U.S. Assistant Attorney General John Demers discussed the China Initiative and the process for assessing risks posed by Chinese acquisitions or the business operations of Chinese companies in America.
Robert Hormats, “Address to U.S.-China Internet Industry Forum,” December 7, 2011
U.S.-China Internet Industry Forum
Robert D. Hormats
Under Secretary for Economic, Energy and Agricultural Affairs
December 7, 2011
It is an honor to be here today. I would like to thank Craig Mundie at Microsoft, Internet Society of China Vice Chairman Wu Jianping, and State Council Information Office Vice Minister Qian Xiaoqian for inviting me to participate.
I’m pleased to be able to represent the State Department at the U.S.-China Internet Industry Forum for the third time since I began my tenure as Under Secretary.
This forum is valuable because it is driven by extensive industry participation on both sides.
As I have learned in my nearly 40 years of promoting U.S.-China engagement as both a public servant and a businessman, it often requires several rounds of frank discussions before we can move forward on difficult issues.
This was true when I accompanied Dr. Kissinger to China and met with Zhou Enlai, and it is equally true today.
In recent years, our two governments have moved forward, launching the Strategic and Economic Dialogue and meeting regularly to discuss a wide range of mutual concerns.
And this forum – the fifth round since its inception in 2007 – is evidence of the critical role our private sectors play to promote collaboration between the United States and China.
In past years, this forum has covered a number of important issues related to the internet, including innovation, intellectual property protection, cyber crime, cloud computing, and internet freedom.
I know this year’s agenda will include panels on information security and privacy, social networking, internet governance, and corporate and user responsibilities for online etiquette.
Continuing these conversations demonstrates both the progress that has been made as well as the ground we have yet to cover.
However, I want to state at the outset that we at the State Department, and other parts of the U.S. government, are increasingly concerned about an overall lack of progress – and even, in some cases, apparent steps backward – with respect to U.S.-China cooperation on the internet.
Frankly speaking, while it is encouraging to again have the opportunity to address this impressive group, it also is a source of some frustration to return this year and need to expend renewed energy to address old problems.
This morning I will revisit four primary concerns that continue to be of great importance to the U.S. government and industry: (1) international standards, (2) intellectual property, (3) cyber security, and (4) internet freedom.
With respect to international standards, I want to emphasize that in countries where there is an expressed preference to develop domestic standards – rather than adopt existing international ones – there are real economic costs for industry and consumers.
This important topic is a theme running through most of the other subjects we will talk about at this forum. And it is one area where we unfortunately have seen little bilateral progress in the past year.
The United States supports the transparent development of international technical standards in which interested stakeholders have an opportunity to participate and comment.
The economic benefits of shared international standards are remarkable, allowing firms to reduce costs through economies of scale by building to one standard worldwide.
By increasing the global market size through using global standards, small and medium-size enterprises in all countries can more easily afford to enter the market with innovative products, and consumers enjoy more choices.
However, when compliance to a domestic standard is forced, the market for such enterprises and the quantity and quality of options provided to consumers may shrink.
Domestic standards also may not reflect the latest innovations and technology.
It is for these reasons that the United States objects when we learn domestic standards are creating technical barriers that are more burdensome than necessary.
In the case of China, for example, I’m concerned when I hear there currently is a proposal to establish new domestic standards in the wireless broadband market.
China’s pursuit of the ultra high-throughput (UHT) and enhanced ultra high-throughput (EUHT) standards are incompatible with the international wireless 802.11 standard and ultimately would hurt Chinese consumers and manufacturers.
We understand MIIT is currently reviewing the high volume of Chinese and foreign industry concerns submitted during the recent public comment period. And we urge the ministry to consider industry’s objections to this unnecessary domestic standard.
It clearly will benefit all of us in this room – particularly innovators – if we can make progress towards adopting standards that are based on global norms and principles.
And we will need to move forward in this area during the next round of our bilateral consultations on Information and Communications Policy.
Let me say at the outset that for many reasons – jobs, business profitability, health, safety and support of our most innovative and creative industries – protection of intellectual property is a core economic interest of the United States.
This is true wherever the threat occurs. And we aim to identify and utilize a wider range of policies and measures to deal with it.
With respect to China, protection of intellectual property remains a serious and troubling issue.
As I emphasized last year, a critically important issue for innovators and inventors is to know their intellectual property is protected and their rights are enforced.
Such protection has a major and beneficial impact on jobs in, and the profitability of, some of our most innovative sectors.
