[House Hearing, 107 Congress]
[From the U.S. Government Publishing Office]
RENEWAL OF NORMAL TRADE RELATIONS WITH CHINA
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TRADE
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SEVENTH CONGRESS
FIRST SESSION
__________
JULY 10, 2001
__________
Serial No. 107-41
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
75-054 WASHINGTON : 2001
----------------------------------------------------------------------------
For Sale by the Superintendent of Documents, U.S. Government Printing Office
Internet: bookstore.gpr.gov Phone: toll free (866) 512-1800; (202) 512�091800
Fax: (202) 512�092250 Mail: Stop SSOP, Washington, DC 20402�090001
COMMITTEE ON WAYS AND MEANS
BILL THOMAS, California, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
E. CLAY SHAW, Jr., Florida FORTNEY PETE STARK, California
NANCY L. JOHNSON, Connecticut ROBERT T. MATSUI, California
AMO HOUGHTON, New York WILLIAM J. COYNE, Pennsylvania
WALLY HERGER, California SANDER M. LEVIN, Michigan
JIM McCRERY, Louisiana BENJAMIN L. CARDIN, Maryland
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota GERALD D. KLECZKA, Wisconsin
JIM NUSSLE, Iowa JOHN LEWIS, Georgia
SAM JOHNSON, Texas RICHARD E. NEAL, Massachusetts
JENNIFER DUNN, Washington MICHAEL R. McNULTY, New York
MAC COLLINS, Georgia WILLIAM J. JEFFERSON, Louisiana
ROB PORTMAN, Ohio JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania XAVIER BECERRA, California
WES WATKINS, Oklahoma KAREN L. THURMAN, Florida
J. D. HAYWORTH, Arizona LLOYD DOGGETT, Texas
JERRY WELLER, Illinois EARL POMEROY, North Dakota
KENNY C. HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
KEVIN BRADY, Texas
PAUL RYAN, Wisconsin
Allison Giles, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
E. CLAY SHAW, Jr., Florida SANDER M. LEVIN, Michigan
AMO HOUGHTON, New York CHARLES B. RANGEL, New York
DAVE CAMP, Michigan RICHARD E. NEAL, Massachusetts
JIM RAMSTAD, Minnesota WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington XAVIER BECERRA, California
WALLY HERGER, California JOHN S. TANNER, Tennessee
PHIL ENGLISH, Pennsylvania
JIM NUSSLE, Iowa
Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public
hearing records of the Committee on Ways and Means are also published
in electronic form. The printed hearing record remains the official
version. Because electronic submissions are used to prepare both
printed and electronic versions of the hearing record, the process of
converting between various electronic formats may introduce
unintentional errors or omissions. Such occurrences are inherent in the
current publication process and should diminish as the process is
further refined.
C O N T E N T S
__________
Page
Advisories announcing the hearing................................ 2, 5
WITNESSES
Office of the United States Trade Representative, Jeffrey A.
Bader, Assistant United States Trade Representative for China,
Hong Kong, Mongolia, and Taiwan................................ 28
American Farm Bureau Federation, Bob Stallman.................... 41
Blumenauer, Hon. Earl, a Representative in Congress from the
State of Oregon................................................ 24
Brown, Hon. Sherrod, a Representative in Congress from the State
of Ohio........................................................ 22
Emergency Committee for American Trade, Calman J. Cohen.......... 65
Pelosi, Hon. Nancy, a Representative in Congress from the State
of California.................................................. 15
Rohrabacher, Hon. Dana, a Representative in Congress from the
State of California............................................ 19
United States-China Business Council, Robert A. Kapp............. 49
U.S. Committees of the Pacific Basin Economic Council, Pacific
Economic Cooperation Council, New York Life International, and
New York Life Insurance Company, Gary Benanav.................. 44
Wolf, Hon. Frank R., a Representative in Congress from the State
of Virginia.................................................... 8
SUBMISSIONS FOR THE RECORD
U.S. Department of State, Hon. James A. Kelly, Assistant
Secretary of State for East Asian and Pacific Affairs,
statement...................................................... 77
Ad Hoc Committee of Domestic Nitrogen Producers, statement....... 79
American Insurance Association, statement and attachment......... 80
American Textile Manufacturers Institute, Carlos Moore, statement 82
Channellock, Meadville, PA, William S. DeArment, letter and
attachment..................................................... 84
International Mass Retail Association, Arlington, VA, statement.. 86
National Association of Manufacturers, statement................. 88
National Retail Federation, Erik Author, statement............... 90
StorageTek, Inc., Louisville, CO, Gary Francis, letter........... 91
RENEWAL OF NORMAL TRADE RELATIONS WITH CHINA
----------
TUESDAY, JULY 10, 2001
House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to notice, at 2:05 p.m., in
room 1100 Longworth House Office Building, Hon. Philip M. Crane
(Chairman of the Subcommittee) presiding.
[The advisory and revised advisory announcing the hearing
follow:]
ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON TRADE
CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE
June 28, 2001
No. TR-4
Crane Announces Hearing on
Renewal of Normal Trade Relations With China
Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade
of the Committee on Ways and Means, today announced that the
Subcommittee will hold a hearing on United States-China trade relations
and the status of China's negotiations to the World Trade Organization
(WTO). The hearing will take place on Tuesday, July 10, 2001, in B-318
Rayburn House Office Building, beginning at 2 p.m.
Invited witnesses include Assistant United States Trade
Representative, Jeffrey Bader. Testimony will also be received from
private sector witnesses. In addition, any individual or organization
not scheduled for an oral appearance may submit a written statement for
consideration by the Committee or for inclusion in the printed record
of the hearing.
BACKGROUND:
At present, China's trade status is subject to the Jackson-Vanik
amendment to Title IV of the Trade Act of 1974, the provisions of law
governing the most-favored-nation (MFN) trade status, now referred to
as normal trade relations (NTR), of nonmarket economy countries
ineligible for MFN treatment as of the enactment of the Trade Act.
NTR status was first granted to the People's Republic of China on
February 1, 1980, and has been extended annually since that time.
Annual extensions are granted based upon a Presidential determination
and report to Congress that such an extension will substantially
promote the freedom of emigration objectives in Title IV of the Trade
Act of 1974, the so-called Jackson-Vanik amendment. Subsections 402 (a)
and (b) of the Trade Act set forth criteria which must be met, or
waived by the President, in order for the President to grant NTR status
to non-market economies such as China.
The annual Presidential waiver authority under the Trade Act
expires on July 3 of each year. The renewal procedure requires the
President to submit to Congress a recommendation for a 12-month
extension by no later than 30 days prior to the waiver's expiration
(i.e., by not later than June 3). The waiver authority continues in
effect unless disapproved by Congress within 60 calendar days after the
expiration of the existing waiver. Disapproval, should it occur, would
take the form of a joint resolution disapproving the President's
determination to waive the Jackson-Vanik freedom of emigration
requirements for China. On June 1, 2001, President Bush issued his
determination to waive the requirements for China for the period of
July 3, 2001, to July 2, 2002 (H. Doc. 107-79). H. J. Res. 50, a joint
resolution disapproving the extension of the waiver authority contained
in section 402(c) of the Trade Act of 1974 with respect to China was
introduced by Congressman Dana Rohrabacher (R-CA) on June 5, 2001.
P.L. 106-286 (enacted October 10, 2000) amended Title IV of the
Trade Act of 1974 to remove China from the list of countries subject to
this provision upon the accession of China to the WTO and upon
certification by the President that the final terms of accession are at
least equivalent to the terms of the November 15, 1999, bilateral
agreement between the United States and China.
On June 8, 2001, during bilateral talks in Shanghai, the United
States and China reached agreement on major outstanding issues
concerning China's accession to the WTO. United States Trade
Representative Robert B. Zoellick and Minister of Foreign Trade and
Economic Cooperation Shi Guangsheng capped 15 years of negotiations on
areas including domestic support for agriculture, services, and trading
rights.
Several important steps remain ahead in China's WTO accession
process. The bilateral agreement between the United States and China
will be considered at the next China Working Party meeting in Geneva
beginning on June 28. The WTO's General Council must then adopt China's
accession package, after which China will have to complete its domestic
ratification procedures. China will become a WTO member 30 days after
filing its notice of acceptance with the WTO.
In announcing the hearing, Chairman Crane said: ``It is indeed
heartening for those of us who support normalizing U.S. trade relations
with China to observe that China's negotiations to join the WTO are
close to concluding. The momentum for opening trade with China is
building. Last year, we passed the permanent normal trade relations
legislation, and earlier this month, USTR made significant progress
with the Chinese to further open their markets to our goods and
services. We need to keep the momentum going by renewing China's NTR
status for another year.''
FOCUS OF THE HEARING:
The focus of the hearing will be to evaluate overall U.S. trade
relations with the People's Republic of China and the status of China's
negotiations to join the WTO, and to consider the extension of NTR
status for China for an additional year. The Subcommittee will be
interested in hearing testimony on China's emigration policies and
practices, the nature and extent of U.S. trade and investment ties with
China and related issues, and the potential impact on China, Hong Kong,
Taiwan, and the United States of a termination of China's NTR status.
Finally, witnesses may also address U.S. objectives in ongoing
negotiations over conditions upon which China will enter the WTO, as
well as the anticipated impact of WTO membership on U.S. workers,
industries, and other affected parties.
DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:
Requests to be heard at the hearing must be made by telephone to
Traci Altman or Bill Covey at (202) 225-1721 no later than the close of
business, Friday, June 29, 2001. The telephone request should be
followed by a formal written request to Allison Giles, Chief of Staff,
Committee on Ways and Means, U.S. House of Representatives, 1102
Longworth House Office Building, Washington, D.C. 20515. The staff of
the Subcommittee on Trade will notify by telephone those scheduled to
appear as soon as possible after the filing deadline. Any questions
concerning a scheduled appearance should be directed to the
Subcommittee on Trade staff at (202) 225-6649.
In view of the limited time available to hear witnesses, the
Subcommittee may not be able to accommodate all requests to be heard.
Those persons and organizations not scheduled for an oral appearance
are encouraged to submit written statements for the record of the
hearing. All persons requesting to be heard, whether they are scheduled
for oral testimony or not, will be notified as soon as possible after
the filing deadline.
Witnesses scheduled to present oral testimony are required to
summarize briefly their written statements in no more than five
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full
written statement of each witness will be included in the printed
record, in accordance with House Rules.
In order to assure the most productive use of the limited amount of
time available to question witnesses, all witnesses scheduled to appear
before the Subcommittee are required to submit 200 copies, along with
an IBM compatible 3.5-inch diskette in WordPerfect or MS Word format,
of their prepared statement for review by members prior to the hearing.
Testimony should arrive at the Subcommittee on Trade office, room 1104
Longworth House Office Building, no later than July 5, 2001. Failure to
do so may result in the witness being denied the opportunity to testify
in person.
WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:
Any person or organization wishing to submit a written statement
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch
diskette in WordPerfect or MS Word format, with their name, address,
and hearing date noted on a label, by the close of business, Wednesday,
July 11, 2001, to Allison Giles, Chief of Staff, Committee on Ways and
Means, U.S. House of Representatives, 1102 Longworth House Office
Building, Washington, D.C. 20515. If those filing written statements
wish to have their statements distributed to the press and interested
public at the hearing, they may deliver 200 additional copies for this
purpose to the Subcommittee on Trade office, room 1104 Longworth House
Office Building, by close of business the day before the hearing.
FORMATTING REQUIREMENTS:
Each statement presented for printing to the Committee by a
witness, any written statement or exhibit submitted for the printed
record or any written comments in response to a request for written
comments must conform to the guidelines listed below. Any statement or
exhibit not in compliance with these guidelines will not be printed,
but will be maintained in the Committee files for review and use by the
Committee.
1. All statements and any accompanying exhibits for printing must
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect or
MS Word format, typed in single space and may not exceed a total of 10
pages including attachments. Witnesses are advised that the Committee
will rely on electronic submissions for printing the official hearing
record.
2. Copies of whole documents submitted as exhibit material will not
be accepted for printing. Instead, exhibit material should be
referenced and quoted or paraphrased. All exhibit material not meeting
these specifications will be maintained in the Committee files for
review and use by the Committee.
3. A witness appearing at a public hearing, or submitting a
statement for the record of a public hearing, or submitting written
comments in response to a published request for comments by the
Committee, must include on his statement or submission a list of all
clients, persons, or organizations on whose behalf the witness appears.
4. A supplemental sheet must accompany each statement listing the
name, company, address, telephone and fax numbers where the witness or
the designated representative may be reached. This supplemental sheet
will not be included in the printed record.
The above restrictions and limitations apply only to material being
submitted for printing. Statements and exhibits or supplementary
material submitted solely for distribution to the members, the press,
and the public during the course of a public hearing may be submitted
in other forms.
Note: All Committee advisories and news releases are available on
the World Wide Web at ``http://waysandmeans.house.gov.
The Committee seeks to make its facilities accessible to persons
with disabilities. If you are in need of special accommodations, please
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four
business days notice is requested). Questions with regard to special
accommodation needs in general (including availability of Committee
materials in alternative formats) may be directed to the Committee as
noted above.
* * * NOTICE--CHANGE IN LOCATION * * *
ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS
SUBCOMMITTEE ON TRADE
CONTACT: (202) 225-1721
FOR IMMEDIATE RELEASE,
July 9, 2001
No. TR-4--Revised
Change in Location for Subcommittee Hearing on
Renewal of Normal Trade Relations With China
Congressman Crane (R-IL), Chairman of the Ways and Means
Subcommittee on Trade, today announced that the Subcommittee hearing on
United States-China trade relations and the status of China's
negotiations to the World Trade Organization (WTO) will now be held in
the main Committee hearing room, 1100 Longworth House Office Building.
All other details for the hearing remain the same. (See
Subcommittee press release No. TR-4 dated June 27, 2001.)
Chairman Crane. If everyone will please take their seats,
we will get underway. And our first panel consists of our
distinguished colleagues, the Honorable Frank Wolf from
Virginia, the Honorable Nancy Pelosi from California, the
Honorable Dana Rohrabacher from California, the Honorable
Sherrod Brown from Ohio, and our distinguished colleague from--
wait a second--Oregon--OK, we got it--Mr. Blumenauer.
I would like to have you proceed in the order that I
presented you, and if you will please try and keep your oral
testimony to 5 minutes or less, and all written testimony will
be made a part of the permanent record. Nancy brought a ton.
Thank you. And we will have opening statements.
But before we yield to you, Frank, I want to yield to Sandy
here, our distinguished Ranking Minority Member.
Mr. Levin. Welcome. I have an opening statement. Mr.
Chairman, you don't have one. I think I will read it.
First of all, I want to say, though, welcome to you, to all
five of you. This is an issue that all five of us and many
others have discussed over the years, and it deserves this
hearing, and we are especially pleased that the five of you who
have given so much to this issue are here.
About a year ago, many of us thought we would not be here,
but since China has not yet acceded to the World Trade
Organization (WTO), we are faced with another vote and, as I
see it, we should look upon this as an opportunity, not a
problem, but an opportunity to assess the state of our economic
relationships with China and other relevant issues.
In the past 12 months there has been continuing, indeed
often accelerated, change in China. At the same time, in
important respects, China has stayed the same. It is important
we take note of both.
China has continued to move away from a State-dominated to
a free market economy. This has been most true in industrial
sectors. Private enterprise is spreading beyond the coastal
areas where it earlier gained footholds. The rapid growth of
the Internet continues to challenge authoritarian controls.
Cracks are even appearing in the complete domination of the
State over the legal system. China is witnessing for the first
time some successful suits to redress grievances of or injuries
to individuals and workers. Earlier this year China ratified
the U.N. Convention on Economic and Social Rights.
In striking ways, however, conditions in China have not
changed, the State remains a dominant force in the economy.
There continues to be a trampling of basic human rights. China
has continued its campaign against the Falun Gong movement,
including imprisonment and possibly torture of its followers,
and many of those followers have died while in State custody.
China's repression of Tibet continues. It has detained a number
of scholars and American citizens--one goes on trial next
week--and it continues to thwart free speech.
It now appears that the key issues relating to China's
accession to the WTO have been resolved or are very close to
resolution. China's entry into the WTO should accelerate its
movement toward a freer economy. Boosted by the recent accords,
it should be true in agriculture as well as industry and
services. Though the developments of last year provides support
for both parts of the basic premise of last year's action on
China Permanent Normal Trade Relations (PNTR), the U.S. has no
realistic choice but to engage with, but it also must keep
pressure on China as to the direction it is taking. That was
reinforced by the security issues that figured prominently in
our relationship this last year.
As part of the effort to keep the pressure on China,
several steps were taken in last year's PNTR legislation. One
was establishing a congressional executive commission on the
People's Republic of China. This commission should be up and
running this month, well before China's accession to the WTO.
It will monitor China's compliance with human rights, including
worker rights, compile lists of victims of human rights abuses,
and monitor development of the rule of law in China. It will
release annual reports setting forth its findings, allowing for
a full airing of the facts and issues. The China commission
must play an important role in the dynamic of engagement with
and pressure on China.
As the trade deficit with China has continued to grow and
China's competition with American products increases, the
commitment which the U.S. obtained with respect to antidumping
and the anti-surge mechanism have become more important. In the
PNTR legislation we created the toughest anti-surge and anti-
trade diversion provisions ever enacted into U.S. law. As I
understand it, the most recent round of negotiations have
ensured the U.S. right to use its special antidumping analysis
against China.
Finally, and crucially important as we move forward in our
trading and economic relationships with China, is the issue of
implementation. Benefits of expanded trade with China for
American businesses and workers could be illusory unless the
U.S. remains vigilant, especially because of the weak rule of
law structures in China. In the PNTR legislation we inserted
various mechanisms to ensure monitoring and implementation.
Additionally, the United States Trade Representative (USTR)
successfully delivered on an item requested in that
legislation, a special annual review by the WTO of China's
compliance with its protocol of accession. These annual reviews
will go on for the first 8 years after China's WTO accession,
with one more review to cap China's first decade in the WTO.
Equally important, and I mention to my colleagues here,
will be the implementation, assistance and monitoring that the
U.S. will conduct on its own. We must pursue and fund these
programs vigorously. I think that last year's China PNTR
legislation embodied a right mix of policy. Moving forward we
must follow through with each of these policies to ensure that
we continue to shape our relationship with China.
Thank you, Mr. Chairman.
Chairman Crane. I too want to welcome all of our panelists,
and this hearing of the Ways and Means Trade Subcommittee is to
evaluate our overall U.S.-China trade relations and to consider
the brief extension of normal trade relations status to help
expedite China's imminent succession to the World Trade
Organization.
On October 10th of last year, the President signed
legislation terminating the application of the 1974 Jackson-
Vanik statute which requires the annual consideration of
China's normal trade relations, NTR, status. By a vote of 273
to 197, the House voiced its unwavering support on a bipartisan
basis for the momentous economic and social reforms taking
place in China and committed to extend permanent normal trade
relations to China upon its succession to the WTO.
That firm commitment demonstrated this body's overwhelming
support for bringing China into the rules-based trading system.
Under this deal our tariff on the Chinese imports will not
change, while Chinese tariffs on our imports will be sharply
reduced. China's succession agreement also requires it to
undertake a wide range of market-opening reforms to key sectors
of its economy still under State control. Therefore, unlike any
other major trade agreement, these negotiations represent a set
of one-sided concessions that will grant the United States
unprecedented access to China's 1.2 billion customers.
[The opening statement of Chairman Crane follows:]
Opening Statement of the Hon. Philip M. Crane, a Representative in
Congress from the State of Illinois, and Chairman, Subcommittee on
Trade
Good afternoon. This hearing of the Ways and Means Trade
Subcommittee is to evaluate overall U.S.-China trade relations and to
consider the brief extension of normal trade relations (NTR) status to
help expedite China's imminent accession to the World Trade
Organization (WTO).
On October 10th last year, the President signed legislation
terminating the application of the 1974 Jackson-Vanik statute which
requires the annual consideration of China's normal-trade-relations
(NTR) status. By a vote of 273 to 197, the House voiced its unwavering
support for the momentous economic and social reforms taking place in
China, and committed to extend permanent normal trade relations (PNTR)
status to China--upon its accession to the WTO.
That firm commitment demonstrated this Body's overwhelming support
for bringing China into the rules-based trading system. Under this
deal, our tariffs on Chinese imports will not change, while Chinese
tariffs on our exports will be sharply reduced. China's accession
agreement also requires it to undertake a wide range of market-opening
reforms to key sectors of its economy still under state control.
Therefore, unlike any other major trade agreement, these negotiations
represent a set of one-sided concessions that will grant the United
States unprecedented access to China's 1.2 billion consumers.
On June 11, the United States and China reached a breakthrough
agreement on all of the remaining bilateral trade-liberalization
issues, removing a key stubborn obstacle to China's full and prompt
entry into the WTO. In response, China has indicated its intent to
become a member of the WTO by the end of this year, so it can
participate in the WTO ministerial meetings in Qatar and join the
anticipated new global round of trade negotiations.
This breakthrough represents the culmination of 15 years of
negotiations, and is exceptionally good news. It now appears that
Congress need only re-authorize NTR status one last time--for the span
of just a few months--before China becomes a full member of the WTO. In
light of the historic policy decision made last fall we must keep the
momentum moving forward toward our common goal of integrating China
into the international system of rules and standards. It is my
judgement that, after 15 years, we are almost there.
Of course, I will be the first to admit that relations with China
continue to be rocky and rancorous. Yet, slapping China through
revocation of NTR will not bring about the changes that we all seek in
China. Cutting off avenues of communication and trade will not help the
Chinese people create the future that we wish for them.
Nothing would be better for America's long term national security
interests in China and the Asian region than ensuring that China begins
this century on an economic reform path shaped and defined by the free-
market trade rules of the WTO.
Chairman Crane. And with that, then, I would like to
proceed, and we will start, as I indicated before, with our
distinguished colleague from Virginia, Mr. Wolf.
STATEMENT OF THE HON. FRANK R. WOLF, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF VIRGINIA
Mr. Wolf. I thank you, Mr. Chairman. I think it is time we
as a legislative body face reality about the People's Republic
of China. We have annually debated trade relations with China.
We have heard about human rights abuses, religious persecution,
and nuclear arms sales. But sometimes we must get a sense of
how Winston Churchill must have felt in the thirties, 1935,
1936, 1937, 1938, when he was talking about Nazi Germany and
the world just ignored him, as did the House of Commons.
It has annually been the will of the Congress that we
engage in trade with China with the expectation that human
rights would improve, but the expectations have fallen short.
As we have increased trade, the human rights situation in China
has grown worse. For the past 2 years the Department of State's
annual report--which very few, if any, people actually read--on
human rights in China stated this clearly, and it said, ``the
government's poor human rights record has deteriorated
markedly,'' and ``the government's poor human rights record
worsened and they continued to commit numerous serious
abuses.''
Giving China most favored nation (MFN) status hasn't
changed for better the lives of thousands of men and women
languishing in forced labor prison camps. Human rights
violations in China are about people suffering. They are not
about trade. Human rights violations in China are about people
of faith, people with faith in God, Catholic priests, Catholic
bishops, Protestant pastors, all being sent to a dismal prison
cell because of their having faith. When China violates its own
citizens' human rights, people die. People are put in prison
and families suffer.
I recently read, as I think most of the members did, the
graphic testimony of a Chinese doctor who participated in the
removal of organs and skin from executed prisoners in China. He
writes that his work, ``required me to remove skin and corneas
from the corpses of over one hundred executed prisoners and, on
a couple of occasions, victims of intentionally botched
executions.''
What kind of government skins alive and sells the organs of
its own citizens? And the answer is the Chinese government
does.
The Government of China also persecutes and imprisons
people because of their faith. The U.S. Department of State
recently sent a letter to me on the status of religious
freedom, which I enclose for the record.
The letter states: The Government of China persecutes
believers of many faiths, including Roman Catholics, Muslims,
Tibetan Buddhists and Protestants. It is estimated that some 10
Catholic bishops, scores of Catholic priests and Protestant
house church leaders, 100 to 300 Tibetan Buddhists, hundreds
perhaps thousands, of Falun Gong adherents, and an unknown but
possible significant number of Muslims are in various forms of
detention in China for expression of their belief, their
spiritual faith.
[The following was subsequently received:]
U.S. Department of State
Washington, DC 20520
May 31, 2001
Dear Mr. Wolf:
This is in response to your request of Acting Assistant Secretary
Michael Parmly for additional information during his testimony before
the Human Rights Caucus on May 15 on the status of religious freedom in
China. We appreciate your concern about the recent deterioration of
religious freedoms in China and the large number of persons held in
China for the peaceful expression of their religious or spiritual
views. We regret the delay in responding to your request for
information, but we wanted to provide as comprehensive a list of these
individuals as possible.
We currently estimate that roughly ten Catholic Bishops, scores of
Catholic priests and house church leaders, 100-300 Tibetan Buddhists,
hundreds (perhaps thousands) of Falun Gong adherents, and an unknown
but possibly significant number of Muslims are in various forms of
detention in China for the expression of their religious or spiritual
beliefs. The forms of detention range from de facto house arrest to
imprisonment in maximum security prisons. As you know, we regularly
raise cases of religious prisoners with Chinese officials both here and
in China. Our information about such cases comes from sources as
diverse as religious dissidents, human rights NGOs, interested
Americans and, most importantly, regular reporting from our embassies
and consulates. Unfortunately, the opaqueness of the Chinese criminal
justice system and absence of any central system that provides basic
information on who is incarcerated and why makes it exceedingly
difficult to determine the exact number of religious prisoners
currently being held in China. We have, however, attached lists of
cases of particular concern that we have raised with Chinese
authorities or have included in our human rights and religious freedom
reports.
We recognize the importance of compiling and maintaining a database
of political and religious prisoners from additional sources such as
Chinese newspapers and government notices and appreciate Congressional
interest in providing us additional resources to fund such activities.
At present, the Bureau for Democracy, Human Rights and Labor is
discussing with the International Republican Institute a proposal which
will be submitted through the National Endowment for Democracy. This
proposal will be for a Human Rights and Democracy Fund grant
specifically for the purpose of funding a U.S. NGO's efforts to develop
and maintain a list of political and religious prisoners in China.
Such a database will be extremely valuable to the human rights work
done not only by this bureau but also by other government agencies, the
Congress, and NGOS. We welcome your interest in and support of this
effort and look forward to cooperative efforts to develop and fund a
comprehensive record of religious prisoners in China.
In the meantime, we hope the information in this letter and the
attached lists are helpful to you. We would welcome any case
information that you might have available that could improve the
quality of this list.
Sincerely,
Michael E. Guest
Acting Assistant Secretary
Legislative Affairs
Enclosure:
Listing of Religious Prisoners in China
Illustrative List of Religious Prisoners in China
Note: See comments in cover letter. The following illustrative list is
compiled from various sources, including information provided to us by
reputable non-governmental organizations and from the State
Department's annual reports on human rights and on religious freedom.
We cannot vouch for its overall accuracy or completeness.
MUSLIMS Status
Xinjiang Abduhelil Abdumijit Tortured to death in custody
Turhong Awout Executed
Rebiya Kadeer Serving 2nd year in prison
Zulikar Memet Executed
Nurahmet Niyazi Sentenced to death
Dulkan Rouz Executed
Turhan Saidalamoud Sentenced to death
Alim Younous Executed
Krubanjiang Yusseyin Sentenced to death
PROTESTANTS (misc.)
Qin Baocai Re-education through labor sentence
Zhao Dexin Serving 3rd year in prison
Liu Haitao Tortured to death in custody
Miao Hailin Serving 3rd year in prison
Han Shaorong Serving 3rd year in prison
Mu Sheng Re-education through labor sentence
Li Wen Serving 3rd year in prison
Yang Man Serving 3rd year in prison
Chen Zide Serving 3rd year in prison
EVANGELISTIC FELLOWSHIP
Hao Huaiping Serving re-education sentence
Jing Quinggang Serving re-education sentence
Shen Yiping Re-education; status unknown
COLD WATER RELIGION
Liu Jiaguo Executed in October 1999
FENGCHENG CHURCH GROUP
Zheng Shuquian Re-education; status unknown
David Zhang Re-education; status unknown
CATHOLICS
Bishops
Bishop Han Dingxiang Arrested in 1999, status unknown
Bishop Shi Engxiang Arrested in October 1999
Bishop Zeng Jingmu Rearrested on September 14, 2000
Bishop Liu House arrest in Zhejiang
Bishop Jiang Mingyuang Arrested in August 2000
Bishop Mattias Pei Shangde Arrested in early April 2001
Bishop Xie Shiguang Arrested in 1999; status unknown
Bishop Yang Shudao Arrested Feb. 2001; status unknown
Bishop An Shuxin Remains detained in Hebei
Bishop Li Side House Arrest
Bishop Zang Weizhu Detained in Hebei
Bishop Lin Xili Arrested Sept. 1999, status unknown
Bishop Su Zhimin Whereabouts unknown
Priests
Fr. Shao Amin Arrested September 5, 1999
Fr. Wang Chengi Serving re-education sentence
Fr. Wang Chengzhi Arrested September 13, 1999
Fr. Zhang Chunguang Arrested May 2000
Fr. Lu Genjun Serving 1st year of 3 year sentence
Fr. Xie Guolin Serving 1st year of 1 year sentence
Fr. Li Jianbo Arrested April 19 2000
Fr. Wei Jingkun Arrested August 15, 1998
Fr. Wang Qingyuan Serving 1st year of 1 year sentence
Fr. Xiao Shixiang Arrested June 1996, status unknown
Fr. Hu Tongxian Serving 3rd year of 3 year sentence
Fr. Cui Xingang Arrested March 1996
Fr. Guo Yibao Arrested April 4 1999
Fr. Feng Yunxiang Arrested April 13 2001
Fr. Ji Zengwei Arrested March 2000
Fr. Wang Zhenhe Arrested April 1999
Fr. Yin Serving 1st of 3 year sentence
Fr. Kong Boucu Arrested October 1999
Fr. Lin Rengui Arrested Dec. 1997, status unknown
Fr. Pei Junchao Arrested Jan. 1999, status unknown
Fr. Wang Chengi Arrested Dec. 1996, status unknown
TIBETAN BUDDHISTS
Lamas
Gendun Choekyi Nyima House Arrest
Pawo Rinpoche House Arrest
Nuns
Ngawang Choekyi Serving 9th year of 13 year sentence
Ngawang Choezom Serving 9th year of 11 year sentence
Chogdrub Drolma Serving 6th year of 11 year sentence
Jamdrol Serving 6th year of 7 year sentence
Namdrol Lhamo Serving 9th year of 12 year sentence
Phuntsog Nyidrol Serving 12th year of 17 year sentence
Yeshe Palmo Serving 4th year of 6 year sentence
Ngawang Sangdrol Serving 9th year of 21 year sentence
Jigme Yangchen Serving 11th year of 12 year sentence
Monks
Ngawang Gyaltsen Serving 12th year of 17 year sentence
Ngawang Jamtsul Serving 12th year of 15 year sentence
Jamphel Jangchub Serving 12th year of 18 year sentence
Ngawang Kalsang Serving 6th year of 8 year sentence
Thubten Kalsang Sentence not reported
Lobsang Khetsun Serving 5th year of 12 year sentence
Phuntsok Legmon Sentenced to 3 years in prison
Namdrol Sentenced to 4 years in prison
Yeshe Ngawang Serving 12th year of 14 year sentence
Ngawang Oezer Serving 12th year of 17 year sentence
Ngawang Phuljung Serving 12th year 19 year sentence
Lobsang Phuntsog Serving 6th year of 12 year sentence
Sonam Phuntsok Arrested in October 1999
Phuntsog Rigchog Serving 7th year of 10 year sentence
Lobsang Sherab Serving 5th year of 16 year sentence
Sonam Rinchen Serving 15 year sentence
Ngawang Sungrab Serving 9th year of 13 year sentence
Jampa Tenkyong Serving 10th year of 15 year sentence
Ngawang Tensang Serving 10th year of 15 year sentence
Lobsang Thubten Serving 7th year of 15 year sentence
Agya Tsering Arrested in October 1999
Trinley Tsondru Serving 5th year of 8 year sentence
Tenpa Wangdrag Serving 13th year of 14 year sentence
Mr. Wolf. What kind of government imprisons its nation's
religious leaders? The answer is it is China. When China
violates its own citizens' human rights, people die, they
suffer.
Today is the 150th day a mother and a wife, a permanent
resident from my Congressional District, has been in jail, Dr.
Gao Zhan. The Chinese government took her away, has not allowed
our government to talk to her, separated her from her 5-year-
old child, and today we still don't know anything about her.
Successive Presidents and previous Congresses have acted to
trade with the People's Republic of China, expecting China's
human rights record to improve. After nearly two decades of
many different administrations, Republican and Democrat, in
which China has received MFN status, it is clear religious
freedom and human rights have been given lip service.
It is time to try something new, and that is to link these
things together the way that we have in other areas. I don't
expect this Congress to do it. I don't expect this
administration to do it. And I will predict that human rights
in China will continue to get worse and worse and people will
be imprisoned and killed for their fundamental beliefs, because
they have faith in God and they want to practice it.
And I thank the gentleman for the opportunity, and I yield
back the balance of my time.
[The prepared statement of Mr. Wolf follows:]
Statement of the Hon. Frank R. Wolf, a Representative in Congress from
the State of Virginia
Mr. Chairman, thank you for the opportunity to testify today.
I think it is time we as a legislative body face reality about the
People's Republic of China. We've annually debated trade relations with
China. We've heard about human rights abuses, religious persecution,
nuclear arms sales. And it has annually been the will of the Congress
that we engage in trade with China with the expectation that human
rights would improve.
But the expectations have fallen short. As we have increased trade,
the human rights situation in China has grown worse. For the past two
years, the Department of State's annual report on human rights in China
has stated this clearly, saying: ``the Government's poor human rights
record has deteriorated markedly'' and ``the Government's poor human
rights record worsened, and it continued to commit numerous serious
abuses.''
Giving China most favored nation status hasn't changed for the
better the lives of thousands of men and women languishing in forced
labor prison camps. Human rights violations in China are about people
who are suffering. Human rights violations in China are about people of
faith being thrown into a dismal prison cell because of their faith.
When China violates its own citizens' human rights, people die,
people suffer and families are torn apart.
I recently read the graphic testimony of a Chinese doctor who
participated in the removal of organs and skin from executed prisoners
in China. Dr. Wang Guoqi was a skin and burn specialist employed at a
People's Liberation Army hospital. He recently testified before the
House International Relations Subcommittee on International
Organizations and Human Rights on the Government of China's involvement
in the execution, extraction, and trafficking of prisoner's organs. I
enclose Dr. Wang's statement for the record.
Dr. Wang writes that his work ``required me to remove skin and
corneas from the corpses of over one hundred executed prisoners, and,
on a couple of occasions, victims of intentionally botched
executions.''
What kind of government skins alive and sells the organs of its own
citizens?
The Government of China also persecutes and imprisons people
because of their religious beliefs. The U.S. Department of State
recently sent me a letter on the status of religious freedom in China,
which I enclose for the record. This letter states that the Government
of China persecutes believers of many faiths, including Roman
Catholics, Muslims, Tibetan Buddhists and Protestant Christians.
