 We are grateful to the Center for Strategic and International Studies for allowing us to use its facilities and providing logistical support for this event. Thanks especially to Charles Freeman and Savina Rapani for their assistance. I also want to recognize in the audience a very good friend and the Chairman of the Miller Center's Governing Council, Jean Fife. Mr. Fife is Chairman of Walter Capital in Charlottesville, Virginia, formerly of Goldman Sachs. And as I mentioned, Chairman of our Governing Council, and we're delighted to have him with us here today. The Miller Center is especially indebted to Admiral Joe Preer. He conceived of this project and has led it in his role as the Miller Center's James R. Schlesinger Distinguished Professor. The attendees at the roundtable he convened were experts and colleagues from his highly decorated Korea, which includes Post as Commodant of the U.S. Naval Academy, Commander-in-Chief of the U.S. Pacific Command, and Ambassador to China from 1999 to 2001, not to mention his extensive corporate and charitable board service. Notably to our purpose today, 10 years ago this week, the then Ambassador Preer was a very busy man. As you may recall, the Hainan or EP-3 incident was a great test to the diplomatic relations between China and the U.S. on April 1st, 2001. The United States was deeply fortunate to have Ambassador Preer in its service. His unique military knowledge and superior diplomatic and negotiation skills averted an international crisis. The situation came to equitable resolution through his crafting and delivery of the Letter of Two Stories, which diffused the situation and led to the release of the U.S. crew from Chinese custody. The Miller Center and the University of Virginia community have benefited greatly from Admiral Preer's tenure with us. His great practical experience in military and diplomatic issues at the highest level is clear throughout this report, which is an especially fitting example of his many contributions and dedicated service and leadership throughout his career. And so we look forward to the discussion today, and let's let the discussions begin. With great thanks, I leave you with Admiral Preer. Well, thank you Governor Berlals on several counts. What you've got from his comments of the gist of the day and also the notion that for me personally it can only go downhill. So I'm a little embarrassed by all those comments, but as my mother would say, just listen to them. But we find our world today is really caught up in a lot of urgencies. The blistering winds of change coming off the Maghreb in the Middle East. The wars in which the U.S. is involved in Afghanistan and Iraq, NATO, the tragic natural disaster in Japan. All of these things have us very tied up and the consequences in Japan are of unknown consequences and unknown duration. But they are certainly going to be strong. However, it's notwithstanding all those things, it is critical that we look at the bilateral relationship between the United States and China, which is certainly going to be lasting and it's going to hold many challenges, but it also holds a vast number of opportunities for us. And as we look at this bilateral relationship and the rest of the things in the world, that is what we want to focus on today. With this relationship with China. There can be no really coherent, effective U.S. strategy in the world that does not account for the strengths and the weaknesses of China, the aims and the ambitions of China, and without accounting for those things, we cannot mitigate the dangers ahead or take advantages of many of the opportunities. But we need to get this right. And we won't get it right. It won't just happen on its own. It's going to take a lot of the efforts of a lot of people to work very hard to do so. And so that's what we did with our group. We tried to spend some time to figure out how are we going to get this right. As Governor Burlau has mentioned, this Friday, which happens to be April Fool's Day also, was 10 years ago the day that we had a collision between a Chinese F-7 aircraft and a US EP-3 aircraft that was on patrol on a surveillance aircraft in the Sea of Japan. Excuse me, the South China Sea. I'm thinking Japan again here. Yeah, unless you want to get into it in the Q&A, I don't really intend to talk about the insides and the guts of what went on in that transaction. But it was an event that occurred that created a situation that could have gone out of control between a frequently tense relationship between the US and China. But it did not. It came back into control, and it was something where the US and China relationship absorbed the lessons from that, and we moved along. Now, I said I wasn't going to say much about it, but I have to mention the efforts of Colin Powell here in Washington with the nascent Bush administration and the efforts of the country team in China were fairly magnificent during that period and helped it come up on the US side. On the Chinese side, there were many other people. The main negotiator was former Ambassador Zhou Wenjiang, who did such a fine job as well. But what we do want to do is use this event that happened 10 years ago, and the time goes very fast, as a springboard for our discussion. But before we launch into that, I would like to also pay tribute to a few people that are in the audience. One is Ambassador State Roy sitting here on the front row. I've learned he was born in China, grew up in China, was Ambassador to China, Indonesia, and other places and is one of the premier ambassadors in the US Foreign Service. Thank you for being here. You've taught us all a lot. Also, behind him, there are other notables, but I want to point out a few, is Dave Finkelstein from CNA. Dave has contributed a great deal to our thoughts on this and was a great leavener of some of the other opinions that we had. Thanks a lot, Dave. Thanks for being here. Then there are two other people that are here that I don't see very often. One is John Keefe, who is now sequestered at NSA. I think I can say that. I believe it's on the list that's here. But John was a special assistant in Beijing 10 years ago, and also Ford Hart, who is then a more junior Foreign Service officer, but one of the stars of the political section in the embassy there. I thank you all for coming and even more for helping get through those days. On our study group, there's a list in the program, but we did this on purpose tactically so that you wouldn't get to read the study before we talked about it. Someone pointed out earlier that gave us some freedom to say what we wanted if you hadn't read the study. But we had a group of people. We had to represent economic interests, political interests, business interests, and military. And in that regard, we had several people, one of whom was Jim Shin, who is now a professor at Princeton, but he's worked in several arenas, including business, including the intel arena, including defense, and he was a great participant. Tim Keating, a former sync pack, was with us during this time. Brantley Walmack, who is at the University of Virginia, is not here today, but he is a China specialist there. Mike Ducker, who Fred Smith from FedEx asked Mike to come. Mike is in charge of FedEx's international operations. And with him, he brought David Cunningham, who has worked FedEx in Asia and is the head of FedEx in Asia. And they represented the day-to-day business interests that we had. And on the podium with me, we have, on my immediate left, people that all of you know, Harry Harding, who is now the dean of the Baton School at UVA, was the dean of the Elliott School at George Washington for a long time and is one of the China scholars that is here with us today. Also, Mike Lampton, who is the dean of the faculty at SICE at John Hopkins University at the School for Advanced International Studies and was the head of the National Committee for U.S.