[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]
UNITED STATES-CHINA TRADE RELATIONS AND THE POSSIBLE ACCESSION OF CHINA
TO THE WORLD TRADE ORGANIZATION
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TRADE
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED SIXTH CONGRESS
FIRST SESSION
__________
JUNE 8, 1999
__________
Serial 106-28
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
64-126 CC WASHINGTON : 2000
COMMITTEE ON WAYS AND MEANS
BILL ARCHER, Texas, Chairman
PHILIP M. CRANE, Illinois CHARLES B. RANGEL, New York
BILL THOMAS, California FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York SANDER M. LEVIN, Michigan
WALLY HERGER, California BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana JIM McDERMOTT, Washington
DAVE CAMP, Michigan GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota JOHN LEWIS, Georgia
JIM NUSSLE, Iowa RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
BILL THOMAS, California SANDER M. LEVIN, Michigan
E. CLAY SHAW, Jr., Florida CHARLES B. RANGEL, New York
AMO HOUGHTON, New York RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan MICHAEL R. McNULTY, New York
JIM RAMSTAD, Minnesota WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington XAVIER BECERRA, California
WALLY HERGER, California
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
Advisory of May 28, 1999, announcing the hearing................. 2
WITNESSES
Office of United States Trade Representative, Hon. Richard
Fisher, Deputy United States Trade Representative.............. 39
U.S. Department of State, Stanley O. Roth, Assistant Secretary,
East Asian and Pacific Affairs................................. 47
______
American Federation of Labor and Congress of Industrial
Organizations, John J. Sweeney................................. 102
Amway Corporation, Steve Van Andel............................... 77
Blumenauer, Hon. Earl, a Representative in Congress from the
State of Oregon................................................ 36
Business Coalition for U.S.-China Trade:
George David................................................. 72
George M.C. Fisher........................................... 62
Dooley, Hon. Calvin M., a Representative in Congress from the
State of California............................................ 33
Eastman Kodak Company, George M.C. Fisher........................ 62
Emergency Committee for American Trade, Harold ``Terry'' McGraw
III............................................................ 65
FDX Corporation, Frederick W. Smith.............................. 88
Fisher, George M.C., Eastman Kodak Company, and Business
Coalition for U.S.-China Trade................................. 62
Frank, Hon. Barney, a Representative in Congress from the State
of Massachusetts............................................... 17
Gambow, Neil E., Jr., Post Glover Resistors Inc.................. 110
Kapp, Robert A., United States-China Business Council............ 114
McGraw-Hill Companies, Harold ``Terry'' McGraw III............... 65
Motion Picture Association of America, Inc., Jack Valenti........ 106
New York Life Insurance Company, Sy Sternberg.................... 82
Pelosi, Hon. Nancy, a Representative in Congress from the State
of California.................................................. 22
Post Glover Resistors Inc., Neil E. Gambow, Jr................... 109
Rohrabacher, Hon. Dana, a Representative in Congress from the
State of California............................................ 31
Smith, Hon. Christopher H., a Representative in Congress from the
State of New Jersey............................................ 11
Smith, Frederick W., FDX Corporation............................. 88
Sternberg, Sy, New York Life Insurance Company................... 82
Sweeney, John J., American Federation of Labor and Congress of
Industrial Organizations....................................... 102
United States-China Business Council:
Robert A. Kapp............................................... 114
George David................................................. 72
U.S. Chamber of Commerce, Steve Van Andel........................ 77
United Technologies Corporation, George David.................... 72
Valenti, Jack, Motion Picture Association of America, Inc........ 106
Van Andel, Steve, Amway Corporation, and U.S. Chamber of Commerce 77
Wolf, Hon. Frank R., a Representative in Congress from the State
of Virginia.................................................... 19
SUBMISSIONS FOR THE RECORD
American Apparel Manufacturers Association, Arlington, VA,
statement...................................................... 124
American Textile Manufacturers Institute, statment............... 125
International Mass Retail Association, Arlington, VA, statement.. 127
SMART, Bethesda, MD, Bernard D. Brill, statement................. 128
UNITED STATES-CHINA TRADE RELATIONS AND THE POSSIBLE ACCESSION OF CHINA
TO THE WORLD TRADE ORGANIZATION
----------
TUESDAY, JUNE 8, 1999
House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to notice, at 1:02 p.m., in
room 1100, Longworth House Office Building, Hon. Philip Crane
(Chairman of the Subcommittee) presiding.
