Remarks at Wall Street Journal's CEO Council Meeting

Susan A. Thornton
Acting Assistant Secretary, Bureau of East Asian and Pacific Affairs
Palace Hotel
Tokyo, Japan
May 15, 2018

Gerry Seib: First of all thank you for being here. You didn't get to hang around for the earlier conversation as we did, as Jerry said, cover an awful lot of ground. But I thought that maybe what we could try to do is sum it up a little bit in this conversation here tonight. And you know maybe by starting with the role the U.S. is trying to play in Asia. It is a very interesting time you know. I think it's fair to say that there's confusion about the U.S. role right now since President Trump arrived in office. There was initially concern that the U.S. would disengage from the region, then there was concern about trade tensions, then there was concern about war with North Korea. Now there is prospect of peace with North Korea. I think the question I wanted to start with in this conversation was one that rose about 10,000 feet above that and it is simply this: What is the U.S. role in the vision of U.S. engagement in Asia at this point?

A/AS Thornton: Well that's a very good question. You're right. There have been a lot of questions in the region, is the U.S. pulling back somehow. The U.S. has obviously played a predominant role in ensuring peace and stability in this region since the end of the Second World War. Obviously the U.S. has played a huge role in underpinning the prosperity and the remarkable growth we've seen in the region over the last numerous decades. And I think what I would say is that obviously the U.S. is a Pacific nation. It's going to continue to play an incredibly active role in this part of the world.

We have all kinds of U.S. companies, many of which are represented here, you know coming in and out of Asia constantly. That hasn't changed. It's not going to change. Of course you see the Pacific Command and all of its assets in and around the region constantly. We have five of our seven treaty allies in the region. And so obviously we have very deep and close partnerships with all of them and with another number of other partners in the region. The Trump administration in order to address these kinds of concerns that have come up, qualms about whether the U.S. has staying power, has launched as of last November, the President during his Asia trip talked about it, an approach to the Indo-Pacific region, which in our lexicon stretches now from India all the way up through the Indian Ocean and all the way up into northeast Asia. And the strategy for the Indo-Pacific is really about strengthening all of these partnerships and alliances and trying to promote the continuation of the rules-based order which importantly will promote access, free and open markets, in this region… Security partnerships and continue to sort of promote and gain support from all the countries in the region for that rules-based system that we want to see continue in this region to keep the peace and prosperity going.

Gerry Seib: So I think it's fair to say that the opening salvo that raised these concerns about disengagement was the decision on TPP. There is a question now about whether that opened the door for the Chinese to move in and assume a bigger role economically in the region. And also created some uncertainty among America's allies about whether this economically was going to be an area of engagement or disengagement for the US. What is the vision for engagement in Asia without a TPP as far as the US is concerned and why doesn't it simply invite countries of the region to go their own way, for China to step into the vacuum?

A/AS Thornton: Look I think there's been a lot of conversations already today about the hinge point that we find ourselves at in the international trading system and how are we going to accommodate the rise of China in that system. And so I think the Trump administration's approach has been - we've got to fix this problem. It's not sustainable the way it is now and we've got to approach it from a bilateral standpoint because that's where we come at it with the most leverage. And so the TPP was something that when the president looked at it, he didn't like the deal and he thought that it should be either significantly revamped in order to accommodate US interests, or done in a different way that focused more on bilateral deals. So I think the trade relationship with all the countries in the region continues to be one that's very strong.

I know you heard Ambassador Hagerty talk earlier today about our focus on Japan. We've all heard in the news over the last week the focus on China. And so I think those are two very big trading relationships we have in the region. We do have six out of the 11 TPP partners that we already have free trade agreements with. I think we're working in the region not just through a multilateral trading agreement but also through bilateral existing FTAs. And we also have the Asia Pacific Economic Cooperation which is a consensus-based organization where we drive forward all these rules and standards and things like women's economic equality and other economic public goods that we want to promote in the region. So I think, it’s not a disengagement in any way shape or form. It's more of a focusing on fixing the really prominent problems in the global trading system so that we can carry them forward.