-China Relations for a long time and is also a China scholar. And then on the end, Charles Freeman, a second-generation China scholar, who is here at USIS. And Charles also has either the advantage or the stigma of being a lawyer. And he brings an insight. His work at USTR not only knows China but knows the trade issues very well. You'll notice that I use scholar with all of these gentlemen. Governor Bilal's and his over-weening introduction to me never once used the word scholar. That was intentional, and that's good. Now, what Charles is going to talk about, part of our recommendations, basically one of the things is for the United States we need to get at skirts clean. Harry Harding is going to talk about looking at the Taiwan issue and then Mike is going to talk about the structure and the character of communications as we go forward with China. Now into the report. The report we did is not the result of a long think tank study. There are not huge appendices that are going to have reams and reams of data that we went through. Our objective was to collect and coalesce people who understood the issues and collect and coalesce thoughts about how we might move from where we are now to where we want to be in the future and to do that in a fairly quick amount of time which we did in a couple of days. We tried to reconcile most of the differences we had because we didn't all agree on every topic and then we wanted to present some practical actionable set of steps that various US entities could take. We think these are about right and more important we think they're not wrong. And so this is what we've tried to do. Since I have a sort of a simple military mind our process was to look at where are we now? What is our status now? Where do we want to be and how are we going to get there? And so that's everybody understand that all right? So that's what we did. And where we are now is fairly easy to determine. Where we want to go was a little more difficult and it led us to think of some terms that had to do with a stable, predictable relationship where both China and the US could understand each other's positions. It's a little fuzzy, not a lot of specificity there but it'll get fleshed out some later on. What we came up with was to look at a relationship that we described as a protracted negotiation. Now this is something that I think is important and I'm going to elaborate and belabor the point a little bit. It's important that as we get to that you understand this notion of protracted relationship or protracted negotiation in order to really fit our conclusions and recommendations into place. Protracted is easy to understand. This means it's going to last a long time. The US and China are going to have a relationship that is not only going to last for decades but it's going to last for generations. We need to look at it in that way. We're going to achieve some steady state and we're going to be there and then we can say that it's certain. It's got to be what in naval aviation you would call a working pass. It's not on cruise control you're having to work the whole time. That's the way the relationship with the United States and China will be. I think that both nations need to think of this as a commitment to a long-term relationship. Negotiation, that part, connotes several things that I'd like to elaborate. One is that we listen to each other. Remembering that listening is not just waiting for your turn to talk. As we listen to each other and then we are committed to try to find outcomes that we both agree with and that we can both accept. We need to understand our own the must-haves and the want-to-haves from the United States. If you've done negotiating these are things that will be somewhat obvious to you but they get lost in the shuffle frequently. The third part is each nation needs to understand the other nations the things they want to have out of a negotiation and the things they need to have out of the negotiation. It means that you are committed to a two-way discussion that has some ground rules to it. That you're going to have the talk you're going to persist with the dialogue. It has to do with thinking about communicating, understanding and then aspiring toward having trust which we all concluded was not one of the characteristics that you'd use to describe the relationship these days. You need to understand your own and the counterparty leverages that each nation has. And then this is an important point is to seek results that are not one-sided victories of each phase of the negotiation but rather they're results that attract both parties to come back to the table to negotiate the next event either anticipated or surprised that is certain to arise. And that's the seventh point. And then the last point I would like to make is that there needs to be a commitment to actually do things together. People talk about building habits of cooperation. It is important that we actually physically do things together it could be counter-piracy, it could be developmental work in a third-world nation, it could be building something together but actually do things together. And this is the only way that trust can be built in the long haul. This notion of an ongoing negotiation and a commitment to what is needed is what we think we need to move forward. Having our own entities of government, our own being the United States, our own entities of government, the military, the State Department, the political entities and our economic entities to get the notion that we are committed to this long-term negotiation is probably the most difficult part to get that going in our own country. So with that preamble, what I would like to do is turn it over to Charles to talk about skirts. Thank you. Thank you, sir. As Admiral Priar said, I think the primary reason I'm here is that I help provide these luxury accommodations. So thanks to Savina for helping to arrange all this. And as proof of the fact that no good deed goes unpunished, I've been assigned to the area that none of us has any credibility in, and that's talking about economic issues. And so anybody who knows me knows that that's never stopped me, so here I go. You know, the key thing here, the key is to focus on getting our domestic house in order, our economic house in order in particular. And, you know, that's for a couple of reasons, I think, and it has a couple of reasons in the U.S.-China dynamic that are important. First and foremost, China prizes stability above all else in international affairs, and for years has viewed the United States as the primary source of international instability because of our coercive abilities. And increasingly, and particularly in the wake of the crisis, believes that the United States is the greatest source of instability in coercive issues, in normative issues, and perhaps even in economic issues, and perhaps even in normative issues. So the United States has become a big worry for China, and to the extent that we are trying to develop some sort of cooperative relationship between us and the Chinese, having this constant source of worry, constant source of tension about where the United States is going to hamper the ability to have any kind of cooperation long-term. The second reason is that, you know, particularly in the wake of the crisis, and any of us that have spent significant time with Chinese in the last two years get into this conversation about whether the United States is in relative decline or is in absolute decline with respect to China. And that creates enormous problems in our bilateral conversations because to the extent that you just get into a conversation about whether China has arisen and the United States has fallen or whether the United States has fallen farther than we think or hasn't fallen as far as we think, that tends to handicap the ability to have any kind of conversation. In part because, and without trying to over-generalize, I think China does not have a habit of looking at common interests for common interest's sake. This is primarily an interest-focused country, and the concept of win-win is still very new. The term win-win was cobbled together by the WTO negotiators to sell WTO accession to a nervous Chinese public, and the word for win-win essentially means shuang yin, which means double vanquishment. We both kill each other. It doesn't necessarily have the same kind of construct in the