President’s Export Council Teleconference Meeting

August 19, 2004

1:00 p.m. EST

J.W. Marriott Good afternoon. As you can see by our agenda, we have much to review. The first two items deal with the follow-up to our trip to China, then we will discuss the Corporate Stewardship report Ray Gilmartin and his subcommittee has been working hard on for the past year.

Before we begin, I would like to emphasize this is considered an official meeting, therefore this teleconference is being recorded for the purposes of transcription.

A common theme in the Export Council’s discussions over the past year and a half has been China. As business leaders we see both the promise and problems associated with the world’s most populous nation. In June, 11 members of this Council traveled to China on a fact-finding trip. Thanks to Secretary Evans, we were able to have unprecedented access to China’s political and business leaders and have honest dialogues.

We were able to have discussion at the highest levels, with Premier Wen, two Vice Premiers, the Minister of Commerce and the Mayor of Shanghai, in addition to various business leaders. Imagine the equivalent – a group of Chinese business leaders touring the United States, meeting with the President, Vice President, Secretary of Commerce and the Mayor of New York. This access was unprecedented for business leaders.

Upon our return, the members who went on the trip consolidated their thoughts and reactions to these meetings in an official report. Most of us have traveled to China on business and have talked with business leaders there, but this trip gave us a truly unique perspective. The purpose of this report is to convey our thoughts on our experience to the President.

In a meeting with Vice Premier Wu Yi, she noted that China's overall trade was roughly in balance and US imports to China accounted for only 8.2 percent of the total Chinese imports (China's figures). The Vice Premier asked us, "why" and asked for our input.

Interaction such as that is why China is an urgent matter. I feel in hearing from business, not just Administration officials, we were able to capture their attention on this urgent matter and because of this urgency, I feel our report should not wait until our September 29^th meeting.

Joining us today is Grant Aldonas, Under Secretary for International Trade and Executive Director of the Council. He joined us in Beijing and will be returning to China early next month.

Grant, would you please offer us your comments on the trip and whatever effect you think it will have on the continuing dialogue between China and the United States?

Grant Aldonas Thank you very much, Bill. First, what I want to do is just make sure that I thank all of the members who are on today, as well as, I know we have public and press and other government officials. I want to particularly thank Bill, Jim Morgan and Ray Gilmartin for their roles in preparing the documents that we’re going to discuss today.

I want to particularly highlight, although the bulk of my comments are going to be about the trip to China, Bill, as you suggested, I have looked through what Ray and his team have produced on corporate stewardship and it really looks terrific. I’m trying to figure out already how we can try and leverage that globally, because it creates a terrific paradigm for not only what American companies do, and so it’s good reflection of American corporate stewardship, but also it really holds up some models of success about the directions we have to go (noise on line)… So I would value not only the report, but thoughts about how we could make that more broadly available through our offices worldwide and start to use that as a bit of a paradigm to work off of.

The second thing, on China, I have to, first of all, thank everybody who had the opportunity to make the trip, and certainly for Bill and Jim’s leadership of the pack. I thought everybody - the teamwork was obvious. Everybody did a great job in terms of the presentations to the Chinese officials. We have heard great things back from the Chinese officials about the value of the trip. It certainly was very helpful in reinforcing the messages we’ve been trying to carry forward over the last two years with the Chinese on WTL implementation, certainly on the importance of intellectual property rights in terms of the ability for us to gain access to their market, as well as for their ability to play in our market.

It also highlighted, I thought, very usefully, the discussions that we have been having with the Chinese and will continue to have about the most effective way to encourage small businesses to become a part of not only our supply chains to pull them through into the Chinese market, but also to export directly. Coming out of the session, we’ve agreed to start working with the Chinese on that latter topic as early as September when I’ll be going back to Beijing and Shanghai to follow up on the PEC trip.

A couple of things along those lines: One is, in both the report and the homework assignment from Madame Wu Yi. I think that’s going to be enormously helpful to show that we’re being responsive to their concerns. The fact that your experience has largely confirmed the points that you made to the President in your earlier letter on China is helpful to us.

I know the Chinese felt that it was important to have the American business community represented, and they were impressed by the sincerity of the companies who were speaking, really, on behalf of American business as a whole. Certainly it encouraged a greater degree of openness than I think the Chinese are used to, but in an enormously helpful way.

What I plan on doing with the reports, at Don’s suggestion, is going through the specifics with the Chinese when I’m there in September. That’s one of the reasons, Bill, that I welcome the fact that we’re having the call today so that, in advance of your next face-to-face meeting, I have a chance to put some of this in my pocket and take it with me and really go through the particulars.