Gerry Seib: In fact in the midst of that conversation you had, the President raised a couple of weeks ago the prospect of, in fact, maybe rethinking TPP, re-entering TPP. Is that a live conversation or is that something that's just hovering out there on the horizon?

A/AS Thornton: I think it's live out there on the horizon but its not immediate. I think what the President has said is - if they are willing to renegotiate or talk about modifications to the TPP that make it a good deal for the US, of course we'll take a look at it. I think it's probably a little bit down the road while we focus on the big bilateral and other kinds of issues that we're trying to fix more immediately.

Gerry Seib: I'm curious in the midst of all that how you view the relationship between the US and China in a more cosmic sense. Which is to say, there is a lot of conversation back in Washington, where you and I both live, about the possibility that conflict is inevitable. That when you have a rising power and a mature power at a time like this that conflict becomes inevitable. Is that the way you view the U.S.-Chinese relationship? If not how do you prevent conflict in a situation like this?

A/AS Thornton: Well, in general, I'm an optimist so I think that conflict can be avoided. This is the so-called "Thucydides trap" that many people have talked about. I've been working on China in Washington for the last several years. And what we have been trying to do is promote a constructive relationship between the U.S. and China that has to be based on results and progress in areas where we can find overlapping interests. And we have a lot of overlapping interests with China and a lot of areas where we have to work with China.

The biggest problem we face right now is one that China's development itself has given rise to. Which is this - China, itself, is also at a hinge point.

I just came from Beijing. I was there, talked to a lot of people in the last couple of days. And you hear really two different stories. One is that reforms have been stuck. You know, ‘we've been on a sort of treadmill. We really need to have a powerful central government and a powerful leader that can push through all the reforms that have been, kind of, delayed by the bureaucracy etc. And that Xi Jinping is the person that can push through these reforms and we'll see big progress. There will be lots of opportunities for foreign companies and we'll be continuing our opening and reform and this is something that China is committed to. There's no going back to the Cultural Revolution etc. We're moving forward. Young people won't accept reversals in their freedom.’

And then the other, sort of, I guess, glass half empty version of this is people who are skeptical about that kind of story line. And, of course, it's all about the future so we don't know how it's going to turn out. But that concentration of power, and you see the encroachment of the state on economics, you see the raising of walls in the economy. Someone was telling me a story about a visit to a ministry there where the minister or vice minister had said we used to be dependent on foreign companies for our medical devices but now there's a Chinese company that's got 80% of the market share. So that was a success. It makes it clear that is sort of a desirable thing from the standpoint of a Chinese bureaucrat, which tells you a little bit about what the underlying drivers are for some people in the Chinese economy. So, how is that all going to look if you spin it out into the future. It looks more ominous, especially to people who are, not so much people who are doing business in China today because a lot of them are doing still quite well, but when they look out at the medium term prospects, they're quite concerned.

Gerry Seib: And in fact, you have in the next couple of days, a Chinese delegation, a high-level Chinese delegation arriving in Washington. Presumably or it's expected to be bringing a list of American products that they will buy more of to address the trade deficit that bothers President Trump so much. Maybe that buys some peace in the short term, but in the long term there's a broader question about Chinese industrial policy that is still going to be there, even if the short term trade deficit is addressed. How do you get at those structural imbalances in a trade environment like the one we're in now?

A/AS Thornton: Well there has been a lot of talk about sort of trade deficits and how can we address these problems in a timely way. I think one of the narratives in Washington, certainly justified, is that the Chinese have been talking a lot about addressing a lot of these problems for many years, but keep promising the same things and have been short on delivery. So it's reasonable that there is an expectation that we want to try to do something quickly now. And the sort of buying mission is a temptation to sort of do something quickly, to inject some balance into the relationship. I think what we're really trying to do is, through these purchases, try to crack open market access. And I think you can do both. You can use the emphasis on buying and trade deficits to say, “hey this is a problem with market access” .For example, in agriculture, or pharmaceuticals, data cross-border data flows, and other places, and try to get at caps on equity and investment etc., through this emphasis on trying to right the deficit.