U.S. thinking. So I think that when you're confronted with a country that is interest-focused and you're preaching common interests, it's really hard when the other side believes that you may have fallen relatively in terms of your economic and other power. That country begins to wonder whether or not its interests might be better served by not seeking common interests but actually finding alternatives to that. The fact that we haven't got our house in order, that our debts are too significant, that our fiscal house is not in order, that our trade deficit is where it is, and that our competitiveness is where it is, I think is a significant handicap on our ability to do the kinds of things that Emerald Prayer was suggesting at the outset. What do we need to do about that? I think there are wiser minds, certainly than mine, and ours up here that have already begun to focus on improving that, and there are those that point already to an improvement in U.S. production capacity and how production has gone up. But if you actually dig deeper, a lot of the recent uptick in production is in kind of final consumer goods and not in the kind of higher-end capital goods that would signal that we're really turning a corner where businesses are investing in long-term productive capacity in parts of the production chain that are higher up. And I do think there's got to be a focus and attention to achieving that. I'm not advocating industrial policy, but I do think that there has to be a recognition that we've got to get out of this, break the cycle of consumption as a primary driver of the U.S. economy. The Chinese, for years, whether or not they actually subscribed to the Washington Consensus, at least the notion of the Washington Consensus was something that could all be perceived by Chinese as being something that it's kind of the blueprint for a very sound model of economic development. In the wake of the crisis, whether or not there's a Beijing Consensus about a Chinese model, certainly the Beijing Consensus is that the Washington Consensus is dead. Where we go with that is a good question, but I do think that we need to begin to rebuild a domestic economic consensus about where we're going, and that's the only thing that's going to give us the credibility and otherwise to move out. A couple other comments about this. First of all, I think, particularly over the last few years, but it's been part of American culture for a long time, and we saw it with Japan in the trade context. We saw it back in the 1960s with Germany, those of us that follow these things, where there's a cultural victimization that anybody's success in economic terms must mean inherent unfairness, and China's success must necessarily mean that they've been playing not by the rules and that they're unfair and that we've somehow been victimized in all of this. You can point to any number of Chinese trade practices that are unfair. You can point to a domestic competitive environment in China that's gotten much more difficult. You can point to the lessening of attention to market forces to drive the Chinese economy. That's all fine, but that has nothing to do with what we do here at home. So I think part of our goal as Americans really needs to be to stop playing the victim and stop being so defensive and start being more proactive. Proactive is not a word, I know, active is a word. We should not be defensive. It's very hard if you are being so defensive in international affairs to have a constructive agenda, a visionary agenda. It's very hard to begin to project the kind of confidence that I think we need to have in order to project to the outside world that we are not in decline or we're not an absolute decline. And I think that that goes in terms of how we conduct our own domestic affairs, that goes in terms of how we conduct our trade affairs, not just with peripheral states to China as a means of defending against Chinese incursions there, economic incursions, but even with China. We need to find ways to be more outward-leaning, forward-leaning with the rest of the world. And that's something that's been in enormously short supply over the past few years and certainly predates the current administration. All that said, you know, China, the notion that we need to get our domestic, fiscal and economic house in order in order to have better relations in China may seem like the tail wagging the dog, and it certainly is. I mean, having better relations with China is not the reason, it's not even a small part of the reason we should get our house in order. But to the extent that we want to view China as somehow a competitive rival in economic terms, I don't think that's necessarily such a bad thing. To the extent that it spurs a focus on competitiveness. To the extent it spurs a return to liberalized trade agenda. Having some sort of economic rival isn't the worst of all possible worlds. And to the extent that we want to treat China as our sputnik in economic terms and begin to drive the kind of domestic policy changes, I don't think that's such a bad thing at all. In fact, we've always done well with competition, and so I think we should embrace it, stop playing the victims and move on. Thank you very much. I'm delighted to be here. Let me first just pay tribute to two of the organizations that have pulled this together and then pay a special tribute to Joe Prier. CSIS has for many decades now made enormous contributions to the understanding of foreign policy and international affairs in Washington. One of the projects that they worked on alongside the Peterson Institute that made a big impact on me was the so-called China Balance Sheet, the second volume of which I think Charles edited. That was an attempt to provide an objective summary of where China has come from, where it is today and where it's going. And that's just one example of the contributions that they've made to an understanding of China and to the U.S.-China relationship. The Miller Center of Public Affairs, of course, is our partner at the University of Virginia. We share a very deep interest in research on public policy. We are the degree-granting institution. They are the ones that do exactly this kind of work, pulling insightful people together to make very important recommendations to the policy community, the present administration, perhaps even the future administration. Joe Prier has connections with two important parts of my life. He was one of the Elliott School's most distinguished alumni, and both I and another member of the audience who was there as a graduate recall the commencement speech that he gave. One of the few that I actually remember and can actually give you the outline of what he said. I won't do it, but if you ask me nicely, I might do it later. And of course, I'm now very, very pleased that he is the Schlesinger Chair Holder at the Miller Center. There's no finer man and no finer public service than Joe Prier. It's difficult to be in this position because I'm already tempted to comment on the commentary that we've already heard. I won't. Let me, however, tell you how much I appreciate and endorse the first two conclusions that you've heard and then perhaps express a slight degree of difference from the third. First, you heard from Admiral Prier the idea of seeing the U.S.-China relationship as a protracted negotiation. When I first heard this idea from him, this time seemed to me to be totally obvious. I realized later, as I left our meeting, that it had just met the test, the harding test for a great idea, an idea that was completely obvious after you heard it, but you hadn't thought of it before. In other words, it just fit the reality in a way that was so completely natural, but it was something that, in fact, was new. I think it's new in two ways. First of all, as Joe has said, he is positing, he and his colleagues are positing, that we should not think of a determined end state in the U.S.