It is estimated that some ``ten Catholic Bishops, scores of
Catholic priests and [Protestant] house church leaders, 100-300 Tibetan
Buddhists, hundreds (perhaps thousands) of Falun Gong adherents, and an
unknown but possible significant number of Muslims are in various forms
of detention in China for the expression of their religious or
spiritual beliefs.''
What kind of government imprisons its nation's religious leaders?
When China violates its own citizens' human rights, people die,
people suffer and families are torn apart.
Today is the 150th day a mother and wife and permanent
U.S. resident has spent in a Chinese jail. Dr. Gao Zhan is a researcher
at American University here in Washington, D.C. She is my constituent.
She studies women's issues. One hundred and fifty days ago, Chinese
authorities detained Gao Zhan and her husband and their 5-year-old son,
Andrew. In the matter of an instant, this happy young family was torn
apart by the regime in Beijing. A 5-year-old child was taken from his
parents, a young couple was divided by prison walls and armed guards.
Imagine how you would feel if the Government of China did this to your
family. Imagine how you would feel if the Government of China put your
5-year-old son in prison.
What kind of government imprisons mothers who are academic experts
on women's issues?
Successive Presidents and previous Congresses have acted to trade
with the People's Republic of China expecting China's human rights
record to improve. After nearly two decades in which China has received
most favored nation status, it is clear religious freedom and human
rights have been given lip service by the Chinese government.
It is time to try something new in our China policy. If the U.S.
wants China's human rights record to improve, the U.S. ought to
withhold normal trade status until the Chinese government proves that
it will treat its own people, its mothers, fathers, religious leaders
and even common criminals with the dignity, compassion and respect that
all human life deserves.
TESTIMONY OF WANG GUOQI
FORMER DOCTOR AT A CHINESE PEOPLE'S LIBERATION ARMY HOSPITAL
before the
SUBCOMMITTEE ON INTERNATIONAL OPERATIONS AND HUMAN RIGHTS
of the
UNITED STATES HOUSE OF REPRESENTATIVES
My name is Wang Guoqi and I am a 38-year-old physician from the
People's Republic of China. In 1981, after standard childhood schooling
and graduation, I joined the People's Liberation Army. By 1984, I was
studying medicine at the Paramilitary Police Paramedical School. I
received advanced degrees in Surgery and Human Tissue Studies, and
consequently became a specialist in the burn victims unit at the
Paramilitary Police Tianjin General Brigade Hospital in Tianjin. My
work required me to remove skin and corneas from the corpses of over
one hundred executed prisoners, and, on a couple of occasions, victims
of intentionally botched executions. It is with deep regret and remorse
for my actions that I stand here today testifying against the practices
of organ and tissue sales from death row prisoners.
My involvement in harvesting the skin from prisoners began while
performing research on cadavers at the Beijing People's Liberation Army
Surgeons Advanced Studies School, in Beijing's 304th Hospital. This
hospital is directly subordinate to the PLA, and so connections between
doctors and officers were very close. In order to secure a corpse from
the execution grounds, security officers and court units were given
``red envelopes'' with cash amounting to anywhere between 200-500 RMB
per corpse. Then, after execution, the body would be rushed to the
autopsy room rather than the crematorium, and we would extract skin,
kidneys, livers, bones, and corneas for research and experimental
purposes. I learned the process of preserving human skin and tissue for
burn victims, and skin was subsequently sold to needy burn victims for
10 RMB per square centimeter.
After completing my studies in Beijing, and returning to Tianjin's
Paramilitary Police General Brigade Hospital, I assisted hospital
directors Liu Lingfeng and Song Heping in acquiring the necessary
equipment to build China's first skin and tissue storehouse. Soon
afterward, I established close ties with Section Chief Xing, a criminal
investigator of the Tianjin Higher People's Court.
Acquiring skin from executed prisoners usually took place around
major holidays or during the government's Strike Hard campaigns, when
prisoners would be executed in groups. Section Chief Xing would notify
us of upcoming executions. We would put an order in for the number of
corpses we'd like to dissect, and I would give him 300 RMB per cadaver.
The money exchange took place at the Higher People's Court, and no
receipts or evidence of the transaction would be exchanged.
Once notified of an execution, our section would prepare all
necessary equipment and arrive at the Beicang Crematorium in plain
clothes with all official license plates on our vehicles replaced with
civilian ones. This was done on orders of the criminal investigation
section. Before removing the skin, we would cut off the ropes that
bound the criminals' hands and remove their clothing. Each criminal had
identification papers in his or her pocket that detailed the executee's
name, age, profession, work unit, address, and crime. Nowhere on these
papers was there any mention of voluntary organ donation, and clearly
the prisoners did not know how their bodies would be used after death.
We had to work quickly in the crematorium, and 10-20 minutes were
generally enough to remove all skin from a corpse. Whatever remained
was passed over to the crematorium workers. Between five and eight
times a year, the hospital would send a number of teams to execution
sites to harvest skin. Each team could process up to four corpes, and
they would take as much as was demanded by both our hospital and
fraternal hospitals. Because this system allowed us to treat so many
burn victims, our department became the most reputable and profitable
department in Tianjin.
Huge profits prompted our hospital to urge other departments to
design similar programs. The urology department thus began its program
of kidney transplant surgeries. The complexity of the surgery called
for a price of $120-150,000 RMB per kidney.
With such high prices, primarily wealthy or high-ranking people
were able to buy kidneys. If they had the money, the first step would
be to find a donor-recipient match. In the first case of kidney
transplantation in August 1990, I accompanied the urology surgeon to
the higher court and prison to collect blood samples from four death-
row prisoners. The policeman escorting us told the prisoners that we
were there to check their health conditions; therefore, the prisoners
did not know the purpose for their blood samples or that their organs
might be up for sale. Out of the four samplings, one basic and sub-
group blood match was found for the recipient, and the prisoner's
kidneys were deemed fit for transplantation.
Once a donor was confirmed, our hospital held a joint meeting with
the urology department, burn surgery department, and operating room
personnel. We scheduled tentative plans to prepare the recipient for
the coming kidney and discussed concrete issues of transportation and
personnel. Two days before execution, we received final confirmation
from the higher court, and on the day of the execution, we arrived at
the execution site in plain clothes. In the morning, the donating
prisoner had received a heparin shot to prevent blood clotting and ease
the organ extraction process. When all military personnel and condemned
prisoners would arrive at the site, the organ-donating prisoner was
brought forth for the first execution.
At the execution site, a colleague, Xing Tongyi, and I were
responsible for carrying the stretcher. Once the hand-cuffed and leg-
ironed prisoner had been shot, a bailiff removed the leg irons. Xing
Tongyi and I had 15 seconds to bring the executee to the waiting
ambulance. Inside the ambulance, the best urologist surgeons removed
both kidneys, and rushed back to the waiting recipient at the hospital.
Meanwhile, our burn surgery department waited for the execution of the
following three prisoners, and followed their corpses to the
crematorium where we removed skin in a small room next to the furnaces.
Since our director had business ties with the Tianjin Ophthalmologic
Hospital and Beijing's 304th Hospital, he instructed us to extract the
executee's corneas as well.
Although I performed this procedure nearly a hundred times in the
following years, it was an incident in October 1995 that has tortured
my conscience to no end. We were sent to Hebei Province to extract
kidneys and skin. We arrived one day before the execution of a man
sentenced to death for robbery and the murder of a would-be witness.
Before execution, I administered a shot of heparin to prevent blood
clotting to the prisoner. A nearby policeman told him it was a
tranquilizer to prevent unnecessary suffering during the execution. The
criminal responded by giving thanks to the government.
At the site, the execution commander gave the order, ``Go!,'' and
the prisoner was shot to the ground. Either because the executioner was
nervous, aimed poorly, or intentionally misfired to keep the organs
intact, the prisoner had not yet died, but instead lay convulsing on
the ground. We were ordered to take him to the ambulance anyway where
urologists Wang Zhifu, Zhao Qingling and Liu Qiyou extracted his
kidneys quickly and precisely. When they finished, the prisoner was
still breathing and his heart continued to beat. The execution
commander asked if they might fire a second shot to finish him off, to
which the county court staff replied, ``Save that shot. With both
kidneys out, there is no way he can survive.'' The urologists rushed
back to the hospital with the kidneys, the county staff and executioner
left the scene, and eventually the paramilitary policemen disappeared
as well. We burn surgeons remained inside the ambulance to harvest the
skin. We could hear people outside the ambulance, and fearing it was
the victim's family who might force their way inside, we left our job
half-done, and the half-dead corpse was thrown in a plastic bag onto
the flatbed of the crematorium truck. As we left in the ambulance, we
were pelted by stones from behind.
After this incident, I have had horrible, reoccurring nightmares. I
have participated in a practice that serves the regime's political and
economic goals far more than it benefits the patients. I have worked at
execution sites over a dozen times, and have taken the skin from over
one hundred prisoners in crematoriums. Whatever impact I have made in
the lives of burn victims and transplant patients does not excuse the
unethical and immoral manner of extracting organs.
I resolved to no longer participate in the organ business, and my
wife supported my decision. I submitted a written report requesting
reassignment to another job. This request was flatly denied on the
grounds that no other job matched my skills. I began to refuse to take
part in outings to execution sites and crematoriums, to which the
hospital responded by blaming and criticizing me for my refusals. I was
forced to submit a pledge that I would never expose their practices of
procuring organs and the process by which the organs and skin were
preserved and sold for huge profits. They threatened me with severe
consequences, and began to train my replacement. Until the day I left
China in the spring of 2000, they were still harvesting organs from
execution sites.
I hereby expose all these terrible things to the light in the hope
that this will help to put an end to this evil practice.
Chairman Crane. Thank you. Ms. Pelosi.
STATEMENT OF THE HON. NANCY PELOSI, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Ms. Pelosi. Thank you very much Mr. Chairman, Ranking
Member Levin, members of the Committee. Thanks for the
opportunity once again to talk to you about permanent normal
trade relations with China. Mr. Chairman, really in light of
last year's passage of the PNTR with China bill, I had hoped
that we would not have to proceed with this year's debate. Last
year's vote was based on promises, not performances, however.
So here we are again.
As you know, we have been coming here year in and year out
over the past dozen years. We have raised concerns about the
human rights situation in China, China's proliferation of
weapons of mass destruction and lack of market access and other
trade violations that China was committing vis-a-vis the U.S.
We were right. Twelve years have gone by. The human rights
situation is worse, and China continues to occupy Tibet, arrest
people for their religious and political beliefs, and the list
goes on and on. Now it includes arresting Americans, American
citizens, and legal residents.
But you mentioned, Mr. Levin, and I believe the Chairman
did as well, that the passage of the permanent normal trade
relations would help expedite China's entry into the WTO. That
was the hope that we all had. We don't want to be proven wrong
on that, that this is going to go on and on and on for a number
of years before China honors its bilateral commitments and does
accede to the WTO.
When we started the MFN debate following the 1989 Tiananmen
Square massacre, the reported U.S. deficit for China--that was
1989, but they were reporting the 1988 deficit--it was $2
billion a year. In 2000 the trade deficit with China was $83.8
billion, up from $68.7 billion from 1999. According to the
Congressional Research Service, the projected U.S. trade
deficit with China for 2000 will be $100 billion. We have gone
from a deficit of $2 billion a year to $2 billion a week.
Something is wrong with this picture. This policy is not
working, just on the basis of trade alone, if you can forget
all that Mr. Wolf described in terms of human rights
violations, and the proliferation of weapons of mass
destruction.
Again, when we started the MFN debate following Tiananmen
Square, we were told that trade would improve human rights.
Again, the news is bad. According to the State Department's
2000 Country Report on Human Rights, and Mr. Wolf quoted it, so
I will just reference that the government has intensified
crackdowns on religion and in Tibet, intensified its harsh
treatment of political dissent and suppressed any person or
group perceived to threaten the government.
The rest I will submit for the record. Tragically, each
year this report has essentially documented a continuing
deterioration of human rights in China. But every political
dissident is either in jail or in exile. Indeed, trade has not
improved human rights in China.
When, again, we started the MFN debate after Tiananmen
Square, another issue of concern was China's proliferation of
weapons of mass destruction. Again, the news is bad, as China
has continued to proliferate dangerous weapons of mass
destruction to unsafeguarded nations, countries of concern and
rogue States, including Pakistan, North Korea, Iran, Iraq,
Syria and Libya.
We are having this debate again this year because what we
have seen for the past year is a continuation of China's
pattern in bilateral and multilateral trade agreements; signing
trade agreements and not abiding by them, or removing one set
of barriers while erecting another one. Either way the results
are the same. No good news.
The most serious stumbling blocks--and I want to just focus
now on the trade issues--the most serious stumbling blocks have
been negotiations over agricultural provisions and the Chinese
government's insistence that it be treated as a developing
country for WTO's purposes, despite the fact that we have been
told that China was to enter the WTO as a developed country and
the fact that China is the world's 10th largest economy.
I point out agriculture because those were the promises
made to so many members, that this was going to open so many
markets for U.S. agricultural products. The status of
agriculture is of great concern. The U.S. and China on April
10th, 1999 signed the agreement on U.S.-China Agricultural
Cooperation to eliminate Chinese barriers to imports of U.S.
citrus, meat, poultry, wheat and other grains. The agreement
was cited regularly during the PNTR debate as evidence that a
new page had been turned in U.S.-China trade.
However, according to the Bush administration, this Bush
administration's 2001 Trade Policy Agenda and 2000 Annual
Report, ``China's compliance with this agreement has been
inconsistent and U.S. exporters still do not have the access
envisioned in this agreement.'' The report notes a number of
problems, including the implementation of new barriers to
poultry imports, the imposition of other WTO-inconsistent
restrictions, and measures designed to replace other
restrictions removed in connection with our bilateral agreement
and WTO negotiations.
I will submit more on that for the record, but I would also
like to submit the whole agricultural section of the 2001 Trade
Policy Agenda and Report for the record.
Chairman Crane. Without objection so ordered.
[The report is being retained in the Committee files.]
Ms. Pelosi. Thank you, Mr. Chairman. And I would hope that
the members of this Committee, if you have not yet read the
China section of the administration's 2001 National Trade
Estimate Report on Foreign Trade Barriers, I urge you to do so.
The 27 pages on China describe a full range of challenges
confronting U.S. goods and services seeking to enter China,
such as the installation of new or worsened trade barriers.
Our intellectual property is supposed to be our competitive
advantage, but we must confront the fact that the U.S. economy
has lost over $15 billion to Chinese piracy since 1995 alone,
according to the International Intellectual Property Alliance
(IIPA). The IIPA 2001 Special 301 Report documents that piracy
rates in China continue to hover at the 90 percent level,
reports on an alarming increase in the production of pirate
optical media products including DVDs by licensed as well as
underground CD plants. More for the record, but I will conclude
that section by saying that the report says China has fallen
behind in implementing the State Council's 1999 software
legalization decree with respect to uses of unauthorized copies
of software in government enterprises and business and
ministries.
Last year, Congress voted PNTR for China. I hoped, again as
I said earlier, that we would not have this NTR debate again.
In fact, Mr. Rohrabacher and I were working with Mr. Matsui in
the hopes that we would not have to even come to this. However,
all that changed with the detention of the U.S. crew and the
arrest of at least six American citizens or legal residents.
While some in the United States may want to look the other way
on China's human rights abuses and proliferation violations,
how much longer can we on the Trade Committee look the other
way or ignore China's violations of trade agreements?
We should use this debate this year--as Mr. Levin had said
earlier, this is an opportunity. We should use this debate to
focus on why China has not yet acceded to the WTO and how many
more years we will have to continue to have this debate until
the Chinese government honors its trade agreements. We owe that
to the American people and especially those who wish to export
to China.
I don't know how many more people have to be repressed, or
how many more years China will have to brutally occupy Tibet,
or how many more people will be persecuted for their religious
and political beliefs, or how many more Americans will have to
be arrested in China to get the attention of the Committee, but
I hope it won't be too many more.
Thank you again, Mr. Chairman, Mr. Levin, members of the
Committee, for the opportunity to present my views, and I am
submitting that for the record. Thank you for receiving it.
Don't forget to read this book. Thank you very much, Mr.
Chairman.
Chairman Crane. Thank you. And one consolation with regard
to the annual renewal, as I think the concessions made at the
most recent negotiations in the agriculture area will mean that
this is our last time to have to go through it.
Ms. Pelosi. I hope so.
[The prepared statement of Ms. Pelosi follows:]
Statement of the Hon. Nancy Pelosi, a Representative in Congress from
the State of California
In light of last year's passage of Permanent Normal Trade Relations
with China, I had hoped that we would not have to proceed with this
year's debate. Last year's vote was based on promises, not performance,
so here we are again.
As you know, over the past dozen years, my colleagues and I have
appeared before this Committee to discuss many facets of the U.S.-China
relationship--trade, proliferation and human rights. We cannot be
encouraged by the results of the decisions this Congress has made.
When we started the MFN debate following the 1989 Tiananmen Square
massacre, the reported U.S. trade deficit with China for 1988 was
around $2 BILLION. In 2000, the United States trade deficit with China
was $83.8 BILLION, up from $68.7 BILLION in 1999. According to the
Congressional Research Service, the projected U.S. trade deficit with
China for 2000 will be $100 BILLION. We have gone from a deficit of $2
BILLION per year to a deficit of $2 BILLION per week.
When we started the MFN debate following Tiananmen Square, we were
told that trade would improve human rights. Again, the news is bad.
According to the U.S. State Department's 2000 Country Reports on Human
Rights Practices regarding China issued this year, ``The Government's
poor human rights record worsened, and it continued to commit numerous
human rights abuses. The Government intensified crackdowns on religion
and in Tibet, intensified its harsh treatment of political dissent, and
suppressed any person or group perceived to threaten the Government.''
Tragically, each year this report has essentially documented a
continuing deterioration of human rights in China. Every political
dissident is either in jail or in exile.
When we started the MFN debate after Tiananmen Square, another
issue of concern was China's proliferation of weapons of mass
destruction. Again the news is bad, as China has continued to
proliferate dangerous weapons of mass destruction to unsafeguarded
nations, countries of concern, and rogue states, including Pakistan,
North Korea, Iran, Iraq, Syria and Libya.
We are having the debate again this year, because what we have seen
for the past year is a continuation of China's pattern in bilateral and
multilateral agreements: signing trade agreements and not abiding by
them, or removing one set of barriers while erecting another one.
Either way, the results are the same.
The most serious stumbling blocks have been negotiations over
agriculture provisions and the Chinese government's insistence that it
be treated as a developing country for WTO purposes, despite the fact
that we had been told that China was to enter the WTO as a developed
country, and the fact that China is the world's tenth largest economy.
The status of agriculture is of great concern. The United States
and China, on April 10, 1999, signed the Agreement on U.S.-China
Agricultural Cooperation to eliminate Chinese barriers to imports of
U.S. citrus, meat and poultry, wheat and other grains. This agreement
was cited regularly during the PNTR debate as evidence that a new page
had been turned in U.S.-China trade. However, according to the Bush
Administration's ``2001 Trade Policy Agenda and 2000 Annual Report,''
``China's compliance with this agreement has been inconsistent and U.S.
exporters still do not have the access envisioned in this agreement.''
The report notes a number of problems, including the implementation
of new barriers to poultry imports, the imposition of ``other WTO-
inconsistent restrictions'' and measures ``designed to replace other
restrictions removed in connection with our bilateral agreement and the
WTO accession negotiations.'' China agreed to remove phytosanitary
barriers to wheat and other grains from the Pacific Northwest beginning
April 1999. According to the report, ``less than 100,000 metric tons of
grain have been shipped to China, and most of it has been stopped at
the border due to new internal measures calling for special processing
of U.S. grains.'' Similar problems exist for varieties of apples,
plums, potatoes and pears. I would like to submit for the record the
section from the ``2001 Trade Policy Agenda'' describing on-going
implementation problems in Agriculture.
If the members of this Subcommittee have not yet read the China
section of the Administration's 2001 National Trade Estimate Report on
Foreign Trade Barriers, I urge you to do so. The 27 pages on China
describe a full range of challenges confronting U.S. goods and services
seeking to enter China, such as the installation of ``new or worsened
trade barriers.'' Examples of special concern include: cosmetic testing
and registration requirements, educational testing services, chain
store regulations, restrictions on the import of chicken meat,
implementation of agreements on TCK in wheat and barley, and the
registration of internet content providers. This report documents
problems being faced by a very wide range of U.S. products and
services, from motor vehicles to wine and spirits, from potato flakes
to high technology, from grapes to insurance.
Our intellectual property is our competitive advantage, but we must
confront the fact that the U.S. economy has lost over $15 BILLION due
to Chinese piracy of our intellectual property since 1995 alone,
according to the International Intellectual Property Alliance (IIPA).
The IIPA's 2001 Special 301 report documents that ``piracy rates in
China continue to hover at the 90% level,'' reports on an ``alarming
increase in the production of pirate optical media products including
DVDs by licensed as well as underground CD plants,'' and expresses
concern about the ``increasing sophistication in the pirate market
including . . . growing Internet piracy . . . growing production of
higher quality counterfeit products . . . the still rampant piracy of
computer software by business enterprises,'' and that ``China has
fallen behind in implementing the State Council's (1999) software
legalization decree . . . with respect to uses of unauthorized copies
of software in government enterprises and ministries.'' (emphasis
added)
Last year, Congress voted for Permanent Normal Trade Relations for
China. I had hoped that we would not have to debate annual NTR again
this year. Indeed, we were working toward a plan to avoid this debate.
However, that all changed with the detention of the U.S. crew and the
arrest of at least six American citizens or legal residents. While some
in the United States might want to look the other way on China's human
rights abuses and proliferation violations, how much longer can we
ignore China's violations of trade agreements? We should use this
debate to focus on why China has not yet acceded to the WTO and how
many more years we will have to have this debate until the Chinese
government honors its trade agreements. We owe that to the American
people.
[The attachment is being retained in the Committee files.]
Chairman Crane. And with that, Mr. Rohrabacher.
STATEMENT OF THE HON. DANA ROHRABACHER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Rohrabacher. Thank you, Mr. Chairman. As we discuss
this issue, I think we all should think about what happened
just a few months ago. A few months ago, this very same
government that we are now suggesting should have normal trade
relations like any other government, forced an American
aircraft out of the sky in an attempt to murder the 24 military
crew members--but they survived. And then those 24 military
crew members were held hostage for 11 days.
You know, this is the government that we want to have
normal trade relations with? This is an insult to the American
people, it is an insult to our standards, and it is especially
a slap in the face to those people in our military who we
expect to defend us against this monstrous threat. And it is a
monstrous threat.
Communist China is America's most potential adversary and
enemy in the future. We all know that. Nobody is saying it, but
we all know that. This is like--we mentioned Nazi Germany
before and the things that were leading up to the war in Nazi
Germany. IBM and a lot of other major corporations were making
a lot of money dealing with Nazi Germany. They, too, were major
human rights abusers, but our trade was going to make it
better. Let's give the Nazis the Olympics, for example.
There are a lot of historic parallels here, and I know a
lot of people, after we found out what Nazi Germany was all
about and after we suffered because of the consequences of the
West's absolute indefensible strategy against the Nazis, what
happened? There was a lot of people who sort of brushed that
aside. Well, no, we made some very serious errors in our
dealing with tyrannical threats to America and to the West in
the twenties and thirties and it led to World War II.
We are making those same mistakes right now with Communist
China. We should not be treating Communist China the same way
we treat our democratic friends. I believe in free trade, but
free trade between free people. If we extend normal trade
relations to a regime like exists in Beijing, they would look
at that as a sign of weakness.
And what are they doing with that $80 billion surplus that
we are permitting them to have? You know, we are setting up the
rules here. What are they doing with the $80 billion that they
make off the trade surplus of the United States? Well, they are
beefing up their military so it makes them easier to knock
American military aircraft out of the sky and to intimidate the
United States military and to hold our people hostage. Is that
what we want? And by the way, this isn't about free trade. This
isn't about free trade with China at all.
What does normal trade relations really mean when it comes
to what we are discussing today? What it means is that China is
eligible for subsidies from the Import-Export Bank. What we are
talking about today isn't free trade or capitalism. What it is
talking about is making the American taxpayer eligible to
subsidize to the Export-Import Bank through subsidized interest
rates on the loans, or actually subsidizing guaranteed loans to
companies who want to close up in the United States and set up
factories in this military dictatorship in order to use and
exploit the slave labor in China.
Is that what we want? Is that what the American people
want? We want to encourage, we want to subsidize American
business to go into a Communist dictatorship and set up their
businesses there, to exploit the slave labor there? I don't
think so. I don't think that is moral, I don't think it is
leading America in the right direction strategically, and it is
indefensible.
All along we have been told if we do this just a little bit
more, let's subsidize our big businessmen to set up their
factories in China through the Export-Import Bank, and you know
what will happen? Once they have more economic interaction with
us, it is going to liberalize their country. It is not
liberalizing their country at all. As we speak, they are
murdering members of the Falun Gong, which is nothing more than
a little religious cult that believes in yoga and meditation,
and they are murdering these people. There was a report that 10
more of them died in captivity, some of them women, after they
were tortured by the government of Communist China.
No, it is not getting any better in China. It is getting
worse in the United States. Our immoral relationship with this
Communist dictatorship is lowering our standards. It is not
raising their standards. We now just shrug our shoulders. We
let them get away with shooting down our airplanes or holding
our people hostage. We let them get away with these things.
Why? Why, because there are some people in this country who are
making a lot of money, that are billionaires who are making
money by exploiting the slave labor in China. And what is
worse, this bill that we are talking about will permit those
billionaires to get government guaranteed loans to set up their
factories there. That is what this is all about. And it is a
shameful thing, and it was a shameful thing when that happened
with the Nazis in the thirties, and I can assure you when the
historic record is clear, there are going to be many Americans
who are ashamed of this policy as well.
We need to stand up for what our Founding Fathers meant
America to stand up for. We are not a country of people just
coming here to make a fast buck. We are here to stand for
freedom and justice, with liberty and justice for all. And not
only do the Chinese persecute their own people, but right now
they have a number of American citizens, who are legal
residents from our country, under their control and being held
hostage. How can we even seriously consider giving normal trade
relations to a country that is holding our own people hostage
like that?
I cannot more emphatically say this should be denied, and I
am very proud to be the author of the denial of the President's
request to extend the Jackson-Vanik provision on trade of the
Trade Act of 1974. Communist China is not a country that
deserves this. Thank you very much.
Chairman Crane. Thank you, Mr. Rohrabacher.
[The prepared statement of Mr. Rohrabacher follows:]
Statement of the Hon. Dana Rohrabacher, a Representative in Congress
from the State of California
I have introduced House Joint Resolution 50, a resolution
disapproving the extension of the President's waiver on the ``Jackson-
Vanik'' provision in the Trade Act of 1974. My reason for this
resolution is a matter of national security as well as massive
violations of human rights by an emerging superpower. During the past
twelve months, despite previous Presidential waivers, the communist
Chinese have used their $80 billion annual trade surplus with the
United States to further modernize its military and boost its nuclear
force targeting America and our friends in Taiwan, Japan and India. In
addition to intensified campaigns to crack-down on religious believers
independent of state controlled organizations, freedoms of press and
speech have been thoroughly suppressed.
The sad reality is that increased Western investment and U.S.
taxpayer subsidized transfers of U.S. industries for near-slave labor
conditions in Communist China has only strengthened the grip of the
Beijing despots and corrupt ``princelings'' who dominate the state-
controlled economy. Rather than changing China, it is America that has
changed our owned standards in support of freedom and against arming
potential nuclear-armed adversaries. I believe in free trade--among
free people, and not subsidizing American corporations to invest in
lawless one-party states where it is a prisonable offense to make
public economic statistics and where private U.S. banks and insurance
companies won't back loans.
Despite negotiations over entry to the World Trade Organizations
and their bidding to host the 2008 Olympic games, last week Beijing
sent home in pieces the U.S. military aircraft that they forced down
from international airspace and demanded $1 million from our government
for the cost of their unlawfully detaining the U.S. air crew. The
pugnacious Beijing bullies have no fear that this august body will
reconsider our illogical subsidies and massive investment into their
despotic regime. This week our media revealed shocking news of at least
ten more Falun Gong meditators, including women, perishing in a prison
labor camp after severe torture. Jiang Zemin has again threatened
military conquest of democratic Taiwan.
On July 8, a Washington Post editorial stated: ``Beijing appears
prepared to press on with repression even while demanding that the
world accept it as an Olympic host and World Trade Organization member.
The list of offenses grows . . . a larger crackdown on free thought has
included the shutting down of Internet cafes and independent-minded
newspapers and arresting dissidents. There is the continuing campaign
against religion. . . . There is the massive use of the death penalty.
Amnesty International says more people have been executed in China
during the past three months--1,781--than in all the rest of the world
during the past three years.'' And there was compelling testimony
recently in this House by witnesses of the macabre business practice of
Chinese officials harvesting the organs of freshly executed prisoners.
After World War II, most American leaders said ``never again'' would we
ignore Nazi-style tactics by any regime on this planet. How soon some
people forget the tragic lessons of recent history.
Mr. Chairman, I request permission to enter into the record the
copy of the cover story of the July 9, 2001 New Republic magazine,
titled ``Why Trade Won't Bring Democracy to China,'' by Lawrence F.
Kaplan. I urge my colleagues to read this devastating historical and
contemporary study of how our trade and subsidy policies have
strengthened the brutal Beijing regime without bringing about any
substantial democratic reforms or temperance of their systematic human
rights abuses.
I urge my colleagues to stand up for American values and
international freedom by supporting House Joint Resolution 50.
Chairman Crane. Mr. Brown.
STATEMENT OF THE HON. SHERROD BROWN, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OHIO
Mr. Brown. Thank you, Mr. Chairman, for the opportunity to
join you today. Thank you, Mr. Levin, the Ranking Member.
We as a nation ignore the abuse of human rights in China
when we devalue the principles on which our democracy is built.
Based upon his first 6 months in office, President Bush has yet
to make this connection.
As we seek to encourage democracy throughout the world, we
should not create a double standard by overlooking human rights
violations and ignoring efforts toward peace. Each year, as Mr.
Wolf and Ms. Pelosi pointed out, China's human rights record
gets worse. The State Department's recent human rights report
cites crackdowns by China on freedom of speech, on freedom of
belief, on freedom of association. And the Hainan incident in
March further demonstrated the aggressive posture China has
chosen to take with the U.S. and with the international
community.
Since 1994 when human rights were delinked from the
requirements of MFN, China's tolerance for individual freedom
has deteriorated severely. Yet our response has been to reward
China by importing more goods and by passing permanent normal
trade relations. Last month, President Bush asked Congress to
extend China's MFN status. This step allows the world's most
notorious human rights abuser to maintain its strong trade
advantage over our country.
As China's human rights practices spiral downward, the U.S.
trade deficit with this country is exploding upward. During the
weeks approaching the vote for PNTR for the People's Republic
of China, corporate chief executive officers in our country
flocked to Capitol Hill to lobby for increased trade with
China. They talked incessantly about access to 1.2 billion
Chinese consumers. But their real interest, as we see, is 1.2
billion Chinese workers. These chief executive officers would
tell you that increasing trade with China will encourage and
allow human rights to improve. They will tell you that
democracy flourishes with increased free trade, but there is no
evidence of that.
In fact, as the last decade has shown, democratic nations
in the developing world such as India are losing out to more
totalitarian governments such as China, where people are not
free and the workers do as they are told. In 1989, of U.S.
exports from developing countries, 54 percent of those exports
to the U.S. from developing countries came from developing
democracies. Ten years later, only 35 percent came from
developing democracies. Among manufactured goods in 1989, 57
percent of manufactured goods coming from developing countries,
57 percent came from developing democracies. Ten years later,
only 35 percent came from developing democracies.
As U.S. business leaders tell us that they prefer
democracy, Western investment, clearly the evidence shows,
prefers totalitarianism. They choose China and Indonesia and
Burma over Taiwan and India and South Korea. Corporate America
wants to do business with countries with docile workforces that
earn below-poverty wages and are not allowed to bargain
collectively. Western corporations want to invest in countries
that have below-poverty wages, poor environmental standards, no
worker benefits, and no opportunities to bargain collectively.
As developing nations make progress toward democracy, doing
what we hope they do as they increase worker rights and create
regulations to protect the environment, the business community,
the Western business community, the American business
community, punishes them by pulling its trade and investment in
favor of other totalitarian governments.
In China's case, decisions about the economy are made by
three groups: the Chinese Communist Party; the People's
Liberation Army, which controls a significant amount of the
businesses and export to the U.S.; and, third, Western
investors.
Which of these three wants to empower workers? Does the
Chinese Communist Party want the Chinese people to enjoy
increased human rights? I don't think so. Does the People's
Liberation Army want to close the labor camps? I don't think
so. Do Western investors want Chinese workers to bargain
collectively? I don't think so. None of these groups has any
interest in changing the current situation in China. The
People's Liberation Army, the Chinese Communist Party, and
Western investors, all three profit too much from the status
quo to want to see human rights and labor rights improve in the
People's Republic of China.
Congress should not tolerate the working conditions that
exist in Chinese factories. Congress should care about how
American corporations are behaving outside the borders of the
United States. For all of President Bush's military posturing
over the Taiwan Strait, he has chosen not to address the
blatant violations of human rights within the People's Republic
of China. We must, as Mr. Rohrabacher said, do more than call
upon the People's Republic of China to end its human rights
abuses. We must demand it of them.
I thank the Chairman.
Chairman Crane. Thank you, Mr. Brown.
Mr. Blumenauer.
STATEMENT OF THE HON. EARL BLUMENAUER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF OREGON
Mr. Blumenauer. Thank you, Mr. Chairman. I appreciate the
opportunity to join with you. I appreciate the leadership that
you and Ranking Member Levin and the members have taken in this
important area.
Last year, Congress overwhelmingly made a difficult
decision that we were going to follow the path of engagement
with the Chinese by voting to approve China's admission to the
WTO and extending permanent normal trade relations. In so
doing, the majority of Congress and the leaders of both parties
aligned themselves with the forces of change and reform in
China. I have in my formal statement statistics about the
impact that this trade has for my State and for the country.
But economics are only part of the issue. Just because
Chinese accession has taken longer than we anticipated, we are
back again for the need for the last annual extension; and we
need to focus on the big picture as we continue the roller
coaster relationship, although nothing fundamentally has
changed.
China continues to be ruled at the top by party and
military leaders who are threatened by China's engagement with
the United States and the broader world. These leaders fear the
restructuring of the Chinese economy and the resulting social,
economic, and communications changes that would weaken their
grip on the Chinese population. The distance that China has
traveled from the butchery and starvation of the Great Leap
Forward, and the chaos of the Cultural Revolution is
significant.
Yet my colleagues are correct. There are serious problems.
China's human rights record is atrocious, and we need to
continue to shine the light on the behavior of the Chinese, and
engagement with the WTO provides us with an excellent vehicle
to do so.