Gerry Seib: In the meantime you've got some trade tensions with Japan, the country where we are now. You heard the conversation earlier just before dinner about that. Some Japanese anxiety, perhaps more than anxiety, that they weren't exempted, haven't won an exemption from the steel aluminum tariffs. What's your explanation to your Japanese counterparts about why that's the case, and what's the prospect for finding a solution to that really short term problem?

A/AS Thornton: Well what we've been talking to the Japanese about is that we want to have a bilateral trade deal and that we've got a lot of things that we've been working on for a long time again. We want to try to address some of these in short order and in a significant way. I think you heard the Minister say - well we're really still hoping the US will come into TPP. We are aware that that's their desire, and they're aware that it's our intention to address this in a bilateral way in a very short order. So I think on the steel tariffs this is something that we've been talking about, as the minister said. The problems with overcapacity, the problems with diversion, and other aspects of this problem that we've been trying to address through the Global Steel Forum. And the President's made clear to Prime Minister Abe that we've got to get at this problem once and for all and I have to do this, and this is just going to have to be the way it is until we find a solution.

Gerry Seib: If the Japanese strongly believe, as they seem to, that TPP is the answer on the trade front, and the Trump administration strongly believes, as it seems to, that a bilateral agreement is the way to proceed, how does that impasse get resolved? Is there an actual conversation about a bilateral trade agreement under way or is that still something that's out there in the future?

A/AS Thornton: Well I think we're working and we're making some progress on establishing the framework for the bilateral discussion. I think there are ways in which the problems in the bilateral fit into problems that would need to be addressed if we were going to join a bigger trade agreement down the line. So you can see how these things aren't mutually exclusive but certainly our intention is to try to build in this momentum on the bilateral front first.

Gerry Seib: I want to talk about North Korea in just a minute, and including in the Japanese context, but I want to go back and touch on one other aspect of the U.S.-Chinese competition, which is the military competition. We had a story in The Journal a couple of weeks ago about the Chinese starting to flash lasers at the pilots of American military aircraft in Africa, which is a pretty hostile action. And you combine that with a more obvious and more discussed problems in the South China Sea. And you have to ask yourself how aggressive are the Chinese on the security front right now and how big a problem is that and how dangerous is that situation?

A/AS Thornton: So one of the things that I heard several people talk about when I was in Beijing just the last few days is this program that came out CCTV called, “Li Hai Le, Wo de Guo,” - "Make China Great Again."

Gerry Seib: Clever title I'd say.

A/AS Thornton: Yeah. You know there is a feeling of a growing confidence in China, a feeling that you know they've arrived, that they aren't going to be pushed around. And I think you see that manifesting itself in some of the, certainly, their military modernization. They've put a lot more money into it in recent years. Obviously double-digit growth in the defense budget every year. They've really made, startling almost, gains. And the PLA is being reformed and made into a sort of a joint service kind of operation to be more efficient in kind of different roles of the Air Force, etc. And I think these are all areas of concern.

They've caused great concern down in the South China Sea where they're continuing to militarize islands in spite of pledges not to do so. We continue to express concerns about that and about other aspects of their military buildup. But, of course, I think it's also we have to recognize that a country that's the second largest economy in the world, that has a certain idea of itself, there is going to be a certain amount of military and other kinds of security expansion.

Gerry Seib: When you say to them, as I assume you do, that some of this stuff is dangerous. What's their response?