-China relationship. Whether that is rivalry, whether it is adversary, whether it is ally, or even whether it is constructive strategic partnership, it's not going to be that simple. There is not going to be a fixed end state that we can say we have achieved or will achieve at a certain point in time. Nor is he arguing for some grand strategy with regard to China, whether it is the old and I think discredited strategies of the past, containment, isolation, or the ones that we have that have informed our policy over the last several decades, especially since 1989, engagement, integration, hedging. Again, he and his colleagues say to me, it's not that simple. We should instead see this as a process of a protracted negotiation in which there will be successes, there will be disappointments, but where we have to just stay the course and continue to work on putting aside differences, managing problems, achieving areas of common interest. The second conclusion that you've already heard Charles talk about is that the United States has to get its house in order. This is a conclusion that I also agree with completely and I also agree that China is not the only reason to do this. There are lots of reasons why we have to do better in terms of managing our economic competitiveness and dealing with what strike me is increasingly worrying dysfunctionalities in our governance system. I think that not only do I talk the talk on this, I walk the walk. It's why I'm now running a school of public policy instead of a school of international affairs because the issues that capture me now are the domestic problems of the United States very much, however, in an international context. The problems that come to us, the challenges from outside and the importance of getting our act together internally to address these problems. But what I've been asked to talk about is the recommendations and conclusions about Taiwan. And here, as I caution you and I hope Joe won't take offense, I'm going to have a slightly different view than he and his colleagues have expressed in this report. And I have to say that I may disappoint you. He and his colleagues call for a fresh look about Taiwan. I'm always in favor of fresh looks. I'm not sure that fresh looks necessarily lead always to fresh conclusions. Sometimes you look at something of fresh and you find that things haven't changed that much. And basically the recommendation is to stay the course. But let me try to summarize what I think the report is saying. I have to say that it is noted by its very cautious vagueness on some of the issues involving Taiwan. Although if you go into the back and look at the summaries of the individual discussion sessions, there are some quite specific ideas there that did not get included in the body of the report. But here's what I think that they are telling us. They are reminding us of the idea that this is the biggest risk to the U.S.-China relationship. This is the issue area in which, or over which the U.S.-China relationship could encounter a serious crisis up to and including the risk of war, or at least the use of armed force between the two countries. My own view is that, yes, this of course is a risk and we should never be blind to risks, even those that the professional risk analysts would call black swan or long tail risk. But I'd have to say that I am not that worried about the Taiwan risk today, either in the short term or the middle term. I am more worried about it over the long term, but I'm not sure that focusing on the question of armed sales as this report does is the most appropriate way to deal with that long-term risk. Let me be a little more specific. For the last several years, the two sides across the Taiwan Straits have, I think, gone a long way towards stabilizing their relationship. They've done this basically in two ways. They have defined their red lines and they've defined them in a way that the other side is highly unlikely to cross. Taiwan is basically saying our red line is an attempt to coerce us to accept unification on the mainland's terms. And the Chinese red line is a declaration, de jure declaration of independence by Taiwan. These are very clear, very appropriate red lines. There is a lot of space between them. It's unlikely that either side is going to cross the other's red line in the foreseeable future. At the same time, they are trying to expand that green area between the red lines by expanding their commercial, their political, and their social-cultural relationship. That adds greater stability as well. Over the middle term, of course, the next big event coming up on the horizon is the 2012 presidential elections in Taiwan. It's too early to forecast the outcome here. Obviously those on the mainland hope that Ma Yingzhou will run again and he'll be re-elected. We don't know whether that's going to happen. All we can say at this point is that the two candidates of the DPP, now that Annette Lusholian has withdrawn from the race, are very moderate and, I think, responsible people, Tsai Ing-Wen and Xu Tanchang. So the possibility that this election will be disruptive to the pattern of the relationship that is becoming more and more interdependent and stable I think is also a fairly small risk, although obviously as you go into the out years the risk somewhat increased. The long-term risk is basically produced by the contradiction between what I would say is a growing sense of shared national identity on Taiwan. Taiwan as being populated by people who see themselves as primarily Taiwanese and on the other hand the continuing desire of the People's Republic of China for the unification of Taiwan with the rest of China. That is a contradiction. And if the PRC were to attempt to compel Taiwan to accept unification on its terms against their will, then there would be exactly the kind of confrontation that Joe Priar and his colleagues are worried about. In dealing with that risk, he and his colleagues basically argue for various kinds of dialogue, bilateral, trilateral, official, track two. That was aimed at broadening the interaction and dealing with the question of arms sales, which they see as emblematic of this continuing risk. I think we already do have a fair amount of dialogue, track two trilateral has been very successful at certain times. We don't have official track one trilateral dialogue. That would be more tricky. There is growing, but there is growing bilateral dialogue among all parties and certainly the interaction is broadening among all of them in terms of adding the economic and political dimension. What concerns me is focusing on the intractable issue of arms sales. I begin with one I will simply state it as my conclusion. Arm sales are not the problem. Arm sales do not reflect American support for the independence of Taiwan or for a unilateral declaration of independence of Taiwan. If the leaders of the People's Republic of China think that as the case, they are very simply mistaken. They are a symbol of a continuing American commitment that our goal should be that the people of Taiwan should be able to determine their future without being subjected to coercion or force, but that that ultimate conclusion be mutually agreeable to both sides. I think that even if you were to say that arms sales are more of the issue than I think, we then come up against another problem. And that is that arms sales to Taiwan have only one purpose. The armed forces of Taiwan are aimed solely at securing Taiwan, whereas the military modernization of both the Chinese armed forces and for that matter, the American armed forces have many purposes. Therefore, having a negotiation where there would be some kind of reduction of forces on both sides or an agreement by the United States not to sell arms to Taiwan in exchange for certain force redeployments or reduction of forces will be very, very difficult to credibly achieve. I think that the key issue is finding a formula for a peaceful solution to the Taiwan issue. And as I've already indicated, that is going to be frankly quite difficult. The Chinese would like to see the model used for Hong Kong, the idea of Taiwan becoming a special administrative region of China, as the model for Taiwan as well, with some variation. Making a long story short, the future evolution of that model is not yet clear, but I say with some confidence that I have some doubts, so