These forces of repression fear further penetration of the
Chinese market by foreign economic powers, especially the
United States. Tearing down economic barriers that would permit
us to trade effectively could have a destabilizing effect on
the repressive regime, and our failure to move forward would
play on the other forces that are strengthening a new
generation of entrepreneurial spirit, provincial and municipal
leadership, and new business partnerships.
I think a classic example happened earlier this year when
there was the explosion we are all familiar with in the
fireworks factory where young children were being forced to
assemble firecrackers, as young as third- and fourth-graders in
a school. The official Chinese line was that some mad bomber
had come into the school and detonated this explosion, but
within hours the truth was out through the magic of e-mail. The
Chinese Premier was forced to acknowledge that it was an
accident at a school-based factory that employed child labor to
build fireworks.
I think this is symptomatic of the forces of change that
are at work in that country.
Failure for us to renew our normal trading relations would
be a serious mistake. For us to reverse course now would have
an extraordinarily destabilizing effect on our relationship
with China, and economics would be the least of our worries at
a time when we are attempting to reduce the tension between the
two countries. It would be a gratuitous and unfortunate
escalation of pressures on our side which would frustrate,
perhaps infuriate the Chinese, confound our allies, and delight
our business competitors.
History suggests it will not have the impact desired by
opponents of normal relations with China. It is ironic at a
time when we are now inching toward acknowledging our policy of
attempting to isolate a much smaller country, Cuba, has been
failure. It has only harmed the Cuban people, prolonged the
life of the Cuban dictatorship. Had we opened our borders to
commerce and interaction, Castro would certainly be less
powerful and probably be a thing of the past.
Well, my interest in Congress is promoting livable
communities around the United States and around the world.
Engagement with China ranks very high on the list of
opportunities. If 1.3 billion Chinese develop in patterns like
the United States--energy demands, air pollution, disruption of
oceans and waterways--the impacts will be devastating.
Opportunities through trade and engagement give us a chance to
build on a better future.
It is true we have just concluded a difficult period
surrounding the incident with the Chinese fighter and the
American surveillance plane. I have a slightly different view
of that than expounded by my friend from California. But
imagine for a moment if the roles had been reversed and it was
the Chinese spy plane that was forced to land at military
facilities in Anacortes, Washington after spying off the West
Coast of the United States. I think we need to take a step
back.
China, with all due respect, is not Nazi Germany. We are
not at risk from China now in terms of military aggression. We
are going to be overwhelmingly more powerful than China 10
years from now, but we can influence the future and the nature
of that relationship.
China's behavior does continue to be troubling. The
potential is great that frustrations may even escalate in the
near term. But we are going to have to be aggressive in our
negotiations, vigilant for human rights, the environment, and
trade compliance. With China engaged in the WTO, we will have
more tools and more allies in the struggle, and I think we are
going to get the results that we want much sooner.
Thank you, Mr. Chairman.
[The prepared statement of Mr. Blumenauer follows:]
Statement of the Hon. Earl Blumenauer, a Representative in Congress
from the State of Oregon
Thank you, Mr. Chairman and members of the Committee for providing
me with the opportunity to testify on this important issue. Last year
Congress overwhelmingly made a difficult decision that we were
following path of engagement with the Chinese by voting to approve
China's admission to the WTO and extending Permanent Normal Trade
Relations. In so doing, the majority of Congress and the leaders of
both political parties aligned themselves with the forces of change and
reform in China.
Oregon has seen its aggregate exports to China grow from $56
million in 1993 to $216 million in 1999, according to Department of
Commerce trade statistics, a percentage increase of 289%. Almost 10% of
all jobs in the State of Oregon are in some way related to the export
of manufactured goods (to the World), making Oregon the tenth most
export dependent state in the country. It's easy to understand how
important the growing Chinese market is economically to me, my
constituents in Portland, and Oregon as a whole.
Just because Chinese ascension to WTO has taken longer than we
anticipated, we are back again with the need to do the last annual
extension. We continue the roller coster relationship although nothing
has fundamentally changed. China continues to be ruled at the top by
party and military leaders who are threatened by China's engagement
with the United States and the broader world. These leaders fear the
restructuring of the Chinese economy and the resulting social,
economic, and communication changes that would weaken their grip on the
vast Chinese population.
The distance that China has traveled from the butchery and
starvation of the Great Leap Forward to today is almost unfathomable. I
would note it was a Republican President preaching engagement, Richard
Nixon, which in many ways allowed us to take this step forward. Its
important we give our new President the same opportunity.
China's Human Rights record is atrocious, and we need to continue
to shine a light on the behavior of the Chinese, and engagement through
the WTO provides us with an excellent vehicle to do so. Further
penetration of the Chinese market by foreign economic powers,
especially the United States, tearing down economic barriers that would
permit us to trade effectively would have a destabilizing effect on the
repressive regime and would play to the other forces of change that are
strengthening the new regeneration of entrepreneurial spirit,
provincial and municipal leadership, and new business partnerships.
The classic example happened earlier this year where there was an
explosion at a fireworks factory where children were being forced to
assemble firecrackers as young as 3rd and 4th graders in this school.
The official Chinese line was that a suicide bomber had entered a
fireworks factory and detonated an explosion. Within days, due to the
work of the domestic Chinese internet media, the Chinese Premier was
forced to acknowledge that the ``Factory'' was in reality a school
which employed child labor to build fireworks. Through modern
communications the reality was out instantly all across China and the
truth triumphed.
This is just an example of how reform is happening daily, in
dozens, hundreds of examples on a smaller scale that illustrate the
point. It's not going to be easy. It's not going to be quick. But we
can use the leverage of WTO membership to accelerate the progress and
hasten the day when the Chinese enjoy the liberties that we too often
take for granted.
Failure to renew would be at this point a serious mistake. First
because we have already made that determination and established a
policy on it. For us to reverse course now would have an
extraordinarily destabilizing effect on our relationship with China and
economics would be the least of our worries, at a time when we are
attempting to reduce tensions between the two countries. This would be
a gratuitous and unfortunate escalation of pressures on our side, which
would frustrate, infuriate the Chinese. It would confuse our allies and
delight our business competitors.
History suggests it will not have the impact desired by opponents
of normal relations with China. If going through this annual process
has had no impact according to our opponents, why is going to make a
difference now?
It's particularly ironic at a time when we are now inching towards
acknowledging our policy of attempting to isolate a much smaller
country, Cuba, has been a failure. It's only harmed the Cuban people
and prolonged the life of the Cuban dictatorship. Had we opened our
borders, engaged in commerce and interaction, Castro would certainly be
less powerful, and probably a thing of the past.
My interest in Congress is promoting livable communities around the
United States and around the world. Engagement with China ranks very
high on the list of opportunities. If 1.3 billion Chinese develop in
patterns like the United States: energy demands, air pollution,
disruptions of oceans and waterways, the impacts will be devastating.
There are tremendous opportunities for economic, cultural, and
scientific and governmental exchange to bring about a different future.
For instance, this summer we are having two groups of Chinese municipal
planners come to Portland, OR where they will meet with municipal
officials and members of the community to discuss ways of improving
quality of life in a sustainable fashion, a prospect that excites both
parties.
We have just concluded a difficult period surrounding incident with
the Chinese fighter and the American surveillance plane. (Imagine if
the roles had been reversed and it was a Chinese spy plane that was
forced to land at the military facilities in Anacortes, Washington
after spying off the West Coast of the United States. Imagine if the
Chinese had bombed our embassy in Belgrade.) Its time to get on with
this difficult past.
China's behavior continues to be troubling, the potential is great
that the frustrations may even escalate in the near term. Having China
in the WTO is not going to solve all our problems. We are still going
to have to be aggressive in our negotiations, vigilant for human
rights, the environment, and trade compliance. With China in the WTO we
will have more tools and more allies in this struggle.
I would cite one final example of the importance of engagement in
the Marshall plan. The Marshall plan, which contemporary historians
call the ``defining moment of the Cold War,'' poured over $100 billion
in inflation adjusted dollars into Europe over three years into 16
Western European nations. These nation's form the basic core of the
developed, democratized world. Stalin rejected the offer of President
Truman's and General Marshall's assistance, because he knew the
engagement would bring down his totalitarian regime. The nation's of
the Iron Curtain remain mired in poverty, corruption, and lack of
basic, fundamental human rights that plague them to this day.
I strongly recommend this committee exercise its leadership with a
bold and comprehensive report and the recommendation to support the
President's determination to extend to China another year of Normal
Trade Relations.
Chairman Crane. Thank you very much. Thank you Mr.
Blumenauer. And now I would like to yield to our Ranking
Minority Member, Mr. Levin.
Mr. Levin. Mr. Chairman, I think I will forego questions
partly out of consideration of the time factors of our five
colleagues and also other panels. But I do want to say just two
things if I might. Number one, to Dana. I don't think one has
to agree with an analogy to Nazi Germany to be deeply concerned
about human rights and related issues in China. I think we have
to be wary of facile historical analogies, but there can be
many societies short, and even far short of where Nazi Germany
was, for there to be concern on our part about freedoms. And I
think China very much fits into that category.
And second, I would hope that as you leave, as you will in
a few minutes, that no one who is listening in will mistake
what is being undertaken here and what is being said here.
There may be, and there are, some differences as to how to
proceed, but I don't think anybody should be mistaken in
thinking that there isn't a deep concern within this Congress
about the path that China has been following in terms of basic
human rights.
I, for one, don't think there is a one-to-one equation,
economic freedom and other freedoms or free economic markets
and other freedoms. History has shown that there is no magic
connection between the two.
But while there may be some disagreement as to how you
proceed, I think there is less disagreement than some people
think in this Congress about the importance of the issue and
the role that the United States intends to play, surely this
Congress, in terms of pressuring for China to follow the path
not only of a free economic market but true freedoms all
around.
And so while this may be the last annual vote, it isn't
going to be the last debate. The commission that was referred
to hopefully will be one of the vehicles; but I think in
addition, there will be others, including reports to this
Congress and discussions within this Congress about these
issues.
So we will have a vote this time, and I think Mr.
Rohrabacher's proposal will be defeated. But I think the effort
to promote China on the path of freedom will not be defeated. I
think that is going to very much continue to be a part of the
fabric of this institution.
Thank you, Mr. Chairman.
Chairman Crane. Thank you. And with that, let me express
appreciation to all of our colleagues, even though we may have
disagreements.
Mr. Rohrabacher. Mr. Chairman, may I answer the question
that was posed?
Chairman Crane. If the gentleman wants to respond.
Mr. Rohrabacher. I would agree with my friend that Nazi
Germany may not be the best comparison, although there are many
other areas of comparison there with the Olympics and the human
rights abuses that were going on in the 1930s. But I think
there is certainly a comparison with imperial Japan, who was
also a major human rights abuser in the twenties and thirties,
and was an expansionary power and was a militaristic power in
an economic relationship with the United States. And I am not
saying that war is inevitable with the Chinese Communists,
because that is not the case, but our policies in the 1930s
with imperial Japan did not lead to peace, and I just think
there is a comparison there.
Mr. Levin. Okay. Thank you.
Chairman Crane. Thank you. And with that, I again express
appreciation, and we look forward to working with you folks in
the future.
I would now like to welcome as our next witness Mr. Jeffrey
Bader who is the new Assistant U.S. Trade Representative for
China, Hong Kong, Mongolia, and Taiwan. And Mr. Bader, we again
would like to urge you to try and keep all testimony as close
as possible to around 5 minutes, and all written testimony,
though, will be made a part of the permanent record. And with
that, you may proceed.
STATEMENT OF JEFFREY A. BADER, ASSISTANT UNITED STATES TRADE
REPRESENTATIVE FOR CHINA, HONG KONG, MONGOLIA, AND TAIWAN,
OFFICE OF THE UNITED STATES TRADE REPRESENTATIVE
Mr. Bader. Thank you, Mr. Chairman. I will indeed excerpt
my statement and submit the full statement for the record.
Mr. Chairman, I am pleased to appear before this
Subcommittee today to discuss the benefits to the United States
of renewing normal trade relations status with the People's
Republic of China. China's NTR status has wider implications
than merely the U.S.-China relationship, as important as that
is. My colleagues from the Departments of State and Commerce
will discuss with this and other Committees why the granting of
normal trade relations status is in the broad U.S. national
interest. My testimony will focus on the ongoing negotiations
on China's accession into the World Trade Organization and the
interplay between that issue and NTR status.
Once China accedes to the WTO, pursuant to last year's
legislation, permanent NTR status will become effective for
China provided the President sends the required certification
to the Congress. This will obviate the need for Jackson-Vanik
waiver, annual renewal, and this annual debate. Thus, there is
a statutory linkage between NTR status for China and its
accession to the WTO.
More broadly, China's accession to the WTO will be a major
and direct step forward in advancing some of the objectives
that underlie our annual debate on NTR, assuring significantly
greater market access for U.S. business, farmers, and ranchers
to China's large and expanding market and encouraging the
development of the rule of law in China.
The November 1999 U.S.-China Bilateral Agreement on China's
accession to the WTO capped nearly 14 years of intense, often
difficult negotiations. It provided us with a set of
comprehensive, verifiable and, as you said in your statement,
Mr. Chairman, one-way trade concessions that substantially open
China's market across the spectrum to U.S. goods, services, and
agriculture. I want to acknowledge the tremendous efforts of
Ambassador Barshefsky in achieving this result and note the
bipartisan support for that agreement and for the steps we have
taken since.
This Subcommittee is familiar with the details of our
bilateral agreement and there is no need to review them today.
My written statement does review them. I will dispense with
them today.
In addition to improved market access, China has agreed to
change practices that have made it difficult for U.S. companies
to do business in China and hindered the developments of
China's economy as well. These broad-based reforms include
commitments to greater transparency in the operation of China's
trade regime. Laws, regulations, and other measures will be
published before they are enforced, and interested parties will
have an opportunity to comment on the provisions before they
are implemented. Administrative actions relating to trade
matters will be subject to judicial review. Beijing has been
systematically reviewing and revising or abolishing laws and
regulations inconsistent with WTO requirements.
The 1999 agreements did not mark the end of China's WTO
accession process. Still to be completed was the negotiation of
the multilateral documents essential to the accession package--
the Protocol of Accession and the Working Party Report. These
documents describe how WTO rules will apply to China and how
China intends to implement the commitment it is undertaking. It
is principally these negotiations that have occupied Ambassador
Zoellick and our delegation, first in Shanghai last month and
most recently at the Working Party meeting in Geneva last week.
In Shanghai, Ambassador Zoellick negotiated the following
improvements in China's accession package:
First, an agreement on agricultural domestic support that
limits China's recourse to provisions of the WTO Agreement on
Agriculture to levels below that available for developing
countries.
Second, a commitment from China to assure that its
restrictions on chain stores do not inappropriately restrict
the right of American retailers to operate fully owned
distribution outlets.
Third, a commitment from China on how it will allow foreign
companies, including those from the United States, to export to
China on a nondiscriminatory, nondiscretionary basis without
burdensome requirements.
And, fourth, several improvements in access to the
insurance market of China.
In Geneva this past week, we obtained multilateral
endorsements of these achievements. In addition, we achieved
international consensus on Working Party provisions on numerous
issues crucial to assuring market access and fair trade with
China.
Just a few additional points about China's WTO commitments:
First, they are effective immediately upon accession. Most
will phase in. Some will be effective on day one. Most will
phase in in 3 years, and then virtually in all cases in 5
years.
Second, the agreements are enforceable. We will enforce
them through our trade laws, WTO dispute settlement processes,
as necessary, and other mechanisms including an annual
multilateral review of China's implementation and compliance
for 8 years, with an additional review in the 10th year.
Third, the agreement helps ensure that trade with China
does not injure U.S. industry and workers. The special
antidumping provision we negotiated allows us to use nonmarket
economy methodology in judging prices of imports from China for
15 years. The special safeguards provision and the procedures
in our PNTR legislation allows the U.S. to act quickly to
address rapidly increasing imports from China.
And fourth, the increased transparency and accountability
that WTO membership and implementation of WTO rules compel will
have a positive effect in other areas. The essence of the WTO
is that it is a rules-based system that requires its members in
turn to play by the rules, with the openness and transparency
in rulemaking and rule enforcement I noted earlier.
It appears we are nearing the end game in this accession
process. I will be going back to Geneva with my delegation this
weekend for another Working Party meeting whose objective will
be to produce a completed Protocol of Accession, a Working
Party Report with as few unresolved issues as possible, and
final consolidated schedules on goods and services. If we are
successful, this package will be sent to capitals for review.
It is possible that early in the fall, what we hope will be the
final Working Party session on China will convene to approve
final texts of all these documents.
The full accession package will be reviewed by Ambassador
Zoellick and other concerned agencies of the U.S. Government.
After that review, the President will decide whether he can
certify to the Congress, as required in the PNTR legislation,
that the final package is at least equivalent to the bilateral
agreement negotiated in 1999. It is our objective to produce a
final package that meets that standard.
If the President is able to produce such a certification
and if other countries provide similar approvals, WTO members
at a meeting of the General Council, or possibly at the WTO
Ministerial meeting at Doha in November, would then approve the
terms of China's accession to the WTO.
A final point. We fully expect the WTO to approve Taiwan's
accession in the same time frame as China's. As a major player
in international trade and a new and thriving democracy, Taiwan
deserves membership and a larger role in the international
community. We have discussed our expectations on Taiwan's
accession thoroughly with all the concerned parties and are
confident there is a consensus on this.
If we fail to grant NTR status to China, it is predictable
that the WTO accession process I described with its benefits to
U.S. business, labor, farmers, and ranchers will grind to a
halt.
Without China's accession to the WTO, the benefits of
China's commitments in areas such as services and dispute
settlements will be unavailable to U.S. companies. All of the
tariff and tariff-rate quota concessions will be on hold.
China's accession to WTO will be a benefit to China, of
course, but it is not a favor to China. Major beneficiaries
will be American companies, workers, and agriculture. It would
significantly open the world's most populous country, and
arguably the fastest growing economy in the world, to our
exporters and service suppliers. Renewal of NTR is an essential
step toward this objective.
Thank you, and I look forward to your questions.
[The prepared statement of Mr. Bader follows:]
Statement of Jeffrey A. Bader, Assistant United States Trade
Representative for China, Hong Kong, Mongolia, and Taiwan, Office of
the United States Trade Representative
Mr. Chairman, I am pleased to appear before this subcommittee today
to discuss the benefits to the United States of renewing Normal Trade
Relations (NTR) status for the People's Republic of China.
Relationship of NTR and China's WTO Accession
China's NTR status has wider implications than merely the U.S.-
China trade relationship, as important as that is. My colleagues from
the Departments of State and Commerce will discuss with this and other
committees why the granting of Normal Trade Relations status is in the
broad U.S. national interest and how it affects our global and regional
security concerns, human rights, and religious freedom in China. My
testimony will focus on the ongoing negotiations on China's accession
into the World Trade Organization (WTO) and the interplay between that
issue and NTR status.
Once China accedes to the WTO, pursuant to last year's legislation,
permanent Normal Trade Relations status will become effective for
China, provided the President sends the required certification to the
Congress. This will obviate the need for a Jackson-Vanik waiver, annual
renewal, and this annual debate. Thus, there is a statutory linkage
between NTR status for China and its accession to the WTO.
More broadly, China's accession to WTO will be a major and direct
step forward in advancing some of the objectives that underlie our
annual debate on NTR--assuring significantly greater market access for
U.S. business, farmers, and ranchers to China's large and expanding
market and encouraging the development of the rule of law in China.
The 1999 U.S.-China Bilateral Agreement
The November 1999 U.S.-China Bilateral Agreement on China's
accession to the WTO capped nearly fourteen years of intense, often
difficult negotiations. It provided us with a set of comprehensive,
verifiable, one-way trade concessions that substantially open China's
market across the spectrum to U.S. goods, services, and agriculture. I
want to acknowledge the tremendous efforts of Ambassador Barshefsky in
achieving this result, and to note the bipartisan support for that
Agreement and for the steps we have taken since.
Market Access
This Subcommittee is familiar with the details of our bilateral
agreement and there is no need to review them today. Suffice to say
that, inter alia, under the 1999 Agreement China will:
Reduce average tariff levels on goods of interest to the
United States from 24% to 7%,
Phase-out all tariffs on Information Technology Products by
2005,
Broadly open up its service sectors, such as insurance,
banking, securities, telecommunications, express mail, legal,
accounting, and computer-related services,
Permit U.S. companies to operate wholesale, retail, and
franchised distribution networks.
In addition, the associated April 1999 U.S.-China Agricultural
Cooperation Agreement removed the bans on imports of U.S. citrus and
wheat which were not based on sound scientific principles. This
Agreement requires China to apply sanitary and phytosanitary measures
consistent with sound scientific principles and to accept U.S.
certification of meat products. With proper implementation, these
requirements will be of particular benefit to U.S. growers of wheat and
citrus products previously barred from China and should facilitate
export of U.S. beef, pork and poultry products.
Our growers, exporters, and ranchers have begun to take advantage
of that opening. They will be able to capitalize on it much more fully
once China accedes to the WTO, because the tariff reductions for all
products and the new tariff rate quotas for wheat, corn, rice and
cotton will only then take effect. U.S. agricultural exports to China,
including Hong Kong, reached $3 billion in 2000. The U.S. Department of
Agriculture estimates that China's membership in the WTO could result
in $2 billion annually in additional U.S. agricultural exports by 2005.
Systemic Reforms
In addition to improved market access, China has agreed to change
practices that have made it difficult for U.S. companies to do business
in China and hindered the development of China's economy. These broad-
based reforms include commitments to greater transparency in the
operation of China's trade regime. Laws, regulations and other measures
will be published before they are enforced and interested parties will
have an opportunity to comment on these provisions before they are
implemented. Administrative actions relating to trade matters will be
subject to judicial review and China has agreed that the practices of
all levels of government will comply with WTO requirements.
China's membership in the WTO also requires compliance with
international rules important in the day-by-day world of international
trade. China has already begun the process of revising numerous laws
and regulations on matters ranging from customs valuation and issuing
import licenses to new patent and copyright laws. Beijing has been
systematically reviewing and revising or abolishing laws and
regulations inconsistent with WTO requirements. Work has also begun at
the provincial level and in major cities, such as Shanghai.
It is true that since 1999, we have experienced problems in our
trade with China. As China continues the economic reforms it began two
decades ago, certain segments of its government, particularly those in
the state-owned or ``planned'' sectors of the economy, stand to lose
influence. In cooperation with the Congress, Commerce and Agriculture
Departments, other government agencies, industry and agriculture, and
other governments, we will continue to engage the Chinese vigorously
whenever we see such slippage.
Recent Developments: Shanghai and Geneva
The 1999 agreements, critical though they were, did not mark the
end of China's WTO accession process. Still to be completed was the
negotiation of the multilateral documents essential to the accession
package--the Protocol of Accession and the Working Party Report. These
documents describe how WTO rules will apply to China and how China
intends to implement the commitments it is undertaking in the area of
goods, services and intellectual property rights. It is principally
these negotiations that have occupied Ambassador Zoellick and our
delegation, first in Shanghai last month and more recently at the
Working Party meeting in Geneva last week. We also have negotiated
improvements in and clarifications of some of the bilateral services
schedules necessitated by ambiguities in China's laws and regulations.
In Shanghai, Ambassador Zoellick negotiated the following
improvements in China's accession package:
An agreement on agricultural domestic support that limits
China's recourse to provisions of the WTO Agreement on
Agriculture to levels below that available to developing
countries.
A commitment from China to assure that its restrictions on
chain stores do not inappropriately restrict the right of
American retailers to operate fully-owned distribution outlets.
A commitment from China on how it will allow foreign
companies, including those from the United States, to export to
China on a nondiscriminatory, non-discretionary basis without
burdensome requirements.
A phase-out of the current requirement for mandatory cession
of 20% of premiums to China's reinsurance state monopoly.
Broader opportunities for U.S. insurance companies to
provide large-scale commercial risk insurance.
In Geneva this past week, we obtained multilateral endorsement of
these achievements. In addition, we achieved international consensus on
Working Party Report provisions on numerous issues crucial to assuring
market access and fair trade with China--inter alia, technical barriers
to trade (standards), anti-dumping, safeguards, administration of
tariff-rate quotas, intellectual property rights, industrial subsidies,
and the transitional mechanism to monitor China's implementation of its
commitments.
I want to make a few additional points about China's WTO
commitments:
First, our agreements will reduce China's trade barriers
across a broad range of goods, services, and agricultural
products, eliminate or significantly reduce restrictions on
freedom to import and distribute goods within China, and
rectify industrial policies intended to draw jobs and
technology to China.
Second, China's commitments are effective immediately upon
accession. China will be required to take concrete steps to
open its market from day one in virtually every sector. The
phase-in of further concessions will be limited to five years
in almost all cases, and in many cases to three years.
Third, the agreements are enforceable. China's commitments
are specific, with timetables and dates for staged and full
implementation. We will enforce them through our trade laws,
WTO dispute settlement processes, as necessary, and other
mechanisms including an annual multilateral review of China's
implementation and compliance for eight years, with an
additional review in the tenth year. We intend to set up a
network to help us identify and act upon problems as early as
possible, drawing on the assets of our Embassy and Consulates
in China, the Departments of Commerce and Agriculture, and the
American Chambers of Commerce in China and the region. At USTR,
we have added two people to what was a four-person China office
and one attorney to our General Counsel's office, all of whom
will focus on monitoring and implementation efforts.
Fourth, the agreement helps ensure that trade with China
does not injure U.S. industry and workers. The special anti-
dumping provision we negotiated allows us to use non-market
economy methodology in judging prices of imports from China for
15 years. The special safeguards provision and the procedures
in our PNTR legislation allow the United States to act quickly
to address rapidly increasing imports from China that disrupt
our market and cause material injury to a U.S. industry. Under
this provision we can take action against imports only from
China instead of restricting imports from all WTO Members. For
textile and apparel products, the accession package includes a
special safeguard mirroring our current practice in this area.
Our textile and apparel industry will be able to use this
safeguard until January 1, 2009.
Fifth, the increased transparency and accountability that
WTO Membership and implementation of WTO rules compel can only
have a positive effect in other areas. The essence of the WTO
is that it is a rules-based system that requires its members in
turn to play by the rules--with the openness and transparency
in rule-making and rule-enforcement I noted earlier. Its
provisions and philosophy stress the central role of markets
and private enterprise. The reforms China is undertaking to
conform to WTO rules will provide the basis for further
liberalization in China.
Remaining Steps
It appears we are nearing the end game in this accession process.
China has completed the negotiation of all its bilateral agreements
except with Mexico and Central America, with which it has been
negotiating intensively. Along with our other trading partners, we are
in the process of verifying and rectifying each of the commitments
China has made in its various bilateral agreements to assure the most
liberalizing one makes it into the final accession documents.
I will be going back to Geneva with my delegation this weekend for
another Working Party meeting whose objective will be to produce a
completed Protocol of Accession, a Working Party Report with as few
unresolved issues as possible, and final consolidated schedules on
goods and services. If we are successful, this package will be sent to
capitals for review. It is possible that early in the fall, what we
hope will be the final Working Party session will convene to approve
final texts of all these documents.
The full accession package will be reviewed by Ambassador Zoellick
and other concerned agencies of the U.S. Government. After that review,
the President will decide whether he can certify to the Congress, as
required in the PNTR legislation, that the final package is at least
equivalent to the bilateral agreement negotiated in 1999. It is our
objective to produce a final package that meets that standard.
If the President is able to provide such a certification and other
countries provide similar approvals, WTO members, at a meeting of the
General Council or possibly at the WTO Ministerial meeting at Doha,
would then approve the terms of China's accession to the WTO. China
will then need to complete its domestic approval process and formally
accept WTO membership. China will become a WTO member after filing its
formal acceptance with the WTO.
A final point: we fully expect the WTO to approve Taiwan's
accession in the same time frame as China's. As a major player in
international trade and a new and thriving democracy, Taiwan deserves
membership and a larger role in the international community. We have
discussed our expectations on Taiwan's accession thoroughly with all
the concerned parties and are confident there is a consensus on this.
The Stakes
If we fail to grant NTR status to China, it is predictable that the
WTO accession process I have described, with its benefits to U.S.
business, labor, farmers, and ranchers, will grind to a halt. In such a
scenario, we can expect to fall into a cycle of retaliation and
counter-retaliation with the Chinese, with markets closing rather than
opening and sales, and jobs, going to U.S. competitors.
As was clear in last year's debate on PNTR, without China's
accession to the WTO, the benefits of China's commitments in areas such
as services and dispute settlement will be unavailable to U.S.
companies. All of the tariff and tariff-rate quota concessions will be
on hold. The livelihoods of the 400,000 American workers and farmers
employed in or benefiting from America's trade with China will be
affected.
China's accession to WTO will be a benefit to China, of course, but
it is not a favor to China. Indeed, it contains the most rigorous and
broad-ranging commitments ever required of a new member to the GATT or
WTO. Major beneficiaries will be American companies, workers, and
agriculture. It would significantly open the world's most populous
country, and arguably the fastest-growing economy in the world, to our
exporters and service suppliers. Renewal of NTR is an essential step
toward this objective.
I look forward to your questions.
Chairman Crane. Thank you, Mr. Bader.
At the end of the negotiations in 1999, the Chinese
withdrew their commitments on chemical fertilizers. Can you
assure me that nothing will be included in the final Chinese
Schedule of Commitments, the Working Party Report, its annexes,
or the Protocol of Accession that would undermine the market
access commitments the Chinese have made to us on fertilizers?
Mr. Bader. Mr. Chairman, these are very important
commitments that the Chinese made. They involve tariff-rate
quotas which will vastly increase China's imports of chemical
fertilizers, including the fertilizers most important to the
United States, diammonium phosphate and urea. In addition,
there are commitments to open up fertilizer trading to private
companies, phased in over the next several years, and this will
be a great benefit to U.S. companies.
I take very seriously your comment about assuring that
there is no walk-back from these commitments. We do not
anticipate such a walk-back, and we will assure there will not
be.
Chairman Crane. I understand that the European Union (EU)
has received a preferential market access commitment from the
Chinese on fertilizer from this period of time and the time
China enters WTO. What is the USTR doing to ensure that U.S.
fertilizer exports receive the same treatment as EU exports
during this interim period?
Mr. Bader. Mr. Chairman, we noted the commitment that the
EU received in their last round of negotiations with the
Chinese on chemical fertilizers of interest to the EU--
fertilizers that they produce that we do not. We have spoken to
the Chinese negotiators. I personally raised this with my
counterpart in Geneva last week. We have raised this in
Beijing. We have raised this at high levels to assure that
before accession, that historic levels of U.S. exports of
chemical fertilizers are available. We expect if they are going
to treat EU that way they will treat the U.S. that way, and we
made that very clear to them.
Chairman Crane. Thank you, Mr. Bader. Mr. Levin.
Mr. Levin. Thank you, Mr. Chairman, and welcome.
Let me just discuss with you a bit the nature of the
agreement. As you know, I very much agree that in the
negotiations China made some significant concessions. In fact,
I think the regimen they have agreed to will have profound
impacts on the structure of their economy. The subsidization or
nonsubsidization or antisubsidization rules are going to have a
very substantial, probably a profound acceleration on what has
been started there. So I don't want to minimize the likely
impact. As I said earlier I don't think that is an automatic in
terms of human rights or the path toward democracy. Clearly
there are going to be some major changes in their economy; if
not started under the WTO regimen, accelerated. So I don't want
to appear to minimize them.
And I think it is also true, what we agreed with China, for
example, in terms of distribution, will put the markets in
China more accessible to us than they are in Japan. China is
going to have to have a more open distribution mechanism than
is true of Japan, which remains in terms of distribution, often
a closed entity. But I do want to suggest that we try to have
some balance in our picture of all of this. And you used a term
here, which when it was used by the predecessor administration
I objected to also, and that is one-way trade concessions.
Because that makes it--sounds like we gave up nothing, and I
don't think this is true.
First of all, their going into the WTO structure places
impediments or strictures, however you want to put it, or
regulations, on how we enforce our agreements and how we carry
them out. Also, let me give you a specific example and that is
textile and apparel. Now, before China went into, or before
they go into the WTO, they don't gain the benefit of the
elimination of quotas on textile and apparel in 2005, right? So
if they weren't in the WTO, we could impose, outside of WTO's
approved sanctions like 201 action--we could maintain a quota
on textiles from and apparel from China right. Once they are
in, they are going to benefit from that WTO Agreement. Am I
wrong?
Now, I don't think anybody should fool themselves into
thinking that China as a major textile and apparel processor,
producer, manufacturer, is going to be a major factor in the
American market. It already is, and it will be competing with
our producers, but also with producers from other countries. So
I just urge that we not undermine the importance of agreements
by overstating them, because then it is not believable.
It is not believable that China would agree to a one-way
deal, is it? I mean, doesn't that sell it short in terms of its
wisdom, its intelligence, its whatever you want to call it?
Mr. Bader. I appreciate your point, Mr. Chairman, and I
think that the WTO Agreement and Balhall Agreement stand on its
own and should not be the subject of exaggerated salesmanship.
I certainly take your point. Specifically, on our laws and on
textiles, I would say that we will still have the availability,
the recourse to appropriate trade laws under the WTO Agreement,
201 safeguards, section 301 of the Trade Act, our antidumping
methodology, the antidumping methodology. We will be allowed to
treat China as a nonmarket economy for 15 years. We have
negotiated a special China-specific safeguards provision which
allows us to limit imports from China, uniquely from China, in
a way that we cannot do with the rest of the world, if there
are surges in certain products. But I certainly take your
point.
Mr. Levin. And we insisted, some of us, that that special
safeguard mechanism in the first instance be negotiated,
because we made clear to the Clinton administration in that
April period, I forget the year already, that without a special
safeguard mechanism a number of us could not support a WTO
China Agreement. And then they went back and negotiated it and
then we insisted, at first over some resistance, that it be
embodied in American law.
So I don't want to sell it short because I think it is
important. It does have a time limit. And I think we need to be
careful when we describe these agreements that we not so
overstate that it isn't one way, it isn't 100 percent, it isn't
win-win. No trade agreement of any importance is win-win. I
mean, there are winners and losers. It is part of the
competitive process. And I just thought in your debut here that
I would give you the same treatment I gave your predecessors.
Thanks very much and good luck.
Mr. Bader. Thank you, Congressman. I just want to say this
is not my debut here. I stumbled in here once before in a
previous hearing, and as I walked in--I was with the State
Department at the time--the Chairman, I believe it was Chairman
Archer, said is there anyone here from the State Department?
And they saw me in the corner and yanked me in to answer some
questions then on human rights. But I certainly appreciate the
welcome. Thank you very much.
Chairman Crane. Mr. Houghton.
Mr. Houghton. Thank you, Mr. Chairman.
Mr. Bader, good to see you. I really just have two quick
questions. One is about the automotive industry, and the reason
I ask this is because it is such an important exporter and
importer. As I understand it now, Japan really dominates the
export market into China, and we are held back; and we have had
certain negotiations, and they have refused to budge on these.
I just wonder what is going to happen in the next year,
particularly if China accedes to the World Trade Organization.
That is question number one.