A/AS Thornton: Usually they want to have a conversation about that and they're quite serious about maintaining engagement, military-to-military engagement with us. They want to manage any kind of tensions. We've had good discussions in recent years about confidence building measures and coordination of sort of rules of the road to avoid accidents. We haven't had any of that kind of thing that we saw in earlier decades. I think that they've become a lot more cognizant of the potential dangers of a mishap. But that said, there continues to be a lot of concern, not just in the United States either. I would say in the region as a whole. There's a lot of concern about sort of the rising profile of the military and of a potential kind of arms race in this region.

Gerry Seib: So in the midst of all that, one of the areas where there is going to have to be cooperation is obviously North Korea. So let's talk about that for a minute, let’s start with what you heard in Beijing. What is the Chinese view right now of the coming conversation between President Trump and Kim Jong Un? Do they think this is moving in a direction that they're pleased about or are they a little uncomfortable that maybe they're being left out of the action all of a sudden?

A/AS Thornton: Well I would say that the Chinese are very supportive of the advent of this meeting in Singapore. They do realize that it's a historic opportunity to try to make a change in the dynamic on the Peninsula. They really want it to be successful. They wished us success with it. That said, I think they do feel that they have a very direct interest in the solution to the issues on the Korean Peninsula and they want to contribute. I don't think they feel like they're left out because we do coordinate, we consult with them very closely. They've had their own number of meetings now with Kim Jong Un. So I think that they want to be involved and they want to know what's going on. I [think] they are fairly comfortable at the moment.

Gerry Seib: So what is a reasonable expectation for the Singapore summit, what's a likely outcome? And it's the beginning of a process not the end of one, what follows after Singapore?

A/AS Thornton: Well obviously I mean you've heard the Secretary, you've the National Security Adviser, and the President. I mean we are very hopeful that Kim Jong Un represents some kind of a new face, some kind of a change, a willingness to make a strategic change in North Korea for its national situation. I think the Secretary, having met now with Kim Jong Un twice, feels that there is a prospect there. That Kim Jong Un is a different kind of leader, that he wants something different for his country. I think that augurs well for the prospect of success at the summit. Of course we're going to be putting a lot on the table. There's an expectation as he's already committed to complete denuclearization. And in his conversations with the South Koreans that there will be a big down payment, a big upfront demonstration of his intention, to do that. Not just words and statements but also actions. But I think there is a feeling that he does realize what that entails and that he is willing to at least entertain serious conversation and possible actions toward that end. And I think it will be the beginning of a process but we hope will be a kind of a front-loaded process. We will be able to get into some serious actions soon and then and then we'll see where that leads.

Gerry Seib: You know if you were to be a skeptic, and there are a lot of skeptics out there, you would say look - the North Koreans agreed in 1994 in the Agreed Framework to drop their nuclear program. They agreed in 2005 in the context of the Six Party talks to drop their nuclear program. We're in 2018 having a conversation about denuclearization why should anyone think that this is different than those previous episodes?

A/AS Thornton: Well there's a lot of skepticism out there. Not a small amount of it resides inside the State Department because a lot of us...

Gerry Seib: You've lived this!

A/AS Thornton: Have been working on North Korea for a long time have lived it. But I think there are a few things that are different this time. First of all we're dealing with Kim Jong Un, not his father or his grandfather. Most of us dealt with his father for a long period of time. He does seem to be a different kind of leader. He's very young so he presumably wants to be around for a long time and maybe wants to have some kind of different future for his country. He's lived outside of North Korea in the West so he knows what that looks like. He's aware of the differences between South Korea and North Korea. And he's feeling tremendous pressure. I think we have to take that into account for sure from the international kind of coalition that's put all this pressure through sanctions.

Gerry Seib: Is he also feeling internal pressure in the sense that there is a generational change? That there is a great, perhaps, a greater realization in North Korea of what the country doesn't have. Is that part of the calculus here?

A/AS Thornton: I think that's probably part of it. I mean certainly younger people and others in North Korea are getting more information from the outside coming in.

Gerry Seib: I mean they have cell phones coming in from China.

A/AS Thornton: Or they see soap operas from South Korea and so there's just a greater awareness of the differences, the disparities, I think.