IP theft – whether through illegal downloads or other means – stymies innovation.
Software is a case in point – it will be important for China to fulfill its stated commitments to ensure that governments at all levels use only legitimate software.
The U.S. International Trade Commission reported earlier this year that IP infringement – including online – was negatively impacting high-tech foreign direct investment into China.
Given these challenges, last year in Beijing I expressed my support for the recently launched “Special Campaign” against IP infringement.
And so I am encouraged by China’s decision – confirmed at the JCCT in November – to establish a State Council-level leadership structure, headed by China’s well-respected Vice Premier Wang Qishan, to lead and coordinate intellectual property rights (IPR) enforcement across China.
Our message remains clear – the protection and enforcement of intellectual property rights is critical to foreign and Chinese rights holders.
We believe many Chinese companies have a strong interest in the success of this effort as they develop more innovative products and want their intellectual property respected.
So there are many areas where we can make common cause with Chinese companies.
It is noteworthy that the number of court cases in China related to intellectual property has increased and in the majority of the cases, both the plaintiffs and defendants are Chinese.
We also must urgently address the number of counterfeit goods sold online that pose a serious threat to the health and safety of consumers – Chinese and foreign.
As with other IP issues, we do not see this as “the United States versus China.” The ideal formula would be for the United States to work with the many interests within China who have an interest in addressing such problems.
And other countries have a big stake in this, too, so we will work with them to achieve satisfactory outcomes and mobilize allies on this issue.
There are reports of automobile and airplane parts, air bags, food, and pharmaceuticals being counterfeited – some of which are sold online. Many of these products jeopardize the health, safety and lives of citizens everywhere. We will need to continue to collaborate to address this important issue.
Indeed, it is a fundamental responsibility of authorities in Beijing, Washington and other capitals to protect their citizens – and we are committed to that as a top priority, which we anticipate will be China’s as well.
In short, I would stress that despite some progress, the levels of counterfeiting and piracy in China are still unacceptably high.
The United States wishes to continue to work with China to improve the intellectual property regime in China, for the benefit of all rights holders and consumers around the world.
It is imperative that we see more progress on IP protection by this time next year.
Third, let me discuss cyber security.
Information and communications technologies are crucial to the development of all economies.
Information and communications technologies contribute immensely to commerce and the provision of goods and services, to research, innovation, and entrepreneurship, and to the free flow of information among individuals, organizations and governments.
These technologies provide platforms for e-government, promote economic development, facilitate the delivery of humanitarian assistance, and enable critical civil, public safety, and national security infrastructures.
However, even as reliance on information and communications technologies increases, risks associated with these benefits grow as well.
A diverse range of events and activities -- natural and man-made -- threaten the reliability of critical national information infrastructures, global networks, and the integrity of the information that travels over or is stored within them.
Man-made threats are increasing in number, sophistication and gravity. Some are state-based. These threats are deeply harmful to trust and confidence – posing national security concerns. The issues are serious, but do not lend themselves to discussion at an event like this. Many often come from non-state actors and involve criminal or terrorist activity.
Motivations may vary, from the theft of money or information, or the disruption of competitors, to nationalism and the extension of traditional forms of state conflict into cyberspace.
These threat actors target individuals, corporations, critical national infrastructures, and governments alike, and their effects carry significant consequences for the welfare and security of individual nations and the globally-linked, international community as a whole.
It is in the interests of both the United States and China to ensure that these threat actors are not able to launch cyber attacks from either of our respective countries.
The international community faces the challenge of maintaining an environment that promotes efficiency, innovation, economic prosperity, and free trade, while also promoting safety, security, civil liberties, and privacy rights.
The difficulty of the task is compounded by the unique attributes of information and communications technologies.
Networks are often owned and operated by the private sector, rather than by governments.
Unlike traditional weapons, disruptive information technology tools are stealthy and cannot be seen.
Their use can be routed through many nations, with the origin, identity and sponsorship of the perpetrator difficult to determine.
Traditional strategies, such as measures similar to those used for arms control, are ineffective in controlling or constraining threat actors and therefore, creative new approaches are required to mitigate the risks.
Notwithstanding the difficulty of the task, nations must work together to improve the security and integrity of information technologies.
Domestic efforts to secure national information infrastructures should be supported by international collaboration on strategies that address the transnational nature of the various threats to networked information systems.
These efforts should include cooperation on incident management, mitigation and response, transnational criminal investigation and prosecution, and technical fixes to improve the robustness of cyber infrastructure.