Question number two, something which hangs over all of us
because of the lack of rule of law in China, is the whole
question of intellectual property. And if that isn't really
resolved, it is sure going to curtail a lot of investment in
that country which we could make and want to make.
So maybe you could answer those two questions.
Mr. Bader. Thank you, Congressman. First, on the automobile
issue, I would not disagree at all with your characterization
of the history of the China market.
What we have tried to do in this bilateral agreement and
the WTO access is to change that. The historic levels of
tariffs on automobiles in China, a couple of years ago when I
was dealing with China affairs in a previous job, they were
about 250 percent. They have now dropped down slightly below
100 percent, and under this agreement, they will phase out,
phase down to about 25 percent over the next 5 years. On auto
parts, they will phase down from about 80, 85 percent to about
10 percent.
In addition, one of the things that we negotiated in
Shanghai was a commitment to assure that American automobile
manufacturers would be able to operate distribution networks in
China and to give them direct access to Chinese consumers.
Another part of the WTO Agreements is a provision that allows
automobile companies and nonbanks to provide automobile
financing.
So we have taken a number of steps to try to open up the
Chinese market, and American companies are starting to take
advantage of that. So we are confident that this historic trend
that you talked about will change. I know American cars are
already very popular in China. I don't want to get into
specific brands, but I know that they are favored by many
Chinese.
Mr. Houghton. Intellectual property?
Mr. Bader. Rule of law? I'm sorry, the second question was
on rule of law?
Mr. Houghton. Intellectual property rights?
Mr. Bader. Okay. Intellectual property rights. Did you ask
about rule of law also more generally?
Mr. Houghton. No. Intellectual property.
Mr. Bader. Okay. Intellectual property rights historically
has been a problem in China. It has been the subject of not
one, but two special 301 actions against China in the last
decade. I think there is not much doubt that the authorities
take the issue seriously and are taking some steps to deal with
it. They have tried to ban the use of pirated software in
government offices. They have periodic crackdowns on--they have
had crackdowns on factories producing CDs and DVDs, you know,
burnings of pirated goods.
But the problems remain serious, particularly in the--I
think in the trademark, in the trademark area. The WTO
Agreement would require Chinese acceptance and enforcement, the
so-called ``trips'' agreement, the trade-related intellectual
property rights obligations upon accession. But the magnitude
of this problem over the last decade is considerable, and I
think it is going to be some time before we see its
eradication.
Mr. Houghton. Do you see any movement here?
Mr. Bader. Yes. I think the movement is in a positive
direction, in large measure because Chinese companies are
beginning to realize that they themselves have a stake in
protection of intellectual property in the--for instance, in
the information technology area, the Chinese are very active in
production and assembly of software and of telecommunications
equipment. And so Chinese companies are now insisting to the
government that they have to take seriously the enforcement of
intellectual property rights.
I remember Bill Gates' visit to China in the early 1990's
in which he made precisely this point, that we would start
seeing Chinese improvements in their intellectual property
regime as soon as pressure came from within, from Chinese
entrepreneurs who demanded it; and so I think that we are
getting a confluence of these two streams, of the foreign and
the domestic. But still, as I say, it is a substantial problem.
Chairman Crane. Thank you. Mr. Tanner.
Mr. Tanner. Thank you very much, Mr. Chairman. I just have
one short question following really along the lines that you
questioned Mr. Bader about.
And thanks for being here. I am told that the EU believes
they have an agreement with China for seven insurance company
licenses. If that's true, and I don't know if you know that,
but if it is, what is the status of United States insurance
companies getting like treatment from the standpoint of the
market absorbing that kind of commerce?
Mr. Bader. Congressman, I have seen the same reports that
you have about the EU. We haven't seen evidence yet that the
Chinese are acting upon that so-called commitment, but we have
seen those reports as well. I certainly agree with the thrust
of your question, which is that if markets--if the market is
being opened to our competitors, then our companies need to be
in there too.
Right now, there are three American companies. Indeed, the
first American--the first foreign insurance company to have a
presence in China was an American company. And there are more
American companies that are interested in going in, and we will
advocate very strongly for their entry to the market.
One of the things that the WTO Agreement does is to put in
place a requirement that the Chinese provide access for foreign
insurance companies, essentially without the kinds of
restrictions, without the kinds of bidding wars that have gone
on in the past, to do it basically on a prudential basis, to
avoid a politicization of the process that historically has
been true. But they don't surrender their regulatory rights,
and we will have to see how it is implemented.
But we have spent a substantial amount of our time on the
insurance issue and trying to assure American access to that
market, and I am glad to take your point and to carry that to
the Chinese when we next see them.
Chairman Crane. Mr. Becerra.
Mr. Becerra. Thank you, Mr. Chairman.
Mr. Bader, thank you for being here. And good luck as you
move forward in your position, and let us be as helpful as we
can to you as you do so.
Let me ask a question which has, to some degree, I think,
left the table of discussion. But I would like to just go back
to the act itself that requires us to go through this whole
process. One of the conditions is that we take a look at the
immigration practices of these countries, and in this regard,
we have always waived the immigration condition for China. If
the requirement for waiver is that we allow--or the President
has the authority to say that the waiver fulfills the national
interests and the intent of the act itself, section 402 of the
act, and second, that we receive assurances that the country in
question, in this case China's future immigration practices
will substantially lead to an achievement of the objectives of
section 402, that in those cases, if those two conditions are
met, then the waiver is appropriate.
In the first, whether the waiver is in the best interest
and fulfills the intentions of section 402, I am hoping you can
give me some sense of how is it we believe that the best
interests of section 402 are being met by a waiver; and second,
if you can give me a response in regards to any assurances that
we are receiving from China that they intend to move forward
and provide--as I guess the language says, countries' future
immigration practices will substantially lead to achievement of
the objectives of the section.
And put that in context of the fact that we have U.S.
citizens and U.S. permanent residents that are now under arrest
and prosecution in China, that we have some 150,000 to 200,000
North Korean refugees in China who are, in many cases, being
hostilely returned to North Korea; and finally, the human
rights abuses that we know China is committing against its own
people, many of whom we--I imagine, are trying to immigrate to
other countries, including the U.S.
Give me a sense of why we don't give much attention to that
side of Jackson-Vanik in terms of immigration.
Mr. Bader. You know, Congressman, historically, as you
know, when Jackson-Vanik was first enacted, China was very
restrictive on immigration. It was in the late seventies that
they began to allow a modicum of immigration. And you will
remember the famous quotation from Deng Xiaoping to Senator
Jackson, the gist of which was, how many Chinese would you like
to immigrate to the United States, one million, two million?
However many, I think the point that Deng Xiaoping was
making was that the main restrictions on Chinese immigration to
the U.S. came from the U.S. side, rather than from the Chinese
side.
There were assurances that the U.S. received from the
Chinese back in the early days of the waiver process. I have to
tell you candidly that I simply don't know what their most--you
know, whether earlier iterations have been, you know, repeated.
But the--your reading of the law is very useful. The key
point there is not so much whether there is freedom of
emigration from China--I would say that there is not--but
whether the objective of freedom of immigration is being
fostered and will be helped by the waiver. And I think that
that has been demonstratively so by the trend in China in the
last--in the last years.
Your point about the American citizens who are under
arrest, that is a very valid point, a very serious one indeed.
As you know, President Bush raised that in his first telephone
conversation with President Xiang the other day. And the State
Department has raised this in very strong terms in addition to
putting into effect a travel warning to the--to Americans about
travel to China because of that.
Mr. Becerra. Do you think that there could be any influence
we could exert in the process of trying to complete all of our
negotiations with China that can help us on the emigration
side, get them to be a little bit more accommodating to those
who are wishing to leave--not necessarily am I saying that we
are going to accept a whole lot of folks, but just to make the
process a little bit more transparent.
It seems to me that at this stage that China, both in terms
of immigration and emigration, is causing a lot of folks a lot
of heartburn.
Mr. Bader. I think on that point, Congressman, what the
future holds is a necessity for us to maintain bilateral and
multilateral pressure on the Chinese to achieve that goal. I
think, you know, as we have sort of been--the premise
underlying our discussion here, the days of the Jackson-Vanik
tool are coming--will be coming to an end once the WTO process
is complete, so we won't have that particular mechanism
anymore. We will have to put that on our bilateral agenda and
talk to our friends about trying to be sure that they raise
that as well.
Mr. Becerra. Mr. Chairman, if I could ask one quick
question.
Congressman Brown said something. I couldn't find his
testimony to actually be able to quote it again, but he, in
essence, said something to the effect that years back we had
three-quarters of our trade, or the vast majority of our trade,
occurring with foreign countries that were democracies; and in
all our years of trying to promote trade with our foreign
counterparts, we have actually reduced the number of countries,
that we are doing trade with, which are democracies, so that
the level of our trade is going more and more to autocracies,
to governments with which we probably don't agree.
Can you comment on this? The trend seems to be that as much
as American industry says and tries to engage in commerce with
countries that are democracies, it seems that, more and more,
we are directing our trade to those countries that are less and
less democratic.
Mr. Bader. Yeah. I think, Congressman, that without having
studies, those statistics--I assume that a good portion of that
statistic is due to China, that the mushrooming of American
trade with China is the reason that those numbers that the
Congressman cited come out that way.
I think it would clearly be a mistake for us to repress our
trade with China solely in order to maintain a differential in
the statistics, to make the statistics look better. We wouldn't
want to use your word, direct--you know, direct our companies
to trade only with democracies, particularly since I would
certainly contend that the effect of trade on China is a
positive one in terms of their evolution if--it does not, as
one of the Congressmen said, lead automatically to democracy
and freedom, but I think it certainly assists in moving in that
direction, as it has historically in other countries in Asia.
That has certainly been the trend.
Mr. Becerra. Mr. Chairman, thank you very much. Thank you,
Mr. Bader.
Chairman Crane. Thank you, Mr. Bader. One final quickie.
As you know, the PNTR legislation contains the sense of
Congress that the WTO General Council should consider Taiwan's
accession immediately after China's admission. And do you
anticipate any possible problems with that?
Mr. Bader. Mr. Chairman, I'm quite confident that will
indeed occur. We have made that clear with all of the
interested parties. And I repeat ``all,'' that these two should
go through in the same session. And what I have heard from all
of the interested parties is that that is not a problem.
The Taiwan documents are in very good shape. There is just
a little bit of work that remains to be done. And I anticipate
finishing that up in the same timeframe as we finish up the
China report, and I anticipate seeing those two working party
reports going to their capitals in the same timeframe, in the
same session, producing accession.
Chairman Crane. Very good. And we look forward to both of
them becoming members of WTO.
Thank you, Mr. Bader, and we look forward to working with
you as we proceed down this positive path.
Mr. Bader. Thank you, Mr. Chairman.
Chairman Crane. And with that, let me now invite our final
panel, Bob Stallman, President of the American Farm Bureau
Federation; Gary Benanav--I mispronounced it, I'm sorry--
Chairman and Chief Executive Officer of New York Life
International; Robert Kapp, President, United States-China
Business Council; and Calman Cohen, President of the Emergency
Committee for American Trade.
Gentlemen, please take seats, and we will proceed in the
order that I called your names. And if you gentlemen also could
try and keep your oral testimony as close as possible to about
5 minutes, all printed testimony will be made a part of the
permanent record.
And with that, Mr. Stallman, you open up.
STATEMENT OF BOB STALLMAN, PRESIDENT, AMERICAN FARM BUREAU
FEDERATION
Mr. Stallman. Well, thank you, Mr. Chairman, members of the
Committee. I am Bob Stallman, the President of the American
Farm Bureau Federation (AFBF) and a rice producer-cattleman
from Columbus, Texas. AFBF represents more than 5 million
member families in all 50 States and Puerto Rico. Our members
produce every type of farm commodity grown in America and
depend on access to foreign markets for our economic viability.
I appreciate the opportunity to speak with you today about
China trade and the importance of granting normal trade
relations to China.
Farm Bureau does support renewal of normal trade relations
with China. Strengthening the economic ties with China is in
the best interest of our country. Our economic relationship
with China is extremely important to the U.S. agricultural
sector and will grow even more important once China joins the
WTO.
Currently, China is the sixth largest export market for
U.S. agricultural goods, exceeding $1.7 billion. Together,
China and Hong Kong represent the second largest market for
U.S. soybean exports and the third largest market for U.S.
poultry meats.
Why should Congress grant NTR to China? At a time when most
U.S. agricultural commodities are experiencing the lowest
prices in decades, stable access to China's huge market is
critical.
Second, good trade relations with China are a necessary
condition for completing China's accession to the WTO. The USDA
forecasts that China will be the number one growth market for
U.S. agriculture exports over the coming decade. We must bring
China into the WTO under the terms of the bilateral agreement
reached between our two countries.
Recently, the United States and China reached an agreement
on domestic support spending that will pave the way for China
to join the WTO. We believe it commits the Chinese to a
specific domestic support spending level that is fair. The
agreement stipulates that China will not be allowed to spend in
excess of 8.5 percent of the value of its agricultural
production on products and nonproduct-specific domestic
support. We preferred 5 percent, as other developing countries
use, but in the bigger interest of getting an agreement, we
certainly accept the 8.5 percent. And China did waive its right
to use other developing country subsidies. Upon entry into the
WTO, U.S. farmers and ranchers will be granted significant
access to China's market for a number of commodities.
Given today's low prices, access into China's market is
critically important for our agricultural economy. The Farm
Bureau now looks forward to Congress voting to extend normal
trade relations to China. Granting NTR status will continue our
existing trade relationship with China without interruption. It
is vital that America maintains a stable economic relationship
with China and forges ahead in completing China's accession to
the WTO.
Equally important, we hope to have China at the negotiating
table when a new WTO trade round is launched later this year,
so that additional market access can be negotiated for U.S.
farmers and ranchers to supply China's growing market.
One often-overlooked fact is that China's access into the
WTO is synonymous with Taiwan's accession. Taiwan is an
important market for U.S. agricultural exports. It represents
our third largest market for coarse grains, fourth for fresh
fruit, fifth for soybeans and sixth for red meats. Building on
our important bilateral trading relationship with Taiwan is
also essential for the future viability of U.S. agriculture.
There are two important issues that must be fully resolved
before China is allowed entry into the WTO. First, China must
fully implement the bilateral agreement on sanitary and
phytosanitary measures affecting U.S. meat, citrus and grain
exports.
Second, we understand that China is developing rules that
will govern export approval for bioengineered commodities. The
potential for China to disrupt the grain trade with these
regulations is significant. These regulations must be clarified
and ultimately implemented in a manner that is consistent with
WTO rules.
In summary, maintaining our current level of exports to
China with an eye on sizable increases when China joins the WTO
is very important at a time when our agricultural economy needs
to be strengthened. Granting NTR status to China is a critical
step in this process.
Thank you, Mr. Chairman. I look forward to questions.
[The prepared statement of Mr. Stallman follows:]
Statement of Bob Stallman, President, American Farm Bureau Federation
Mr. Chairman, members of the Committee, I am Bob Stallman,
President of the American Farm Bureau Federation and a rice producer
and cattleman from Columbus, Texas. AFBF represents more than five
million member families in all 50 states and Puerto Rico. Our members
produce every type of farm commodity grown in America and depend on
access to foreign markets for our economic viability.
I appreciate the opportunity to speak with you today about China
trade and the importance of granting normal trade relations to China.
For more than two decades, American commercial engagement has
served as a cornerstone of improved U.S.-China relations. We support
renewal of normal trade relations with China and underscore the
importance of finalizing a U.S.-China WTO Accession Agreement soon.
At this critical juncture, when U.S.-China relations are under
strain, it is vital that America maintains a stable economic
relationship with China and forges ahead in completing China's
accession to the WTO. A WTO agreement is overwhelmingly in America's
interest and U.S. farmers and ranchers stand to realize huge
improvements in access to China's expanding markets.
We are mindful of, and take very seriously, concerns that have been
raised regarding sensitive security and military issues regarding
China. These issues are important to all Americans. It is our view,
however, that China is at a pivotal point between the hardliners and
the reformists. Granting NTR status to China will signal U.S. support
for the reformist movement and will pave the way for strengthened
economic and political ties between our two nations.
Strengthening economic ties with China is in the best interest of
our country. Our economic relationship with China is extremely
important to the U.S. agricultural sector and will grow even more
important once China joins the WTO.
Currently, China is the sixth largest export market for U.S.
agricultural goods, exceeding $1.7 billion. Together, China and Hong
Kong represent the second largest market for U.S. soybean exports and
the third largest market for U.S. poultry meat.
At a time when most U.S. agricultural commodities are experiencing
the lowest prices in decades, stable access to China's market is
critical.
Good trade relations with China are a necessary condition for
completing China's accession to the WTO. USDA forecasts that our number
one growth export market over the coming decade will be China. We must
bring China into the WTO under the terms of the bilateral agreement
reached between our two countries.
Recently, the United States and China reached an agreement on
domestic support spending. The agreement stipulates that China will not
be allowed to spend in excess of 8.5 percent of the value of its
agricultural production on product and non-product specific domestic
supports. In addition, China waived its right to use other developing
country subsidies. Farm Bureau would have preferred that the United
States hold the limit on the amount of domestic agriculture support at
the five percent ceiling required for developed countries. However, we
reluctantly accepted the compromise to break the impasse in
negotiations on China's accession to the WTO.
Upon entry into the WTO, China will have to play by the trade rules
that are currently observed by the rest of the world. U.S. farmers and
ranchers will be granted significant access to China's market for a
number of commodities. Given today's low prices, access into China's
market is critically important for our agricultural economy.
Granting NTR will continue to foster the cooperative trade
relations that are needed in order to complete China's accession into
the WTO. It is essential that China join the WTO before a new round of
trade talks is launched in that important multilateral trading
institution. We hope to have China at the negotiating table when a new
round is launched so that additional market access can be negotiated
for U.S. farmers and ranchers to supply China's growing market.
We also hope to use the bilateral deal that the United States
reached with China as part of the terms of accession as a model for
agricultural negotiations on export subsidies and state trading
enterprises. In both instances, China agreed to path breaking
commitments to eliminate export subsidies and discipline state trading
operations.
One often overlooked fact is that China's accession into the WTO is
synonymous with Taiwan's accession. Taiwan is an important market for
U.S. agricultural exports. Taiwan represents our third largest market
for coarse grains, fourth for fresh fruit, fifth for soybeans and sixth
for red meats. Building on our important bilateral trading relationship
with Taiwan is essential for the future viability of U.S. agriculture.
There are two important issues that must be resolved before China
is allowed entry into the WTO. First, resolution of the bilateral
agreement on sanitary and phytosanitary measures affecting U.S. meat,
citrus and grain exports must be fully implemented. We understand that
China has not fully complied with the letter of the agreement on
grains. Full compliance and the commencement of U.S. exports of these
commodities will signal that China intends to fulfill its international
obligations.
Second, we understand that China is developing rules that will
govern export approval for bioengineered commodities. To date we have
not received full notification of the requirements that will be
associated with China's regulations. The potential for China to disrupt
U.S. grain trade with these regulations is significant. These
regulations must be clarified and ultimately implemented in a manner
that is consistent with WTO rules. Any standards associated with these
regulations should not block market access for U.S. agricultural
exports. Without such clarification, China should not be allowed entry
into the WTO.
In summary, maintaining our current level of exports to China with
an eye on sizeable increases when China joins the WTO is very important
at a time when our agricultural economy needs to be strengthened.
Granting NTR status to China this year is a critical step in that
process.
We look forward to working with members of this Committee to secure
NTR status for China, to finalize China's accession into the WTO and to
enable American farmers and ranchers to more fairly compete to supply
the food and fiber China's 1.3 billion consumers need.
Chairman Crane. Thank you, Mr. Stallman. Mr. Benanav. Did I
pronounce it correctly that time?
Mr. Benanav. You got it exactly right, Mr. Chairman.
Chairman Crane. Thank you, sir.
STATEMENT OF GARY BENANAV, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, NEW YORK LIFE INTERNATIONAL; VICE-CHAIRMAN, NEW YORK
LIFE INSURANCE COMPANY; CHAIRMAN, U.S. COMMITTEES OF THE
PACIFIC BASIN ECONOMIC COUNCIL; AND CHAIRMAN, PACIFIC ECONOMIC
COOPERATION COUNCIL
Mr. Benanav. Mr. Chairman, members of the Committee, I am
Gary Benanav. I am the Chairman and Chief Executive Officer of
New York Life International and vice Chairman of New York Life
Insurance Company.
In addition to my corporate position, I serve as the
Chairman of the U.S. Committees of the Pacific Basin Economic
Council, known as PBEC-US, and the Pacific Economic Cooperation
Council, known as US-PECC. While New York Life is a member of
the ACLI, I do not appear today on behalf of the ACLI, the
American Council of Life Insurers.
I will summarize the remarks which are in my formal
statement, which will be made part of the record. Thank you.
I appreciate this opportunity to appear before you on
another renewal of China's normal trade relations status.
Eighteen months ago the Congress and our Nation debated the
granting of permanent normal trade relation status to China.
That review culminated with the granting of PNTR status once
China accedes to the World Trade Organization.
The PNTR bill was grounded in a negotiated agreement that
requires China to open its markets to American exports, thereby
giving America the opportunity to improve the trade balance
with China; and I would be willing to defend that historic
agreement in any boardroom, on any shop floor and on any farm
in America.
Mr. Chairman, I strongly supported the passage of PNTR
legislation both as a private citizen and as a member of the
business community. I continue to support it for the reasons
that I am going to outline, and I hope China will become a
member of the WTO before the end of this year. But until
China's accession to the WTO is finalized, Congress must decide
whether to extend the current tariff rates to China.
Every year for the past 20 years, under Republican and
Democratic administrations, the United States has faced the
decision on extending NTR status to China. Each time Congress
supported the continuation of that status, even in years when
relations were very strained between the U.S. and China.
I hope Congress will reach the same conclusion again this
year. To do otherwise would cause tremendous damage to our own
economy, to the economic recovery of Asia and to the stability
of international relations. At this important juncture, on the
eve of China's entry into the WTO, as you consider the
extension of NTR to China, I would like to outline why I
believe we should broaden our economic engagement with China
and why broader engagement will benefit not only China and the
United States, but also the world community.
Mr. Chairman, globalization presents the United States and
China an opportunity to cooperate in order to achieve greater
overall economic benefits for both countries and increased
economic stability for the rest of Asia Pacific. It is in
everyone's interest that China's economy grow in a balanced
manner, promoting its own internal stability, opening its
markets to exports from other countries, and broadening its
participation in the global marketplace. China is just at the
starting line for creating the conditions necessary to achieve
balanced and sustainable growth. The first and foremost
requirement is a system of contractual and intellectual
property rights that allows people to accumulate capital.
The second requirement is a growing middle class, which
will stimulate robust domestic demand, so that China doesn't
have to grow its economy solely by expanding exports to the
market of its trading partners.
And the third requirement is a broad, privatized financial
system which mobilizes savings and channels them efficiently by
offering them a range of development options.
The world community has created various institutions and a
system of multinational rules based on cooperation. The result
is a set of building blocks for a global system that can help
sustain and secure economic stability. China needs to have a
stake in that global system if it is to realize its full growth
potential and expand its domestic consumption.
At the same time, America's interest in a stable world
order is best served by having China become more deeply
integrated in the international, rules-based trading and
financial systems and more dependent on international trade and
financial markets. China's growing stake in the smooth
operation of a global economic and financial system will act as
a strong constraint on China's ability to adopt political or
military postures that would have the inevitable consequence of
damaging its domestic economic opportunities, or at the
extreme, even impoverishing its own people.
Let me talk a little bit about China's domestic political
evolution, which has been the subject of a lot of discussion
this afternoon. During last year's national debate on trade
with China, several commentators predicted that the opening of
China's domestic market would inevitably lead to the opening of
its domestic political system. I do not believe this is a
simple cause-and-effect issue. I agree with Congressman Levin
that open economic systems do not, in and of themselves,
inevitably lead to open political systems. However, I do
believe that without an open economic system there can be no
hope of developing an open political system in China.
To shape a stable and prosperous future for China, China
has accepted three important realities, which probably would
have been considered blasphemy 20 years ago: first, that China
must move to a more open, less centrally controlled economy in
which the government plays a diminished role in the operation
of the market; second, that it must engage actively in the
rules-based institutions formed by the community of nations;
and third, that it must adopt policies which will develop an
educated and robust middle class. All three of these policies
will not guarantee, but will enhance the prospects for a more
open Chinese political system.
U.S. businesses can continue to support all those efforts
to the benefit of both nations. And I believe that the infusion
of international standards and values into the Chinese economy
will influence the opening of China's political process.
Let me close by emphasizing three points. In the long term,
we have to devise a framework for U.S.-China relations that
advances our national interest while recognizing that both
countries' political and economic security are inextricably
linked. Neither China nor the U.S. can succeed with a strategy
based on one side winning and the other side losing.
Our near-term challenges are to pass NTR, complete China's
WTO accession, monitor China's implementation of its WTO
commitment and work with China to build its capacity. And to be
successful, we need to establish a domestic and political
consensus in the U.S. that trade with China is a win-win
proposition, though certain sectors may lose; and economically
and politically for the United States, China and the entire
Asia Pacific region, economic trade can help solidify the
relationship.
Thank you, sir.
[The prepared statement of Mr. Benanav follows:]
Statement of Gary Benanav, Chairman and Chief Executive Officer, New
York Life International; Vice-Chairman, New York Life Insurance
Company; Chairman, U.S. Committees of the Pacific Basin Economic
Council; and Chairman, Pacific Economic Cooperation Council
Mr. Chairman, members of the Committee, I am Gary Benanav, the
Chairman and CEO of New York Life International and Vice-Chairman of
the New York Life Insurance Company. In addition to my corporate
positions, I serve as the Chairman of the U.S. Committees of the
Pacific Basin Economic Council (PBEC-US) and the Pacific Economic
Cooperation Council (US-PECC).
I appreciate this opportunity to appear before you for this hearing
on renewal of China's normal trade relations status. I am confident I
speak for the lion's share of the U.S. business community when I say I
hope that this will be the last hearing that the Committee ever holds
on this issue.
Eighteen months ago, our nation was in the midst of a national
debate of tremendous importance concerning our relations with China. I
recall Senator Moynihan, then in his final year in Congress, saying it
was certainly the most important issue the Congress would face in the
year 2000, and perhaps the most important decision in the first decade
of the new millennium.
That debate culminated with the passage of legislation granting
permanent normal trade relations status to China once it acceded to the
World Trade Organization. The measure passed with broad bipartisan
support in both chambers of Congress. At the time, few people suspected
Congress would once again have to consider the issue of normal trade
relations with China. Unfortunately, events proved otherwise.
The PNTR bill was grounded in a negotiated agreement that required
China to open its markets to our exports and required us to do nothing
in return. I would be willing to defend that historic agreement in any
boardroom, on any shop floor, or on any farm in America.
Withdrawing NTR from China
Mr. Chairman, I strongly supported the passage of the PNTR
legislation, both as a private citizen and as a member of the business
community. I continue to support it, for reasons I will outline. I hope
China will become a full member of the WTO before the end of this year.
Until China's accession to the WTO is finalized, Congress must decide
whether to extend the current tariff rates to China.
It is almost inconceivable that Congress would not extend NTR.
Every year for the past twenty years, the United States faced a choice
on China. Should we extend to China the same non-preferential tariffs
we extend to countries such as France, Brazil and India, or should we
impose upon China the Smoot-Hawley tariffs that wreaked havoc in the
1930's? Every year Congress reached the same conclusion. I fervently
hope Congress will reach the same conclusion again this year, and
permit renewal of normal trade relations with China. To do otherwise
would cause tremendous damage to our own economy, to the economic
recovery of the Asia Pacific region, and to the stability of
international trade.
At this important juncture, on the eve of China's entry into the
WTO as you consider the extension of NTR to China, I would like to
outline why I believe we should broaden our economic engagement with
China, and why broader engagement will benefit not only China and the
United States, but also the world community.
Benefits of Trade with China
Mr. Chairman, globalization presents the United States and China an
opportunity to cooperate in order to achieve greater economic growth in
both countries. Current conditions in the U.S. economy have tangible
effects on our trading partners. In the same vein, conditions in China
influence the Asia Pacific region and the global economy. It is in
everyone's interest that China grows in a balanced manner, a manner
which promotes its own internal stability, opens it's own market for
other countries and participates in the global marketplace.
For balanced political and economic growth, China needs to
encourage the expansion of its middle class. This group will stimulate
the robust domestic demand needed for long-term growth of the Chinese
economy. China's long-term economic development cannot be achieved
simply through expanding exports to the markets of its trading
partners.
Experience points to the key requirements for balanced growth and a
middle class. First and foremost is a system of contractual and
intellectual property rights that allows people to accumulate capital.
Second is a sophisticated financial system, which mobilizes savings and
channels them efficiently by offering a range of investment products.
As part of that, a burgeoning middle class requires financial
instruments which permit individuals to manage risk by pooling their
resources, mobilize capital, and to participate in both the domestic
market and the global economy.
The world community has devised institutions to form a system of
multilateral rules based on cooperation. The result is a set of
building blocks for a global system that can secure and sustain
political and economic stability. China needs to have a stake in this
global system if it is to realize its full growth potential.
Moreover, the more China is rooted in the international rules-based
trading system, the greater the cost to China's own economy of taking
political or military steps that undermine the system. China's stake in
the smooth operation of a global economic system and the
interdependence of the global system will act as constrains on China's
ability to adopt political or military postures that will have the
consequence of slowing down or damaging its domestic economic
opportunities, or at the extreme even impoverishing its own people.
The Challenge of Compliance
Mr. Chairman, the business community has no illusions that economic
integration will be a simple process. After China accedes to the WTO,
implementation of WTO rules will not be easy or automatic, just as the
negotiations between the United States and China were neither easy nor
automatic. As Representative Levin said in his recent speech at the
Center for Strategic and International Studies, ``When China ultimately
does accede to the WTO, our work will not have ended, it will just have
begun.''
The transition will not be automatic because China has not yet
developed the full range of institutions needed for a competitive
marketplace. China's trading partners will need to be vigilant and work
with patient determination to ensure compliance with WTO agreements.
Government, business, and NGO's must be prepared to monitor China's
implementation of its WTO commitments and must be willing to work with
their counterparts in China to help increase the institutional capacity
of China to meet its WTO obligations.
The issue of institution building is critical to China's ability to
live up to its market opening commitments. In his recent book, The
World Economy: A Millennial Perspective, Angus Maddison has identified
the central factors for successful economic growth, namely the
development of strong legal protections for property rights and the
building of institutions that foster entrepreneurial activity.
China certainly does not lack entrepreneurial spirit. If you have
ever walked the Bund in Shanghai or visited a factory in Guangzhou or
talked to students at Beijing University, you know the natural
entrepreneurial spirit of the Chinese people. But China does lack the
institutional foundations on which that entrepreneurial spirit can
flourish.
Professor Arthur Waldron of the American Enterprise Institute has
written eloquently on this point describing his concern that China's
economic growth ``rests on shaky foundations--and these grow more
shaky, not less, as that growth continues in a political and
institutional vacuum.'' I share Professor Waldron's concern.
Mr. Chairman, building institutional capacity is essential if China
is to meet the challenge of implementing its WTO commitments
successfully. If we can assist the development of durable rule of law
intuitions in China, one can only imagine how more entrepreneurial the
Chinese people could be. New York Life, like many other companies and
trade and industry associations, has been active in training Chinese
officials about international standards and providing information about
the changes needed in Chinese law to meet WTO obligations. Congress
took great care to address both of these issues--compliance and
institutional capacity--in last year's legislation.
China's Domestic Political Evolution
Mr. Chairman, during last year's national debate on trade with
China, several commentators predicted that the opening of China's
domestic market would inevitably lead to the opening of its domestic
political system. I do not believe this is an issue of simple cause and
effect.
Open economic systems do not, in and of themselves, inevitably lead
to open political systems. But I do believe that without an open
economic system there can be no hope of developing an open political
system. As China moves towards a more open, less centrally controlled
economy, the government will play a diminished role in the operation of
the market. A more open economy will stimulate the growth of the
private sector. Trade liberalization will allow foreign competition and
challenge the efficiency of state owned enterprises. This is exactly
what is happening today in many sectors of China's economy, including
the insurance sector.
But the effect goes beyond the economic arena. The energized
private sector and expanded middle class in China already are
demonstrating increased interest in democratic structures and
understanding of international norms and values. For this reason, we
all need to support wider interaction between civil society groups in
both countries.
The leaders of China face the monumental task of constructing a
productive, stable future for the world's largest nation. China's
future will determine in no small measure the future of the entire Asia
Pacific region. To shape a stable and prosperous future for itself,
China must engage actively in the rules-based institutions formed by
the community of nations and must commit domestically to the formation
of a robust middle class. U.S. business can contribute to both of those
efforts, to the benefit of both nations.
U.S. businesses can also help shape a stable and prosperous China
by bringing to the Chinese economy their corporate values, world class
standards for treatment of workers, commitment to safety in the
workplace, codes of conduct for business operations, support for rule
of law and campaigns against fraud and corruption. I believe that the
infusion of international standards and values into the Chinese economy
will influence the opening of China's political processes in a positive
manner.
I want to emphasize three points in closing.
In the long-term, we must devise a framework for U.S.-China
relations that advances our national interests while recognizing that
both countries' political and economic security are inextricably
linked.
In the near-term, we must pass NTR, complete China's WTO accession,
monitor China's implementation of its WTO commitments and work with
China to build its capacity to comply with WTO obligations.
To be successful in the near- and long-term, we must establish a
domestic political consensus that trade with China is a win-win
proposition, economically and politically for the United States, China
and the entire Asia Pacific region.
Thank you, Mr. Chairman.
Chairman Crane. Thank you, Mr. Benanav. Mr. Kapp.
STATEMENT OF ROBERT A. KAPP, PRESIDENT, UNITED STATES-CHINA
BUSINESS COUNCIL
Mr. Kapp. Mr. Chairman, thank you for letting me join you
again today. It is good to see the stalwarts of this
Subcommittee. Am I on or not on?
Chairman Crane. I don't think----
Mr. Kapp. I am sorry. Now I am. Thank you. It is good to
see the stalwarts of this Subcommittee again, hopefully for the
last time on this particular subject.
My testimony, as you will see, is largely valedictory. It
assumes that we are really at a turning point now, and
therefore it attempts to do three things. First of all, in the
most sincere way possible it attempts to thank the Committee,
and those members who have served on it for all the years that
I have been here; for holding these meetings every year and for
permitting all of us of different views to touch upon the China
we see and the China we think our country needs to work with
(or, in some cases, to argue with).
I will regret the passing of this series of hearings, in
part because just as they have offered to those who have
disagreed with us the opportunity to bring forth concerns of
great potency for them, it has given us in the business
community a chance to make, as strongly as we could, some
points about the essential nature of the economic engagement
between our two countries and the importance of that engagement
to the rest of our relationship with China. So I want to thank
you very much for all of these years of receiving us and
treating us so courteously.
Second of all, my testimony is designed to try to urge the
Congress, but especially this Subcommittee and the full Ways
and Means Committee, to remain engaged on China. We don't need
to say that to Congressman Levin, of course, who is one of the
architects of the Congressional-Executive Commission on China.