maybe that's not entire confidence, but I have doubts as to how attractive that model is going to be to the people of Taiwan if they are asked what is your choice. At the same time, what Taiwan wants at most would be a very loosely defined confederal model that is either loose or even notional unification is at this point not likely to be acceptable to the people's Republic of China for a variety of reasons. Therefore coming to a mutually agreed political resolution is going to be difficult, but that is going to be the key. Hopefully we can push this off through various ad hoc or interim arrangements, but I would simply say that while I agree on the need for negotiation, for discussion, for building cross traits relationships, my sense is that we can try to manage the arms sales issue. To see this as the crux of the problem is basically to see confuse a symptom of a deeper issue for that deeper problem itself. Well, thank you very much Joe for having me participate in this program and assembling such a good audience from which I expect good questions. We were noting various people that should be acknowledged here, and I note you hold the James Schlesinger Distinguished Professorship and I was hoping maybe Jim would be with us. He's contributed an enormous amount to the U.S.-China relationship throughout his career and I didn't want to acknowledge that 35 years ago he was in China I believe at the time of Mao's death and in fact saw the beginning the very beginning of this new era that we're trying to figure out how to manage so I wanted to think of him on this 35th anniversary in effect. I've been asked to talk about the atone and texture of communication which is a kind of residual category that covers about three of the recommendations here. We're going to start with a disclaimer and that is I don't believe better communications solve all problems. I think they help manage problems and I'm all for it but we do have different interests, different values and that's you can only talk about it so much and then there's an irreducible core and I think we have to recognize that. I wanted to say also that not only does it not solve everything but it's also very dependent on the context and I wanted to talk briefly about two things that have already been mentioned before I talk about how we might try to communicate more effectively with China. In terms of the context, first of all I really like the idea of protracted negotiation because I think it gets us in the right framework right frame of mind for communications. First of all protracted negotiations I guess what political scientists would call a continuous game. That means there are some games that are just short term what you see is what you get and then the relationship is sort of over but there is no end to what China and the United States need out of each other that we can foresee now, that we know now and that will certainly evolve out of the situation as we move forward. Not only have to value the immediate outcomes of the relationship but all the future things you might gain or lose from that negotiation. I think it puts us into a notion that there is a continuous game here and we both have a lot to lose not only in the present but in the unknowable and unforeseeable future. Also I like the idea of negotiation because it starts with the presumption that the other guy would have a legitimate set of interests at stake. It also presumes there is a certain basic equality in the relationship. I think this idea of protracted negotiation has a lot to recommend it. The second context for effective communication not just with China but for anybody is certainly I have been writing a book and I have been looking back on my interviews over the years about 500 at this point. And early in the relationship particularly with China I was struck by the degree to which the United States was a model of good governance even if it was very different from China. They admired the way a very diverse heterogeneous population could manage its affairs in a fairly stable way. A decent respect for the opinions of others. As I get closer to the present I don't see that same admiration not because they don't admire the values but they don't see it so much expressed in our society. So this clean up your own economic mass I think is a little bigger problem than just the economics. We have to be a well think living in the situation we're living we quite cast it that way. Now of course we've always had problems and I'm not trying to romanticize the past but I was struck early in this relationship for the first 10-15 years how important that was and how much China wanted to learn from our basic capacity for good governance. I guess that's all a long winded way by saying I think a very productive context to create for our protracted negotiation with China is we will carry a lot more moral authority if we're running our societies I think we all in our own ways think it should be run. So you got to think about the context and I think the report deals a lot with that. Now more particularly just in terms of had about four thoughts on the how we might be a little more effective and I realize buried behind these sort of general statements are a lot of things to talk about but I think first of all I'm struck by how often I hear in the United States you know the Chinese government isn't legitimate it's pretty hard to have a productive conversation with somebody if you're starting from the premise their government isn't legitimate. Now I think that calls for some modulation but I'm kind of interested in the pupils that show optimism or is our government on the right track long track. Anyway those polls are quite interesting and what the Chinese people I'm not sure we quite understand how the Chinese look at the legitimacy of their own government but I have the sneaking suspicion with all its flaws, warts and so forth this may be more legitimate in the eyes of the Chinese people than we somehow think. So I think we've got to start from the premise we are dealing with a legitimate government in the eyes of its own people there are divergences with the government and its people in some respects certainly there are a lot of shared interests that both the elite and its people have when they're negotiating certainly with us. A second thing I think that we've got to send in our message is that there are a lot of what you might call positive some outcomes there are a lot of issues in which unless we do cooperate we're both going to be worse off and whatever else we are at this and rationalist and I think the we meaning us and China so we ought to I think I don't want to sound like the Chinese slot phrase reserve differences and focus on common interests but actually I don't think that's such a bad idea quite frankly thirdly I think in terms of who we're communicating with I was quite quite I'm quite struck when President of the United States goes to China now You know, he goes to the capital, he may go to Shanghai. But we get relatively little exposure to the big hinterland of China. And I think we have to make it a more effective communication with the interior of China. I was struck, Hu Jintao went to Chicago when he came here, but that was really the exception that proves the focus on Washington. I think we have to begin to try to communicate with the two societies and their geographic and sort of cultural and economic diversity. And I think this can take a number of ways, but I'll just spend some time with a congressman in China. And I've been struck by the degree to which when congressmen have Chinese investments in their districts or their states, there's suddenly a lot more understanding of the merits of productive relations with China. And I guess that's an obvious point. We need to be more self-conscious in trying to build relations outside the Belt Way in all of its complexity. And I think, in other words, we need more communications outside the framework of the two national governments at the highest level. And finally, I think in terms of communication, and it's a nuance because I'm all in favor of improving our relations with India and Vietnam and to