[The advisory announcing the hearing follows:]
ADVISORY
FROM THE
COMMITTEE
ON WAYS
AND
MEANS
SUBCOMMITTEE ON TRADE
Contact: (202) 225-1721
FOR IMMEDIATE RELEASE
May 28, 1999
No. TR-11
Crane Announces Hearing on United States-China Trade Relations and the
Possible Accession of China to the World Trade Organization
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 possible accession of China to the World Trade Organization
(WTO). The hearing will take place on Tuesday, June 8, 1999, in the
main Committee hearing room, 1100 Longworth House Office Building,
beginning at 1:00 p.m.
Oral testimony at this hearing will be heard from both invited and
public witnesses. Also, 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:
Article XII of the Agreement Establishing the World Trade
Organization states that any State or separate customs territory may
accede to the WTO ``on terms to be agreed between it and the WTO.'' In
practice, any WTO applicant must negotiate terms for membership in the
WTO in the form of a Protocol of Accession. Through the operation of a
Working Party, the United States and other WTO members have an
opportunity to review the trade regimes of applicants to ensure that
they are capable of implementing WTO obligations. In parallel with the
Working Party's efforts, the United States and other interested member
governments conduct separate negotiations with the applicant. These
bilateral negotiations are aimed at achieving specific concessions and
commitments on tariff levels, agricultural market access, and trade in
services.
China applied for accession to the General Agreement on Tariffs and
Trade in July 1986, and work has proceeded sporadically in the China
Working Party since that time to negotiate the conditions upon which
China will enter the WTO.
On April 8, 1999, Ambassador Barshefsky announced that U.S. and
Chinese negotiators secured broad progress toward an expansive
bilateral market access agreement, along with Chinese commitments to
adopt WTO rules relating to such issues as technology transfer and
offsets, subsidies, product safeguards, and State enterprises. China
also agreed to an immediate end to sanitary and phytosanitary bans on
the importation of United States wheat, meat, and citrus products.
Because the United States does not extend unconditional normal-
trade-relations (NTR) status to China as a result of the application of
the Jackson-Vanik amendment to that country, the United States must
invoke the non-application clause of the WTO (Article XXXV) upon
China's accession, meaning that the United States would not apply the
WTO Agreements to China. Granting China unconditional NTR trade status
would require amending sections 402(a) and (b) of the Trade Act of
1974, the so-called Jackson-Vanik amendment. That law sets 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. Conditional, non-discriminatory NTR trade status was first
granted to the People's Republic of China, pursuant to Title IV, on
February 1, 1980, and has been extended annually since that time.
Extensions are granted based upon a Presidential determination that
such an extension will substantially promote the freedom of emigration
objectives in Title IV of the Trade Act of 1974.
Annual Presidential waiver authority under Title IV 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. 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.
In announcing the hearing, Chairman Crane said: ``It is troubling
for those of us who support normalizing U.S. trade relations with China
to observe that China's WTO negotiations-marked by enormous progress in
April--are again suspended due to China's unwillingness to sit back
down at the table. Premier Zhu's offer to President Clinton represents
costless, unilateral trade concessions for U.S. firms and workers which
are in danger of slipping through our fingers, a sad casualty of
deteriorating of relations in other areas. I urge the President and the
Chinese leadership to push ahead on trade talks with a clear
appreciation of the commercial gains that would be associated with a
sound WTO agreement, despite the formidable problems that dominate many
other aspects of bilateral relations between our two countries.''
FOCUS OF THE HEARING:
The focus of the hearing will be to examine the status and future
of United States-China trade relations, including the yearly renewal of
China's normal trade status, and the problems and opportunities
associated with the entry of China into the WTO. Testimony will be
received on objectives for the negotiations with China, as well as on
the anticipated impact of its WTO membership on U.S. workers,
industries, and other affected parties. In particular, witnesses should
discuss the potential value of the recent Chinese concessions to U.S.
commercial interests. Members of the Subcommittee would also welcome
testimony on how progress in China's WTO negotiations are affecting the
pending application of Taiwan to join the WTO and the potential impact
on China, Taiwan, and Hong Kong of normalized trade relations.
DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:
Requests to be heard at the hearing must be made by telephone to
Traci Altman or Pete Davila at (202) 225-1721 no later than the close
of business, Wednesday, June 3, 1999 . The telephone request should be
followed by a formal written request to A.L. Singleton, 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 5.1 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 Friday, June 4, 1999.