In addition, we need to affirm internationally-shared norms of behavior supported by confidence-building measures designed to enhance stability and reduce risks of misperception.
The United States and China still have far to go to build confidence and eliminate threats to cyber security.
We need to find ways to work more collaboratively on this critical threat to stability.
Finally, let me discuss internet freedom.
The United States believes that an open Internet leads to stronger, more prosperous societies.
In my view, one of the great historic developments of our era is the dramatic democratization of information around the world. The internet and the world wide web are central factors in that process.
It is an extension of the same vision America has had for more than 200 years—that open government, open markets, and a respect for the fundamental rights of people will lead to stability, security, and prosperity.
As participants in this open Internet, each government, company, and non-governmental organization has a role to play to ensure the Internet remains a space that respects human rights and fundamental freedoms, while at the same time preserves security, confidentiality, and tolerance.
Internet freedom is increasingly part of the State Department’s day-to-day diplomacy in countries around the world.
The Department is developing action plans to advance Internet freedom, support digital activists, counter Internet repression, and systematically engage with the “netizens” who will shape the future of the Internet and the economic future in their own countries.
As the Internet landscape becomes more and more complex, the United States is taking action to make a principled stance for openness and to broaden opportunities on the Internet.
In the case of China, the United States remains concerned with the widespread censorship and surveillance on the Internet.
Many websites and online services are blocked, emails and communications are monitored, and certain keywords are immediately flagged for deletion.
Getting around the restrictive “Great Firewall” on the Internet in China costs Chinese and foreign businesses both time and money.
However, despite these economic costs, Internet restrictions in China appear to have worsened over the last year – creating serious human rights concerns as well.
The right to freedom of expression, assembly, and association are protected in a body of well-established domestic and international law, and they apply online just as they do offline.
Online censorship also hampers the free flow of information and freedom of expression and the innovations associated with them.
So let me also address those governments that believe their countries will be able to remain economically productive without respecting these international norms or allowing their citizens the freedom to connect.
As Secretary Clinton said in her speech on Internet freedom, “there isn’t an economic Internet and a social Internet and a political Internet; there’s just the Internet.”
If a government tries to create an online environment that is closed or fractured— where it can block activity for one purpose or change the rules for another— the costs are high and cumulative.
Education, innovation, research, creativity, entrepreneurship, investment, and growth will all eventually suffer.
Governments that infringe on internet freedom incur opportunity costs, deter investment, and drive home-grown entrepreneurs into more open markets abroad.
A free flow of information is needed to enable an open exchange of ideas on which creativity and innovation is based.
We believe that over the long-term, progressive societies with a strong rule of law to facilitate and enable this information flow will be more stable, secure, and successful.
We believe further that they will be more successful because of it. And that will be true for China as for the United States and other nations.
We need to move together in this direction.
U.S.-China relations have come a long way in the nearly 40 years since I first visited China. Indeed, in a few months we will mark the 40-year anniversary of President Nixon’s historic visit to meet with Chairman Mao Tse-Tung.
At the time, I was a very young member of Henry Kissinger’s NSC staff working on the economic aspects of the opening of ties with China – helping plant the seeds that would grow into the remarkably dynamic economic relations that exist between the United States and China today.
Those of us who worked on these early steps in the normalization process are especially impressed by the remarkable progress China has made in creating a dynamic economy and raising millions of people out of poverty.
The vision and support of Republican and Democratic leaders in the Congress and presidents in the White House has been one key factor in the development of our relationship.
Likewise, the leadership of many Chinese leaders such as Deng Xiaoping and Zhu Rongji, as well as China’s current leaders, has been vital.
But we have a lot of work to do to sustain and create a balanced, rules-based future to our economic relationship.
As we survey the landscape of the next 40 years, the ability of our two governments and private sectors to cooperate on the internet will help shape the contours of the relationship.
By promoting international standards, ensuring intellectual property protection, protecting cyber security, and advancing internet freedom, we will promote a free exchange of ideas and commerce in the digital age that will enhance the dynamism of our relationship and benefit our citizens.
And I would like to stress that we see all of you in this room as our partners in this endeavor.
As representatives of the information technology industry – American and Chinese alike – you are the ones who ultimately will benefit from a collaborative standards regime, stronger IP protection, a more secure internet, and an internet that is not censored.
I hope your discussions here at the forum will be productive, and I look forward to working together with you over the next year to make significant progress on these important issues. Thank you very much.
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