the degree that in the last administration in South Korea, we have somewhat better relations now, have no problem with that. But how do we frame that? I want good relations with China's periphery because it's in the interests of the United States economically, maintaining stability in the region. But sometimes we want to put a little fill-up on these relations that somehow they're part of a hedging strategy. In other words, we're building relations with East Asia, including China's periphery because it's in our interests comprehensively defined, not just as a strategic point of leverage on the PRC. So I think if we created the context that I think would be productive and kept some of these points in mind, we'd probably have a more productive relationship or at least more productive protracted negotiation. Thank you. Thank you very much, Mike. I'm going to quickly recap. And then our five-minute pitches each ran over a little bit. And we'll have some time for Q's and A's. First, a point I'd like to make for all of you is in the report, read President Nixon's comments in 1972 when he went to China. And read those comments because they could have been written yesterday. They are still, they're very thoughtful, very good, and they're prescient indeed. One of the points that Harry made is that in the report, if it focused on Taiwan arm sales, that was not the intent. The intent was to have the discussion of Taiwan move from being induced by arms sales to tend to be a military discussion to move it to where the solutions might possibly lie in the political arena. And not so much on the arms sales issues, which is one of the scabs, it's one of the raw points in this discussion. But the emphasis was to try to move the discussion more into the political arena where the solutions might lie. The legitimacy point that Mike brought up and the legitimacy of the party is they've delivered the economic goods in China. As long as they continue to deliver them, I think that it's certainly legitimate government to the Chinese, at least that's mostly what we see. And then further moving into the last point, a little bit of the two, is the United States is a, if you look at our seminal documents, is a country of values. And we not only try to, we're supposed to try to practice our values, as well as we think exporting our values is also useful. And as Mike pointed out, and also Charles pointed out in the issue of getting not only our economic house in order, but our government's house in order, is we need to practice our own values and be very careful to do that. And then I think getting our own ship sales trend again is the sign of quinone for not moving ahead just with China. That's not the only issue. It's with the other nations in the world and for ourselves as well. So we thank you for your attention. I now will open the floor for questions. We are at the time we said we would stop. But I think if we can take about 15 more minutes and then we'll take questions and hopefully some answers if you have. We'll see. We hope the one doesn't exceed the other. Yes. Yes. Hi. We'll wait for a microphone here. Thank you. Hi, my name is Ben Hancock. I write for Inside US Trade. And I have a question I think for Mr. Freeman since you addressed the economic issues here. I wanted to mention in the report you talk about the need, I guess the entire report talks about the need to increase Chinese FDI in the United States. And I wondered if you could elaborate a little bit more about how we do that. And also you talk about dealing with companies only that are in compliance with the WTO. And if you could please talk about what that means and also how we do that. Thank you. Well, as far as FDI goes, you have begun to see increased FDI from Chinese companies into the states. You have some sort of had the classic, the high R in South Carolina and so forth. But you've had a few steps which have been kind of signature missteps by Chinese companies that have fallen afoul of the CFIUS process and the like. In recent years, some companies, Chinese companies, including CINUC, has had a much more successful time investing in the states. And the original CINUC transaction that garnered so much attention through the CFIUS process was one small order of magnitude of the recent deal that was done by CINUC on Chesapeake Energy. So you're starting to see increasing Chinese not just interest in investing here, but sophistication. That said, if you actually speak to not just state on enterprise officials, but private companies in China that are enormously sophisticated in their markets and beginning to be more sophisticated in external markets, their level of understanding about what this marketplace means and how to actually invest in this marketplace is about that thin. I don't know if it's our responsibility to educate Chinese companies about how to invest in the United States, but to the extent that we want to attract capital and we are open for investment. I think it's an awfully good undertaking, an awfully worthwhile undertaking. So I do think that it's something that I hope there is more attention paid to in both track 1 and track 2 exercises is finding ways to get the Chinese to be more invested here. And I think we're heading that direction. It's taken a lot longer than I would have thought to get there, but we're heading that direction. As far as dealing with WTO-compliant companies, yeah, it's hard to get a WTO-compliant company unless you get a WTO ruling that stamps on them that says you're WTO-compliant. The key thing, I think, though, is particularly for us, to the extent that we're going to tell the American people, hey, we're going to keep our markets open for business. We believe in the WTO principles of openness and fairness and all the rest of it. A key point is our long-term economic future is inherently tied to our ability to produce and protect technology and the intellectual property inherent therein. To the extent that we are working with Chinese companies and I think we should be using not just the bully pulpit, but whatever means necessary to ensure that those companies are doing their utmost to protect intellectual property, not just in our marketplace, but wherever they operate. Thanks. Thank you. My name is Spin Roo, it's Dory Times. My question is regarding to the protracted negotiation, so which aspects of Obama administration's China policy should receive special attention to implement the idea of protracted negotiation and what do you see as possible flashpoints in the future that would harm the circumstance of protracted negotiation? Thank you. Issue area, could we work with China? There would be an illustration of the protracted negotiation of work is the way I understood it. What are the flashpoints that disrupt the process? I think... You defer to our view. What we have in mind is a network of negotiations. There would be some business negotiations. Mostly we are talking here about the political negotiations and I'm particularly sensitive to every time we have friction, we stop military to military operations or discussion or contact. And it's a switch that we just turn on and off because the military people on both sides will do what they're told. And so that switch gets turned off and then it drifts backwards the relationship or the discussions between the PLA and the US military degrade and then they have to start up all over again. That's one example of how we are not committed to a protracted negotiation. And my thought is, there may be some things that would be big enough where we would do that but usually they're not. They're just... In China does the same thing. There will be an affront in one area and things will be shut down in another area. So what we're looking for is a commitment and a couple of examples of the strategic economic dialogue. I happen to think that you can quarrel about the name of it and whether that represents what goes on or not and there are also the defense consultative talks that are things that did not exist 10 years ago that do exist now but they get shut on and off a little bit too. But that is the type of thing where we should be committed