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 5.1 format, with their name, address, and
hearing date noted on a label, by the close of business, Tuesday, June
22, 1999 , to A.L. Singleton, 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 5.1
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://www.house.gove/ways--means/''.
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.
Chairman Crane. Will everybody please take seats so we can
start? We have a long full day. Everyone, please take a seat. I
would like to request of my colleagues here on the Subcommittee
that you please do not question our colleagues who are
testifying today. It is not that there may not be legitimate
questions that you could take up with them at a later time, but
we are under a constraint, especially for Secretary Fisher. He
has a son graduating from Harvard, and he has a flight to catch
to make the commencement exercises. So out of deference to him,
he follows our colleagues here in his testimony. We want to get
him on his plane.
All of our colleagues, I would ask you if you will, please,
to try and confine your oral testimony to 5 minutes or less.
All written testimony will be made a part of the permanent
record. With that, we will take you up in the order that you
are indicated on the program here. Chris Smith will be our
first witness, followed by Frank Wolf--well, of those present,
Frank Wolf and Cal Dooley.
But before that, let me just say that we are here today to
review the status of U.S.-China trade relations in light of
recent progress in China's negotiations to join the World Trade
Organization. On an annual basis, as required by the 1974
Jackson-Vanik statute, Congress considers the question of
renewing China's NTR, normal trade relation status. I am
putting Members and witnesses on notice that we may adopt a
penalty system for careless references to the obsolete term MFN
trade status. It may cost you a dollar.
With the recent revelations of our lax defense against
Chinese espionage activities and the bitter reaction in China
to the accidental bombing of the Chinese Embassy in Belgrade,
United States-Chinese relations continue down a rocky road.
Clearly there are many areas of our bilateral relationship
which will be fraught with friction and possible danger if the
two countries remain on a course of mutual condemnation. The
shining exception to the negative revelations of recent weeks
is China's new willingness to embrace the market-oriented trade
disciplines of the WTO as evidenced in the April 8 package of
concessions put on the table by Premier Zhu Rongji. This
extraordinary set of possible commitments is analyzed by the
Congressional Research Service in a recent paper that has been
distributed to the Members and is available in our Committee
offices.
There is no doubt that history in Asia and the evolution of
China will be different in the next century if the United
States lets this WTO deal, which is so close at hand, slip
through our fingers. The President and Congress face the choice
of harvesting extraordinary commercial opportunities for U.S.
firms and workers. Unlike any other major trade agreement, this
is a one-sided set of concessions. In exchange for steep tariff
reductions and wholesale reforms of the Chinese trading system,
the United States gives up nothing. At the same time, we
preserve our positive influence over the direction of the
turbulent change that is occurring in China.
I urge the administration and China to conclude this
important negotiation as soon as possible. At that point, I am
committed to working with the President to achieve permanent
NTR for China. Since 1980, all legislative attempts aimed at
revoking NTR have been unsuccessful. House votes in recent
years have been resoundingly in favor of maintaining commercial
engagement with China. One wonders what is gained by bringing
the disapproval resolution up for sure defeat year after year.
This is not a dynamic that creates any pressure on the Chinese
to improve human rights practices. All Presidents since 1980
have realized that slapping China through the 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 want for them.
Nothing would be better for our long-term national security
interests in China and the Asian region than ensuring that
China enters the next century on an economic reform path shaped
and defined by the free market trade rules of the WTO.
I would now like to yield to my distinguished colleague
from Michigan, Mr. Levin, for an opening statement.
Mr. Levin. Thank you very much, Mr. Chairman. This year's
review of U.S. trade relations with China comes, as we know, on
the heels of several major events: the tenth anniversary of the
violent suppression of student demonstrations at Tiananmen
Square; the Cox report's revelation of extensive breaches of
security at our national laboratories, and the highly
disproportionate response of the Chinese Government to the
accidental bombing of China's Embassy in Belgrade.
These events no doubt have an impact on another major
event, the negotiation on China's accession to the WTO and the
eventual extension of permanent normal trade relations to
China. We do not make trade policy in a vacuum. It is to be
expected that developments in U.S. security and diplomatic
relations with China will have an impact on commercial
relations with China. Clearly, we must pursue our national
interests in each and every aspect of our relationship with
China. That means tightening security at our national
laboratories and taking greater precautions in pursuing
international scientific exchanges. It means pressing China to
improve its human rights record through multiple efforts. It
also means continuing to develop sound economic relations with
China.