But I do think it is very important; as this NTR annual effort
seems to be winding down its period of time, that the members
of the Subcommittee most concerned with our economic relations
with China remain heavily involved on the U.S.-China
relationship as a whole. The attention is moving elsewhere. It
is moving in directions that in some ways are very, very
contentious and potentially historic in their implications for
our relationships with China well into the future, but not
necessarily on trade and commercial terms. I hope that you will
retain your interests in the China relationship as a whole,
because there are great challenges, even perils, as well as
opportunities ahead of us.
I want to mention just briefly in this informal oral
testimony two comments on the testimony of one of the members
who spoke earlier. I yesterday received a group of young
trainees from the Ministry of Foreign Trade and Economic
Cooperation of the People's Republic who are here in this
country at their government's expense to train on WTO with some
of the best specialists that the United States has to offer, in
this case at Georgetown University. We had a great meeting.
These are young, highly motivated, very intelligent,
interesting people. At the end I said, ``Now are there any
questions?'' The first question was, ``Does the trade agreement
between the United States and China--the agreement on the WTO
accession between the United States and China, which calls for
us to lower our tariffs, mean the death of American investment
in China?'' From the Chinese perspective, the fear is that if
they lower their tariffs it will make it easy for American
companies to say, ``Well, why should we invest over there? We
can sell from the United States and get our goods in and sell
on the local market without prohibitive tariffs pricing our
products out of the market.''
So to the argument that as I have heard so often, that the
1999 WTO accession agreement, and the final terms that were
negotiated just a few weeks ago by our current trade
representative, represent, ``not a trade agreement but an
investment agreement,'' designed to take American companies and
move all of their production into China, it is interesting to
see the opposite concern in Chinese minds, i.e., that if they
lower the tax barriers that once priced American goods out of
the market, American companies won't bother to invest at all
because they can sell into China from production bases in the
U.S. or other countries.
And finally, on the matter of Nazi Germany, not only would
I associate myself, perhaps more emphatically, with Congressman
Levin's remarks, thinking of those who have been victims of
Nazi atrocities in the past, but I would also say that
historically this analogy is extremely faulty. And in other
testimony and in other venues I have noted in the most
conservative of intellectual debates, a blistering denunciation
of the false analogy between the People's Republic today and
Nazi Germany in the period of the 1930s and 1940s or, for that
matter, the Soviet Union in the period of the 1920s and 1930s.
So I appreciated Congressman Levin's remark on that.
Let me close with one very quick observation, which I have
refrained from making in earlier appearances before this
Subcommittee.
You know, in Hamlet, Polonius advises his son Laertes, to
thine own self be true. While, I think it is legitimate for us
to know what we don't like when we see it in China and not to
let it go by unnoticed, I believe we must also approach our
dislikes with a certain sense of humility. This morning, in 2
minutes, using a standard internet search engine, I pulled down
materials on two events that have gone essentially unnoticed in
this country, even though they bear some very significant
similarities to the things that galvanize us so about China.
One event was the massacre of at least 10,000 people by Chinese
armies on Taiwan in 1947, which finally, fully 45 years later,
was brought fully to light, to the great credit of the
government on Taiwan that had by then come to democratic
existence. I leave it to you to look back at the history of
whether the United States acted in response to that tragedy in
any way comparable to what many have felt the United States
must do in the aftermath of tragedies of more recent vintage in
China.
The other event, in 1968, on the eve of the Olympics in
Mexico City, was also a massacre by the national armed forces,
which I know all too little about, but which is now
commemorated 30 years later with the beginnings of openings of
archives, with the beginnings of revelations as to who put out
the orders to shoot and so on. CNN has headlines in its
February 4, 1998 story on the search for truth about this
tragedy, posts a sub-head: ``Pro Democracy Demonstrators Shot
in Square.''
What I am trying to say here is not that we should not
focus on the inequities and the social injustices that we can
all see in China. It is to say that somehow, as we look at
China and we engage as a body, as a legislative body or as a
country with the things that bother us so with the People's
Republic, we have to keep tabs on our own reactions to these
inequities and tragedies, some of them harrowingly similar to
tragedies that have occurred in other countries where the
United States in fact has looked the other way, done nothing or
found justifications for what transpired.
Now, we could get into a long historical argument here, and
if there were other members with different views here I am sure
it could get quite colorful as to whether these analogies are
perfect or not. What I am to say is that, now that this session
and this series is winding down and we can look forward to new
forms of congressional engagement with China, I hope we can
somehow balance our belief in the need for intense focus on our
bilateral relationship with China with the fact that we deal
with political tragedies and human experiences in a wide range
of countries with whom we often have very different relations
and to whose tumults we often have very different reactions.
I apologize for straying from the field of trade and
business on the occasion of this likely final NTR hearing, but
this is something that I have felt strongly about for many
years, and perhaps this is the moment to try to say something
along those lines. Thank you, Mr. Chairman.
[The prepared statement of Mr. Kapp follows:]
Statement of Robert A. Kapp, President, United States-China Business
Council
Chairman Crane, Representative Levin, members of the Subcommittee,
thank you for inviting me to appear before you today at this hearing on
the Resolution of Disapproval whose passage would, if it became law,
end for the moment the extension to Chinese imports of the same tariff
treatment that we accord to all but a tiny handful of very small
economies around the world.
1. Introduction
I am Robert Kapp, president of the U.S.-China Business Council. The
Council is the principal organization of American companies engaged in
trade and investment with China. Founded in 1973, the Council assists
its member companies in developing and pursuing effective business
development strategies with China, through a combination of direct
advisory services; publications including The China Business Review; a
constant flow of informational events in both the United States and
China, and advocacy efforts in the public policy realm, including
appearances before your distinguished Subcommittee. The Council is
headquartered in Washington, and maintains field offices in Beijing and
Shanghai. I am pleased that our current business leadership, whose best
wishes I am pleased to convey today, includes Frederick W. Smith,
Chairman and CEO of FedEx Corporation, as our Chairman; Philip M.
Condit, Chairman and CEO of The Boeing Company, as Vice Chairman, and
former Senator J. Bennett Johnston, CEO of Johnston Development Co.,
LLC, as Vice Chairman. The Council enjoys the support of approximately
225 respected corporations and services of all sizes, and from most of
our fifty states.
The United States-China Business Council strongly urges the members
of the Subcommittee, the full Committee, and the House of
Representatives to oppose the Resolution of Disapproval, and thereby to
sustain--as they have done annually for a decade and as the full
Congress has done for twenty years--the decision of the President of
the United States to maintain without disruption the flow of trade
between the United States and its fourth-ranked trading partner. That
trade now totals no less than $120 billion annually.
The arguments for the continuation of NTR, Mr. Chairman, are
familiar to most members of this Subcommittee, and indeed to most
Members of Congress. Without in any way taking for granted the views of
any Member on the very important vote that he or she will face on NTR
this summer, I hope you will forgive me for restating our perspectives
on the reasons to sustain presidential renewal of NTR in an attachment
to my testimony, for those members who wish to move through what we
believe to be the unshakeable logic of NTR continuation, rather than in
the main body of my remarks. (Attachment 1) I shall be happy to try to
discuss any specific issues relating to NTR extension with any Member
of the Subcommittee, the whole Committee, or the House itself, whether
during today's hearing or in subsequent meetings.
Mr. Chairman, this hearing on annual NTR extension, for a number of
reasons, is very likely to prove different in kind from those of the
many preceding years in which you and your colleagues have grappled
with Resolutions of Disapproval. For that reason, I would like to spend
most of my time touching on themes that circumstances have not really
made fully appropriate until this year.
2. Expression of Appreciation to the Subcommittee
Mr. Chairman, we learn in working on China-related issues in
Washington that unexpected surprises, usually bad ones, can happen at
any time and come from any quarter, and that it is foolish to assume
prematurely a final, favorable outcome of any issue involving our two
nations.
Nevertheless, developments last month and last week give
unprecedented strength to the belief that the end of the fifteen-year-
long process of negotiating China's responsible participation as a full
member of the World Trade Organization is now close at hand.
As you know, in accordance with the historic PNTR legislation
approved by the 106th Congress last year, when China enters the WTO, on
terms as favorable or more favorable to U.S. interests than the terms
of the historic U.S.-China Bilateral Agreement on WTO accession
concluded in November 1999, the United States will extend to China full
WTO-member treatment in the form of Permanent Normal Trade Relations
treatment of Chinese imports. The United States will in turn enjoy
full-WTO member privileges in its trade relations with China. With
that, the requirement of annual renewal of standard U.S. import duties
on Chinese products required under the Trade Act of 1974 will come to
an end.
In other words, it now appears very likely that this NTR hearing
will be the last of its kind.
I have appeared before this Subcommittee every year since coming to
Washington in the spring of 1994. I have come to know some members of
the Subcommittee well, and to know and respect key members of the
Subcommittee's talented and extremely hard working staff.
Please permit me to say how much my Council has valued the dialogue
that we have maintained with the Subcommittee on Trade over the many
years of this annual discourse, and how much I personally appreciate
the courtesies that the Subcommittee has accorded to me and the U.S.-
China Business Council over the years that I have served here. I know
that for most of you, China is but one of a thousand issues that fill
your calendars and your minds. For me, China has been for decades the
central concern of my working life. The seasonal opportunity to
concentrate with this Subcommittee on issues of China's development and
of our nation's relations with the PRC has been very rewarding to me--
and, I hope, helpful to you.
Our Council sincerely welcomes and encourages the continuation of
dialogue with Members of Congress on the broad range of China issues--
commercial and non-commercial--which informed policy makers must
continually study. Please consider us ready, willing and able to offer
information to you, convene experienced and thoughtful figures from the
world of U.S.-China business with you, join with you in meetings in
your home districts or other venues, and assist you in fruitful visits
to China in the future. The Council also will hope to bring interested
members of this Subcommittee into its programs when appropriate, so
that we can benefit from your perspectives and ideas.
3. Congress and U.S.-China Trade and Economic Relations after PNTR
Each member of Congress who voted in favor of H.R. 4444 last year
surely had his or her unique combination of reasons for doing so, but I
believe at bottom most members chose to support PNTR in the belief that
full WTO-member relations between our nation and China after WTO
accession would provide two core benefits to the United States:
substantially increased opportunities for American
industrial and agricultural producers, service providers and
investors under the extraordinarily far-reaching accession
terms our representatives had successfully negotiated with
China (terms that our current negotiating team led by
Ambassador Robert Zoellick further solidified in last month's
crucial Shanghai negotiations); and
long-term assurance that a China fully committed to
conducting its international trade according to the world's
``rules of the road'' under WTO, and subject to multilateral
disciplines under WTO dispute resolution, was a far better bet
for America and the world trade system than a China excluded
from full participation in the world trade community and thus
unbound by global expectations and requirements.
In addition, many members from both parties--legitimately, in my
view--came to understand that the changes in state behavior that WTO's
most basic principles require of China--transparency in legal and
regulatory policy, for example, or nondiscrimination in the treatment
of foreign and domestic goods and services--bear within them the seeds
of enormously positive evolutionary changes in Chinese society, along
lines that nearly all Americans would welcome and support. Taken
together, the somewhat breathless article by one of the media's best
informed commentators on China's internal dynamics and my own much more
limited essay on China's growing dialogue over WTO's implications would
tend to justify members' cautious optimism on this crucial issue.
(Attachments 2 and 3)
American companies doing business with China, many of them now in
their third decade of the most kind of on-the-ground engagement, have a
realistic appreciation of the weight of the tasks that WTO membership
will soon impose on China's government and society.
They are optimistic about the elimination of market barriers and
the reduction of trade-distorting practices under WTO, and thus about
their enhanced opportunities for successful business with China.
Having in large measure defined American negotiating goals
throughout the prolonged WTO accession negotiations, American firms
also believe strongly in the necessity of China's realization of its
WTO commitments as defined in the nearly finalized accession documents.
American companies accept fully the legitimacy of Congress's
concerns over China's ability to implement fully its WTO commitments,
and understand the necessity of continuing close U.S. observation of
China's efforts and achievements in living up to its WTO obligations.
At the same time, however, recognizing the enormity of the
challenges that the WTO presents to China, we feel strongly that the
U.S. government and American businesses must commit themselves to
extending the hand of cooperation to China as the PRC takes the path of
responsible participation in the world trading system.
This is not the time merely to stand on the sidelines with a
clipboard and a pencil, filling out a compliance scorecard.
Scorecarding is part of the process that lies ahead of us. But
expanded, effective bilateral cooperation on key elements in WTO
implementation deserve equal American emphasis.
The Chinese themselves have embarked on intensive efforts at
introducing WTO concepts to legions of policy makers and bureaucrats at
the central, provincial, and local levels, many of them hardly familiar
with ``the system'' that our own country has so heavily influenced and
enjoyed since the end of World War II. Hundreds of national laws have
been examined, as required under WTO, for compliance with WTO rules,
and where necessary are being revised to ensure formal compliance with
WTO requirements. Members may find the attached brief U.S.-China
Business Council analysis of these efforts to be of interest.
(Attachment 4)
Today, American educational institutions are pitching in, providing
long- and short-term training programs for eager Chinese government and
business officials, many of whom come to the United States at Chinese
government expense for the purpose of imbibing American expertise in
the operation of a WTO-compliant market-oriented economy.
I myself, in cooperation with the enthusiastic and capable leaders
of the Shanghai WTO Affairs Consultation Center and our own Consulate
General in Shanghai, have had the pleasure of organizing a continuing
series of digital video conferences on WTO issues, bringing together
teams of U.S. specialists and an audience of Chinese participants in
Shanghai for lively discussions, not only on specific technical
provisions in the WTO, but on the very workings of a WTO-informed
political/economic/social system.
The U.S.-China Legal Cooperation Fund, supported by voluntary
contributions from member companies in the U.S.-China Business Council
and operating with no administrative budget whatsoever, continues to
support worthy U.S.-China joint programs in the field of law, in an
effort to help build not only specific WTO-compliant institutions in
China but to strengthen the foundations of a more equitable and
accessible legal system in a rapidly changing China. (Attachment 5)
Mr. Chairman, we in the business community welcome and encourage
the willingness of the Congress and the executive branch to roll up
their sleeves and pitch in with us on the long-term cooperative agenda
with China that will help to ensure China's fullest realization of its
WTO commitments in the shortest possible time.
We believe that this is very much in the U.S. national interest, in
the interest of China itself, and in the fundamental interest of an
equitable and orderly world trading system.
We hope the Ways and Means Committee and its distinguished
leadership will continue to work to enhance awareness throughout the
House of significance of a far-seeing and sustained effort, not just to
monitor and grade China's WTO compliance, but to support and enhance
China's own efforts to achieve that compliance.
4. The Changing Agenda of U.S.-China Relations, and the Shifting Center
of Congressional Interest in China
During the extended debate over PNTR legislation last year, it was
widely understood that many of those in the House who either opposed
PNTR outright or who were uneasy about approval of H.R. 4444 were
concerned that elimination of the annual NTR debate would deprive them
of a legally mandated opportunity to bring to the Congress's attention
those aspects of U.S.-China relations--and of China's internal
affairs--that they felt needed to be aired in the interests of sound
policy and faithfulness to their basic values. Thanks to the skill and
creativity of key Members of the House, most notably Representatives
Sander Levin and Doug Bereuter, whose names adorned a massive set of
provisions included in the final bill, the Congress provided both for
the extension of full WTO-member treatment to China upon its WTO
accession and for the continuation of Congressional examination of
certain questions of concern to members once the annual NTR debate drew
to a close forever.
Our Council stands ready to cooperate with responsible and
constructive efforts of the Congressional-Executive Commission on
China, established under H.R. 4444, to carry out its mandated
functions.
Now that the annual NTR discussion does seem to be winding down for
good, I think that even we in the business community, who have worked
with this Subcommittee to support stable and expanded U.S.-China trade
relations for so long, will also feel a twinge of regret and a sense of
concern.
The reason is that, for us, the NTR process offered an opportunity
to re-emphasize essential points (or introduce them to new members)
about the significance and the promise of expanded economic American
opportunities accompanying China's rapid economic growth, and about the
vital importance of healthy bilateral economic ties to the management
of the entire, highly challenging, relationship between the United
States and China.
In the absence of a forum for the discussion of our massive and
far-reaching economic engagement with China, the Congress is likely to
turn its attention to China increasingly over questions not normally
analyzed in economic and commercial terms. Ironically, we in the
business community may find ourselves watching with concern if the
center of legislative interest in China shifts moves too rapidly and
too completely away from the economic dimensions of U.S.-China
engagement.
Therefore, we in the business community would say to members of
this Subcommittee, and of the full Ways and Means Committee: don't let
the promise, the achievements, and the challenges of U.S.-China trade
relations drift too far into the shadows. Help us to remind lawmakers
in both parties that U.S. economic success is a core element in the
definition of U.S. national interests vis a vis China. Help to sustain
the understanding, so hard-won in the 106th Congress, that our economic
engagement with China contributes to American economic vitality and to
progressive change within China itself. Lend a hand in making sure that
easy but misleading phrases like ``Profits vs. Principles'' and ``Trade
vs. National Security'' add little to responsible policy formulation,
and are best met with sober Congressional understanding of the salience
of effective U.S.-China economic and commercial cooperation in
advancing a broad American agenda with China, whether bilaterally, in
the Asia-Pacific Region, or in global arenas.
5. Conclusion
Mr. Chairman, for literally decades, the Trade Subcommittee of the
House Ways and Means Committee has had a uniquely significant role in
the making of U.S. policy toward China, thanks to the accident of a few
paragraphs of Cold War legislation originally aimed at the Soviet Union
and only latterly brought to bear on U.S. relations with the People's
Republic of China. The Subcommittee has facilitated wide-ranging
debate, sometimes extremely heated, over our policies with regard to
China. The Subcommittee's steadfast support of sensible, stable, non-
preferential economic relations with China, augmented by the support of
the full Ways and Means Committee, has provided indispensable guidance
to the House on persistent and far-reaching policy question. Once
again, we thank the members for their hard work each year on MFN/NTR.
On behalf of our Council's companies, who have achieved so much
already with China and who now view China with both optimism and
sobriety, I urge you to remain interested. Engage with us, and with
those who see the same questions from different vantage points. Visit
China as often as you can manage. Engage with Chinese colleagues,
through the established U.S.-China Interparliamentary Exchange program
or through the new Congressional Study Group on China now being set up
under the leadership of Representatives Manzullo and Lantos and the
auspices of the Association of Retired Members of Congress. The balance
and wisdom of the Trade Subcommittee and the full Ways and Means
Committee has been a true national asset in the American discourse on
China, and we hope that it will remain a vital part of our national
dialogue on China in the future.
Thank you.
Attachments:
``NTR 2001: To Sing the Blues or Walk the Walk.'' The China
Business Review, May-June 2001.
``WTO Winds will blow away the old China,'' CNN.com, July 3,
2001.
``China's Dialogue on the Coming of WTO,'' The China Business
Review, January-February 2001.
U.S.-China Business Council. ``Toward WTO: Highlights of PRC
Implementation Efforts To Date.''
Recent press releases announcing grants by the U.S.-China
Legal Cooperation Fund.
[GRAPHIC] [TIFF OMITTED] T5054A.001
[GRAPHIC] [TIFF OMITTED] T5054A.002
[GRAPHIC] [TIFF OMITTED] T5054A.003
Robert A. Kapp
Like a bolt from the blue . . . the ``Blue Team,'' the truest case
of David versus Goliath in the big-money world of Washington foreign-
policymaking . . . is posing the biggest-ever challenge to the
generously funded China lobby of the Democratic and Republican
establishments. . . . Unlike much of what they call the Red Team, which
is blamed for putting business concerns above national security, Blue
Teamers aren't in it for the money. . . . Today, the Blue Team no
longer is merely a small group of individuals but a movement. . . .
. . . China's April 1 interception and downing of a U.S. Navy EP-3H
[sic] intelligence plane in international airspace, its detaining of
the 24 crew members and the continued impoundment [sic] of the aircraft
have served to galvanize opinion among the American public, in Congress
and within the Bush Administration around positions Blue Teamers long
advocated. . . .''
(Excerpted from J. Michael Waller, ``Blue Team Takes on Red
China,'' and ``Blue Team Vindicated Time and Again,'' InsightMag.com,
June 4, 2001.)
Yes, it's NTR time again.
China isn't in the World Trade Organization (WTO) yet, though it
made a giant stride in that direction with the June 7 agreements
between U.S. Trade Representative Robert Zoellick and PRC Minister of
Foreign Trade and Economic Cooperation Shi Guangsheng. Still, Permanent
Normal Trade Relations (PNTR) is not yet the law of the land. And, in
America, the law really is the law: no WTO, no PNTR. So we recline
again into the steaming cauldron of a summer NTR debate.
Allow me to offer some thoughts on why it would be better for all
of us if Congress decided not to overturn President George W. Bush's
decision to renew plain-vanilla tariff treatment of China's imports to
the United States for another year (or less, if China gets into the WTO
before June 2002 and PNTR goes into effect as Congress intended) than
if the United States were to shut down $120 billion in trade with its
fourth-ranked trade partner.
What follows can't match the flamboyance of the Men in Blue. It
accuses no one of ``kowtowing,'' ``appeasing,'' or being a
``paymaster'' for the opposition.
I like to think that what follows pretty much embodies a case that
the Congress has already broadly understood and accepted. Congress has,
after all, sustained the presidential decision to keep the floor of our
nation's engagement with China in place every year for the past decade
and passed the historic PNTR legislation one year ago.
1. The United States and China share a shrinking globe; each must
maintain a firm commitment to strengthening the foundations of global
stability. China and the United States continue to face opportunities
and challenges in dealing with numerous regional and global concerns,
from the questions before the upcoming Asia Pacific Economic
Cooperation (APEC) meetings in Shanghai to the Korean Peninsula
question, to issues of international cooperation in law enforcement and
environmental affairs, among others. Neither country can wish the other
away.
2. As China has increasingly entered the mainstream of world
affairs since the end of the Mao era 25 years ago, it has become a
major trading nation and a major trade and economic partner of the
United States. It ranked seventh in the world in total trade volume
last year. Total U.S.-PRC merchandise trade last year exceeded $120
billion. China is now the fourth-ranked U.S. trade partner, and the
United States is China's second-ranked trade partner. Since 1979, U.S.
firms have invested roughly $30 billion.
3. Economic and commercial relations have been the most positive
aspects of an often-troubled U.S.-China relationship. Their
continuation is essential to the maintenance of orderly engagement and
to the prevention of an ill-advised free fall in U.S.-China affairs.
4. China and its WTO trade partners have resolved remaining issues
standing in the way of China's full accession to the WTO. Because it
will be some months before China's accession process is complete, under
current law Congress must again consider whether to act as it has since
1981, by concurring with presidential renewal of standard U.S. import
tariffs for an additional year, or whether to do what it has never done
through all the debates of the 1990s: overturn the action of the
president of the United States in sustaining Normal Trade Relations
with China.
5. Since 1992, the House has voted each year to sustain
presidential renewal of NTR trade with China, on the grounds that NTR
is merely the standard treatment the United States accords to all but a
tiny handful of insignificant economies around the world, that the
increasing economic interaction between the two nations is
fundamentally in the U.S. national interest, and that U.S. repudiation
of the massive trade relationship would hinder rather than help to
address non-trade issues of concern to many members of Congress.
6. Congressional defense of normal trade status with China this
year is in all likelihood a holding measure pending implementation of
PNTR. Last year Congress, after a major debate, agreed that the full
integration of China into the world's systems of economic and
commercial rules and laws, through WTO, was in the best interests of
the nation and the world economy. When China enters the WTO, perhaps by
the end of 2001 or else probably in 2002, PNTR will become the Law of
the Land, and annual congressional action on NTR renewal will cease.
7. President Bush has clearly pointed out that a productive
relationship with China is desirable and possible and has pointed to
trade and economic relations as an example of what is most positive
about U.S.-China relations today.
8. The United States and China have found it difficult to manage
many non-trade problems in recent years. It would be immeasurably
harder to control these issues if Congress were to succeed in
overriding presidential renewal of NTR.
9. America's friends in the Pacific, including Japan and Taiwan, as
well as the people of the great free-market center of Hong Kong,
strongly support continued stable economic relations between the United
States and China; rejection of NTR would cause severe economic
dislocation throughout the Asia Pacific region.
10. The fundamentals of the NTR question remain unchanged, in spite
of recent flare-ups in the relationship:
Trade and economic engagement with China generates American
employment and contributes to business strength in the United
States. China's continuing growth at 8 percent and its
commitments to major new market-opening measures under WTO
represent opportunity and stability for the U.S. economy,
particularly now, when the U.S. economy is slowing. U.S.
exports to China rose 36 percent year-on-year in the first
quarter of 2001.
China's imports to the United States at ordinary tariff
levels help to keep consumer goods affordable for all
Americans, particularly those with low and moderate incomes.
China's internal evolution in the direction of the market
economy, WTO reforms, and the expansion of private enterprise
remains on track, despite Chinese domestic worries that these
reforms will provide too many opportunities for Americans and
others at the expense of those in the PRC who benefit from
China's current closed markets.
China's economic relations with Taiwan, already massive,
continue to expand heavily as the economic integration of the
mainland and the island progresses. Taiwan's leader has stated
his hope for continued normal economic relations between the
United States and China.
Shutting the market to tens of billions of dollars in
Chinese exports to the United States will result in the closure
of the Chinese market to U.S. exports; the economic punishment
of many ordinary workers in Chinese industries; the reduction
of U.S. employment supported by exports to China; the ceding of
key strategic markets to U.S. competitors in Asia and Europe;
the stigmatization of political figures and others in China who
are committed to the prime importance of a cooperative
relationship with the United States; and very probably the
comprehensive degradation of U.S.-China relations, with
unforeseeable consequences for both nations.
There it is: the case for NTR renewal, the case for a stable
baseline in U.S.-China relations. If the Blues want to call this
``kowtowing to Beijing,'' so be it. I think the Congress will be more
sensible than the Blues expect.
Copyright 2001 by the U.S.-China Business Council
All rights reserved.
Last Updated: 5-Jul-01
WTO winds will blow away the old China
By Willy Wo-Lap Lam
CNN Senior China Analyst
(CNN)--Globalization is not a dinner party. Much has been written
about the impact of China's entry to the World Trade Organization (WTO)
on the country's economy.
However, it is clear WTO accession and globalization in general
will chip away at not only Beijing's ``economic sovereignty'' but also
the power base and prerogatives of the Chinese Communist Party (CCP).
About two years ago, the CCP and State Council set up a special
team to study the WTO's impact on domestic politics.
While the team's findings have not been publicized, it is clear WTO
accession will pose severe challenges to the authority of the party and
state apparatus.
In a prescient paper written soon after the dissolution of the
Soviet Union in the early 1990s, a group of sons of party elders argued
that to avoid the fate of the USSR, the CCP must never lose control
over the economy and businesses.
There seems little doubt, however, that both the party and the
central government have to sever links with enterprises in the post-WTO
order.
Largely because of WTO-related pressures, Beijing last year began
asking state-owned enterprises (SOEs) to beat a retreat from more than
150 competitive industrial sectors.
In several years, private firms, foreign firms and joint ventures
will split up the sky with SOEs.
As more Chinese get their paychecks and services from non-state
entities, the party's authority may be dealt a body blow.
Then there are the unexpected side-effects. For example, the CCP's
ability to start and operate party cells in joint ventures and wholly-
owned foreign concerns may be challenged by overseas businessmen.
Equally significantly, the party and government have since the
1950s exercised control over the economy and the country mainly through
issuing decrees, often in the form of hongtou wenjian or ``documents
with red letterheads.''
Monopoly powers
These diktat and executive fiats enjoy the same status as legal
statutes--and cadres and citizens alike are required to treat them as
such.
After WTO accession, however, it is obvious that these documents
with red letterheads will have to go.
First to be affected will be party and government orders giving
monopoly powers to certain SOEs--and fixing the prices of their
products.
After all, the WTO's central spirit is the rule of law--and respect
for fair competition and other global standards.
Beginning late last year, Beijing has asked provincial and
municipal administrations to do a thorough vetting of hongtou wenjian
with the view to invalidating most of them--and replacing them with
proper legislation.
In an article entitled ``Beware that hongtou wenjian may violate
the law,'' the official Xinhua news agency reported last week that a
couple of SOEs in Anhui province have lost their monopoly in the course
of the campaign to weed out state fiats.
Party-dominated
Yet the WTO's fallout will not be restricted to the abolition of
this or that particular state decree.
The very concept of a party-dominated legal system is imperiled.
It is an open secret that since 1949, the law courts--as well as
legal interpretation in general--are under the thumbs of a secretive
CCP organ called the Political and Legal Affairs Commission.
Another pillar of CCP domination--the control over information--is
jeopardized.
This is even though WTO protocols so far signed with the United
States or the European Union have made no provisions for joint venture
newspapers or TV stations.
But these WTO agreements do allow for joint venture Internet
companies, although foreign partners cannot hold more than 49 percent
of total shares.
Analysts say Beijing will find it difficult a few years post-WTO to
resist pressure to open up the news business, even though initially
foreign partners may only be allowed to handle advertising, marketing
and distribution.
Also under threat will be Beijing's vaunted ability to guard
``state secrets'' from foreign eyes.
For example, the CCP leadership has refused to allow Western
companies to conduct information-related businesses such as polling and
market research, for the obvious reason that such activities can yield
a bonanza of politically sensitive data.
After WTO, Beijing may no longer be able to keep up the bamboo
curtain.
Indeed, police and state security departments are keenly aware that
many Western-style commercial operations can have heavy political
overtones.
Networks of salesmen
A case in point is direct or door-to-door marketing through close-
knit, quasi-pyramid networks of salesmen. In the mid-1990s, Beijing
asked several foreign firms in the areas of cosmetics and household
products to stop direct-sales activities.
An internal paper cited the political implications of such tightly
organized marketing teams, which often boasted several tens of
thousands of sales people.
The document said law and order, a euphemism for CCP control over
everyday life, might be threatened if ``hostile foreign forces''
including quasi-religious bodies were able to use such sales networks
to pursue anti-Beijing goals.
Consider also the fact that post-WTO, the state may have to yield
its monopoly over education to foreign institutions, including
commercial operators.
Direst consequence
Already in Shanghai and Shenzhen, more and more nouveau riche
parents are sending their kids to international schools, where Marxism-
Leninism is hardly taught.
From the party's standpoint, the direst consequence of WTO entry
may be changes in people's thinking.
As a Beijing-based social sciences professor put it, if everything
is now being done according to international--in many instances,
Western and American--norms, more people will cast doubt on CCP
ideology.
``It will become clear that values and systems such as socialism
and `dictatorship of the proletariat' run counter to global trends,''
the professor said.
WTO accession, of course, will not affect the party's hold over
control mechanisms such as the army, the People's Armed Police and the
police.
Yet a pluralistic market milieu will afford ordinary folks ample
opportunity to thumb their nose at the CCP--and with devastating
effect.
For example, well-trained personnel including scientists, engineers
and mangers can vote with their feet by working for foreign or joint
venture firms, not government departments or SOEs.
As State Councilor Wu Yi put it in an internal talk, globalization
meant first of all a fight for talents between government units and
SOEs on the one hand, and multinationals on the other. People can also
vote with their pocketbook.
If Chinese have lost faith in the authorities, they may convert
their renminbi into dollars and euros, put their money in foreign
banks, patronize foreign insurance companies, purchase foreign stocks
instead of local ones--and, a few years later, buy Global Daily instead
of People's Daily.
Perhaps because of fear of impending loss of control, the Jiang
Zemin administration has in recent months cracked the whip on dissident
organizations and imposed blanket censorship on the media.
Over the long haul, however, there seems little doubt the forces of
economics will triumph over outdated dogmas--especially those that
serve only a privileged minority.
CHINA'S DIALOGUE ON THE COMING OF WTO
January-February 2001 Issue: Robert A. Kapp
Cover by Benjamin Hurd
While America grinds through its election and post-election rituals
and prepares for a new administration, hoping that the newcomers will
make fewer of the inevitable first-year mistakes than most of their
predecessors have made, China grapples with the coming of the World
Trade Organization (WTO).
Even before the tortuous Geneva accession negotiations conclude,
the Chinese are engaged in a heavy discussion of what the WTO means for
China--not just in terms of jobs or exports, but in terms of China's
own future as an economy and a society. I have read several lengthy and
well-informed book-length analyses of the likely impacts of WTO
membership on the Chinese economy, sector by sector. Articles from
every province and city appear in print and online daily.
Combined with the avid study of information about the WTO's rules,
operations, and dispute resolution experiences, the sheer volume of
published material on the WTO--what Chinese are saying to each other
where all can see and hear it--is impressive, and ought to be of real
interest to U.S. business and to U.S. policymakers. As in any debate
over a big new international trade agreement in any country, some of
the material is repetitive, even predictable; certainly that was the
case in the United States during the NAFTA and Uruguay Round debates.
But taken as a whole, China's current debate reveals where China
hopes--and sometimes worries--the WTO will take it.
Our dialogue with China on the WTO, as on other matters, will be
more productive if Americans have a living sense of issues under debate
within China on any given subject, and indeed if the Chinese, in turn,
have that same living sense of America's key concerns on issues we
debate regarding China. The WTO offers a good example.
Here, then, is a short example of what is being said within China
about the WTO. The writer, Zhao Yihuai, is an official of the Shanghai
Municipal Office for Restructuring the Economy. He published his piece
recently in the major Shanghai newspaper, Liberation Daily. The article
was then posted to a rich compendium of WTO essays found on the website
of the national newspaper of the Chinese Communist Party itself, the
People's Daily (http://www.peopledaily.com.cn/). You have to read
Chinese to plow into this ``China Enters the WTO'' collection, but if
you do, or if you know someone who can help you, it is a worthwhile
trip.
What follows are excerpts from ``How Should the Government Respond
to WTO Entry?'' by Zhao Yihuai (my translation):
``Any country entering the WTO is considered to be a market economy. .
. . Conceptually, this means changing from `omnipotent government' to
`limited government.' ''_Zhao Yihuai
China's entry into the WTO is first and foremost a government
entry. Never mind whether it is the central government or local
governments: all have to be adequately informed. For a long time, our
economy has been a government-led economy: government policies and
system regulations were formed from a single, internal, national
understanding and set by the nation's own circumstances. After China
enters the WTO, it faces a new environment. China must accept rules of
the game already put in place by the WTO. We may not simply change
those rules without authorization, but instead must obey and support
them. Therefore, governments need to ratchet up the modification of our
laws and regulations to make them compatible with the basic principles
and the basic spirit of the WTO, so that we can effectively adapt to
this new economic environment. Concretely, we should start with the
following:
``How Should the Government Respond to WTO Entry?''_Liberation Daily
The first step, naturally, is to speed up our own
structural reforms. Compared to the reform process in the past,
the biggest change in our reform process after WTO entry will
be from ``We Want Reform'' to ``We Must Reform Ourselves.''