I’ll also say, just to comment on the small business, and particularly from the point of women-owned and minority businesses, one of the remarkable changes in American business over the last two decades has been the extent to which minority and women-owned businesses have become a large share of the individual operator of small businesses in the country. It’s one of the things that is of most concern to me that we not lose, as we’re facing the global competition.

One of the things that we have been working on ourselves, that I would like to discuss with the PEC at its next meeting, is our own checklist of things that we need to be doing to improve the delivery of government services to that community and make sure they do have access to growing markets like China and can grow with them.

One of the interesting things I’ll say is that, increasingly, they have to look at the ability of small businesses not only to export, but also to invest to go with their customers to extend their services around the world, and that’s one of the challenges I think we’re all going to have to think hard about and face going forward.

On the whole, the trip was extremely valuable. Looking at the reports that have been drafted, Jim, they look terrific. If there was one point I would make with respect to coming back to Wu Yi, it really is to reinforce the point that is a subtlety that is often lost in our discussions on IPR with the Chinese. They say they want our goods in their market. The number of times that we hear from exporters about a lack of interest in China because of the fear of losing their intellectual property is a point I’d like to drive home, and certainly was consistent with the message that the PEC was bringing there.

There are a couple of points in the response to Wu Yi where I think it might be useful to highlight that intellectual property isn’t just them pirating the technology and putting it out in the market in a way that injures the interest of American companies; it is that it’s actually, in many instances, a prohibitive export barrier as well.

Beyond that, Bill, looking forward to the comments on the discussions today and then certainly follow up with the PEC as we go forward.

Marriott Thanks very much, Grant. The group that went to China represented the council as a whole, not any particular sub-committee, and as Vice Chairman of the council Jim Morgan acts as an ex-Officio member of all of the sub-committees and we felt that he would be the perfect person to take the lead on preparing the report.

Jim, the members have received the report to review, but can you brief the members on the report and give us some of your thoughts?

Jim Morgan Sure. I think the important things that are addressed in the report came out from the success of the trip. Clearly, Secretary Evans and the commerce team, and Secretary Chow, who was also in there and joined us at certain times, and your leadership, Bill, enabled us to have, really - I’ve been going to China for 20 years and this has been one of the best trips I’ve participated in.

What impressed me, which sets the stage for the report, is the respect and effort on the governments of both sides, at the very top level, to try to build a productive long-term relationship. That was evident in every meeting that we attended and also in discussions that we had with senior executives from both Chinese companies and foreign companies in doing business in China, their representatives there that we met during the various meetings.

With that background framing the report, I think some of the prep work also set the stage, such as the Joint Commission on Commerce and Trade that was held in April, resolving the value-added tax with the semiconductor industry in July. Things of this nature and these bilateral working groups on things like the dollar RMB exchange and non-market economic status that the Chinese, of course, would like relative to WTO, were a setting, which allowed us to write a report that encourages an even further development of our trade in economic participation in China. What we see is this is a huge opportunity for American business and will be an opportunity to provide American jobs.

Some of the issues that need to be addressed, of course, is there needs to be a continued effort by our government to facilitate business activities in China with stronger … capabilities, the ability to encourage small and medium-sized businesses to link up with small and medium-sized businesses in China, continued focus on tariffs and recognizing of our standards and testing methodology, for example, and increased pressure to encourage transparency in China. With those things, that should help U.S. business organizations to develop their relationships.

That should mean more dollars allocated to U.S. offices in China. They encourage these policies so that our customers from China can come and participate in our business activities and to help better collaboration between larger businesses and smaller businesses in taking advantage of the business opportunities in China.

I know we’ve seen, in our particular business area, the ability to help some of our suppliers gain access to some of the Chinese markets, and I’m sure other companies can be encouraged to do that as well.

The currency imbalance needs to be continued to be worked on. Of course, there is a task force that’s in place to do that. If we can really encourage both better legal processes, therefore transparency, and a better protection of intellectual property, those are steps that can continue to be very helpful, but we, of course, from our meetings, have found the Chinese very willing to increase exports into China. They would like to have more exports. They would like, particularly from the U.S. since we are such a large trading partner for them, as far as their ability to sell, they know they have to help offset that and they will continue to do that, I believe.

So I hope this report will enable the administration and the President to continue to focus on China as one of, what I think, personal view, one of the most significant economic opportunities for America in history.