China's economy is simply too large to be ignored, and it's
growing. It offers potential benefits to U.S. producers of
goods and services, but it also competes with many of these
same producers. For these reasons, we must develop the rules
that will govern all of the dimensions of our economic
relationship with China. In the end, I believe that most
Members of Congress and most of our constituents will judge any
agreement on China's accession to the WTO on what it will mean
mainly for the American people and for their own standard of
living.
Recent events have the potential to deter us from working
on the economic issues at the core of U.S. negotiations with
China and its accession to the WTO. We must not let that
happen. Its accession to the WTO raises challenges inherent to
the accession itself. Specifically, how can the country that
contains the world's largest nonmarket economy still in the
early stages of transition to a market economy, and where the
rule of law is still relatively weak, become part of an
international structure based on market principles and the rule
of law? How can the country with the world's largest labor
market, where certain core labor standards, for example, the
right to bargain collectively and the right to free association
have not yet taken root, be integrated into an organization
that is just beginning to grapple with the interaction between
trade policy and labor market issues?
I have no doubt that this year's debate on annual renewal
of NTR will be the occasion for raising a wide range of issues.
I believe that it is important that we give those issues full
consideration. I believe that at the end of the debate, we will
vote to renew China's NTR status for another year. But while
the process runs its course, it is essential that we keep our
eyes on the terms under which China should be admitted to the
WTO. Even as we consider the immediate question of annual
renewal, we should be working toward answers to that broader
question.
On that note, let me say just a few words on how China
should be brought into the WTO. As I have said on several
occasions, China's accession to the WTO must be done and must
be done right. That means that the accession agreement must
contain mechanisms to ensure that China lives up to its market
access commitments that it makes on paper, that the U.S. will
be able to detect violations of those commitments when they
occur, and that we will be able to enforce those commitments
effectively.
When U.S. businesses compete in countries that have well-
established, consistently enforced commercial laws, they
operate against a backdrop of predictability. They can
anticipate that certain actions will have certain legal
consequences and they can exercise their business judgement
accordingly. China lacks the legal framework critical to the
efficient operation of commerce and the predictability that
comes with such a framework. Therefore, the agreement on
China's accession to the WTO must establish itself, mechanisms
for detecting violations of China's commitments and enforcing
U.S. rights.
As today's New York Times reports, there is substantial
resistance within the ranks of China's bureaucracy to making
the market access commitments necessary to join the WTO,
including in key areas such as telecommunications. Thus, when
it comes to trade relations with China, close monitoring and
rigorous enforcement are necessary.
In short, we must not conclude a deal with China simply on
the basis of expressed commitments to afford greater market
access. Especially in light of the erosion of confidence
brought on by recent events, our negotiators must insist on
concrete mechanisms. Moreover, we must not forget that China
increasingly will be a competitor as well as a consumer. It is
a competitor that is not constrained by the market principles
that govern the operation of U.S. enterprises. Our negotiations
with China should not be solely about how United States
companies operate in the Chinese market, but also about how
Chinese companies operate in the American market.
Our trade laws already contain provisions that apply
specifically to certain imports from nonmarket economies that
harm U.S. industries. Those provisions must continue to apply
to China as long as China remains a nonmarket economy. We
should set no artificial deadlines for changing the rules that
apply to China as a competitor.
Further, and let me add, China's accession to the WTO
should serve as an impetus to equip the WTO with the means to
address the interaction between trade policy and labor market
issues. Some of the issues negotiated with the Chinese and
several that remain outstanding do reflect the interplay
between the very different labor market structures of China and
our country. Examples include the specific and special
antidumping rules that apply to goods from China and special
sectoral safeguard mechanisms against surges of Chinese goods
into the United States.
With the challenge of integration of the world's largest
labor market into the world's trading system, the time has come
to recognize more fully that policies affecting labor markets
are inherently commercial issues having major impacts on trade,
and should be dealt with as trade issues. China's accession
cannot bear all the weight of this task. However, it should be
a catalyst. The United States should obtain China's commitment
to engage on these vital issues with other WTO members
beginning with the Ministerial Conference in Seattle.