This imposes a new system of reform upon us. To meet this
challenge, governments must consciously increase the intensity
of their reform efforts, and speed up the steps leading to the
marketization of the national economy. In keeping with the
requirements of the WTO, we must deepen the reforms of our
financial structures, our food distribution structures, our
social insurance systems, and so on, rooting out the
discrepancies and the frictions between our domestic systems
and international rules. Elimination of such conflicts is the
precondition for the true alignment of our national economy
with the world economy.
The Chinese are engaged in a heavy discussion of what the WTO means for
China
Next, we must expand the grounding of government policy in
law, and increase the transparency of government policies.
Enhancement of legality is necessitated by the requirements of
the market economy. Any country entering the WTO is considered
to be a market economy. This requires government conduct to
advance along tracks defined by law. Conceptually, this means
changing from ``omnipotent government'' to ``limited
government.'' With WTO entry, China must erect both a new
conceptual basis to undergird government conduct and new forms
of government action. Looking at today's realities, the first
task is to eliminate many outmoded internal regulations and
policies that are not compatible with WTO rules. For example,
in dealing with the non-public economic sector, governments
must realize the commitment to nondiscrimination, in order to
create a fair environment for the operation of the
nongovernmental economy. That means to the greatest possible
extent avoiding preferential policies and subsidies for state-
owned enterprises, in order not to provoke retaliation from
abroad.
Next, China must energetically enhance the economic
management abilities of governments. WTO entry does not signal
the general weakening of the managerial skills of governments.
On the contrary, it is through the reform of government systems
of economic management and the strengthening of the rational
professional skills of governments that we will be able to
preserve the basic interests of the people and the national
economic security in a globalized environment of intense
competition.
Specifically, this means, (a) providing correct guidance
and active fine-tuning. These roles are recognized under the
WTO system. . . . And (b), it means energetically supporting
our own interests. We must utilize all the safeguard methods
authorized by the WTO for its members to use in guarding their
infant industries. We must actively explore effective support
mechanisms, to defend against the massive onslaught against our
national production sectors and our vulnerable products in the
midst of bitter competition. Of course, the purpose of such
government protections is not to protect backwardness; rather,
it is ultimately to end such protections and to raise the
international competitive power of the producers and products
afforded the protection.
In sum, entering the WTO drives forward our country's historic
opportunity to develop along market economy lines. It serves as a new
driver of all facets of our nation's reform and ``opening.'' Agencies
of government cannot but actively rise to this challenge, advance the
reform process within the framework of the WTO, and only by so doing
preserve the autonomy of our nation's economy amidst the competition of
a global economy.
As America endures a laborious political transition, and U.S.
companies peer into the future at home and overseas, China's discussion
of its future in a WTO-based global economy goes on apace. The
adjustment to life in the WTO may not be easy for China or its trade
partners. But there is plenty of evidence--far more than I've been able
to offer here--that suggests that the WTO is being taken with the
greatest seriousness in the PRC, and that its implications for economic
and other changes within China are very much in public view. The more
we can know about the dynamics of the WTO discussion within China, the
more effectively the U.S.-China Business Council and its member firms
can pursue with Chinese counterparts the full and successful
realization of China's new rights and responsibilities.
Copyright 2001, The U.S.-China Business Council
All Rights Reserved
TOWARD WTO: HIGHLIGHTS OF
PRC IMPLEMENTATION EFFORTS TO DATE
June 2001
The U.S.-China Business Council is committed to tracking WTO-
related changes in China. This document highlights particular PRC
efforts, as known to the Council, to bring its system into WTO
compliance. It is not intended to be comprehensive. China has taken
positive first steps to implement its commitments, but significant gaps
remain. The Council will continue to update this report on a quarterly
basis.
Revising Laws and Regulations: In preparation for China's
accession to the World Trade Organization (WTO), PRC officials
have begun to bring China's legal and administrative regimes
into compliance with WTO rules. According to PRC legislators,
more than 1,300 national and local laws and regulations did not
comply with the WTO rules as of October 2000. The National
People's Congress (NPC) and State Council announced in 2001
that they would formulate 26 new regulations, amend an
estimated 140 national laws and regulations, and abolish
another 573.
New Legislation: Drafts of new and amended legislation are
said to be circulating and include new antitrust, foreign
trade, antidumping/countervailing duty, safeguard, import/
export commodity inspection, copyright, and trademark laws, as
well as regulations governing foreign investment in the
telecommunications sector and a revised Catalogue Guiding
Foreign Investment.
Publishing Laws: The PRC government has initiated an effort
to publish laws and regulations on various government websites,
and new laws continue to be announced in the MOFTEC Gazette. A
bigger challenge for PRC government agencies will be how to
make the legislative process more transparent and to change
current lawmaking procedures that allow many laws to be
enforced even if they are not published.
Shanghai: Shanghai leads other localities in its WTO
preparations. The legal affairs office of the Shanghai
municipal government has reportedly identified 52 city laws
that must be revised and 40 city regulations that it will
abolish in the coming year. The Shanghai government established
the Shanghai WTO Affairs Consulting Center on October 26, 2000
to provide local and foreign enterprise managers and government
officials with training, research, and consulting services on
China's WTO policies. Since January 1, 2001, the Shanghai
government has posted new laws in Chinese at
www.shanghai.gov.cn, but not yet in English or another WTO-
compliant language.
Revisions to Foreign Investment Laws: The State Council
released on April 24, 2001 the revised Implementing Regulations
of the PRC Wholly Foreign-Owned Enterprise (WFOE) Law. Under
the revised regulations, foreign companies are no longer
required to balance foreign exchange, source domestically, use
advanced technology, and abide by export quotas. The NPC also
passed on March 15, 2001 the amended Law of the People's
Republic of China on Equity Joint Ventures, the principal law
governing foreign-PRC joint ventures.
Pilot Projects in Services: The PRC government has launched
several pilot projects to experiment with allowing foreign
investment in previously restricted sectors including
telecommunications services and fund management.
Intellectual Property Rights: The State Council has issued a
number of policy directives to strengthen anticounterfeiting
enforcement work and established a new National
Anticounterfeiting Coordination Committee, chaired by State
Councilor Wu Bangguo. A judicial interpretation and prosecution
guidelines issued in April 2001 establish new and clearer
standards for criminal liability in counterfeiting cases. The
government will need to ensure that local police and
prosecutors have sufficient resources for enforcement. The
Shanghai Technical Supervision Bureau established the Shanghai
Foreign-Invested Enterprises Anticounterfeit Work Liaison
Office in September 2000, the only government office
established with the sole purpose of helping foreign companies
fight counterfeiters in China.
Commodity Inspection & Technical Standards: China merged its
two standards and inspections bodies on April 1, 2001 to form
the State Bureau of Quality Supervision, Inspection, and
Quarantine (SBQSIQ). China had maintained one inspection regime
for imports and another for domestically made goods. The merger
represents China's first step toward meeting the demand of its
WTO negotiating partners that China unify its inspection regime
to ensure national treatment. In the past, the PRC government
has used the existence of a separate inspection regime for
imports as a non-tariff barrier, particularly against imports
of agricultural products. The WTO Technical Barriers to Trade
(TBT) Consulting Enquiry Point, a PRC government organization
under SBQSIQ, will report on standardization requirements to
the WTO and to foreign and domestic companies. The organization
will submit to the WTO current PRC technical regulations,
standards, quality evaluation procedures, labeling
requirements, and other issues that may affect trade with WTO
members. Information on the new organization can be found at
www.wto-tbt.gov.cn.
Customs: Amendments to China's Customs Law took effect on
January 1, 2001. The revisions aim to strengthen the legal
framework governing customs activities to bring China's customs
systems into line with the international practices embodied in
the Kyoto Customs Convention and WTO Customs Valuation
Agreement. China's commitment to use transaction value in the
amended law brings PRC valuation practices closer to those
outlined in the WTO Customs Valuation Agreement, which China
has committed to followas a WTO member.
Removal of Non-Tariff Barriers: MOFTEC removed quotas,
licenses, and other special administrative import measures for
21 types of appliances, electronics, medical equipment, and
vehicles on January 15, 2001. The announcement marks the eighth
time since 1992 that MOFTEC removed non-tariff barriers for
various electronic and machinery products.
Tariff Reductions: The State Council reduced average tariffs
by 6.6 percent as of January 1, 2001. The cut brings the
average import tariff to 15.3 percent moves Beijing closer to
fulfilling its basic WTO tariff obligations. Of the cuts, 152
were vehicle-related. Seventy-nine different tariffs on
completed vehicles were reduced from 51.38 percent to 44.16
percent on average.
Education and Training: PRC government training programs
have been under way since late 1999 at the central, provincial,
and municipal levels. Many key personnel have attended at least
one one-week course on the WTO. Some senior-level officials
have attended month-long courses that cover WTO-related issues,
including background on the WTO, information on WTO agreements,
and the impact of China's WTO accession on key industries.
Courses for the most senior-level officials have covered the
actual terms contained in China's bilateral market-access
agreements and protocol of accession. Increasingly, Chinese
bookstores are prominently displaying books on the WTO, its
regulations, and its operating principles. The U.S.-China
Business Council is conducting a WTO training program with the
Shanghai WTO Affairs Consulting Center. The program uses
digital videoconference (DVC) technology to bring the
experience and expertise of U.S.-based specialists to an
audience of Shanghai government officials, local WTO experts
and academics, and business leaders. Topics have included
antidumping, trade-related intellectual property rights
(TRIPs), technical barriers to trade, and agriculture. DVC
facilities have been made available by the U.S. Consulate
General in Shanghai and the U.S. Department of State in
Washington. U.S. companies are also engaged in their own
efforts to train PRC regulators, joint-venture partners,
suppliers, and customers on WTO rules and obligations.
For Immediate Release
UNIQUE LEGAL COOPERATION FUND MAKES GRANTS TO FIVE NEW U.S.-CHINA RULE
OF LAW PROJECTS
(Washington, June 4) A one-of-a-kind fund established by U.S.
business to assist vital ``rule of law'' cooperation between the United
States and China has disclosed five new competitive grants to
recipients based in the two countries. The bilateral programs slated to
receive help from the U.S.-China Legal Cooperation Fund range from the
development of legal aid for the indigent to improvement of China's
compliance with World Trade Organization requirements after its
accession to the WTO.
The U.S.-China Legal Cooperation Fund announced its fifth set of
grants since its inception in 1998. The Legal Cooperation Fund is a
project of The China Business Forum, Inc., the research and education
arm of the U.S.-China Business Council.
The Fund's grants will support five new projects to:
Identify and define the administrative law reforms and laws
with respect to transparency that China must enact to comply
with WTO requirements that ask members to apply trade laws in a
``uniform, fair, and reasonable manner'';
Conduct a workshop and research on freedom of information
and open government in China, together with development of
program materials for a continuing administrative law program
for China;
Undertake field research in two locales to identify
impediments to full implementation of China's labor law;
Complete a needs assessment for legal aid in Anhui Province
and create a criminal investigation and defense manual for
Chinese legal aid attorneys; and
Sponsor a series of interdisciplinary seminars in China on
WTO standards, structure, and procedures, focusing on rule of
law and conflict resolution in the WTO context.
Legal Cooperation Fund Trustees Chairman Herbert J. Hansell, Senior
Counsel at Jones, Day, Reavis & Pogue in Washington, DC, remarked:
``In this fifth round, the Legal Cooperation Fund received 21
innovative, timely, and practical proposals from a wide variety
of U.S. and Chinese organizations. The Trustees were
particularly gratified to joint U.S.-China proposals submitted
principally by Chinese applicants, reflecting the Fund's
continuing effort to reach out to Chinese individuals and
organizations concerned with the rule of law. The Trustees
continued to focus on projects that would substantially advance
cooperation in the legal fields that U.S. and Chinese political
leaders identified in the late 1990s, including proposals that
will assist China's implementation of its World Trade
Organization commitments. The Fund is grateful for the
continuing financial support of U.S. corporations and
professional firms, which will ensure future U.S. cooperation
with China in developing the rule of law.''
The following business members of the U.S.-China Business Council,
the leading organization of American firms engaged in trade and
investment with the People's Republic of China, support the U.S.-China
Legal Cooperation Fund: ABB Inc.; AMP Incorporated; American
International Group, Inc.; Applied Materials, Inc.; ARCO; Baker &
Daniels; Cargill, Inc.; Caterpillar Inc.; China Products North America;
The Chubb Corporation; CIGNA Corporation; Citigroup; Coca-Cola Company;
Corning Incorporated; Eastman Kodak Company; Eaton Corporation;
Emerson; ExxonMobil Corporation; Federal Express Corporation; Ford
Motor Company; GE Fund; General Motors Corporation; Honeywell Inc.;
Ingersoll-Rand Company; Jones, Day, Reavis & Pogue; Kaye, Scholer,
Fierman, Hays & Handler; Lehman Brothers; Merrill Lynch; Microsoft
Corporation; Motorola Inc.; Nationwide Global Holdings; Payless
ShoeSource; PepsiCo, Inc.; Praxair, Inc.; Timken Company; TRW Inc.;
United Technologies Corporation; and Wm. Wrigley Jr. Company.
Information on the Fund may be found at its web site:
www.uschinalegalcoop.org. The next deadline for submitting applications
for Fund grant will be October 15, 2001, with the next set of Fund
awards expected about November 30, 2001.
--END--
For Immediate Release
TRAIL-BLAZING LEGAL COOPERATION FUND SUPPORTS SIX NEW U.S.-CHINA RULE
OF LAW PROJECTS
(Washington, December 11) A unique business-supported fund
established to enhance U.S.-China legal cooperation awarded grants in
early December to fund six bilateral projects ranging from a long term
academic study of the legal aspects of China's upcoming accession to
the World Trade Organization to a program to draft a code of ethics for
Chinese lawyers.
The U.S.-China Legal Cooperation Fund announced its fourth group of
grants following a December 1 meeting of its Board of Trustees. The
Legal Cooperation Fund is a project of The China Business Forum, Inc.,
the research and education arm of the U.S.-China Business Council.
The Fund's grants will support six new projects to:
Develop a more effective Code of Legal Ethics for the All-
China Lawyers Association;
Study the development of the rule of law, constitutionalism,
and judicial independence in China;
Support the first phase of a long-term academic study of the
legal impact on both China and the United States of China's
accession to the World Trade Organization;
Draft a codification system for existing and future Chinese
laws to speed legal research by legal scholars and
practitioners as well as business and the general public;
Assist Chinese securities regulators to conduct a study of
U.S. civil liability laws within the system of U.S. securities
regulations and facilitate teaching U.S. securities laws to
Chinese students; and
Support a program for teaching of U.S. laws at a Chinese law
school.
Herbert J. Hansell, Senior Counsel at Jones, Day, Reavis & Pogue in
Washington, DC, who chairs the Board of Trustees, commented:
``In this fourth round of grants, the Trustees of the Legal
Cooperation Fund considered a number of high quality proposals
intended to support and foster bilateral cooperation in the
field of law. These grants will direct U.S. private-sector
resources to areas of legal cooperation that Presidents Clinton
and Jiang articulated in the late 1990s, and also to projects
that will help China meet its far-reaching WTO commitments. The
U.S. businesses that created and support this Fund believe that
U.S. cooperation with China in developing the rule of law will
yield specific, significant, and long-lasting benefits to the
citizens of both countries.''
The U.S.-China Legal Cooperation Fund is supported by the following
business members of the U.S.-China Business Council, the leading
organization of American firms engaged in trade and investment with the
People's Republic of China: ABB Inc.; AMP Incorporated; American
International Group, Inc.; Applied Materials, Inc.; ARCO; Caterpillar
Inc.; China Products North America; CIGNA Corporation; Citigroup; Coca-
Cola Company; Corning Incorporated; Eastman Kodak Company; Eaton
Corporation; Emerson Electric Company; ExxonMobil Corporation; Federal
Express Corporation; Ford Motor Company; GE Fund; General Motors
Corporation; Honeywell Inc.; Ingersoll-Rand Company; Jones, Day, Reavis
& Pogue; Kaye, Scholer, Fierman, Hays & Handler; Lehman Brothers;
Merrill Lynch; Microsoft Corporation; Motorola Inc.; Nationwide Global
Holdings; Payless ShoeSource; Praxair, Inc.; Timken Company; United
Technologies Corporation; and Wm. Wrigley Jr. Company.
Information on the Fund may be found at its web site:
www.uschinalegalcoop.org. The next deadline for submitting applications
for Fund grant will be April 16, 2001, with the next set of Fund awards
expected about May 31, 2001.
--END--
Chairman Crane. Thank you, Mr. Kapp, and hopefully this is
the last time that we go through this procedure.
Mr. Cohen.
STATEMENT OF CALMAN J. COHEN, PRESIDENT, EMERGENCY COMMITTEE
FOR AMERICAN TRADE
Mr. Cohen. Mr. Chairman, Mr. Levin, members of the
Committee, I am Calman Cohen, the president of Emergency
Committee for American Trade (ECAT), an association of the
chief executives of major American companies with global
operations. In the view of ECAT members, the annual extension
of NTR with China is critical to maintaining commercial
engagement with China and to ensuring that America fully
benefits from the completion of China's negotiations to enter
the WTO. The engagement policy, I hasten to add, is not an
invention of the post-World War II era or even the last
century. It only resumes the NTR treatment that the United
States and China first accorded each other back in 1944. That
status was first suspended, or was suspended after a hundred
years in about 1951, until China formally enters the WTO. When
the President authorizes the extension of PNTR, this Committee,
which has played a key role in promoting the engagement policy
at the end of the 20th century, will be called upon to reaffirm
our longstanding policy of commercial engagement with China.
I am here to ask you to stay the course one more year.
Nothing has fundamentally changed since last year's debate. As
you have heard already this afternoon, if we look at our
primary interest as a nation, commercial, humanitarian,
national security, it is clear that continued engagement and an
extension of NTR status are in the United States' interest.
Make no mistake, commercial engagement, NTR, PNTR, are not
panaceas. They do, however, put us on the most productive road
to achieving our country's broad interests.
On the other side of the equation is the Disapproval
Resolution, H. J. Res. 50. Passage of that resolution will not
advance U.S. interests. I will suggest it will undermine them.
Terminating NTR with China will significantly harm U.S.
commercial interests. For example, the imposition of Smoot-
Hawley level tariffs would raise the price of U.S. imports,
equaling an approximate $245 tax increase on the average U.S.
family. Nor will the termination of NTR with China result in
any appreciable improvement in China's respect for human
rights. While many of China's domestic policies conflict with
our values as Americans, effectively cutting off our commercial
relations will not change these policies for the better.
Indeed, many of those who have dedicated their lives to
promoting reform within China believe that U.S. commercial
engagement is one of our best tools for helping to promote our
humanitarian interests in China, including greater openness,
the rule of law, the respect for human rights and the
alleviation of poverty.
Finally, there is the issue of our national security
interests. Terminating NTR with China will have significant
repercussions throughout Asia that will undermine U.S.
interests in the region. Importantly, it could strengthen
China's hard-liners, who will cite our termination of NTR as
proof of American hostility, and will undermine our ability to
use dialog and other means to promote greater stability and
security throughout the region from the Taiwan Strait to the
Korean Peninsula.
In conclusion, China's eventual accession to the WTO will
not of course be the end of the process as you, Mr. Levin, and
others have suggested. China will not magically be transformed
overnight or in a year. We must work on the ground in China to
promote the change that China's WTO accession promises. We will
also need your help, with that of the administration, to ensure
that China fully implements its commitments.
In particular, it will be critical to fund fully the
commercial, labor, legal system and civil society programs that
were promoted by Congressmen Levin and Bereuter and authorized
by last year's United States-China Relations Act. We strongly
support also full funding for the efforts of the U.S. Trade
Representative and the Department of Commerce to monitor and
ensure full implementation of our trade agreements.
In sum, renewal of NTR with China and the rejection of H.J.
Res. 50 will continue the policy of commercial engagement that
has benefited the United States not only in the last quarter
century, but also since our original agreement with China on
NTR in 1844. We cannot resolve all of our diverse concerns with
China on the back of trade, but we can make simple progress on
all of our interests as Americans by staying the course and
continuing our commercial engagement with almost one-fifth of
the world's population.
Thank you once again for this opportunity to testify.
[The prepared statement of Mr. Cohen follows:]
Statement of Calman J. Cohen, President, Emergency Committee for
American Trade
I am Calman Cohen, President of the Emergency Committee for
American Trade--ECAT--an association of the chief executives of major
American companies with global operations. ECAT was founded more than
three decades ago to promote economic growth through expansionary trade
and investment policies. Today, ECAT's members represent all principal
sectors of the U.S. economy--agriculture, manufacturing, merchandising,
processing, and services. The combined exports of ECAT companies run
into the tens of billions of dollars. The jobs they provide for
American men and women--including the jobs accounted for by suppliers,
dealers, and subcontractors--are located in every state and cover
skills of all levels. The annual worldwide sales of ECAT companies
exceed $1.5 trillion, and they employ approximately 4.5 million people.
I am here today to address one of ECAT's top priorities: the annual
extension of Normal Trade Relations (NTR) with the People's Republic of
China that is critical to maintaining commercial engagement with China
and to ensuring that America fully benefits from the completion of
China's negotiations to enter the World Trade Organization (WTO).
COMMERCIAL ENGAGEMENT HAS BEEN A CORNERSTONE OF U.S. POLICY TOWARDS
CHINA
Commercial engagement with China has been the cornerstone of U.S.
policy toward China for the last nearly quarter-century, since the
historic 1979 Agreement on Trade Relations Between the United States of
America and the People's Republic of China. This agreement authorized
by the Jackson-Vanik amendment of the Trade Act of 1974 and approved by
Congress after its completion, committed the United States and China to
accord each other NTR treatment with respect to goods and certain other
issues. Every President since 1980 onward--starting with President
Reagan and continuing with Presidents Bush, Clinton and now President
George W. Bush--has sought and obtained the annual renewal of China's
NTR status.
In fact, this policy is not an invention of the post-World War II
era or even the last century. It only resumes the NTR treatment that
the United States and China first accorded each other under the 1844
Treaty of Wanghia--that was only suspended in 1951.
This Committee has played a key role in promoting this policy at
the end of the 20th Century. Starting in 1990, when the first
resolution disapproving China's NTR status was introduced in the House,
this Committee has voted 11 times on a disapproval resolution. This
Committee has also considered related legislation on China's NTR status
on several other occasions.
Most importantly, however, this Committee led the effort last year
to authorize the President to extend permanent normal trade relations
to China upon its accession to the WTO on terms substantially similar
to those agreed in the November 1999 U.S.-China bilateral market access
agreement. ECAT is very grateful for your historic efforts that we hope
will soon reach fruition.
The time is drawing near when we will be able to restore fully the
commercial relationship with China that we began in 1844. Following the
Administration's successful negotiations in Shanghai in early June and
the recent Working Party meeting in Geneva, there remain few issues
left to resolve as part of China's negotiations to enter the WTO. Once
negotiations are concluded in the Working Party, the ministerial work
of the WTO will continue in finalizing the protocol of accession, the
working party report and consolidating the schedules containing China's
market-access commitments. When that process is complete, the Working
Party must report China's accession by consensus, which will be
followed by a vote (or, as in all past accessions, a unanimous
decision) of the General Council. Once China's entry is approved,
Taiwan's entry will also be approved. China and Taiwan will then, of
course, have to ratify the decisions and will formally accede to the
WTO third days thereafter.
In joining the WTO, China will merely resume the role that it
played more than half a century ago: China was one of the forty-four
participants in the 1944 Bretton Woods Conference. It served on the
Preparatory Committee that wrote the charter for the International
Trade Organization (ITO) that was to complement the International
Monetary Fund and the International Bank for Reconstruction and
Development. China was also one of the twenty-three original
Contracting Parties to the General Agreement on Tariffs and Trade,
initially created to be an interim arrangement until the ITO Charter
would come into force, which it never did.
In China, however, revolution intervened. The government of Taiwan
notified the GATT on March 8, 1950, that it was terminating China's
membership. It was only in 1986 that the People's Republic of China
officially sought to rejoin the GATT, now the World Trade Organization.
And now, after 15 years of negotiations, China is poised to enter the
organization that it originally worked to create.
THE ANNUAL NTR DEBATE
Until China formally enters the WTO and the President authorizes
the extension of Permanent Normal Trade Relations, this Committee will
be called upon to reaffirm our longstanding policy of commercial
engagement with China. I am here to ask you to stay the course one more
year.
In 1990, I and a number of my colleagues in the business community
formed the Business Coalition for U.S.-China Trade, an umbrella
organization of associations and companies interested in promoting
commercial engagement with China. ECAT and the Business Coalition
supported the annual extension of NTR every year and worked with all of
you to support last year's historic vote on PNTR. On June 5, seventy
business associations sent a letter to the President and the House and
Senate Leadership on the importance of NTR renewal. That letter is
attached. The Business Coalition will soon be sending a letter to every
member of the House asking for his or her support of NTR with China.
You are all familiar with the issues surrounding this debate. Last
year, Congress engaged in an extensive debate on the value of continued
commercial engagement and Permanent Normal Trade Relations. At the end
of the day, Congress voted to stay the course of commercial engagement
and authorized the President to extend PNTR at the appropriate time.
Continued Commercial Engagement and the Extension of NTR Are in the
United States' National Interest
Nothing has fundamentally changed since last year's debate. If we
look at our primary interests as a nation--commercial, humanitarian and
national security--it is clear that continued engagement and an
extension of NTR status are in the United States' interest.
1. Commercial Interests: China's accession to the WTO will open
markets for every major sector of the U.S. economy and will provide a
multilateral mechanism for the resolution of disputes under the WTO
agreements. The U.S.-China bilateral agreement from November 1999 and
subsequent negotiations establish a comprehensive package for removing
major trade barriers in all major sectors of the economy. I will list
only a few of the highlights.
Agriculture: The bilateral agreement provides expanded
market access for U.S. wheat, corn, soybeans, cotton, barley,
and rice under a new system of tariff-rate quotas, reduces
Chinese tariffs on priority products such as beef, citrus, and
dairy from over 30 percent to 12 percent, and eliminates
Chinese export subsidies. The recent negotiations in Shanghai
resulted in China's commitment to limit substantially its use
of domestic agricultural support.
Manufacturing: The bilateral agreement cuts Chinese tariffs
from the current overall average of 24.6 percent to 9.4
percent, including major tariff reductions on the farm products
noted above. In the auto sector, China agreed to reduce its
current 80 to 100 percent tariffs on autos to 25 percent and to
reduce tariffs on auto parts from 23 percent to 10 percent.
China also will join the WTO's Information Technology Agreement
(ITA) that will require China to reduce its tariffs on
computers, semiconductors, telecommunications, and other high-
technology products to zero.
Services: As a result of U.S. negotiations, China has agreed
to provide comprehensive market access for U.S.
telecommunications and financial services under the WTO
Telecommunications and Financial Services Agreements. China has
made specific market-access commitments in all services
industries of primary interest to the United States, including
the Internet, audio-visual, banking, insurance, securities, and
auto finance. U.S. publishing and information services also
will benefit from China's commitment to remove restrictions on
distribution and to reduce restrictions on investment.
The Congressional Research Service has projected that China's
accession would increase annual U.S. exports by $11.5 billion by 2005.
The U.S. Department of Agriculture estimates that U.S. farm exports
would grow by $2.2 billion annually as a result of China's WTO
accession.
It is to the U.S. advantage to be able to have China enter into
binding market-access commitments that are enforceable under WTO
dispute settlement procedures, rather than have to enforce existing
bilateral agreements unilaterally and in a piecemeal fashion. The
longer China's WTO accession is delayed, the more business
opportunities are lost for U.S. suppliers and the greater the pressure
within the United States to impose unilateral, trade-disrupting
measures against China.
More broadly, our continued commercial engagement, renewal of NTR
and China's accession to the WTO will help deepen and accelerate
China's own market reforms. Indeed, bringing China into the WTO will
help to address our rising trade deficit with China, as China will have
to reduce its high tariffs and eliminate quotas and other major market-
access barriers.
As documented in ECAT's Global Investments, American Returns (GIAR)
and ECAT's 1999 Update, the continued commercial engagement and
investment of American companies around the world has complemented,
rather than substituted for, economic activity in the United States in
areas determinative of productivity, such as research and development
and capital investments. In addition, over 70 percent of the total
income earned by the foreign affiliates of U.S. firms is repatriated.
This in turn has promoted economic growth and a higher standard of
living in the United States. And contrary to the speculation of some
critics, U.S. companies with global operations have increased overall
U.S. employment, not reduced it.
The cost of another extension of China's Normal Trade Status is
small indeed. Only six countries are currently denied NTR status--
Afghanistan, Cuba, Laos, North Korea, Serbia and Montenegro and
Vietnam--with the last likely to regain that status later this year.
One hundred and fifty-two countries receive even more favorable access
to the U.S. market than NTR through the NAFTA, the U.S.-Israel Free
Trade Agreement, the Generalized System of Preferences program, the
Caribbean Basin Initiative, the Andean Trade Preferences Act and the
African Growth and Opportunity Act.
There is no question that continued commercial engagement and the
extension of NTR with China are in our commercial interest.
2. Humanitarian Interests: Continued commercial engagement,
including the renewal of NTR, is also one of our best tools for helping
to promote our humanitarian interests in China, including greater
openness, the rule of law, the respect for human rights and the
alleviation of poverty. These are not simple issues that can be
resolved from one day or even one year to the next. Nor can they be
achieved through one simple vote--up or down on the renewal of NTR.
Yet, the evidence shows that increased commercial engagement--not
isolationism, has fostered greater reform and progress on these issues
as well. For those of you who have visited China over the last two
decades, you have witnessed the immeasurable changes that greater
commercial engagement and contact with U.S. companies have had.
China's accession to the WTO will also help strengthen progress
towards greater transparency and the rule of law in China's legal
system. While the rule of law work will begin in the commercial sector,
it is certainly our government's policy--in large part through the PNTR
legislation that you drafted last year--to help promote greater
adherence to the rule of law in other areas as well.
U.S. companies operating in China bring with them their values and
their standards on everything from worker safety to the environment.
The benefits of this engagement are inestimable in terms of their
ability to promote a better way of life for the Chinese people.
As the World Bank and others have documented, it is precisely
through increased trade and economic growth that developing countries
are better able to reduce poverty and improve standards, including on
issues such as the labor and environment. Since World War II, the
liberalization of trade has produced a six-fold growth in the world
economy and a tripling of per capita income and enabled hundreds of
millions of families to escape from poverty and enjoy higher living
standards. A recent World Bank study shows that developing countries
that participate actively in trade grow faster and reduce poverty
faster than countries that isolate themselves. In the 1990s, per capita
incomes grew 5.1 percent in developing countries with high trade and
investment flows, while more isolated countries saw incomes decline by
1.1 percent.
Make no mistake, commercial engagement, NTR, and PNTR are not
panaceas. They do however, put us on the most productive road to
achieving our country's broader humanitarian goals.
3. National Security Interests: Our national security relationship
with China has obviously been on the front burner recently,
particularly with the downing of the EP-3 aircraft. I profess no
expertise on the issue, but defer to the statement of our Secretary of
State, Colin Powell, on the importance of NTR renewal for U.S. national
security interests as well:
``China's increasing engagement with the outside world makes
it easier to work with that country on maintaining peace and
stability in the Asia-Pacific region and combating alien
smuggling, HIV/AIDS, narcotics trafficking, financial crimes,
terrorism and environmental degradation. . . . (I)t is
fundamentally in our national interest to extend normal trade
relations.'' Colin Powell, ``The Promise of China Trade,
Washington Post (June 1, 2001).
Like our humanitarian interests, we must continue to address our
national security concerns in other venues as well, while recognizing
that continued commercial engagement and the extension of NTR with
China will also help to promote those very same interests.
Passage of the Resolution Disapproving China's NTR Status Will
Undermine U.S. Interests
On the other side of the equation is the disapproval resolution,
H.J. Res. 50, which this Committee and the full House will be asked to
vote on this year. Passage of that resolution will not advance U.S.
interests; it will undermine them. Let us consider the same three
primary U.S. interests--commercial, humanitarian and national security.
1. Commercial Interests: Terminating NTR with China will
significantly harm U.S. commercial interests. The imposition of Smoot-
Hawley level tariffs would raise the price of U.S. imports, equaling an
approximate $245 tax increase on the average U.S. family, with a
disproportionately large effect on working and low-income households.
Higher priced imports will raise the relative production costs for U.S.
companies, impairing their ability to compete effectively with foreign
companies that face no similar price increase. At the same time,
termination of NTR can have only a negative effect on U.S. exports as
China has little impetus to open its market to U.S. goods. In addition,
as NTR is reciprocal, U.S. exports will face higher tariffs than those
imposed on the exports of our principal foreign competitors. As a
result, the loss of NTR would put in jeopardy many of the hundreds of
thousands of U.S. jobs that are supported by our trade with China.
The net effect is a loss for U.S. businesses, their workers and
their families.
2. Humanitarian Interests: Nor will the termination of NTR with
China result in any appreciable improvement in China's respect for
human rights. While many of China's domestic policies conflict with our
values as Americans, effectively cutting off our commercial relations
will not change those policies for the better. Indeed, many of those
who have dedicated their lives to promoting reform within China believe
that reducing U.S. involvement in China will have the opposite effect.
The net effect is a loss for the Chinese people.
3. National Security Interests: Finally, there is the issue of our
national security interests. Terminating NTR with China will have
significant repercussions throughout Asia that will undermine U.S.
interests in the region. The most direct effects will be felt in Hong
Kong and Taiwan, which stand to lose over a hundred thousand jobs and
billions of dollars in exports if the United States terminates NTR.
Even more importantly, it will strengthen China's hardliners, who will
cite our termination of NTR as proof of American hostility, and will
undermine our ability to use dialogue and other means to promote
greater stability and security throughout the region, from the Taiwan
straits to the Korean peninsula.
The net effect is a loss for the Asia-Pacific region and our own
security interests.
THE ROAD AFTER ACCESSION
China's eventual accession to the WTO will not, of course, be the
end of the process; China will not magically be transformed overnight
or in a year. We are pragmatic people and know that we must work on the
ground in China to promote the change that China's WTO accession
promises. We will also need your help with that of the Administration
to ensure that China fully implements its commitments. In particular,
it will be critical to fund fully the commercial, labor, legal system
and civil society programs authorized by last year's U.S.-China
Relations Act. Similarly, we strongly support full funding for the
efforts of the United States Trade Representative and the Department of
Commerce to monitor and ensure full implementation of our trade
agreements.
CONCLUSION
In sum, renewal of NTR with China (and the rejection of H.J. Res.
50) will continue the policy of commercial engagement that has
benefited the United States, not only in the last quarter-century, but
also since our original agreement with China on NTR in 1844. We cannot
resolve all of our diverse concerns with China on the back of trade,
but we can make considerable progress on all of our interests as
Americans by staying the course in continuing our commercial engagement
with almost one-fifth of the world's population.
I appreciate the opportunity to appear before you today on behalf
of ECAT.
June 5, 2001
The Honorable J. Dennis Hastert
Speaker
U.S. House of Representatives
H-232 of the Capitol
Washington, D.C. 20515
Dear Speaker Hastert:
We urge your continued strong leadership on a bipartisan basis in
extending normal trade relations with China in order to allow
completion of negotiations to bring China and Taiwan under the rules of
the global trading system.
