norm. That's actually what we ought to be worried about, both in Europe and in the United States because we're going to keep winning the lottery as long as we do what we do well.

MR. GREEN: If I can just add to the list rather than an answer which is going to be most important. Rulemaking, and so when people sort of react to China announcing a BRICs bank or announcing an Asian infrastructure investment bank, read the fine print because what they're saying in Beijing is, oh yeah, we'll have rules and stuff.

They have no idea what they're doing and what happened when Japan in a similar position declared they were going to create Non-Asian Monetary Fund in the '90s after the Asia financial crisis as an alternative to the IMF, they discovered this thing called moral hazard. And if you're going to be lending all of your money, especially if your citizens are unhappy with you, and you're not going to have an accountable and internationally recognized way to get the money back, your project's going to get in trouble.

So I think things like the AIIB because of – because of the need for rulemaking are going to potentially converge with the international financial institutions, particularly if we play it well. I don't think it's necessarily a threat. So rulemaking, alliances – China doesn't do alliance well. Pakistan and North Korea, go team, go. And although as a hard-headed Bush guy, I shouldn't say it, soft power.

The Chicago Council did a survey in 2009 and they asked about soft power in Asia. And my favorite result was – there were two. One was they asked who has the most soft power in Asia, thinking the answer would be China. And the answer was U.S., Japan and China. And the second question was over the last 10 years, basically the Bush administration, whose soft power and influence increased the most in Asia. And every country responded the U.S. except for one country.

MS. SCHAKE: The U.S.

MR. GREEN: The U.S. So as a former Bush guy, I'd just say thank you, New York Times. So I think we sort of underappreciate that aspect of American power. It's very hard for the U.S. government to operationalize that. What it means is our universities, our think tanks have to be open, have to be accessible. It means sort of allowing civil society to do what it does. And frankly, as the Atlantic Council and CSIS know, there's a lot of pressure on civil society and on universities these days and the fact is that that's an important part of our leverage.

MR. PAVEL: We are at the end of our panel. I want to offer three sets of thank-you's, and if you could hold your applause until the end. First, this has been a really great panel, a tour de force across Eurasia and I really learned a lot from the discussions. Second, our Swedish partners who we worked with very closely, including the questions and the agenda and everything else, thank you very much for your very fruitful and enjoyable cooperation. And third, most importantly, Aparajitha, if you can raise your hand, and I wanted to thank you and Phil and the whole team. Really couldn't have done this without you. So thanks very much, everyone. (Applause.)

(END)




RELATED CONTENT