There are difficulties, which we acknowledge. I went through a lot of those same types of difficulties in my relationships with Japan in the ‘80’s, a time when Japan had terrific momentum and so forth, but I think America, if it’s encouraged and supported by its government, American business community, large, small, medium size, are all capable of being effective participants both in China and in building their businesses here in the U.S.

I think that concludes the main points that I wanted to make. In addition, I’d like to close by thanking all of the members for their help in preparing the report and particularly for Paul Su for his help with our homework assignment, which was to look at ways where we could expand our trade with China, selling into China.

Marriott Thank you, Jim. Jim has two items for our discussion today. First is a report to the President on our trip to China, and, secondly, a supplement to a letter that Secretary Evans will be writing to Vice Premier Wu Yi of China. We have it called The Annex and that’s in your materials.

So let’s first talk about the letter and report directly to the President. Are there any comments from the members of the council?

Morgan It’s an excellent piece of work.

Marriott Good. I think it is, too. I think they’ve done a really good job.

Morgan Yes.

Marriott This is a public call; if there are any comments from the public we’ll take them now.

Public Participant How about some reporters?

Bill Reporters?

Public Participant Yes.

Marriott We have a press person with Commerce on the line, I believe.

Matt Englehart This is Matt Engelhart. We’d like to hold questions until the end. Becky, is it protocol that we take reporters’ questions on these calls?

Rebecca Bernier Matt, I’m leaving that to your discretion, but we would like to hear from the public first and then you can decide how you would like to handle any of the press calls.

Englehart Let’s do that at the end of the call.

Public Participant Okay, great.

Marriott Anyone else? Okay. If there are no other comments, I assume that everybody is in agreement to the report.

Morgan Would you like a motion?

Marriott I would like a motion. All in favor, aye.

Group Aye.

Marriott Any opposed? Thank you. Then we’ll move on to what you have in your materials called The Annex on U.S. Competitiveness in China. I understand that Secretary Evans will be writing a cover letter and this will be sent directly to Madame Wu Yi. Are there any comments or questions about this supplement to the letter that will be sent?

Any comments from the members of the PEC?

Aldonas Excuse me, Bill; it’s Grant. That’s the one point where if there was one tweak I would add is to just identify - it can be a very general reference, but identify that, where the PEC is talking about the improvement of IPR, to underscore that it’s an export barrier as well as a problem in terms of the pirating.

Marriott Okay. Why don’t you get with the team there in Washington and go ahead and add a couple of lines under that?

Aldonas Will do.

Marriott Okay.

Morgan I think we would accept their verbiage.

Brian Ferguson I remember, in that annex, that it was representative of a work in progress, that we had more work and more projects to do to identify the … solutions. Is this going to be an agenda-setting device for Grant or for us in the future, and do we need to make that clear?

Marriott Grant, what’s your thought?

Aldonas What I think is that it certainly is an agenda-setting device in terms of the things that I’m going to be raising with China when I go back in September, and I know it’s the way Don is thinking about it. I do think that it’s useful to lay down the marker that it’s not the end of the discussions from the PEC’s prospectus and we ought to leave open the opportunity to go back to Wu Yi with more if we feel that it’s helpful.

Marriott Well, I think that’s what it pretty much says at the end - that a business plan is going to be prepared and then we’d use that to train companies to be more competitive in China and especially help small and medium-sized businesses.

Morgan I interpreted both at a meeting we had with the Prime Minister and the Vice Minister Wu Yi that it’s really they’re willing to make this more of a joint effort over time, based on our things that we come up with here. I would see it as part of the ongoing process.

Marriott I think we all agree with that. Why don’t you just put a couple of lines in there, Grant, that will help you on your mission and that will put a spike in the ground here for them?

Aldonas Sounds good. Will do.

Marriott Does anybody else have any comments or questions? Anything from the public? If not, can we have a motion?

Aldonas So moved.

Marriott All in favor say aye.

All Aye.

Marriott Any opposed? Okay, then we’ll move onto Ray Gilmartin. Last October we sent a letter to the President informing him of the council’s intent to come up with a corporate stewardship compendium and Ray and the sub-committee on corporate stewardship have worked very hard on this report. We can talk about the text today and, upon approval, the report will be transformed into a printed and bound report for presentation to Secretary Evans on September 29^th, to then be transmitted on to the President.

Ray, would you go ahead then and present the report for discussion?

Ray Gilmartin Sure. Mr. Chairman, on behalf of the sub-committee on corporate stewardship, it’s my real honor to present to the council for its consideration, the draft report that you have that’s entitled The Power To Help. Thank you, Grant, for your comments on it.