to annually listen to each other, listen to the problems and continue to work forward. Think flash points. You know, the example we use today of a collision, if there were a collision between a US and a British aircraft, our discussion would be one over, boy we've had a terrible tragedy, how do we avoid this in the future? You know, that would not be whose fault finding is not a part of it except to how to avoid it in the future. And so fault finding does not yield answers usually to relationships. So the idea being if a small issues and we start to work together to, and these words are, you know, I don't particularly like them. I've grown up with fairly concrete things but the idea of, you know, the point you can communicate and communicate there are some core things but to get to a level of understanding what the hard points are for the other side are important and then elusive is trust. But the point is in the end game to really get a relationship that is beneficial to both of us, there needs to be trust in the relationship. I know Chinese people and people in our country have relationships where they trust each other and they do quite well together. Our governments are, it's more elusive for them. Eric, we'll work our way around. Eric and Vaden, the Institute of Foreign Policy Analysis. Joe following up on what you just said about the relationship. I'd like to address the question to Mike though with respect to communications. How do you think we did after the disruptions of 2010? I'm talking about the arms sales, South China Sea, the EEZ, North Korean provocations and what followed from that. And our understanding and attempting to reverse that disruption in light of what you described what kind of grade would you give us? Well, I'm not sure we're through the period but hopeful that we're through the period. So I guess that's the first thing I would say. I would say from my money the most worrisome thing was the North Korea set of engagements, the Cheonan ship incident in March and then the Shaolin and so forth. And I think we were pretty effective in conveying, I've been to China and talked to people, my sense is we were pretty effective in conveying just how damaging their responses to North Korean behavior was to the US-China relationship. And I think towards the end of this period it's my sense that the Chinese have at least tried to exert some restraint on the North Koreans and it appears that at least for the moment that's had some effect. So I think we were pretty good on that. I guess I'd look at the whole sequence with respect to the Dalai Lama and the arms sales. I'd go back to the first year as well as the second. And I'm not saying this to be critical of the administration because I probably would have been sympathetic with what they were doing the first year but trying to analyze what went wrong. I think that's where I said communications doesn't always solve the problem. And the fact was, I think the fact is that the President was gonna have to meet with the Dalai Lama politically. I think that was inevitable. And I don't even have a problem with it. And President Bush had approved the weapons sales package and those were going to be sold or at least be made available for sale. They were going to happen. And I think by postponing inevitable decisions we created a wrong set of expectations in Beijing. And then we had to deal with the fallout of creating the wrong expectations. So in this protracted negotiation I think there are lessons for both sides in this. And so I guess in retrospect probably the better part of wisdom would have been I understood President Obama wanted to go. He wanted to create a good environment for his trip. All understandable. But if he pushed off these inevitable decisions the Chinese ask him to his face not to do it and he comes back and does it. That's the way it looks to Beijing and so forth. I think we'd been better off just to stick with the inevitable on schedule to begin with in retrospect. So sometimes good communications is explaining why you're doing what you're doing and why you have to do it and you're not, you know, there are some things we can negotiate and there are some things that are harder to negotiate. So that's sort of my thought there. But on the North Korea thing I think China hasn't been as responsive as we'd like and lots to be said about the North Korea thing. But I think in the end with the Yellow Sea exercises and so on I detected the Chinese at least put their hand on the scales in a useful way. If somebody wants to disabuse me of that I'm glad to be educated. Eric, would you like to? Oh. First of all I think that Eric has raised an important point in turning our attention to Korea. We always see Taiwan as a major potential flashpoint. I think Korea is a place where we've gone to war before and without again exaggerating the chances of conflict I see very little advanced discussion of what would happen if the North Korean regime were suddenly to collapse and one can spin out some scenarios that would not be pleasant and might be difficult to manage. Having said that, my own view of what happened last year is that it shows the relationship between the United States and China is for various reasons far more resilient than many people thought. What that means is that while you can say well maybe one side shouldn't have done this or the other side shouldn't have done that and that each of these statements or actions were sort of provocative, they were shocks to the relationship. The relationship survived in the same way that it survived the EP3 incident 10 years ago and I would argue the relationship is more resilient today than it was then. So I think that what we mean by a resilient relationship is that when things go wrong the relationship gets through it. It may shake a little bit, there may be concern but I think that to me the key fact of 2010 is what did not happen as much as what did. Let's go for one in the back. To what extent could U.S.-China relations be defined as a state of détente? And is this microphone on? And for recent example, their abstention in UNRES 1973, the I guess peninsula conflict of last year, the two statements that were sent by our Secretary of State in 2001, is it a state of stasis or is there some level of progress that we can cite in our relationship, our more recent relationship with the PRC? Well, I wanna, by way of answering your questions, second what Harry had to say in terms of a resilient relationship. I mean, in the sense we got through 2009, 2010 and we are where we are. But I wanted to key in on your word détente and I remember back to the Cold War and of course that was when Kissinger was negotiating strategically with the Soviet Union as I would have understood the term détente means to gradually take the spring-loaded mechanism of a hammer on a gun and let it down without discharging the weapon. China and the United States are not in a relationship that you would primarily characterize as two loaded guns aimed one at the other. Of course, underneath it, we have a strategic relationship that doesn't make that concept totally inapplicable but I think it is basically not an applicable concept. We have so many more common interests that with China than we ever had. I mean, just financial interdependence, China's importation of food, China's reliance on us as an export market. The number of people that we have in each other's institutions of higher education in society, resident in each country, I mean, I don't think détente is even the relevant concept. I think we're talking about where we have some conflicts of interest trying to work them through but there, so I don't think this is even to be conceived in the same sort of conceptual map as our relationship with the Soviet Union. And in the end, we are building a relationship with China. The other thing is we didn't have a relationship with the Soviet people. We had a relationship such as it was between two governments and now, whatever you want to say, we've got a relationship increasingly between two societies and I'm just arguing we ought to build that at the lower levels even more intensely and more