Last year, in the most important trade vote in six years, Congress
enacted historic legislation authorizing the President to approve
Permanent Normal Trade Relations (PNTR) with China upon completion of
negotiations over China's application for WTO membership. Because the
WTO negotiations have taken longer than expected, in part because of
America's insistence that China join on sound commercial terms,
Congress is likely to be forced again to vote on whether to disapprove
the President's annual extension of NTR. If Congress terminates NTR,
prohibitive Smoot-Hawley tariffs would be imposed on Chinese goods.
Unlike PNTR, the upcoming NTR vote is the trade equivalent of an
``extender'' designed to maintain the status quo, pending completion of
a WTO agreement.
In approving PNTR, the House and Senate reaffirmed a quarter-
century of bipartisan U.S. policy, which has recognized that U.S.
commercial engagement is America's best tool for advancing economic
freedom and the rule of law in China, supporting vital U.S. national
security interests in Asia, and maintaining Taiwan's prosperity and
security. While, like all Americans, we are concerned by recent
developments in U.S.-China relations, revoking NTR would be the wrong
response, with devastating consequences for U.S. security, jobs,
exports, and consumers.
We appreciate your strong leadership in advancing American trade.
We look forward to working closely with you and the bipartisan House
and Senate leadership to extend NTR and wrap up a WTO agreement to open
China's markets to American goods, services, and farm products.
Sincerely,
AeA, Advancing the Business of Technology;
Aerospace Industries Association; American
Apparel and Footwear Association; American
Chamber of Commerce in China; American
Chamber of Commerce in Guangdong; American
Chamber of Commerce in Hong Kong; American
Chamber of Commerce in Shanghai; American
Chamber of Commerce in Taipei; American
Chemistry Council; American Council of Life
Insurers; American Crop Protection
Association; American Farm Bureau
Federation; American Feed Industry
Association; American Forest & Paper
Association; American Insurance
Association; American Meat Institute; Asia-
Pacific Council of American Chambers of
Commerce; Association of American
Publishers; Automotive Trade Policy
Council; Biotechnology Industry
Organization; The Business Roundtable;
California Council for International Trade;
Coalition for Employment Through Exports;
Coalition of Service Industries; Computer
Systems Policy Project; Distilled Spirits
Council of the United States; Electronic
Industries Association; Emergency Committee
for American Trade; Food Marketing
Institution; Footwear Distributors and
Retailers of America; Grocery Manufacturers
of America; Idaho Barley Commission;
Information Technology Industry Council;
International Dairy Foods Association;
International Insurance Council;
International Mass Retail Association;
National Association of Manufacturers;
National Cattlemen's Beef Association;
National Chicken Council; National Council
of Farmer Cooperatives; National Electrical
Manufacturers Association; National Food
Processors Association; National Foreign
Trade Council; National Oilseed Processors
Association; National Pork Producers
Council; National Potato Council; National
Renderers Association; National Retail
Federation; National Turkey Federation;
National Venture Capital Association;
Pharmaceutical Research and Manufacturers
of America; Rice Millers' Association;
Semiconductor Equipment and Materials
International; Semiconductor Industry
Association; Snack Food Association;
Software and Information Industry
Association; Telecommunications Industry
Association; Toy Industry Association; USA
Engage; USA Poultry & Egg Export Council;
United States Association of Importers of
Textiles and Apparel; United States-China
Business Council; U.S. Apple Association;
U.S. Chamber of Commerce; U.S. Council for
International Business; U.S. Dairy Export
Council; U.S. Rice Producers' Group;
Washington State China Relations Council;
Wheat Export Trade Education Committee;
Western U.S. Agricultural Trade Association
Chairman Crane. Thank you, Mr. Cohen. Mr. Stallman, you
mentioned in your testimony that China committed to cap its
domestic support at 8.5 percent of production value, and yet
the current subsidies are only 1 to 2 percent. I don't get it.
I mean, 5 percent was the target we were trying for. What was
their interest in that arbitrary 8.5 percent?
Mr. Stallman. And that is a good question, because we were
asking the same one. We would like to have held it at 5. They
are very limited in their ability to provide domestic support.
Chairman Crane. I was going to say, but how could they
afford 8.5?
Mr. Stallman. Well, we don't think they will, but in
discussions with particularly some of the Chinese officials
here in Washington it was an issue of, I guess, saving face
with their countryside, with their farmers in the country. Even
with that 8.5 percent, the total so-called amber box type
spending levels, we still have a greater level under the WTO
than what the Chinese will at the 8.5 percent because we had
some previously during the General Agreement on Tariffs and
Trade, GATT, round.
Chairman Crane. Yeah. Mr. Benanav, how open will China's
insurance market be after its commitments are phased in?
Mr. Benanav. The agreement provides that anyone who meets
prudential tests is permitted to apply and receive a license.
If you have an operating history of being a good insurance
company and are in sound financial condition, you are eligible
for a license. Over a 5-year period the entire country will
open up in phases. So I would say within 5 years it will be an
open market just as you see in Hong Kong or other places. The
only restriction that American and other companies will have is
they will have to operate as joint ventures, with American
companies being permitted to own 50 percent of the joint
venture under the current agreement, whereas in other places,
in Hong Kong for example, we can own 100 percent of the
company.
Chairman Crane. Mr. Kapp, last week the Washington Post
reported that President Jiang Zemin for the first time opened
Communist Party membership to entrepreneurs and private
businesses who have previously been disparaged as capitalists.
Based on your extensive knowledge of China, do you believe this
was a significant change in policy and, if so, why?
Mr. Kapp. Well, it was certainly a controversial one, which
has initiated some very heavy criticism within China, because
it seems to fly in the face of fundamental Marxist-Leninist
dogma. I think the leadership understands that the dynamism in
the Chinese economy today resides in the non-State sector. That
is where the jobs are being developed. That is where the
technical innovation is coming from. That is where the
aspirations of those who are eager to make more of their lives
are being focused. The Party leaders can see this for
themselves. They would rather have within their ranks that most
dynamic segment of a society in profound transition than try to
keep it at arm's length.
There is potentially something of a parallel from the
forties, which I hope doesn't happen this time. In the forties
the then governing party and ruling party in China, the
Nationalist Party, had a way of muscling its way into any
business that was making progress and had not yet fallen under
party control. In other words, in those terrible years a lot of
businesses were driven into, destruction by the intrusions of
the ruling party, and one doesn't want to see that happen again
in China. Nor does one want to see, a kind of resurgence of
privileged, wealthy elites and exploitative political elites in
a way that is profoundly reactionary.
But I don't really think the circumstances are that similar
now. I think the party is facing reality. This is where the
enthusiasm and the dynamism is in the society. The
entrepreneurs who are now joining, however, are joining for
very instrumental reasons. They see, membership in the party as
a useful way to ensure certain kinds of favorable behavior from
the State or to insulate themselves perhaps from some of the
unfavorable behaviors that the State could otherwise bring down
on them. So it is a little bit of an insurance policy, and that
is not always going to be to our liking either.
Chairman Crane. Mr. Cohen, currently what is the most
difficult challenge to doing business in China and how will
China's accession to the WTO help to resolve these challenges?
Mr. Cohen. I would think one of the most difficult
challenges----
Chairman Crane. Wait, your mike isn't on.
Mr. Cohen. Mr. Chairman, I think one of the most difficult
challenges will be in the agriculture sector. Given that
approximately 50 percent of China's population is agrarian, I
think there will be a great deal of pressure against the
Chinese to fully implement their various commitments to open
their agricultural sector. It will require constant attention
from the U.S. Government with regard to their regulations in
the area of sanitary and phytosanitary areas. As a result, I
would think that in terms of the WTO, we will need to work with
the Chinese to try to ensure that they put in place the systems
that will allow their various agrarian sectors to comply with
the commitments that China made to become a member of the WTO.
I don't think this is going to be achieved overnight. There
will be cases where we will need to avail ourselves of the WTO
dispute settlement, but I would hope that we would instead in
as many cases as we possibly can provide the resources that are
called for in the legislation passed by the Congress last year
to provide education, training, technical assistance so the
Chinese can follow through.
Chairman Crane. Thank you. Mr. Levin.
Mr. Levin. Thank you and welcome to all of you. We have
enjoyed your testimony. I think it may be a bit more nuanced
than it might have been some years ago. I am not sure. But I
think some progress has been made in this debate we have been
having here, and I think there is a broader agreement about not
looking at China in kind of cut and dried, either/or terms, and
a realization that the journey ahead is going to be a difficult
one for them and a difficult one for us, that there will be
competition as well as market access. I think, Mr. Stallman,
your testimony kind of evidences that.
The argument about subsidization in a sense was
theoretical, but I think in a sense wasn't. We probably should
learn from the recent experience between Japan and China that
China will be a competitor as well as a purchaser, and that may
well be true of agriculture. And that may not be true, United
States-China, for 15, 20 years. It is slightly true now, I
think. But maybe that is what the fighting was all about. And I
think it also is illustrated in your comment, which is fairly
stark, on the last page about the bioengineering, about biotech
standards. It is not a subject of little controversy elsewhere.
And I think when you say without such clarification China
should not be allowed entry into the WTO, that is a pretty
strong statement, and I agree we need to iron that out.
I think, therefore, this debate has helped us to realize
that when we look at China, again, it is not just a place where
we will sell goods. It is a place with which we will be
increasingly competing in higher tech goods and probably in
agriculture. There isn't much competition now, but it is
foreseeable that will occur 5, 10 years from now, isn't it?
Mr. Stallman. Well, with respect to agriculture, we have
always contended that it would be difficult, as Mr. Cohen
indicated, to be sure that they actually implement the
agreement. There will be some sectors, some agricultural
products where the Chinese will be competitive. Look at the
apple juice concentrate issue right now. I mean, that is just
one. On the other hand, some of the things they have agreed to
do upon accession, eliminating export subsidies, that has been
a bone of contention with EU for years and they have agreed to
do it with their agricultural products, so that will impact.
So, yes, it will be a give and take over time. It is not a
one-way magic bullet. But on balance having access to that
market for American agriculture is extremely important. They
only have roughly 7 percent of the arable land in the world,
versus more than 20 percent of the population and growing, so
that right there is a natural resource cap on production.
Mr. Levin. Even the word ``balance'' has come into play in
discussing a relationship. And Mr. Cohen, I think you also
highlighted it. Mr. Kapp and I have talked about this a lot,
the whole implementation process, and I do hope that everybody
will work hard to realize this is closer to the beginning than
it is the end. And this is true in terms of our full economic
relationship in terms of human rights issues, in terms of other
economic related issues, and we have a lot of work to do. I
hope that all of you will be as active from here on in as you
have been active in securing PNTR when it comes to
appropriations for the various departments in terms of
implementation for the Commission, really for everything,
because the three times I have been in China, I think you feel
change, but you also feel rather age old traditions, including
a very weak rule of law.
Also, I think the comment, Mr. Benanav, of yours is so
right, and I think when you talk about implementation, now just
I will just kind of end where I began. I notice when you read
win-win you modified it a bit. Because I just don't think we
can tell people in this country that a trade proposition is
win-win and there be no losers and no problems, it is all one
way, it is easy street. That isn't the way competition works
within the United States. I think the last years have shown
there are winners and losers, including some people whose stock
is now worth 2 cents on the dollar, and I think we have to
expect an international competition. There are going to be
winners and losers, especially as we compete with countries
that have very different structures.
Mr. Kapp, your burden, to some extent the rest of you, has
been to work with a relationship involving a country that is at
a very, very different point than we are, and I think if we
don't acknowledge it as well as the change that is occurring
within, we are not only fooling ourselves, even worse, we are
fooling our constituents. They know better. Anyway, on this
last hearing date, thanks for joining us. Hasta la vista
somewhere else.
Chairman Crane. Mr. English.
Mr. English. No.
Chairman Crane. Mr. Becerra.
Mr. Becerra. Thank you, Mr. Chairman. And to all of the
panels, thank you very much for your testimony, quite often I
must say. If I could ask Mr. Kapp, because I am glad you veered
from your text and you spoke from your heart, and eloquently
so, as you have in the past. Could you give me a sense of how
we should contextualize what has happened in the past year with
China and the incidents that our public, our constituents read
about, hear about? How do we frame the debate for a public
which only hears about China based on what it sees on the
evening news or reads in the upper fold of the newspaper, which
for the most part has not been good? And how do we--give me a
sense of how we try to convey to them the import of what you
all have just said.
Mr. Kapp. Well, Congressman, it is really a problem. A
couple of days ago the New York Times did a 30-inch column
story about the fact that the people in China eat dog. And
right in the middle of this very long report, accompanied by
pictures of dog hindquarters boiling in pots, and so forth, was
a little box, no more than three column inches, which said
``China to try U.S. scholar.''
I actually wrote to the Times about it and tried to say,
``The story that some Chinese people eat things that American
people consider repugnant goes all the way back to the 1870s.
There is a whole tradition, in California above all, as you
probably know, of this. And you demean the story of the
scholars who have been indicted and are to be tried by putting
it in as a little box where the overall message is, `Ain't it
awful! The Chinese do these terrible things: they are really
beyond the pale; they eat dog and they are bad to U.S.
scholars.' ''
I have a real problem with this. It is not for a minute to
say that the American media should go out and portray
everything in China as sweetness and light. And actually as
someone who reads the media, the major national media, very,
very carefully, I would say that the last couple of years have
actually shown some improvement in the media's treatment of
complex realities in China, many of which are very tough. Life
is tough over there for a lot of people. It is also exciting
for a lot of people. But, I think that, for those of us who
understand that it is not as simple as ``Ain't it awful--the
Chinese eat dog meat,'' (or who remember that Americans eat
pork and beef, which offends the sensibilities of many Muslims,
Jews and Hindus around the world), all we can do is try,
without allowing ourselves to be nailed as apologists for
Beijing, to point out that China has tough, huge burdens and
challenges and that governing it is a very difficult matter,
and to point where we can to stories that convey a balance and
a balance of experience.
Now, American business, I might say, is pretty good at
that, and the majority of American businesspeople if they ever
were in the realm of painting rosy pictures--are way beyond
that today. I could bring in 15 people and sit here and give
you very interesting, balanced stories about the good and bad,
the pros and the cons, the achievements and the failures. That
is what we need. China is not that different from any other
country in this regard. But it is a long battle and I for one
find it exhausting, but also necessary.
Mr. Becerra. Mr. Benanav, let me ask you a question now.
Congressman Tanner asked Mr. Bader a question regarding
services. Right now, of our exports to China very little is in
the form of services and if indeed Europe is moving forward
with financial services agreements with China, that may to some
degree block us out unless it is totally open market, and I
don't think that we quite get there. What is your sense about
our opportunities in the financial services area to make some
inroads into China, given that we need to compete obviously
with the Europeans and others?
Mr. Benanav. Right. The Chinese economy is at a point where
it needs a much broader financial sector in order to fuel the
growth that they need. American companies and European
companies to a large extent have expertise that the Chinese
absolutely have to have if they are going to create a vibrant
capital market, if they are going to create infrastructure
funds to help grow. It is a place where we have a significant
competitive advantage, and our opportunity to go into those
markets and bring that expertise for both our own benefit as
U.S. companies and for the benefits of the Chinese people and
Chinese economy really represent a unique opportunity. This is
not a case where we are transferring American jobs to China.
This is financial services for the Chinese people. Most of the
employees are Chinese and some are American expats.
So this really is a sector, one of the few sectors maybe,
where we can say we have an opportunity to win with very little
risk of losing anything, and that is why the service industry
is so eager to get into China, because the longer the delay the
less our competitive advantage will be because the Chinese
themselves, very smart people, are taking every opportunity
they can to develop that expertise and maintain the businesses
under Chinese ownership and we are eager to get in there. We
believe the market is going to be large enough so that the pie
will be ever growing and there is plenty of room for American,
European and Chinese companies.
An example I use is Hong Kong, with a population of 6
million people, has over 40 life insurance companies. How many
companies can a billion two hundred million people support? The
U.S. has about 2,000 life insurance companies, which may be too
many, but there is plenty of room for a lot of companies in
China providing financial services.
Mr. Becerra. Thank you. Thank you, Mr. Chairman.
Chairman Crane. Well, we want to thank you all again for
your participation and your ongoing participation, Mr. Kapp,
too, for so many years, and with all due respect, we do hope
this is the last time we ask you to come testify, and with that
our hearing stands adjourned.
[Whereupon, at 4:12 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of the Hon. James A. Kelly, Assistant Secretary of State for
East Asian and Pacific Affairs, U.S. Department of State
I appreciate the opportunity to comment on U.S.-China ties. This is
perhaps America's most challenging and complex relationship. Successful
management of U.S.-China relations is vital to our peace, prosperity
and security--and that of our allies. A key to that success will be
continuing Normal Trade Relations for China. It is an integral part of
our efforts to bind China to acceptable international standards of
behavior.
Our relationship with China is based, first and foremost, on
America's national interests. We will engage and cooperate with China
where we can--for example on Korea and South Asia--and compete with or
vigorously oppose China where we must--such as on human rights and
nonproliferation. As Secretary Powell said, ``We will treat China as
she merits. China is a competitor and a potential regional rival, but
also a trading partner willing to cooperate in the areas where our
strategic interests overlap. China is not an enemy and our challenge is
to keep it that way.''
We will also consult with our allies and friends in the region.
They stand at the forefront of America's Asia-Pacific policy and I
believe they want a strong and reliable U.S. role in the region and at
the same time, a productive relationship with their largest neighbor.
If we are to be successful in promoting and protecting our national
interests and in working with our friends and allies, then we must find
a way to deal with the contradictions of a changing China--a country
that at times embraces globalism and at other times encourages intense
nationalism, a country that wants to join the world trading system but
also keeps in place protectionist barriers.
We can best do this by holding China to its bilateral and
international commitments. If China chooses to disregard those
obligations in areas as diverse as security, human rights,
nonproliferation and trade, we will use all available policy tools to
persuade it to move in more constructive directions.
The cutting edge of reform and positive social development in China
is our trade relationship. As the President said, ``Open trade opens
minds.'' Economic growth spurred by freer markets leads to greater
integration with global economic, trade and information systems. In the
process, the marketplace will promote American values, just as trade
will, I believe, encourage more freedom and individual liberties. You
can already see that happening today in China, where trade has led to
greater openness, more competition, more choice, greater job
opportunity--and fewer government controls on day-to-day life,
particularly in the coastal regions most affected by international
trade. Greater access to China's markets will also promote opportunity
for American business, labor and agriculture providers and give
American consumers more and better choices with regard to the products
they purchase. For all these reasons, we urge the Congress to reject
H.J. Res. 50.
We do not claim that trade alone will remake China in the near term
or that it is the single most critical element in the dynamic change
that has taken place these last 20 years in the PRC. But trade has been
an important part of this process because it exposes many Chinese to a
world in which competition and choice inform and transform basic
decision-making.
For the same reasons--that is, enhancing our peace and prosperity,
furthering America's and our allies' interests and helping transform
China--the President plans to attend the APEC leaders meeting in
Shanghai in the fall and then travel to Beijing. His presence will
speak volumes about our commitment to regional prosperity and market-
oriented economic reform in China.
Taiwan is important and this Administration has been clear about
the importance we attach to our unofficial relationship with Taiwan and
the admiration with which we view the progress made in Taiwan over the
past 20 years. The President made clear in his discussion of our recent
arms sales package that, as set forth in the Taiwan Relations Act, we
will continue to ``make available to Taiwan such defense articles and
services'' as are required to enable Taiwan to defend itself. We have
informed the Chinese that military build-ups, especially of short and
intermediate range missiles across the Taiwan Strait, are not the
answer. Dialogue is. We are direct with the Chinese in Beijing that our
maintenance of unofficial relations with the people on Taiwan and our
commitment to support Taiwan's self-defense are fundamental to our
``one China'' policy. We favor and encourage dialogue across the
Strait.
Our productive relationship with China can only be based on a true
reflection of our values. They are our greatest strength. We will be
forthright in telling Beijing that its human rights violations are
unacceptable to the American people and that change is necessary. Every
American Administration has been clear about this: U.S.-China relations
cannot reach their full potential so long as Americans are persuaded
that the Chinese government systematically violates its people's most
basic rights of worship, peaceful assembly and open discourse.
We are pressing the Chinese government at all levels to end abuses,
including use of torture, arbitrary arrest, and detention without
public trial or for peaceful expression of political or religious
views. In particular, we will press for an end to religious
restrictions against Tibetan Buddhists. We have forcefully raised the
recent detentions of U.S. citizens and legal permanent residents. The
President discussed this issue with President Jiang Zemin in their
phone conversation on July 5. In fulfilling our responsibility to all
Americans, we issued a Public Announcement through our consular
information program that provides the full picture to those planning to
travel to China.
Religious freedom and tolerance are also issues at the center of
our concerns about how China treats its people. Taking the longer view,
we will also work to preserve Tibetans' unique cultural, religious, and
linguistic heritage. We urge China to open a dialogue with the Dalai
Lama or his representatives.
Proliferation is an area where we have shared interests with China,
but where we also have disagreements about Chinese actions. It is in
our interests and the interests of the entire international community
that China abide by international norms and standards in dealing with
proliferation issues. We will work hard to have China adhere to those
standards.
There are additional areas where we share interests with China and
would like to see it continue or expand constructive policies. We want
to build on cooperation against narcotics trafficking; China realizes
that drugs are a threat to the Chinese people. The problems of
trafficking in persons and illegal immigration are also areas where we
have a common interest with China. We want to work with China to combat
the spread of HIV/AIDS. And we will continue to work together where
possible to protect the environment.
Secretary Powell stated that we have a strong interest in
supporting the development of the rule of law in China. We are prepared
to offer an American perspective to China as it attempts to develop a
more transparent and accountable legal system; we have, after all, the
most open, transparent, and democratic legal system in the world.
We have enunciated a clear path forward. China is in a position to
chart a mutually beneficial course for our future relationship. This
Administration wants a productive relationship with Beijing that
promotes our interests and those of the entire Asia-Pacific region. We
are willing to work with China to address the areas of common concern
that I have mentioned. These are items on a bilateral agenda with China
that are in our national interest and we believe China's leaders will
also see these as common interests.
But we will be firm in advocating our views:
--We will not shy away from supporting our friends and defending our
common interests in the region.
--We will address differences with China forthrightly and in a spirit
of mutual respect.
--We will be guided by our values and ensure Beijing understands it
cannot have a stable relationship with the American people if
it continues to oppress its own citizens.
--Above all, we will insist that China respect its bilateral and
international obligations.
China's behavior, particularly in the next few months, will
determine whether we develop the kind of productive relationship the
President wants. We encourage China to make responsible choices that
reflect its stature in and obligations to the community of nations. The
Congress can help nudge China in the right direction by rejecting H.J.
Res. 50.
Statement of the Ad Hoc Committee of Domestic Nitrogen Producers
Introduction
The Ad Hoc Committee of Domestic Nitrogen Producers (``the AD Hoc
Committee'') is an informal coalition of a number of major U.S.
nitrogen fertilizer producers. The members of the Ad Hoc Committee
include CF Industries, Inc.; Mississippi Chemical Corporation; Terra
Industries, Inc.; PCS Nitrogen, Inc.; and Coastal Chem, Inc. The Ad Hoc
Committee has worked diligently over the past several years with U.S.
trade negotiators and the Congress to ensure that China provides
meaningful market access for foreign fertilizer producers. The Ad Hoc
Committee is following carefully the final phase of negotiations on
China's accession to the WTO currently taking place in Geneva in the
WTO Working Party on China's Accession.
The Ad Hoc Committee seeks the support of the Committee on Ways and
Means and the Trade Subcommittee in helping to ensure that the final
text of China's market access schedule for goods as well as the final
texts of the Working Party report, its annexes, and the Chinese
protocol of accession maintain and provide for full and timely
implementation of China's bilateral commitments to the United States on
fertilizer. The Ad Hoc Committee also seeks the support of the
Committee on Ways and Means and the Trade Subcommittee in obtaining a
further commitment from China that U.S. fertilizer exports to China
will receive treatment no less favorable than that apparently committed
to fertilizer producers from the European Union for the time period
between now and the date of entry into force of the WTO for China.
China's Bilateral Commitments to the United States on Fertilizer
The issue of Chinese market access commitments on fertilizer was
the last market access issue resolved bilaterally between the United
States and China. The Chinese had withdrawn their earlier concessions
on fertilizer at the last moment when the original U.S.-China Agreement
On Market Access of November 15, 1999, was signed. However, at the
insistence of Ambassador Barshefsky, China committed to reexamine her
position and to resolve the problem. Based on this commitment,
subsequent negotiations between China and the United States led to the
signing of a separate bilateral agreement on fertilizer on April 28,
2000 (``Additional Provisions on Market Access for Certain Chemical
Fertilizers''). Under this agreement, the Chinese committed to
establish tariff rate quotas (TRQs) for urea and diammonium phosphate
(DAP) that would provide meaningful access to the Chinese market for
these key fertilizer products.
Work on Incorporating China's Fertilizer Commitments into the Final
Terms of China's Accession to the WTO and Outstanding Issues
Since the conclusion of these bilateral agreements, U.S.
negotiators have worked hard in Geneva to ensure that the final text of
China's market access schedule for goods as well as the final texts of
the Working Party report, its annexes, and the Chinese protocol of
accession maintain and provide for full and timely implementation of
China's bilateral commitments to the United States on fertilizer. At
the most recent meeting of the WTO Working Party on China's Accession
in Geneva on June 27-July 4, most of the outstanding issues in the
various texts as they relate to fertilizer were apparently resolved
although the U.S. fertilizer industry must still review the final
texts. (The U.S. fertilizer industry sent a delegation to Geneva to
advise USTR during the latest round of talks.)
Nonetheless, there are still several open questions that must be
resolved relating to possible domestic price controls on urea and the
administering agency in China for fertilizer TRQs. In addition, the
Europeans recently negotiated preferential access to the Chinese market
for its fertilizer exports for the period of time between now and the
date of accession for the Chinese. Unless the Chinese are willing to
extend these interim fertilizer concessions to third countries, U.S.
fertilizer interests will be sorely disadvantaged. A number of Senators
sent a letter to Ambassador Yang Jiechi on June 29 expressing their
concern about this matter and asking for equal treatment for the U.S.
fertilizer industry.
Objectives of the Ad Hoc Committee on Fertilizer and China
In working with USTR officials and the Congress on this matter in
recent months, the Ad Hoc Committee has indicated that it has the
following objectives on fertilizer for the close-out phase of
negotiations on China's accession to the WTO:
The bilateral fertilizer agreement (``Additional Provisions
on Market Access for Certain Chemical Fertilizers'') that was
signed in Beijing on April 28, 2000 must stay intact. The U.S.
fertilizer industry, including the Ad Hoc Committee, worked
very hard to achieve agreement with the Chinese on market
access for fertilizers. The agreement consists of commitments
on tariff rate quotas (TRQs) for DAP and urea and how those
TRQs will be administered. This agreement must not be altered,
unless it were to increase the quantities for DAP and urea that
would receive the lower tariff rate of 4 percent, as opposed to
the out-of-quota tariff rate of 50 percent.
China should fulfill her obligations under the bilateral
fertilizer agreement on a timely basis: The TRQ provisions for
fertilizer were carefully thought through with the aim that
implementation of these TRQs would coincide with the fertilizer
business cycle. Therefore, it is critically important for the
Chinese to adhere to the schedule set forth in the bilateral
agreement. This includes application procedures, official
journal publication dates, allocation procedures, and
reallocation procedures. It is essential to insure that these
procedures are in place well before the official entry of China
into the World Trade Organization.
Prior to entry into force of the WTO for China, the Chinese
should provide equitable market access for fertilizer that is
roughly comparable to the formal commitments made by the
Chinese under the bilateral fertilizer agreement, and in any
event, access no less favorable than that given to third
countries, such as the EU. When the bilateral fertilizer
agreement was reached, it was the expectation of the U.S. side
that China would enter the WTO by January 1, 2001; and that the
market access provisions for fertilizer would begin to apply as
of that date. Unfortunately, there have been unforeseen delays
in Chinese entry into the WTO, although it is hoped that this
can occur in the early part of 2002. In the interests of equity
and the fact that the U.S. is entitled under the MFN provisions
of the U.S.-China Trade Agreement of 1978 to access comparable
to that apparently committed by China to the EU for NPK in
advance of China's formal entry into the WTO, the Ad Hoc
Committee believes that China should provide access for DAP and
urea from now until WTO entry that is roughly comparable to the
commitments they made under the bilateral fertilizer agreement.
It was clearly the expectation of the U.S. side when it
negotiated the bilateral agreement that such access would have
been provided by now. Any delay by China in providing this
access will do grave harm to the U.S. industry.
China should not impose domestic price controls on the sale
of urea in China. The Ad Hoc Committee has been advised
informally, and is seeking to confirm, that China intends to
reserve the right to impose price controls on the sale within
China of at least a portion of Chinese production of urea. The
Ad Hoc Committee firmly opposes the imposition by China of any
price controls on the sale of urea in China, as this will only
distort the market for urea in China and could seriously
undermine the value of the market access concessions for urea
made by China in the bilateral fertilizer agreement.
MOFTEC is the proper Chinese agency to implement and
administer the fertilizer TRQ. MOFTEC is the appropriate
Chinese agency to perform this function since it is regularly
engaged in international trade matters and is knowledgeable of
the workings of the fertilizer industry.
Conclusion
The Ad Hoc Committee appreciates the opportunity to provide these
written comments for the record in conjunction with the hearing of the
Trade Subcommittee of July 10, 2001, regarding China's accession to the
WTO. The Ad Hoc Committee appreciates the support of the Trade
Subcommittee in working with U.S. negotiators and Chinese officials to
attain the objectives of the Ad Hoc Committee as set forth in this
submission. Attainment of these objectives is crucial for the long-term
economic health of U.S. nitrogen fertilizer producers.
Statement of the American Insurance Association
U.S. property and casualty insurers strongly supported the 1999
U.S-China bilateral agreement on China's accession to the World Trade
Organization (WTO) because of the far-reaching and comprehensive market
access commitments it provided for U.S. insurers to the Chinese market.
The agreement did not completely open the market for U.S. insurers, but
it opened it significantly enough to generate further confidence among
U.S. insurance companies already invested in China or those
contemplating investments in the future.
The U.S. property and casualty insurance industry and its trade
association, the American Insurance Association, spent considerable
time and resources lobbying in support of Permanent Normal Trade
Relations for China in 2000, largely based on the quality of the 1999
agreement. It lobbied hundreds of congressional offices and contacted
every Member of the House and Senate in support of PNTR.
One year later, the AIA is proud to offer its continued strong
support for China's accession to the WTO and for the granting of Normal
Trade Relations (NTR) for China again this year until accession becomes
a reality. The U.S. property and casualty insurance industry has had
various issues subject to negotiation since the 1999 agreement, and
more recently in the WTO Working Party on China's Accession, in an
effort to clear up ambiguities in that agreement. We are happy to
report to the House Ways and Means Trade Subcommittee that these issues
have progressed to our satisfaction and will result in meaningful
market opening opportunities for many U.S. property and casualty
insurers.
These issues have included:
The elimination of the mandatory 20 percent reinsurance
cession on non-life insurance products. The Working Party
report calls for a phase-out of this cession over a period of
four years. The AIA has expressed concern over the cession in
the past and supports its timely phase-out.
Opening the market to ``large-scale commercial risks.''
Large commercial risks in China have always been a targeted
market for U.S. property and casualty insurers, and the U.S.
prioritized the opening of this market in the 1999 agreement.
Language in the Working Party report will set the parameters
for the ``large-scale commercial'' risk market at approximately
$50,000 in U.S. premium value and an $18 million investment
level. While these parameters will limit access to China's
commercial market for U.S. insurers, this opening in the
commercial market is a good start and one that we hope to build
on in future negotiations.
Master policy coverage. The agreement will permit insurers
to underwrite blanket coverage for the same person's property
and liabilities but located in different places. This will make
it easier and more efficient for an insurer to underwrite the
risks of one company that conducts business in multiple
locations throughout the country.
Licensing criteria. We have reviewed language currently in
the Working Party report that addresses criteria for license
applications from U.S. insurers and believe that it should
provide for a fair and transparent system for awarding licenses
in a timely and fair manner. Last year, the AIA reported that
over 20 U.S. insurance companies were currently operating in
China in some capacity, and this criteria should help them
become licensed if they meet the relevant qualifications.
The AIA remains committed to China's WTO accession and continued
congressional support for NTR for China. We are happy to report that
all issues of concern to us appear to be on the verge of being
favorably resolved in the Working Party report, and we will continue to
work with USTR negotiators toward that end. We understand that all
parties involved--the U.S., China and all WTO countries--will continue
to watch China's accession with great interest and optimism, and stand
ready to assist China in any way in successfully adhering to the terms
of accession and to WTO membership in general. Anything less would be a
disservice to global trade and prosperity, the effectiveness of the
WTO, U.S. trade policy, and, importantly, to the Chinese people and
private sector that will benefit from a healthy and open property and
casualty insurance sector.
INSURANCE AND CHINA
Background
Compared to other major countries, China's insurance market
is relatively new and still evolving. Foreign participation in
the market is even more recent with many foreign insurance
companies just beginning to establish a presence in China in
the last decade.
Insurance was nationalized in China in 1949, and until the
late 1980s the market was dominated by a small number of state-
owned insurance companies in China. China began to gradually
award licenses to foreign insurers in the early 1990s, but the
business activities of the licensed companies have been heavily
restricted and still are today.
As in most developing countries, insurance has not been a
major component of China's economy in the past. As the economy
in China has gradually expanded and undergone some reform, more
types of insurance products (that are common in developed
countries) are now in higher demand.
Currently, the Chinese market is still largely closed to
foreign insurance companies. While several foreign insurance
companies have operating licenses in China, the extent to which
they can operate and sell their products is extremely limited.
The Chinese Insurance Regulatory Commission (CIRC) was
created in 1998 to regulate the business of insurance in China.
The creation of a single agency to regulate the business is
indicative of the increasing importance of insurance to the
Chinese economy.
Currently, there are nearly 30 insurance companies operating
with licenses in China, including Chinese and non-Chinese
companies.
Chinese market_the future
The Chinese economy experienced significant growth in the
1990s. Continued economic reforms will generate new economic
growth and significant new opportunities for U.S. insurers. As
China continues to open its doors to foreign investment, U.S.
insurers want to insure both commercial and personal lines
exposures to both foreign and Chinese consumers.
China, with a population of 1.2 billion, represents the
largest untapped market for property-casualty and life
insurance products. Based on SIGMA (Swiss Re) data, China has a
very low penetration rate of 1.22 (total insurance premiums as
a share of gross domestic product), which places it 65th of 82
countries in the survey. The per capita spending on insurance
policies in China in 1996 was U.S. $6, which places it 78th
among 82 countries. Per capita spending on insurance policies
in the U.S. was $2,460 in the same year.
Total insurance premiums in China in 1998 (property/casualty
and life) amounted to U.S. $15.1 billion. The annual growth
rate in the insurance market from 1993-98 averaged 29.7%.
