I have been asked to replace Jim Kelly, the US Assistant Secretary of State for East Asia. This is impossible because Jim is inside the government and I am outside, meaning that I can give you only a non-governmental perspective on how policy is evolving in Washington as well as my hopes for how it will evolve in the future. I am not in anyway speaking for the new Bush Administration.

There are several things to remember about the new Bush administration.

First, in an important way it has not begun. Major offices remain unoccupied in State and the Pentagon because the confirmation process, with each succeeding administration, grows longer. The new officials will not be in place until late summer or early fall.

The first year of any administration is a shaky process: this was true of the Reagan administration, the first Bush Administration, and the Clinton administration. Hence, our friends in Asia should be listening closely but you should watch for overall trends rather than placing too much store in single events.

Second, like all transitions, the policy of the succeeding administration always looks largely like the outgoing administration. This is because the foreign policy elite, republican, democratic, and independent alike, agree on 90% of the overall outline of US policy. We all agree on 90% and fight like hell over the remaining 10%. The resulting noise generated tends to obscure the broad continuity of policies among administrations.

For example:

1. The US will remain engaged in Asia, with approximately 100,000 military personnel.

2. The basic policy toward China will remain one of engagement.

3. The US will try to significantly strengthen its security arrangements with Japan.

4. The US will continue to encourage open regionalism: ASEAN, ARF, AFTA.

5. The US will continue to speak out in favor of democratic values and the protection of human rights and civil liberties.

Third, there are important differences with the new administration: differences in personnel: differences in process, and differences in particular policy emphases.

The new administration is heavily weighted with democratic Asia's best friends: Rich Armitage, Jim Kelly, Torkel Patterson, Paul Wolfowitz, Bob Zoellick to name just a few. Many of you know these people from the Reagan and Bush administrations. This is an extremely able group of Asia- experienced policy makers combining the best of the Reagan and Bush administrations..

The policy process will be more orderly under the new administration. The people just mentioned know one another well and they are not turf fighters. The White House, and particularly the political side of the White House, will play a much smaller role in day-to-day policy making than during the Clinton Administration. The Department of State, after eight years of eclipse, has returned to its rightful place as the premier foreign policy making institution of the United States government. These changes in process, once the Senate has confirmed the complete team, will make for more orderly and consistent policies toward Asia.

Fourth, there will be changes in policy emphases. Here I should underline that I do not speak for the USG.

The United States will move significantly closer to Japan and its democratic allies in Asia. While maintaining a policy of engagement with China, the new Administration will move closer to its democratic allies throughout Asia.

This involves a genuine rebalancing of the US policy emphasis in Asia. From Tokyo's viewpoint, warmer winds will flow from Washington but more will be expected of Japan.

The new administration will seek engagement with China but there will be no more fatuous talk of 'strategic partnership.'

The President, himself, has already extinguished part of the strategic ambiguity regarding Taiwan. There should be no doubt that the United States will interpose itself if there is any attempt to use force to resolve the Taiwan problem. Likewise the United States will continue to oppose any attempt by Taiwan to become independent.

The USG has just announced the most robust package of weapons sales to Taiwan in 8 years. How much more military equipment the US sells to Taiwan is entirely in the hands of the PRC. If the PRC continues to concentrate missiles on Taiwan, this will result in eventual sale of anti-missile equipment to Taiwan. In the past I helped to make decisions on arms sales to Taiwan and I can tell you the process is entirely threat driven.

The best possible outcome for the United States, the PRC, Taiwan, and all of Asia is to pursue policies that will allow the Taiwan situation to disappear with the passage of time and the increasing peaceful integration across the straits. All of us should play for time. Essentially we should all recognize the wisdom of Deng Tsiao Peng, who adopted a go-slow policy regarding Taiwan.

The US will encourage dialogue across the straits but will not attempt, in any way, to play the role of mediator. The DPP has come to power and the sky has not fallen but the political landscape has changed and all of us must recognize the new reality.

Fifth, with regard to Korea, the policy review will probably result in substantial continuity with the policies of the previous administration.

There is, however, a change. The new administration will not be black mailed by saber rattling from the North. The North can threaten war but everyone knows warfare would mean an immediate end to the regime in the North as well as massive destruction in the South. The US will encourage discussion and dialogue between North and South but at a more deliberate pace than in the last frantic months of the Clinton administration. Careful deliberation on policy and consistency is what one should look for rather than flashy symbolism.

Sixth, ballistic missile defense will become a reality as soon as it is technically feasible. The era of mutually assured destruction is over. The ABM treaty will either be modified or abandoned but a shield will be built and this will make for a much better and safer world. Time does not stand still, nor does technology. At the time of the ABM treaty, there was no possible technology for an anti ballistic missile defense. The United States believes it can develop such a limited shield over the next 5-10 years and it intends to do so. Would you rather have some other power develop this new system? Or would you rather the innovation come from the United States?

What are the most serious challenges that I see in US policy toward Asia?

1. Lack of attention to the on-going problems of corporate and financial sector restructuring in Asia. The crisis of '97 is in remission but the patient is far from cured. Not until the asset base of Asia has been significantly realigned will genuine, self-sustaining growth return. With each passing year the social and political consequences will grow larger from this massive market adjustment.

2. This means the US should use its influence to back the forces of fundamental economic reform: the vast misallocation of investments by the private sector must be dealt with; governments must push the private sector toward accepting the pain to attain future gain; governments should not support dying sectors and should strip away the regulatory barriers to the rise of the new economies which inevitably will be based less of government direction, less on export promotion, more on domestic consumption and more on the growth of efficient service industries.

3. The private sector made the mess, and the private sector is the best equipped for cleaning it up. The US private sector, in particular, is willing to bring new capital to Asia to re-invigorate economic growth through investment side-by-side with Asians in the painful restructuring process.

4. All of this is much more easily said than done. The US went through enormous amounts of pain during its own restructuring process in the 1980s and early 1990s. Large part of the industrial Middle West died. The S & L crisis was one of the reasons George Bush failed to be re-elected in 1992. But after all the pain, the US made unprecedented gains and emerged as a much more economically powerful society.

5. The model of the Asian capitalist development state achieved the greatest expansion of wealth, for the greatest number of people, in the shortest time in the history of mankind between 1965 and 1997, but the model is now obsolete.

It is time to move on and I hope the new administration in Washington recognizes the unprecedented opportunity for change offered by the new administration in Japan.

I hope the new administration in Washington will push toward fuller integration between the two largest economies in the world. Rather than sheltering in the past I hope both new administrations will move to negotiate a US-Japan common market over the next decade. Rather than picking at one another over a series of trade disputes it is time to adopt a bold and overarching goal for the new century so that consumers will become kings on both sides of the Pacific.

The capitalist development state in Japan is currently in the process of being radically transformed and an open common market would both spur the changes and provide the shelter in which the world's two greatest economic powers could move together toward a greater common good.