Mr. KELLY. I welcome the invitation because we have a good and positive story to tell about this dynamic and ever-changing region. First, let me thank Chairman Leach for leading the American people's delegation to the May 20th inaugural of President. Chen Shui-bian of Taiwan. Your interest in Taiwan underscores the respect we feel for the people of Taiwan, of their democracy and our commitment to working with the new Chen administration; and your presence delivered an unambiguous signal to Taiwan and the PRC on the importance of reducing tensions across the Taiwan Strait.

Mr. Chairman, East Asia is riding a wave of favorable trends. There is a region-wide strengthening of democracy. Successful and peaceful elections have taken place in country after country this spring. The remarkable April 15th elections in the Republic of Korea swept into the national assembly a number of younger politicians representing a new generation of voters.

On April 5th, Indonesians went to the polls for parliamentary elections, which were exceptionally well conducted. We also congratulate the Philippines on the conduct of their peaceful elections last month. Taiwan's elections in March confirmed its young and vibrant democracy, and Malaysian elections took place smoothly and strengthened new prime minister Abdullah Badawi.

In the months to come, East Asians can look forward to the firstever direct presidential election in Indonesia, as well as other elections in Mongolia, Japan, Thailand, Singapore, Australia and even Hong Kong for half of the legislative council seats.

A second positive trend is the widespread rejection of radical Islam in Southeast Asia. We have legitimate concerns about terrorism and are working hard to combat it, but the fact is that the terrorists are few in number and radical Islam appeals to a very small segment of society.

There is also growing prosperity and a healthy movement toward greater economic openness, lower trade. barriers, and regional cooperation and integration. East Asian nations look increasingly beyond their borders for markets, investment capital, higher education and ideas. East Asia is also a place largely at peace, in spite of a handful of local separatist conflicts and the potential for largescale conflict in the Korean peninsula and in the Taiwan Strait. Together, these trends are in sync with U.S. interests and values and that fact makes us optimistic for the future.

We are working to achieve policy goals with the active assistance and coordination of our alliance partners. Our five traditional allies Japan, the Republic of Korea, the Philippines, Australia_and Thailand-are our strategic partners in this time of change. Each of the alliances is stronger now and adjusting to 21st century realities. I especially note our vibrant partnership with Japan. We share with each of the allies a common perspective on a steadily increasing range of interests.

Enriching but complicating our sense of optimism is our revitalized relationship with China. China will have an important role in shaping the future of Asia, even though it is not clear yet what the political, economic and social landscape of Asia will ultimately be, say, 50 years from now. China trade is changing patterns of consumption and production of goods around the world. Clearly, China

has an enormous stake in maintaining access to the United States and regional markets.

In the security area, China shows promise that it is prepared to take on global responsibilities. We welcome constructive engagement by China in the Asia-Pacific region, but we need to ensure the United States remains fully engaged with the nations of Southeast Asia.

At the top of our policy priorities is waging the war against terror, a threat that respects no national borders, but is most dangerous in Southeast Asia. Because it is transnational, terror must be addressed through regional cooperation which we have made the focus of our efforts.

With respect to the DPRK, the six-party talks process is now well established. The two plenary sessions in August of last year and February of this laid out clearly the basic principle of comprehensive denuclearization, what we call CVID-complete, verifiable, irreversible dismantlement. Indeed, the North Koreans themselves have stated that their ultimate aim is denuclearization.

We look forward to an early third session of the plenary, preceded by another meeting of the working group. In the May meeting of the working group session, the parties began exploring the structure of a resolution, a structure that would involve concrete actions by North Korea with corresponding measures taken by other parties in a coordinated fashion. At the next meetings we hope to build on this emerging understanding.

To address our nonproliferation concerns, we are working toward implementing a global initiative, the Proliferation Security Initiative, PSI, which seeks to enhance cooperation and coordination among countries around the world to stop illicit proliferation-related trafficking, in particular ballistic missiles.