U.S. and other foreign insurance company activity
Currently, foreign insurers are allowed to conduct limited
business activities in two Chinese cities only, Shanghai and
Guangzhou. Depending on the type of insurance a foreign company
sells, the company, if licensed, faces significant restrictions
on what form of ownership it may assume, what products it can
sell and to whom, where it can sell its products, whether it
must comply with a different set of regulations from domestic
companies, and a host of other barriers that prevent it from
competing freely in that market.
Property/casualty insurers are allowed only to sell products
to other foreign entities in China. They are not allowed to
sell directly to Chinese consumers.
The first U.S. company to receive an operating license in
China was AIG in 1992. The second and most recent U.S. insurer,
Aetna, received a license in 1997. Both companies are severely
limited in how they operate and what products they can sell.
The Chinese government announced in April 2000 that an
additional license was to be awarded to The Chubb Corporation,
and this license has since been approved.
Seven individual insurance companies from Japan, Canada,
Switzerland, Germany, France, the U.K., and Australia have also
received licenses since 1992.
Over 100 other foreign insurance companies, including 20
from the U.S., have established a physical presence in China
with the hope of becoming licensed in the future.
Statement of Carlos Moore, American Textile Manufacturers Institute
This statement is submitted for the record by the American Textile
Manufacturers Institute (ATMI), the national trade association of the
domestic textile mill products industry.
ATMI is opposed to renewal of normal trade relations (NTR) status
for the People's Republic of China. We urge Congress to pass H.J. Res.
50, a resolution to disapprove of the President's waiver of the
Jackson-Vanik amendment's requirements, which was granted in order to
continue China's normal trade relations status.
As ATMI has stated on numerous occasions, China has not earned NTR
status with the United States because of its continued irresponsible
behavior on a variety of fronts.
With respect to textile-related issues specifically, China has
signed six bilateral textile trade agreements with the United States
over the past two decades and has subsequently broken every one of
them. China illegally smuggles more than $4 billion worth of textiles
and apparel into the United States each year. It routinely violates
U.S. design and copyright laws--in fact, China has signed four
intellectual property rights agreements--and intellectual property
theft in China remains rampant. In fact, a recent National Trade
Estimates report compiled by the U.S. Trade Representative's Office
notes that ``U.S. industry estimates of intellectual property losses in
China due to counterfeiting, piracy, and exports to third countries
have exceeded $2 billion.'' \1\
---------------------------------------------------------------------------
\1\ 1999 National Trade Estimate Report on Foreign Trade Barriers,
USTR, p. 60.
---------------------------------------------------------------------------
In addition, China is already exploiting a loophole which exists in
current U.S. trade regulations that allows it, as a non-market economy,
to be inexplicably exempted from U.S. countervailing duty law against
export subsidies. Further, China maintains tariff and non-tariff
barriers that have restricted U.S. textile and apparel exports, despite
repeated promises to liberalize. This is yet another example of how
China gets better treatment than our other trading partners.
Thus, there is nothing ``normal'' about the manner in which China
conducts its trade policy, and it is not deserving of NTR status with
the U.S.
Also, make no mistake about it--NTR status for China, and the terms
under which it is preparing to enter the World Trade Organization, will
severely undermine the economic partnerships that have formed and
continue to form between U.S. yarn and fabric producers and apparel
manufacturers in Mexico and the Caribbean. Once all global textile and
apparel quotas are removed, China is poised to essentially wipe out
these mutually beneficial trade arrangements we have made with our
hemispheric neighbors.
This concern is borne out by a 1999 U.S. International Trade
Commission (ITC) study on China's accession to the WTO,\2\ which
determined the Chinese share of apparel imports into the U.S. would
more than triple as quotas are phased out by the year 2005. The ITC
study revealed that the effect of the Chinese quota phase-out on other
regions, particularly the Caribbean nations and Mexico, will be equally
severe. These countries' growing apparel sectors, which exist almost
entirely to service U.S. markets, will be decimated by the early phase-
out of controls on imports from China.
---------------------------------------------------------------------------
\2\ Assessment of the Economic Effects on the United States of
China's Accession to the WTO, Investigation 332-403, (Publication 3229;
September 1999).
---------------------------------------------------------------------------
The major concern about the early phase-out of quotas on imports of
textiles and apparel from China is that China is getting a better deal
than the rest of our trading partners. Once China joins the WTO, the
U.S. has agreed to remove controls on imports from China by January 1,
2005. This means that, as a WTO member, China will be subject to a much
shorter quota phase-out period than other WTO members. For example, if
China joins the WTO by January 1, 2002, it will receive a three-year
phase-out period. Other U.S. trading partners that are WTO members
faced a ten-year phase-out period. China is the least deserving country
imaginable for this preferential treatment.
Giving China enhanced access to the U.S. market for its vast
subsidized textile and apparel sector while U.S. textile and apparel
access into the Chinese market remains seriously impaired seems to be
an act of unilateral surrender on the part of the United States. In
light of the current economic crisis facing the U.S. textile industry,
with nearly 50 plants having closed in the first five months of this
year, and over 56,000 workers--10 percent of the industry's entire
workforce--losing their jobs in the past twelve months, the U.S.
textile industry cannot afford to make further unwarranted trade
concessions, such as granting China normal trade relations status.
The ongoing devastation to the U.S. textile industry resulting from
the Asian currency devaluations of recent years, which has given Asian
imports the equivalent of a 40% price cut upon entering the U.S., has
made our industry even more vulnerable to subsidized Chinese imports.
Without some government mechanism to correct this imbalance, extending
NTR for China would only compound the problem. On the other hand,
denial of NTR to China would offset, at least in part, the damage to
our industry by devalued Asian imports.
Finally, China's continuing practice of arresting dissenters, as
well as U.S. citizens and academics indicate that it is unworthy of
normal trade relations. Seizure of a U.S. Navy plane, detention of its
crew and then handing the U.S. a $1 million bill for what amounts to a
kidnapping should be the final straw. The U.S. should not ignore these
actions and ``reward'' China by continuing normal trade relations
status.
In a larger sense, renewal of NTR for China signals a willingness
on the part of the U.S. to grant China permanent NTR and membership in
the WTO. This Administration and the previous one have said the WTO
accession agreement between the U.S. and China will hurt no one in the
U.S. and will provide new and important export opportunities for U.S.
companies. The reality is quite different.
The U.S. textile industry, its nearly 500,000 workers and its
suppliers in the man-made fiber, cotton, chemical, machinery and
related industries will be hurt by the special treatment provided China
in the accession agreement.
Those U.S. companies hoping to sell products and services to WTO
member China must consider the opportunity to do so to be just that--a
hope. China is already backtracking on several commitments and has
never embraced imports in the past.
So, the impact on the U.S. of normal trade relations with China
(and the WTO membership that it brings) will certainly damage the U.S.
textile industry, its workers and suppliers. On the other hand,
accession might benefit other U.S. industries. Not something to bet an
important, essential industry on--but that is what the U.S. Government
is doing.
In conclusion, for the reasons we have stated, we urge the
committee to adopt H. J. Res. 50 and reject renewal of NTR with China.
Channellock
Meadville, Pennsylvania 16335
July 10, 2001
Attention: Allison Giles
Chief of Staff
Committee on Ways and Means
U.S. House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Gentlemen:
It has come to my attention that Congressman Crane is soliciting
testimony from the private sector regarding the United States-China
trade relations and the status of China's negotiations to the World
Trade Organization. Specifically, the hearings have to do with whether
or not the United States will grant for another year to ``non-market
economy countries'' such as mainland China and Taiwan, Normal Trade
Relations (NTR) formerly known as Most-Favored-Nation (MFN) trade
status.
We understand that Congressman Dana Rohrabacher (R-CA) on June 5,
2001 introduced a joint resolution disapproving the extension of the
waiver authority contained in section 402(c) of the Trade Act of 1974
with respect to China. The purpose of this letter is to comment on that
resolution.
By way of background, Channellock is a family-owned business
established in 1886 in Meadville, Pennsylvania, USA. We are in the
business of manufacturing mechanics' hand tools, specifically pliers
and screwdrivers under the trademark CHANNELLOCK. We make a very high
quality product that is well-known in global, hand tool marketplaces.
We employ 570 people in Meadville, Pennsylvania, 461 of whom are
members of the United Steelworkers of America Local 1917-03.
It is my belief that granting Normal Trade Relations or Most
Favored Nation Status to mainland China and to a lesser degree Taiwan,
is slowly killing the manufacturing base of the United States for two
reasons:
1. In doing so, you give these nations who are purportedly
``non-market economy countries,'' full access to the domestic
markets of the United States of America. Conversely, in trying
to sell our products in their markets, we find non-tariff
barriers, trademark violations, and certainly great difficulty
in collecting payments due from delinquent customers.
2. At the same time, you saddle American industry with
massive regulation and onerous, confiscatory taxes to which
Chinese manufacturers are not subject.
I am by nature a fair trade person and believe that trade benefits
all countries of the world. But I believe that you need to understand
the restrictions under which you expect us to trade/compete with these
two countries achieving Normal Trade Relations.
As stated above, mainland China has no regard for intellectual
property law. They continually abuse/copy, our trademarks and patent
rights. And there is no rule of law in China to follow-up on any
violations of our rights in the areas of intellectual property laws.
Regulation:
ERISA--Show me any Chinese pension plans and regulation of
them. Show me their Pension Benefit Guarantee Corp. regulations
which are in place in this country to protect pensioners in
case an employer goes into default.
OSHA--Show me their Occupational Safety and Health
Administration. Show me any Safety Committees. Show me the
Chinese manufacturer's Safety Committee Minutes. Show me their
Lost Time Accident Reports. Show me their Machine Guarding
Standards.
Environmental Protection Agency (EPA)--Show me their clean
air standards. Show me their Hazardous Waste permits. Show me
any permits and fees that they pay for all sorts of things such
as ground water run-off and the right to burn trash in an
incinerator. Show me their emission standards and their
compliance documentation. Show me their Clean Air Standards
Act.
Show me their Minimum Wage Law Legislation.
Show me their Family Medical Leave Act Legislation.
Show me their Patient's Bill of Rights Legislation.
Show me their Trade Adjustment Assistance Act Legislation
(when their local manufacturers lay off people because of
foreign competition, the government provides training and
education funds to retrain these laid off workers).
Show me their Unemployment Compensation Statutes and the
taxes that are paid by Chinese manufacturers to support said
statutes.
Show me their Social Security Program and the taxes that the
Chinese manufacturers pay to support that program.
Show me their Medicare and Medicaid Legislation. (And, oh by
the way, show me how they go about accrediting their hospital
facilities such as we do in this country via the Joint
Commission on Accreditation to assure consistent, high quality
care.)
Show me how many Chinese manufacturers are ISO 9000
certified.
Show me their Labor and Industry Regulations assuring their
factories are safe places to work.
Show me their Robinson Pattman legislation with regard to
protection of consumers against Chinese predatory pricing
practices.
Show me their ``Right To Know'' Regulations requiring
Chinese manufacturers to properly label all chemicals/oils etc.
workers contact in their daily jobs.
Taxation:
Show me their depreciation schedules and while you're at it,
show me their Generally Accepted Accounting Principals as
stated in their form of a Journal of Accountancy--doesn't
exist.
Show me any estate taxes they pay.
Show me any capital gains taxes they pay.
Show me any income taxes that are paid to any city, county,
state, and federal agencies.
Show me any sales taxes that are paid by Chinese
manufacturers.
Show me any property taxes that are paid by Chinese
manufacturers.
And certainly show me any Occupational Privilege Taxes that
are paid by Chinese manufacturers.
Show me any Capital Stock Taxes paid by Chinese
manufacturers.
Product Liability:
Show me how you can be compensated if you are hurt while
using a Chinese product. Who do you sue? It certainly will not
be the Chinese manufacturer.
The point of all of this is that offering Most Favored Nation/
Normal Trade Relations Status to these kinds of countries does nothing
but slowly kill the domestic manufacturing backbone of this country and
you are using a two-edged sword to do it:
1. The one edge is giving them open access to our markets
while we have limited access to their markets.
2. The second edge is that Chinese manufacturers are not
subject to any of the above referenced regulations under which
U.S. domestic manufacturers must operate. This severely raises
our costs and makes us un-competitive. The long-term affect is
that it will put us out of business. If that is your goal, you
are right on track.
Any red-blooded American citizen should be outraged. Declaring
mainland China and Taiwan as a ``non-market economies'' is ludicrous.
Just look at the billions of dollars of trade between China, Taiwan,
and the United States--most of it from them, to us. Calling China and
Taiwan ``non-market economies'' just makes no sense.
Further, offering them full and free access to our markets when our
local industries cannot begin to compete with them due to the above
referenced regulations and taxes.
The solution lies in having these countries recognize and implement
social, safety, and environmental standards. The United States
government needs to further rethink our systems of taxation to
aggressively promote the creation of capital and to aggressively reward
productivity instead of taxing it.
I submit this for your consideration with the hopes that some day
somebody inside the beltway will WAKE UP!
Sincerely,
William S. DeArment
President & CEO
[The attachment is being retained in the Committee files.]
Statement of the International Mass Retail Association, Arlington,
Virginia
This statement is submitted on behalf of the International Mass
Retail Association (IMRA), the world's leading alliance of retailers
and their product and service suppliers. IMRA is committed to bringing
price-competitive value to the world's consumers. IMRA improves its
members' businesses by providing industry research and education,
government advocacy, and a unique forum for its members to establish
relationships, solve problems, and work together for the benefit of the
consumer and the mass retail industry. IMRA represents many of the
best-known and most successful retailers in the world, who operate
thousands of stores worldwide. IMRA equally values among its members
hundreds of the world's top-tier product and service suppliers, working
with their retailer partners to further the growth of the mass retail
industry.
All of IMRA's members are dependent upon imports to provide
American consumers with high-quality, low-priced goods. Many IMRA
members import products directly from China, while others sell products
that have been imported by American brand-name consumer product
suppliers. China is an important source of supply for such every-day
products as clothing and toys. In addition, a handful of IMRA member
companies actually operate stores within China.
Consequently, IMRA's member companies have a strong interest in
seeing stable U.S.-Sino relations, both political and economic. IMRA
supports the U.S.-China bilateral agreement on accession into the World
Trade Organization (WTO) that was completed in November 1999, as well
as additions to that agreement recently concluded. IMRA also supported
the passage of permanent Normal Trade Relations (PNTR) status last
year. Unfortunately because China has not yet become an official member
of the WTO, Congress must once again vote on the annual renewal of NTR.
For this reason, IMRA believes this year's NTR vote is the trade
equivalent of an ``extender'' designed to maintain the status quo until
China becomes an official member of the WTO. With both the U.S. and EU
wrapping up the major outstanding WTO accession issues, China is sure
to become a full member of the WTO by the end of the year. Disapproving
NTR now, will upset negotiations that are of vital importance in
opening China's markets for many industries, including retailing, since
the accession agreement contains significant market access concessions
on retailing services.
NTR Benefits U.S. Retailers and Consumers
The revocation of China's NTR status could have serious economic
repercussions on IMRA's members who import or who rely on imported
merchandise as well as harm U.S. consumers and manufacturers. The loss
of NTR status would mean markedly higher import tariffs on a wide range
of products, from footwear to toys to consumer electronics. Tariffs
would increase on from an average of about 4% to an average of 60%. In
some cases, the duty would jump to as high as 100%.
Such steep duty increases would result in products simply
disappearing from the marketplace. Suppliers would not be able to shift
production swiftly; and in many cases alternate suppliers cannot
produce products at the same value price. In the past, the NTR vote has
occurred in June or July, which are the peak months for importing
Christmas merchandise. Revocation of NTR would mean significantly
higher prices and shortages of key Christmas products. This obviously
would hurt American families more than it would the Chinese. The 5
weeks of the Christmas shopping season account for about 25% of U.S.
retail sales for the entire year.
Consider the following holiday products that could be affected:
China accounts for more that 50% of all toy imports. Revocation of
NTR would sharply increase the price of toys in the U.S. This would
lead to a reduction in the variety of toys available on IMRA members'
shelves. Many of today's most popular toys might not be affordable for
American consumers if NTR is revoked.
China is also a major exporter of portable tape and compact disc
players to the United States. The average price for these products is
about $84. Without NTR, these products would jump to a price of about
$110. That's a 31% jump. Importers might be able to shift supply to
Malaysia, but the average price for this product is about $98.
Apparel is another important Christmas product for mass retailers.
China is an extremely important source of value-priced cotton and man-
made fiber products, and is one of the only sources of silk apparel
products such as high-quality women's silk blouses. A loss of NTR would
mean a price increase of over 50% for these products. This dramatic
increase would affect many consumers' ability to afford these products
and would force value-priced silk and cotton products off the shelves
of mass retailers.
Over 60% of the footwear sold in the United States is produced in
China. Many U.S. consumers rely on the inexpensive footwear produced in
China and sold in mass retail stores. The inexpensive boys leather
sports footwear, such as high tops, tennis shoes and snow boots would
all increase by an average of 15%. This could be devastating to the
low-income consumer, preparing to outfit their kids for back-to-school
this fall.
IMRA's catalog and Internet members also depend upon the annual
renewal of NTR. Many of these companies are putting the finishing
touches on their Christmas catalogs right now. By August, their
catalogs will be printed with final prices. A loss of NTR means that
these companies, along with their suppliers would be unable to fulfill
orders; and would be precluded, under state fair advertising laws, from
raising prices. Holiday catalogs cost millions of dollars to print, and
their shelf life is very long.
Benefits to U.S. Retailers Operating in China
Currently, American retailers face numerous obstacles in opening
stores in China. Chinese licensing requirements are onerous and
obtaining a license can take months or even years. More important,
China has made the development of large-scale retail operations, with
many outlets, nearly impossible, because it requires that each store
location be separately licensed and financed with unique local
partners.
Under the WTO accession agreement negotiated by the United States
and Europe, the ability to obtain licenses will be made easier,
although equity restrictions will still be placed on stores larger than
20,000 square meters and retailers with more than 30 stores. While many
IMRA members wishing to operate in China fit those categories, we still
view the accession agreement as a positive step, because it eliminates
the store-by-store approach. Obviously, having China become a member of
the WTO, means that the United States can raise these remaining
restrictions as part of the broader WTO Negotiations on Services now
ongoing.
Another key provision of the U.S.-China WTO accession deal is
China's agreement to liberalize restrictions on their distribution
system. Currently, American companies can only distribute goods that
they manufacture in China and cannot own or manage distribution
networks or warehouses. The ability to control the distribution process
is the lifeblood of an American mass retailer. Under the current deal,
the Chinese agreed to phase out all restrictions on distribution
services within three years.
For retailers, this means removal of restrictions on foreign equity
share, geographic restrictions and number of service suppliers.
American retailers will now be able to import and distribute American
made products to their stores in China. The easiest way for American
products to penetrate the Chinese market is to be sold through an
American mass retail store in China.
Obviously, if Congress were to revoke China's NTR at this point in
the WTO accession negotiations, it would ``upset the apple cart'' on
the market access progress we have made as part of the WTO accession
negotiations.
Rules and Safeguards
Many in Congress have expressed concern about the ability to
enforce the Chinese WTO accession agreement. It is important to
remember that once China becomes a member of the WTO, it would be
obligated to play by the rules or be subject to the WTO's dispute
settlement process. This process has proven to be very successful for
the U.S. (e.g., WTO ruling on the EU banana dispute). What's more,
Chinese membership in the WTO provides ample opportunity for further
negotiations to liberalize its trade regime, including services.
There are also those who claim that allowing China to join the WTO
will do nothing to further human rights or democratic change. These
individuals couldn't be more wrong. A strong economic and trade
relationship--based on mutually agreed-upon rules such as those
embodied by the WTO--will result in change. One has only to look at the
progress being made in places like South America to see how economic
relationships foster democratic processes.
Progress can only be made when the rest of the world decides to
push for change, not just the U.S. The best example of a failed attempt
to bring about democratic change unilaterally is the 40 plus years of
isolationism between the United States and Cuba. Cuba remains a
Communist nation today because the rest of the world has decided to
maintain commercial relations, while the United States, which could be
Cuba's closest trading partner, has decided to isolate Cuba in an
attempt to end Communism. This will never work. As a member of the WTO,
China will be forced to open its doors and allow not only goods, but
also ideas into its closed economy. This is the greatest agent for
change within China.
Some have expressed a fear that once China gains entrance into the
WTO, it will flood the U.S. market with cheap goods, displacing U.S.
workers. Because of this fear, the current WTO accession agreement
includes a product-specific safeguard as well as a special safeguard
covering textiles and apparel.
Conclusion
Granting China annual NTR and allowing it to join the WTO is a win-
win for American businesses, both importers and exporters, and U.S.
consumers. WTO accession will open a Chinese market that is currently
closed. American retailers will be able to open up stores and act as a
beachhead for U.S. consumer products in China. Congress has already
granted permanent NTR for China, when it officially accedes to the WTO.
It would be foolhardy, at this late date, with the accession
negotiations so close to being finalized, to revoke China's temporary
NTR. Such a step would undo years of work in negotiating market access
terms that will inure to the benefit of many American businesses and
consumers.
Statement of the National Association of Manufacturers
The National Association of Manufacturers (NAM) represents 14,000
American firms. Manufacturing comprises approximately one fifth of all
the goods and services produced by the U.S. economy and directly
supports 56 million Americans--the 18 million American men and women
who make things in America and their families.
Trade is of great importance to NAM members. More than 80 percent
of U.S. merchandise exports are manufactured products. About one sixth
of total U.S. manufacturing output is exported, and for many industries
the ratio is much higher.
Importance of the China Market
China represents an important market for U.S. manufactured goods.
Last year total U.S. exports to China amounted to $16.3 billion, making
China our 11th largest export market. More than 90 percent of U.S.
exports to China were manufactured goods.
One of the fastest growing economies in the world, China will offer
significant new opportunities for a wide range of U.S. manufactured
products in the years ahead. It is already one of the largest markets
in the world for some capital goods, such as commercial aircraft and
electrical power plants. As personal incomes rise, the demand for U.S.
consumer products will also grow.
But U.S. companies face strong competition in the China market from
other foreign suppliers, particularly those in Japan, South Korea,
Taiwan, Germany and France. Withdrawing NTR status from China, even
temporarily, would lead to trade retaliation that would cut many U.S.
manufacturers out of the market, perhaps for years to come.
Many Adverse Effects From Withdrawing NTR
The manufacturing sector is already experiencing severe problems
because of changes in the domestic and international economy.
Manufacturing production declined 1.7 percent in the fourth quarter of
2000 from the previous quarter and another 7.9 percent in the first
quarter of 2001 from that level. Since July 2000, the manufacturing
sector has lost 788,000 jobs.
U.S. manufacturers are trying to cope simultaneously with a slowing
domestic economy, a 27-percent increase in the trade-weighted value of
the dollar since 1997, which makes U.S. exports substantially less
competitive, and declining growth in major overseas markets, such as
Japan and Europe. A trade conflict with China over NTR withdrawal would
only add to these other burdens.
The negative spillover effects on other Asian economies, including
many U.S. friends and allies, would also be significant. South Korea,
Thailand, the Philippines and Malaysia are still recovering from the
Asian financial crisis. An economic slowdown in China resulting from a
disruption in U.S.-China trade could affect the entire region and
threaten further economic recovery.
There would be other adverse consequences as well. After 15 years
of difficult negotiations, the United States has finally reached an
acceptable agreement on most of the key issues relating to China's
membership in the World Trade Organization (WTO). WTO membership will
require China to undertake substantial market-opening measures and
begin adhering to internationally accepted trade rules. Congress has
already endorsed China's WTO membership by approving legislation in
2000 that grants China permanent NTR status when its membership becomes
effective. This is expected to occur later this year or in early 2002.
Withdrawal of NTR, however, could complicate that process and lead to
further delays.
Other U.S. Interests Also Affected
And more is at stake than just U.S. commercial interests. For
nearly a quarter of a century, both Republican and Democratic
administrations with bipartisan congressional support have pursued a
policy of engagement as the best way to encourage positive change in
China. It is in the U.S. national interest to see that China becomes a
more open society that is based on the rule of law and allows more
personal freedom. Trade with the United States and contact with U.S.
companies help to promote those goals.
Trade helps raise living standards and exposes a broad spectrum of
Chinese society to American values and culture. It allows many Chinese
to see the political as well as economic benefits of American democracy
and our free-market system.
This exposure comes not only to business representatives, workers
and students that travel to the United States. It also comes from
contact with American companies selling and producing their products in
China. A recent study issued by the NAM and the Manufacturers Alliance
(MAPI) showed that American companies bring their high ethical, labor
and environmental standards to their operations in developing
countries, including China.
The report revealed, for example, that 95 percent of the companies
surveyed apply the same corporate code of conduct and ethical standards
to their operations in developing countries as they do domestically.
With regard to labor conditions, 87 percent of the companies surveyed
have detailed policies on health and safety standards for workers. And
78 percent have environmental management systems that contain
measurable objectives or targets for improved environmental
performance.
Chinese who come in contact with American companies, then, are
learning much more than just business and production skills. They are
gaining insights into how successful companies in a modern democratic
society manage the complex challenges of balancing the need for profits
with high ethical, labor and environmental standards.
However, these economic benefits and positive social, cultural and
political influences will be sharply curtailed if we were to terminate
China's NTR status and disrupt our growing trade and investment
relationship. In this environment, engagement even in other non-
economic spheres would be difficult.
Need to Stay the Course with China
Encouraging China's economic engagement with the outside world has
served U.S. interests well over the past two decades. It has brought
economic benefits to the Chinese people and to American companies,
workers and farmers. And it has helped to promote greater economic and
personal freedom and respect for the rule of law in China. We should
not undermine these positive developments by withdrawing China's NTR
status and allowing a major disruption in our bilateral trade and
investment.
In highlighting the many positive aspects of China's NTR status, we
do not ignore the problems that exist in our trade relationship. Many
U.S. firms are having difficulties competing with low-cost Chinese
imports and selling their products and services in China. Withdrawing
NTR status, however, is not the way to address these problems.
Over the long term, our best hope of establishing a level playing
field in our bilateral trade is to have China abide by internationally
accepted rules. The sooner that China takes on its obligations as a WTO
member the better position we will be in to achieve that goal. There
will be other benefits as well. For example, in its agreement with
China on WTO membership, the United States has negotiated a product
safeguard provision to address market disruption and injury that occur
because of surges in Chinese imports. The United States, however,
cannot take advantage of these disciplines and safeguards if China's
WTO membership is delayed by withdrawing NTR status.
For all these reasons, the National Association of Manufacturers
endorses President Bush's decision to extend China's NTR status and
strongly opposes House Joint Resolution 50 to discontinue NTR.
Statement of Eric Author, Vice President and International Trade
Council, National Retail Federation
I. Introduction
The National Retail Federation (NRF) submits these written comments
to the Subcommittee on Trade of the House Committee on Ways and Means
to inform members of the importance of ``normal trade relations''
trading status for China to America's retailers, their workers, and the
American consumer.
NRF is the world's largest retail trade association with membership
that comprises all retail formats and channels of distribution
including department, specialty, discount, catalog, Internet and
independent stores. NRF members represent an industry that encompasses
more than 1.4 million U.S. retail establishments, employs more than 22
million people--about 1 in 5 American workers--and registered sales of
$3.1 trillion in 2000. NRF's international members operate stores in
more than 50 nations. In its role as the retail industry's umbrella
group, NRF also represents 32 national and 50 state associations in the
U.S. as well as 36 international associations representing retailers
abroad.
As we have consistently in years past, NRF and the U.S. retail
industry strongly supports the renewal of China's normal trade
relations (NTR) status for several reasons:
NTR for China helps retailers supply American families with
a wide range of value-priced merchandise;
NTR for China creates high-paying jobs related to both
exports to China and imports from China;
Failure to renew China's NTR status would deal a severe blow
to Hong Kong.
II. NTR for China Helps American Families
Perhaps no one understands better than retailers the importance NTR
for China plays in helping American families purchase well-made, value-
priced goods. Every day, NRF's members shop the United States and the
world in search of consumer goods that meet American families' demands
for quality at competitive prices.
China offers us an opportunity to provide the goods these consumers
demand at prices that fit their increasingly tight budgets. For many
products, such as toys and consumer electronics, China is a low-cost
alternative to other foreign producers. In other cases, such as high-
quality silk apparel, sold not only by high-end department stores but
also by mass retailers, China is the only source of a given product at
affordable prices. In the case of silk apparel, even U.S. producers are
not alternative suppliers.
Imports of consumer products from China are clearly significant,
and failure to renew NTR would have broad effects on American families.
In 2000, NRF estimates that retailers imported about $80 billion (at
first cost) of consumer goods from China, and NTR duty status provided
retailers, and consequently, American consumers, $40 billion in tariff
savings. In today's highly competitive market, these duty savings are
passed along directly to consumers. More specifically, toys imported
from China account for about half of all toys sold in the United
States. Moreover, footwear imported from China accounts for about 60
percent of all footwear sold in the United States. The Bank for
International Settlements found that declining import prices generally
in the United States lowered the annual rise in U.S. consumer prices by
0.9 percentage points (Bank for International Settlements, 68th Annual
Report, issued June 8, 1998, pages 24-25). Imagine what would happen to
the inflation rate--and American families' budgets--if the prices of
consumer goods imported from China shot up by as much as 66 percent
(non NTR tariff rates).
III. NTR for China Creates Good Jobs in the United States
NTR for China creates high-paying jobs in the United States. As you
have heard from many, U.S. exports to China support hundreds of
thousands of American jobs every year. These include high-paying jobs
in growing industries such as telecommunications, information
technology, aviation and power generation. But what is not as widely
known is that U.S. imports from China, which are more directly affected
by NTR tariff treatment, support an even larger number of high-paying
U.S. jobs than U.S. exports to China. The Trade Partnership estimates
that U.S. imports of consumer goods alone from China in 1998 supported
more than 1.7 million American jobs in such high-paying sectors as
manufacturing (the jobs related to making cash registers and trucks to
transport goods to stores, for example), finance and insurance,
transportation, wholesaling and, of course, retailing. Failure to renew
NTR for China would put many of these jobs at risk.
IV. Failure to Renew China's NTR Status Would Deal A Severe Blow to
Hong Kong
We cannot forget that failure to renew China's NTR status would
deal a severe blow to Hong Kong. Hong Kong is the main gateway for
China's trade and investment abroad. Hong Kong estimates that in 2000
it handled 70 percent of China's export to the United States and 27
percent of U.S. exports to China. The majority of Hong Kong's
manufacturing industry is now located across the border in China, and
many multinationals make Hong Kong their international base. The
government of Hong Kong projects denial to China of NTR status would
curtail Hong Kong's GDP by 2.3 to 3.3 percentage points.
V. Conclusion
Not extending China's NTR status could have serious domestic
consequences, both for retailers and American consumers. The American
retail industry urges the Committee to recommend a continuation of
China's NTR status.
StorageTek, Inc.
Louisville, Colorado 80028
July 12, 2001
The Honorable Philip M. Crane
Chairman, Committee on Ways and Means
United States House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Re: Renewal of Normal Trade Relations With China
Dear Representative Crane:
On behalf of StorageTek, Inc., I am writing to support the
extension of Normal Trade Relations (NTR) with China. By extending NTR
with China this year, the United States Congress will send a strong
message to China that the U.S. is a dedicated trading partner and
committed to ensuring a smooth accession for China to the World Trade
Organization (WTO).
StorageTek is a Colorado-based, high-tech multinational company
manufacturing and marketing data storage products and services. The
company, which has 7,600 employees, sells over $2 billion in products
and services annually in over 50 countries. StorageTek now sells over
50% of its storage products (which are almost exclusively manufactured
domestically) overseas. Currently, a small percentage of our
international sales are with China. However, that number is expected to
rise dramatically following China's WTO accession.
The Sino-U.S. trade relationship is important to StorageTek for two
reasons. First, we import several important component parts for
domestic production that are produced in mainland China. Second,
greater China (PRC, Taiwan, Hong Kong, Macao) is one of our top four
growth markets worldwide. StorageTek in greater China has experienced
average revenue growth of approximately 100% per annum since opening
our Beijing office in November 1998. The entry of the China into the
World Trade Organization will create substantial investment in
information technology infrastructures, as companies prepare to deal
with international corporations. This creates greater opportunities for
U.S.-based companies such as StorageTek. For example, we are targeting
major banks in the region, along with telecommunications firms,
government institutions, and oil and gas companies for increased
opportunities associated with WTO accession. In anticipation of such
growth, in 2001 StorageTek will open new offices in Shanghai, Taiwan,
and Guangzhou to complement our existing operations.
In addition, China's accession to the WTO has positive effects
throughout the information technology industry as a whole. WTO
accession means China unilaterally adopts the WTO Information
Technology Agreement (thus eliminating tariffs on most IT products);
allows for trading and distribution rights, which eliminates costly
middlemen; adheres to the WTO Trade-Related Intellectual Property
Rights (TRIPS) Agreement providing for added protections for U.S.
intellectual property; and agrees to subject itself to the WTO
multilateral, dispute resolution system for addressing international
trade disputes. In a broader sense, China would benefit from increased
Access to American commercial information technologies. These
technologies, including those manufactured by StorageTek, enabled
people worldwide to improve business efficiency across all sectors,
enhance educational and social opportunities, and connect with one
another. Continued and improved market access for U.S. commercial
information technology in China will ultimately contribute to the
advancement of economic and social reform in China.
Each one of these benefits, however, could be lost without renewal
of NTR this year. If NTR with China is not renewed, tariffs on Chinese
goods will increase ten-fold to 40-50%, increasing the cost of consumer
goods and components--a tax paid by U.S. citizens. Also, American high-
tech firms have invested, and slowly garnered market share in China. An
interruption of our bilateral commercial relationship will undermine
these investments and the hard-fought gains U.S. companies have made in
the Chinese market, ceding them to our foreign-based competitors.
On June 8, 2001, during bilateral talks in Shanghai, the United
States and China reached agreement on major outstanding issues
concerning China's accession to the WTO. United States Trade
Representative Robert B. Zoellick and China's Minister of Foreign Trade
and Economic Cooperation Shi Guangsheng capped 15 years of negotiations
on areas including domestic support for agriculture, services, and
trading rights. This breakthrough signals China's imminent accession to
the WTO, likely before the end of 2001. After proceeding this far,
failure to renew NTR for China during the ``closing'' period of WTO
negotiations would destroy 15 years of progress and cause significant
harm to StorageTek and the IT industry.
Recently you said, ``It is indeed heartening for those of us who
support normalizing U.S. trade relations with China to observe that
China's negotiations to join the WTO are close to concluding. The
momentum for opening trade with China is building. Last year, we passed
the permanent normal trade relations legislation, and earlier this
month, USTR made significant progress with the Chinese to further open
their markets to our goods and services. We need to keep the momentum
going by renewing China's NTR status for another year.'' StorageTek
agrees with these sentiments wholeheartedly and calls upon the U.S.
Congress to extend NTR to China for another year to allow the
completion of China's WTO accession.
Sincerely,
Gary Francis
Corporate Vice President