Finally, let me say a word about review of China's human
rights record. It has been 10 years since the atrocities at
Tiananmen. In that time, annual review of MFN status, pursuant
to Jackson-Vanik, has become a vehicle for careful scrutiny of
its record. Though views on the effectiveness of that vehicle
have varied, it has ensured that at least yearly, Congress
would press China to improve its human rights record. As we
contemplate granting China permanent NTR status, it is
incumbent upon us to find an alternative framework with which
to continue our important efforts in that direction.
Our negotiators have made important strides toward China's
accession to the WTO, but important work remains to be done. I
remain hopeful that soon the negotiators will return to the
table and they will buildupon the progress made, as well as
tackling those issues left outstanding. Discussion of Chinese
accession to the WTO deserves better than the usual polarized
debate between protectionism and free trade. Globalization is
here to stay and will increase. The real issue is not
protectionism versus free trade. It is the structure in which
free trade will operate, especially as evolving economies are
integrated into the world trading system. In this regard, China
raises most decisively both the opportunities and the
challenges.
Thank you, Mr. Chairman.
Chairman Crane. Thank you. I would now like to yield to our
distinguished colleague from Washington State, Ms. Dunn.
Ms. Dunn. Mr. Chairman, I would ask unanimous consent to
submit my remarks for the record.
Chairman Crane. Without objection, so ordered.
[The opening statement follows:]
Statement of Hon. Jennifer Dunn, a Representative in Congress from the
State of Washington
Mr. Chairman----
Each year this Committee and the Congress turns its
attention to China there is a heated debate about new
information that may further jeopardize this complex
relationship. Whether it be the technology transfer controversy
of last year, human rights abuses, record trade deficits, or
aggressive maneuvering toward Taiwan, we can always find fault
in the actions of the Chinese government. Every year, however,
we overcome these obstacles because we recognize that the long-
term interest of both the American and Chinese people, not
their governments, is best served through engagement.
This year it is different.
Just 11 months after President Clinton's visit to China,
the two countries are now deeply embedded in mutual acrimony
and distrust. The U.S. Embassy in Beijing is still repairing
damage inflicted during four days of violent demonstrations
that followed the bombing of China's Embassy in Belgrade.
Bilateral dialogues on most subjects have been suspended. China
has withdrawn permission for U.S. warships to call on Hong
Kong. The bipartisan Cox Report was recently released detailing
a systematic Chinese effort to attain sensitive U.S. military
secrets. China has even put a bilateral agreement with the U.S.
on its accession to the World Trade Organization on indefinite
hold. Only six weeks ago, this seemed to be China's top
priority for this year.
Perhaps most troubling is the intense battle inside China
between Premier Zhu Rongji and hard-line communists who see an
opportunity to increase their power within the government. In
mid-April the Clinton Administration rejected Premier Zhu's
forward leaning offer on accession to the WTO. This left him to
return empty-handed to Beijing where he was besieged by those
seeking to halt economic reform. This deal, in their
estimation, was a sellout.
These events, particularly the Cox Report, raise serious
questions about our national security that must be addressed.
But they must be addressed independently and with a careful eye
toward a comprehensive China policy. And we must recognize the
difference between selling U.S. goods and services made by
hard-working Americans and selling sensitive military
technology that threatens our national security. With calls
from officials inside both the U.S. and Chinese governments for
an overhaul of our respective policies toward one another, we
are at a critical juncture.
I strongly believe that it is in the best interest of the
American and Chinese people to engage one another. The open
exchange of goods and services has been a critical component of
fostering understanding between nations for centuries. It
permits Ned Graham, the son of Rev. Billy Graham and strong
proponent of trade with China, to distribute millions of bibles
in mainland China. And it will help foster the development of
the Internet, which I believe will be an unstoppable force in
getting new ideas into a closed society. As a result, I believe
it is critical that we continue to foster our trade
relationship with China during this precarious time.
It is my hope that China will take the necessary steps for
an agreement on WTO accession soon so that it may particiapte
in the important global trade talks that will occur at the
Seattle Round later this year. Halting trade with China will
only further undermine the efforts of Premier Zhu to reform
their state-controlled economy and will improve the status of
hard-line communists intent on demonizing the U.S.
I look forward to speaking personally with all of my
colleagues over the next month to understand their views on
this important matter.
Thank you, Mr. Chairman, for putting together an impressive
line-up of witnesses for our hearing today. I am interested in
hearing their important perspectives on a broad range of issues
involving our relationship with China.