Finally, we believe the continuing development of regional organizations is essential to East Asia. They are the foundation of our cooperation on transnational crime, trafficking in persons, contagious diseases, environmental protection, as well as international terror. We have been an active supporter of ASEAN, the Association of Southeast Asian Nations, the ASEAN Regional Forum, the region's only multilateral security dialogue, and APEC, the AsiaPacific Economic Cooperation fora, and have sought to strengthen and build capacity within these organizations.

Nothing may be permanent except change in East Asia, but we are encouraged by the progress we have seen in the region and optimistic that our full and active agenda will be successful.

Thank you, Mr. Chairman, I will be happy to respond to the Committee's questions.

[The prepared statement of Mr. Kelly follows:]

PREPARED STATEMENT OF THE HONORABLE JAMES A. KELLY, ASSISTANT SECRETARY, BUREAU OF EAST ASIAN AND PACIFIC AFFAIRS, U.S. DEPARTMENT OF STATE

Mr. Chairman, members of the Subcommittee on Asia and the Pacific, thank you for the invitation to testify on the Administration's strategy for East Asia and the Pacific. I welcome this opportunity because we have a good, positive story to tell in this dynamic and ever-changing region.

First, let me thank Chairman Leach for his service in leading the American people's delegation to the May 20 inauguration of President Chen of Taiwan. Your longstanding interest in Taiwan underscores the respect we feel for the people of Taian, their democracy and our commitment to working with the new Chen Adminis

tration. And, your presence delivered a clear and unambiguous signal to Taiwan and the PRC on the importance of reducing tensions across the Taiwan Strait.

It is not my intention today to speak at length on our unofficial relations with Taiwan because it was covered extensively in my April 21 testimony to the full Committee. I will say only that we welcome the inaugural address of President Chen Shui-bian. By making clear his administration's commitment not to take unilateral steps that would change the status quo and underscoring its openness to seeking accord with Beijing, President Chen is helping to restore dialogue across the Taiwan Strait.

DEMOCRACY

Mr. Chairman, East Asia is riding a wave of favorable trends and none is more important than the region-wide strengthening of democracy.

The remarkable April 15 elections in the Republic of Korea swept into the National Assembly a number of younger politicians representing a new generation of voters. On April 5, Indonesians went to the polls for Parliamentary elections, which were exceptionally well conducted given the logistical difficulties in holding elections in that huge archipelago nation and were free and fair.

We also congratulate the Philippines on the conduct of their relatively peaceful elections last month. Taiwan's elections in March confirmed its young but vibrant democracy and Malaysia's elections also took place smoothly and strengthened new Prime Minister Abdullah Badawi.

In months to come, East Asians can look forward to a first-ever direct Presidential election in Indonesia as well as elections in Mongolia, Malaysia, Japan, Thailand, Singapore, Australia, and even Hong Kong, for half of the Legislative Council seats. No serious observer can doubt that democracy has truly taken root in East Asia and is flourishing.

REJECTION OF RADICAL ISLAM

A second trend that I would like to highlight is the widespread rejection of radical Islam in Southeast Asia. Although we have legitimate concerns about terrorism and are working hard with governments in the region to combat it, the fact is that the terrorists are relatively few in number and radical Islam appeals to a very small segment of society.

The region benefits from, and the U. S. deeply respects a long-standing tradition of tolerance, pluralism, and religious moderation. If we overlook that tradition, we are misreading the situation and the desire of the majority for the peaceful resolution of religious and political differences.

PROSPERITY AND INTEGRATION

Throughout the region, there is growing prosperity, strong GDP growth in almost every economy, and a healthy movement toward greater economic openness and lower trade barriers.

We see expanding regional cooperation and integration in East Asia. This is occurring not only through traditional fora such as ASEAN, the ASEAN Regional Forum security dialogue, and the Asia-Pacific Economic Cooperation (APEC) forum but also in new mechanisms, such as the Six-Party Talks. These talks were created for a specific goal, to address and to eliminate North Korea's nuclear weapons programs, but conceivably could form the basis for a permanent Northeast Asia forum at some point in the future.