The approach that we followed was to document examples of the best of U.S. corporate stewardship in the areas of corporate philanthropy, education, employee volunteerism, the environment, healthcare, infrastructure and also workforce development.

What we had done is present snapshots of corporate stewardship activities from the viewpoint of individual companies in which the cumulative impact of U.S. stewardship is paying dividends. Thanks to the hard work and energy of our corporate and government members, as well as the cooperation of many U.S. companies and our embassy’s around the world, we present the draft today. I know that you’ve had a chance to review the draft, but let me just highlight some of its content.

First, the report opens with a transmittal letter to the President from Bill Marriott and myself that emphasizes our goal of inspiring more U.S. corporations to undertake activities and to inform more countries about the role that U.S. corporations can play in promoting development and alleviating poverty. … to hear your reaction to this, Grant, as I have said earlier, because I think this report presents a real opportunity to achieve both of those goals.

We then had messages from both Secretary Evans and Secretary Powell and I think we’re particularly pleased and appreciative with the contributions of two of the nation’s leading scholars on corporate stewardship: Michael Porter and Michael Novak. I think their essays compliment each other in setting forth important rationales for corporate stewardship activities.

Following those essays, the report features the activities of more than two-dozen companies, including many of the companies whose leaders serve on the President’s Export Council. We reached out pretty far and pretty wide to U.S. businesses - large businesses, small businesses - and I hope that you agree that we’ve received contributions from a pretty diverse group of companies and also reporting on a wide range of stewardship activities. I want to thank, in particular, all of the businesses that contributed material to this report.

We also wanted to approach it from the perspective of developing countries. So interspersed through the pages of the report are stories from ten countries. These stories, presented in the form of letters to the President’s Export Council, I think help create a more complete picture of the national impact of these stewardship activities. Our embassies in those countries did a lot of work on our behalf to generate those and I want to thank them as well. You’ll also find, throughout the report, brief messages from other government officials who serve on the Export Council, so I want to thank you for your contributions as well.

On the Web site, you can see in the printed version, I think you’ll see that we try to present all of this information in a lively and attractive format so that we really encourage people to dive in and review this report.

I hope, Mr. Chairman, and the members of the council, that you’ll agree that this report to the President will help accomplish the goal of describing American businesses, and our allies around the world, that U.S. business has the power to help and that we are exercising this power and exercising it in a manner that’s good for our businesses and good for the countries in which we operate.

In conclusion, I just want to thank everyone who made this report possible. Certainly, this has been a particularly important initiative for Secretary Evans. Thanks are due also to the staff of the council and our colleagues at the Department of Commerce and the Department of the State. They contributed a lot to this.

Also, I want to thank my staff at Merck, who has spent a lot of effort on this, as well as the staff of the members of the sub-committee, which are Manufacturing Technology, the Parthenon Group, MFI International and Applied Materials. Bill, also I want to thank all those at Marriott who assisted us as well.

The draft that you have is nearly final. It’s subject to your comments, suggestions. There is some additional editorial polish and revision, I’m sure, that you detected, but we’ll make any changes we discuss today, as well as the editorial changes, in time to print the report and have it available to presentation to you and the President when we meet again in person on September 29^th in Washington.

Bill, that’s my presentation. I’d be happy to answer any questions.

Marriott Thanks, Ray. It was a great job, great effort by you and your sub-committee and your team. I’m really proud. I think it’s a wonderful effort. Anyone have any comments or questions?

Harold Smith I’d like to add my compliments, Bill. This is Harold Smith. I didn’t really know what to expect when this was undertaken and I think they’ve done a marvelous job.

Marriott I do, too.

Gilmartin Well, thanks on behalf of all of those people that did this work.

Marriott Any other comments?

Cecilia Levine This is Cecilia Levine. I wanted to ask how soon can we talk about this report or put it out to some comments to give it to the media?

Gilmartin I think the best time is - we’ll be giving the final report at the council meeting on September 29^th. It’s at that point that we’ll be also thinking through about what’s the best way to give visibility to this work as well. So we’ll have recommendations on that for the meeting.

Marriott Good. Any other questions or comments? Can I have a motion to approve the report?

Morgan So moved.

Marriott All in favor?

Group Aye.

Marriott Any opposed? Okay, thank you all very, very much. Matt, do you want to take the press off line or on line?

Englehart Let’s do it off line. For all media, you can call me directly on my direct line. It is 202-482-2271 and we’ll try and hook you up with the individual that you would like to ask questions to.

Marriott Okay. Thanks, everybody. Thanks for your great participation. We’ll see you on the 29^th of September. Bye.