Gerry Seib: You know in Japan there is a concern, I think it's pretty palpable right now, that the U.S. be aware this is not just about intercontinental ballistic missiles carrying nuclear warheads that can hit the U.S. There are threats in the region, there are threats to Japan, and in particular their short range missiles, there are medium range missiles, there are chemical weapons, there are biological weapons, that those things not be lost in the conversation. Can you assure the Japanese, have you assured the Japanese that those issues are going to be on the table as well as the uniquely American ones?

A/AS Thornton: I think we've been quite clear in what would denuclearization mean - which means all of these weapons of mass destruction that threaten the international community, that threaten the region - would be on the table. Certainly the international sanctions regime and the UN Security Council resolutions talk about not only the nuclear program, but also the missile programs and it’s any missile that uses ballistic technology of any range. So it's not limited to that. But the clear intention of the administration is to take care of the basket of problems covered by the UN Security Council resolutions. And chemical and biological weapons are also covered, of course.

Gerry Seib: And in that basket do you also find Japanese abductions?

A/AS Thornton: Well I think this President's been very clear with Prime Minister Abe that he's, you know, committed to raising this issue. I think what I would say is that there's certainly going to be prioritization on the first, in the first instance, on denuclearization because that's the goal that we've set. But all of these issues in the course of a discussion with North Korea would have to be on the table and have to eventually be addressed.

Gerry Seib: It seems that the potential disconnect in this conversation between President Trump and Kim Jong Un is conceivably the question of synchronization. Even if there's an agreement that denuclearization is something that the North Koreans can do and that economic rewards are the prize that they seek, that the Trump administration's view is we have to have denuclearization first then the economic rewards. And I think it's pretty clear already that the North Koreans are going to want to see this move forward in a more of a synchronized, incremental fashion. Is that possible or is there a potential fallout from that disconnect that stops this whole process?

A/AS Thornton: Well it's going to be very complicated and the devil's going to be in the details so getting into a specific kind of description of what might happen is going to be difficult. I think it's obvious that there will be multiple steps to any denuclearization. And one thing that's true about verification with inspectors - and everyone's talked about that this would have to be verified denuclearization - that the more effective verifications are the ones that last longer. A short verification doesn't get you very much verified. So I think the question is what could be front-loaded in a process that's inevitably going to go on for some time. Then what would be acceptable to the North Korean side in return for that front-loading, whatever it is. And so that's really what the conversations that we're going to be having between now and the summit and at the summit have to get at is - what is the exchange there? But I don't think economic sanctions lifting is the only thing on the table here because, of course what Kim Jong Un and other North Korean leaders going back have always talked about is the need for some kind of security assurances and other kinds of assurances, legitimacy, respect from the international community that kind of thing. So there may be other things that would also be valuable.

Gerry Seib: A formal end to the Korean War.

A/AS Thornton: Right.

Gerry Seib: Those things are all possible in this environment?

A/AS Thornton: We'll see! As the President likes to say.

Gerry Seib: He does like to say that.

A/AS Thornton: We hope so.

Gerry Seib: Is there a feeling in China, where you just were, that the conversations between Kim Jong Un and President Xi moved this ball forward? In other words they've had the conversation that is about to occur with President Trump, how do they evaluate the tenor of that conversation and the intention of the North Korean leader at this point.

A/AS Thornton: Well they have said that they also detect that there is a change on the part of the attitude of the leadership in North Korea with respect to denuclearization. They are hopeful that this can be a new opportunity to move forward. They haven't had, it was my sense, they haven't had a lot of detailed discussions of denuclearization with the North Korean regime, but they have certainly talked about their relationship, what kinds of desires the North Koreans would have in the process that would go forward with a number of different countries in the region, etc. So they seemed positive. They certainly seem to want to contribute. They think that the role they've played has been helpful. That they have always continued to say that they will abide by the UN Security Council resolutions. That they understand that those need to be continued, to be implemented, but that they hope that we can kind of turn a page here. And let the North Koreans know that there are incentives and other things that would make up the bright future for North Korea that the president talks about, that are out there, available in the context of this conversation.