broad-based than we have. But, so I think détente, just as a concept gets you just thinking about this in absolutely non-productive ways. Charles, just a quick, your question about whether there's been progress or whether there's been a stasis, I think it's very important. The challenge that we have with China is not stasis. The challenge that we have is this is an intensely dynamic society that is constantly evolving with which we are constantly having to adapt our relationship. So just treading water in this kind of environment is progress, to be honest, because we could be swamped. John Zand with CTI TV of Taiwan Admiral, have a question with regards to Taiwan. You said that the purpose of the recommendation was not intended for a, was it a call for any termination of arms sales? Probably not. You were basically advocating moving the tri-lateral dialogue from the military arena to political context. But you were not only a part of the solution to the EP3 incident, you were also part of the solution to the Taiwan Strait crisis. The military balance across the Strait has really seen a sea change since the Taiwan Strait crisis. How would you conduct political discussions without resolving or any means to resolve the military imbalance? And how do you see the military, how do you address the military imbalance issue? Thank you. The, this is a, I'm glad I'm not in uniform right now to talk about this. The, I think very much the Taiwan arms sales and the arms that, I see this as sort of a vid of a vicious circle, where by the president of the Taiwanese people, in order to satisfy his constituencies, needs to ask for arms sales. Needs, needs to do that. I mean that, that has to happen. And then that request comes to the United States and holding to the Taiwan Relations Act of 1979, that request comes to the United States and the United States because of our domestic political situation, there is a seeming need, there is a need for our government, our president to respond favorably to that in some way. When that occurs, not the actual sales but the approval of sales which seldom actually come to pass, the government in China has to be outraged that these arms sales are occurring. And so we have this, we have this triangle that is somehow, in the arms sales, I happen to agree with what Harry said is the arms sales are usually not enough for Taiwan to defend itself against China, should China decide to do something? They're not enough, we don't, there isn't enough to do that. So what they are is a proxy for US commitment to Taiwan in that sense. And that's, I thought you diverged from that for a second and then you came back to that thought. But they're a proxy for a commitment. So that, what we are trying to say is that we, and then that ends up militarizing the discussion. It ends up being a weapons type of discussion. Missiles in Fuken province pointed at Taiwan, you know, seventh fleet actions, things like that. It becomes a militarized discussion. And these solutions to this issue do not lie in the military arena, they are political, it's a political issue. But the other thing we say is to back off of what is going on now is something in, I'll speak for myself and maybe a couple of members of the panel, one should do with great trepidation because, you know, you don't want to upset the apple cart. You know, even though it's moving, I would say, in a generally positive direction now. And we don't want to upset that. So to change what we're doing right now would be something we do with very great trepidation. However, to reexamine for all around and to break that cycle I described is an important thing. The other thing we talk about is, my opinion is, is the mainland Chinese have the best opportunity. The PRC has the best opportunity to break that cycle. But this paper isn't about trying to get the Chinese to do a thing that's about what we can do. How about that? OK? Thank you very much. In this report I saw that you have listed some issues that would be kind of items for these protective negotiations and you call them U.S. ones and you call them China ones. And on both of those lists you have the nuclear issue. So I, or nuclear dialogue, so I would like to know your opinion on the possibility of engaging China in the near future and distribution of arms, limitation of production? There has been extensive effort on the part of Secretary Gates in our government to try to engage China in these talks. And with some resistance on the part of the Chinese, I mean a fair amount, there's been what I would call glacial progress has occurred. And so I think China, as a major player in the world, should have a seat in discussing these issues. I think a lot of people think that. But if there is more progress along that line that someone else may know of, I don't think there is much progress along that line right now. So anyone else want to add in? Can you say a word on that? Yeah. I guess just as long as we're talking sort of strategic level and not just limited to nuclear, but of course there are concerns in the anti-ballistic missile area and space weapons and so forth that I would like to see us talking more about. We've begun that. But at a very, I think, everything I've heard superficial level or just the introductory level. The area I'm most worried about and I think it's going to actually make the complexity of the strategic arms limitation talks that we had with the Soviets actually appear rather intellectually simple as the whole cyber area because our societies are becoming so dependent on these systems. And yet with nuclear missiles, you had a sender and you had an address. In cyber world, you don't quite know who, even if it's coming from that society, who is the originator of it. Is it authorized or not by the command authority? Even the national address may be subject to some uncertainty and so forth. So I think we've got a whole set of things that bear on the strategic relationship, anti-ballistic missiles, space sensing systems, cyber, that makes the strategic safety of our two countries. I'm trying to exaggerate problematic, but our problems and how we are going to construct useful, meaningful, verifiable, enforceable regimes in these areas. I don't want to say nuclear weapons are sort of passé. That's not my implication. But I think they're relatively manageable compared to some of these other areas that are between us. Just really quickly, I'm just saying a plug for the home team. The person that you really should be talking about nuclear issues with respect to China is sitting two away from the right. And that's Bonnie Glazer. And I strongly encourage you to speak to her. All right. The clock minder is starting to tap and shake her watch. So we have one more question if there is one, and then we will stop. In the back, I'm sorry. Thank you. Timothy Walton with Delix Consulting Studies and Analysis. Does it work now? You'd spoken about taking a fresh look at the arms sales in Taiwan. What does that fresh look more or less entail? Don't want to put you on the spot, but does it bring entail bringing more stability and predictability to the sales, telling the Chinese, we will conduct sales. This is how we're going to do them. Can we please continue with our 62 other dialogues and not have them cut off? Or what other specific mechanisms are you proposing? I'm going to have to reread the report here. I don't know that we said take a fresh look at the arms sales for Taiwan. I thought we said take a fresh look at Taiwan, page 10. Take a fresh look at Taiwan is the phrase the other one. Yeah. So everybody is cramming this into arms sales. And that's not where we want to take a, the point was to take a look at the Taiwan issues. Is it stalemated? Is what we're doing right? Or should we keep on going with what we're doing from a United States point of view? Or should there be something else? Is there some way the United States could create a more positive environment for a peaceful resolution between the mainland and Taiwan? That was the point. Not necessarily a fresh look at Taiwan arms sales. Thank you all very much for coming. We've enjoyed having you. Thank you.