Another factor is that globalization and economic development has made a remarkable difference in the lives of East Asians. The World Bank reports that in China alone, 400 million fewer people are in extreme poverty than twenty years ago. Increased trade and investment flows have lifted millions of East Asians to higher standards of living, encouraged economic interdependence, and convinced East Asian nations to look beyond their borders for markets, investment capital, higher education, and ideas.

PEACE

Finally, this is an area largely at peace. Although there are a handful of local separatist conflicts and the potential remains for large-scale conflict in the Korean peninsula and in the Taiwan Straits, the major states of the region are cooperating with one another and building stronger regional ties.

Together, these trends are in sync with U.S. interests and values and that fact make us optimistic for the future. We are convinced that the region's most intrac

table issues—including the threat of terrorism as well as North Korea and the Taiwan Straits can be resolved peacefully in ways consistent with these trends.

We are working to achieve policy goals with the active assistance and coordination of our alliance partners. Our alliances in East Asia are stronger and deeper than

ever.

Our five traditional allies-Japan, the Republic of Korea, the Philippines, Australia, and Thailand-are our strategic partners in and beyond the region. We share with them a common perspective on a steadily increasing range of interests.

With the governments of Japan and South Korea, we are proceeding apace ahead with negotiations for modernizing and adjusting our military force posture in those countries. In this endeavor, there has been exemplary cooperation between the Departments of State and Defense, which will co-chair these discussions.

Driven in large part by the forces of globalization, Japan is in the midst of its greatest social and economic transformation since the end of World War II-a change that has important consequences for the U.S.-Japan Alliance and the world. Japan continues to play a positive role in East Asia, and its bold participation in coalition activities in Afghanistan and Iraq underscores Japan's determination to become more active elsewhere in coordination with the United States and other allies. The Japanese Diet passed historic, passionately debated legislation to allow its Self-Defense Forces to be deployed abroad. Japan's decision to deploy approximately 1,000 Self Defense Forces to Iraq and the surrounding area, where they provide humanitarian and reconstruction assistance and airlift support, and its support for the global war on terror has come to symbolize Japan's active and outward-looking foreign policy under Prime Minister Koizumi.

The deployment complements Japan's many other actions on behalf of the Iraqi people, which include the Madrid Conference pledge of $5 billion over 4 years, and its commitment to solving the issue of Iraq's crippling debt burden. Japan continues to provide fuel, free of charge, to support the Operation Enduring Freedom interdiction efforts and has played a key role in the high-priority task of restoring Afghanistan's highway system.

Japan's economy is on the rebound and we hope it can be sustained, leading to renewed growth and a continuation of vigorous foreign policy in support of our commonly held objectives.

We are also very pleased at the sustained support of the Roh Administration for the war on terror and its deployment of a 3,000 man contingent of South Korean troops to Iraq. The Republic of Korea will be the third-largest troop contributor to coalition forces, after the U.S. and UK. This is a welcome development from a steadfast ally, a major trading partner, and a serious contributor to regional and global stability.

The South Korean government has made clear that it understands the reasons for the deployment of a brigade of U.S. troops from the Second Infantry Division in South Korea to Iraq, accepts it as a needed measure, and is confident that this deployment poses no threat to deterrence on the Korean Peninsula. The situation on the ground in Iraq has changed rapidly, and this has required nimble planning and fast responses by our military.

Long an ally of the United States, since 9/11 the Philippines has emerged as a valued and supportive partner, sharing our policy goals, and sending its own men and women to help in Iraq and to restore order in other parts of the world. And the United States has reciprocated by providing the Philippine military with counter-terrorism training to help put down violence and terrorism in its own back

yard.

In fact, in a reflection of Asia's increasing acceptance of broader responsibilities, each of our allies-and Australia and Thailand rate special mention-has made important contributions to efforts to stabilize Iraq and Afghanistan-whether it be with overseas development assistance, technical and engineering support, or combat troops. Our allies have proven their dedication not only in their material support, which has been extensive, but tragically in human lives lost.

Countries that are not de jure allies can also be effective partners in building regional security and we are strengthening those relationships too. Most notably, we are negotiating with Singapore to reach a Strategic Framework Agreement, which will expand our defense cooperation against terrorism and the proliferation of weapons of mass destruction. This is a tangible outgrowth of President Bush's October 2003 visit to Singapore.