Gerry Seib: Are you an optimist? I'm just going to open this up to question.

A/AS Thornton: I am very optimistic. Yeah I wouldn't be in this business if I wasn't an optimistic but yeah I feel...

Gerry Seib: But you spoke to a few minutes ago about the skepticism. You know it's very hard to sort it out at this point.

A/AS Thornton: Well I mean you have to be optimistic but I think it does feel a little bit different. We've seen the North Koreans, and I've dealt with them and they don't give things away without making you pay for them, usually up front and usually several times, and usually then you still don't get it in the end. And this does feel a little different.

Gerry Seib: A little like negotiating with the Iranians.

A/AS Thornton: Yeah yeah yeah yeah exactly.

Gerry Seib: Last chance for the day for some questions from the audience. If not there's plenty more to talk about that I have. Anybody want to jump in here? And I'm sorry having a hard time seeing is there a hand back there. There you go.

Sophie Richardson: Hi Susan, its Sophie Richardson, Human Rights Watch.

A/AS Thornton: Hi, How are you?

Sophie Richardson: I wanted to ask a question about an issue related to North Korea that really hasn't come up that strikes me as strange. It really didn't come up in the discussions with the ambassadors earlier today. Which is that I think we can all probably reasonably agree that North Korea has one of the most appalling human rights records in the world. And it's been, I think, very jarring to hear people talk about Kim Jong Un as if he has not presided over a regime that enforces collective punishment, torture, summary executions. And you know we're certainly aware that obviously denuclearization is a positive human rights step, but there is no discussion it seems now about things like whether there should be, for example, a referral to the International Criminal Court for crimes against humanity. So I'd like to hear you talk about where that issue fits in as we sort of hurdle toward Singapore. Thanks

A/AS Thornton: Well certainly, human rights in North Korea has been a focus of not just this administration but previous administrations. We had North Korea Human Rights Week last week. We've had numerous discussions with defectors and I think defectors even met with the President in the Oval Office earlier this year. There's a great awareness of all of the problems. I think for the purposes of approaching the current summit and the set of problems that we have on the table, the priority and the place where I think the international community and the UN Security Council resolutions with regard to the weapons programs in North Korea give us the greatest amount of pressuring coalition is on denuclearization. So I think all of the principals in the administration have talked about denuclearization, complete verifiable and irreversible denuclearization, as the goal but that all of the other issues would have to come up in the context of the discussion with the North Koreans over time as we progress through. If we get to denuclearization –great and then we will be raising a number of other issues. I mean they're the issues of chemical and biological weapons, there's the issue of cyberattacks. There's the issue of human rights, so I think, you know, Japan's abductees, there are also a number of detainees from other countries potentially, so there are a number of issues out there on the table. But we have to focus on denuclearization as the primary threat that's out there, that's destabilizing the region.

Gerry Seib: Are there questions? Let me let me jump in with one that I didn't get around to. For the benefit of the particularly the American companies represented here. You know if you look at the trade situation in Japan and you posit a future in which Japan is not just a part of, but the leader of, a TPP that does not include the U.S., and has a trade agreement with the EU, and does have a world in which there is not American membership in the TPP, why shouldn't American companies think that their access and position in this market, which is important to a lot of companies, isn't going to be jeopardized?

A/AS Thornton: Because we're going to take care of it.

Gerry Seib: That bilateral trade deal.

A/AS Thornton: We're going to have that bilateral trade deal, or we're going to have a trade deal.

Gerry Seib: Soon?

Susan Thornton: Yes, soon. Definitely. People are working very hard on that. I'm an optimist.

Gerry Seib: All right. I'm going to remember that you said you're an optimist and come to your office and knock on your door and say OK. Thank you. There's a great way to finish up the day I think. Thank you so much.