Chairman Crane. I want to thank the witnesses in advance
for their prepared testimony they are about to deliver, and ask
you again, please try and keep your prepared statements to 5
minutes or less. Any printed statement will be made a part of
the permanent record.
I would like to welcome also our colleague Mr. Blumenauer,
who was not on the printed record here, but he is here as a
witness this morning. With that, we'll proceed.
Mr. Rangel. Mr. Chairman.
Chairman Crane. Yes.
Mr. Rangel. I would like unanimous consent to enter my
statement into the record.
Chairman Crane. Without objection, so ordered.
[The opening statements of Mr. Rangel and Mr. Ramstad
follow:]
Statement of Hon. Charles B. Rangel, a Representative in Congress from
the State of New York, and Ranking Member, Committee on Ways and Means
Mr. Chairman, thank you for holding today's hearing. This
hearing comes at a crucial juncture for U.S.-China relations,
and presents an ideal opportunity for this Subcommittee to
assess and evaluate the recent events that have complicated our
relationship with that country.
Over the last six months, U.S.-China relations have hit
historic high and low points. In January, the Select Committee
completed the classified phase of its work, preparing the Cox
report which detailed China's wide spread and systematic effort
to obtain classified U.S. military technology. That report,
which was released to the public two weeks ago, has raised
legitimate concerns about aspects of our policy toward China.
In February, the State Department issued its annual report
on human rights abuses. Unfortunately, that report suggests
that some of the positive steps that China made on the human
rights front in 1997 and early 1998 were short lived, and that
the overall human rights situation in China worsened last year.
That is not welcome news, particularly as we marked the 10th
anniversary last week of the massacre at Tiananmen Square.
In early April, relations with China seemed to improve.
President Clinton and Premier Zhu Rongji, the leading advocate
for market reform in China, met in Washington and were able to
to announce that U.S. and Chinese negotiators had made
significant progress on the terms of China's accession to the
WTO. As we all know, the amelioration was short-lived. The
accidental bombing by NATO of China's embassy in Belgrade, and
the ensuing hostile demonstrations against the U.S. embassy in
Beijing and U.S. consulates across China have rekindled
hostilities on either side.
I realize we are holding this hearing specifically to
discuss our trade relations with China. We cannot, however,
ignore the broader security and political issues that will
color this debate.
We all agree that the human rights situation in China must
improve, and we all agree on the need for political and
democratic reforms, as well as more open access to the Chinese
market to address the large and growing trade imbalance. The
question is what are the best and most appropriate means to
achieve these shared goals.
The most effective way to bring about improvements in human
rights and political and religious freedoms in China is through
continued engagement with the Chinese government and increased
contacts with the Chinese people about our way of life.
Withdrawal and ceasing to do business with China by removal of
NTR status will harm, not improve, the situation. Therefore, I
continue to believe that a prudent, eyes-open policy of
engagement is the correct approach. As I have in the past, I
will support a renewal of MFN treatment for China this year.
History has shown that using trade as a weapon can work
only if we have a consensus with our trading partners that we
will work collectively and apply similar policies. As proven by
the trade embargo against Cuba, for example, our unilateral
trade sanctions only give our foreign competitors an advantage.
Too many other countries are ready and willing to fill the
vacuum we would leave in the huge Chinese market as a
consequence of withdrawal of NTR status. We would merely lose
exports and the jobs they create.
A policy of engagement, however, cannot be pursued blindly.
We must be more realistic about the limits of this
relationship, cognizant of where U.S. and Chinese interests
diverge, and vigilant in areas of national security where China
seeks to be a competitor. However, it does not support a
complete withdrawal from the relationship.
We also should not repudiate areas where we have
substantial common interests, namely--China's accession to the
WTO. Earlier this spring, Ambassador Barshefsky and her
negotiating team made remarkable progress toward establishing
the terms under which China will be granted WTO membership. I
applaud their efforts, and hope that the United States and
China will be able to resume negotiations on accession as soon
as possible. If our negotiators obtain the market access and
other commitments necessary to ensure that U.S. companies and
workers benefit from China's entry into the WTO and negotiate a
framework that will ensure China adheres to those commitments,
then I believe we in Congress should support their efforts.
Statement of Hon. Jim Ramstad a Representative in Congress from the
State of Minnesota
Mr. Chairman, thank you for calling this important hearing
today to review U.S.-China Trade Relations and China's bid to
accede to the WTO.
We are at a critical point in our relationship with China.