Enriching but complicating our sense of optimism is our revitalized relationship with China. China will have an important role in shaping the future of Asia even though it is not clear yet what the political, economic, and social landscape of Asia will ultimately be, say, 50 years from now.

China is now our third largest trading partner with total trade in 2003 of more than $180 billion and our fastest growing export market with exports increasing nearly 40% in the first quarter of 2004. Of course, exports to us from China continue to far exceed our exports, yet China has a world-wide trade deficit.

As China's economy continues to grow-at a staggering rate of nearly 10% in the first quarter-there are increased opportunities for American commercial interests. That growth is also matched by considerable concern that China's huge appetite for certain commodities and energy is already creating shortages and price pressure in global markets. China is now the world's second-largest consumer of oil, after the United States, and accounted for 35% of the global rise in oil demand in 2003. Clearly, China trade is changing patterns of consumption and production of goods around the world, and its leaders have a major task if they are to avoid overheating the economy.

China's enormous stake in maintaining access to the U.S. and regional markets and preserving the international trading regime has had an impact on its foreign and domestic policies. During the April meeting of the Joint Commission on Commerce and Trade, we were able to make some important progress on trade issues with China in the areas of intellectual property rights, wireless encryption standards, and trading rights and distribution services.

We could easily devote several hearings to our complex relationship with China, including such critical issues as non-proliferation, WTO compliance, and our efforts to promote democracy, legal reform, and human rights.

In the key area of security, by being a strong and reliable partner on the counterterrorism front and an active participant in the Six-Party Talks, China has proven that where its interests coincide with ours, it can be extraordinary helpful in enhancing regional stability. It also shows promise that it is prepared to take on global responsibilities.

In other areas, China is challenging the status quo aggressively. It is expanding its influence in Southeast Asia by enhancing its diplomatic representation, increasing foreign assistance, and signing new bilateral and regional agreements.

I note that a recent exchange of senior official visitors between China and Cambodia resulted in 25 bilateral agreements. They range from agreements to conduct feasibility studies for a hydropower plant to grant and loan agreements covering textile and cement plants, tourism, highway construction and the development of a golf club. These agreements involve relatively little in financial terms, but they serve notice of how China is using its newly won economic power to expand its presence and political influence among its southern neighbors. While we welcome constructive engagement by China in the Asia-Pacific region, we need to ensure that the United States remains fully engaged with the nations of Southeast Asia.

TIME OF TRANSITION

Mr. Chairman, the trends which are present in East Asia are not abstract ideas or academic concepts. They are promoting tangible and dramatic changes in personal lives and public policy. My visit to Indonesia, Vietnam, and Hong Kong last month impressed me again that this is a time of transition in East Asia.

In Jakarta last month, the excitement over the upcoming July 5 Presidential election was palpable. The first direct election for the Presidency in Indonesia represents a remarkable step forward in the development of that nation's democratic institutions. A president accountable to the Indonesian electorate will be able to respond more effectively to the country's needs. The outcome of the election could have powerful implications because a strong and thriving Indonesian democracy would prove that democracy and Islam are not incompatible.

In Yogyakarta, where I led the U.S. delegation to the ARF Senior Officials Meeting last month, I had a chance to visit both Hindu and Buddhist temples. They exist peacefully and proudly among mosques of the predominant Muslim religion, and with Christian churches visible too. I was struck by the tolerance exhibited by the Muslim mainstream community in Indonesia, the country with the world's largest Muslim population.

On the same trip I also participated in a political dialogue with senior Vietnamese officials in Hanoi and visited Ho Chi Minh City for the first time in almost 30 years. There have been extraordinary changes and I was impressed by the emerging prosperity and entrepreneurial spirit of the Vietnamese people and the interest of the government of Vietnam to pursue closer ties with the United States.

We are moving forward in our economic cooperation with Vietnam, with the implementation of a bilateral trade agreement that has led to a striking increase in trade. Such an increase brings with it inevitable frictions, which we are working to resolve. We continue to receive cooperation from the Vietnamese on POW/MIA ac