Recent incidents certainly have put a strain on the
relationship, but I am hopeful that Congress will seriously
look at these issues in a comprehensive fashion and
thoughtfully review all of our policy options, whether it
relate to trade or foreign policy in general.
While the mood on Capitol Hill is definitely not pro-China,
it is important to remember that the debate about China's WTO
accessing is about holding China accountable to international
trading rules and protecting U.S. businesses. As troubling as
the allegations are, I still believe bringing China into the
international community is the only way to promote and protect
U.S. businesses in their dealings in China.
We know that WTO membership, if constructed appropriately,
would significantly boost China's economic growth. WTO
membership will require greater liberalization and openness,
which will in turn boost productivity, and according to some
estimates, expand China's GDP growth by an additional 0.5% each
year.
Recent estimates also predict that the tentative trade
agreement, which the Administration unfortunately decided not
to conclude, as well as China's WTO accession, would have a
positive impact on the US-China trade deficit. Many of China's
trade offers on market access would provide across the board
benefits for all U.S. exporters and some other offers would
lower barriers for specific products and services. The
agreement, if consummated, could mean substantial new
opportunities for U.S. firms and farmers exporting to or
investing in China through greater access to an expanding
economy.
Mr. Chairman, thanks again for calling this hearing. I look
forward to hearing from our witnesses today about this
important issue before our country.
Chairman Crane. With that then, we will yield first to Hon.
Chris Smith of New Jersey.
STATEMENT OF HON. CHRISTOPHER H. SMITH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Smith of New Jersey. Thank you very much, Chairman
Crane and Members of the Subcommittee. I appreciate this
opportunity to be here this morning.
Mr. Chairman, the administration's feckless human rights
policy toward China has failed miserably. In the 5 years since
President Clinton delinked China's MFN status from human rights
considerations, there has been significant regression, not
progress, within China. Even standing apart from new
revelations of nuclear espionage and the skyrocketing United
States-China trade deficit, this deteriorating situation
justifies, in my view, a fundamental reassessment of United
States-China trade policy.
An example may help flesh out the seriousness of the
matter. In 1992, the United States and Chinese Governments
signed a memorandum of understanding prohibiting trade in
slave-made goods, which was followed by a 1994 statement of
cooperation. Notwithstanding those agreements and China's own
showcase laws against slave-made goods, Beijing is turning the
laogai, the Chinese gulag, into an incredible profitmaking
venture. Slave-made products from office supplies to Christmas
decorations regularly make their way to the shelves of American
stores. Even the State Department has been forced to admit, and
I quote, that ``forced labor is a problem,'' and that the
Chinese cooperation with the MOU, and this is their words,
``has been inadequate.''
Indeed, the Department reports that in every case where the
United States asked to visit a suspect facility during 1998,
and I quote the State Department, ``the Chinese Ministry of
Justice refused the request, ignored it, or simply denied the
allegations made without further elaboration.'' In short, Mr.
Chairman, the MOU is not worth the paper that it is written on.
The slave-labor MOU is just one of many examples. But it
illustrates a fundamental lesson that we ignore at our own
peril. When dealing with the Communist dictatorship of the
People's Republic of China, the United States cannot settle for
paper promises or deferred compliance. We must stop accepting
pledges of future improvement in place of actual improvements.
The Chinese dictatorship regularly tells bold-faced lies about
the way it treats its own people, such as asserting as it did
recently, that no one died at Tiananmen Square, when General Qi
Huatian was in town and made that infamous statement, I
convened a hearing of my Subcommittee and invited witnesses,
including a journalist from the People's Daily, who was
actually imprisoned himself, to give an account as to what
actually happened at Tiananmen Square. Everyone concluded that
people died there, where bayonetted, were killed, were mowed
down, and Qi Huatian said--and he was the butcher of Beijing.
He was the one who was in operational command of the killing
that went on in Tiananmen Square. He said to a U.S. audience at
the War College, no one died. He was given a 19-gun salute, a
red carpet treatment here in the United States, and met with
selected Members of both Houses, of the House and Senate. I
tried to meet with him and couldn't get a meeting with him.
I have had 12 hearings in my Subcommittee, more than 12,
and we have heard from people on slave labor, on all the other
kinds of atrocities that have been committed, including the
systematic use of torture, which has gotten worse, not better,
Mr. Chairman. We can't pretend that somehow things are
improving.
Mr. Chairman, reforms within China must precede the
rewards, I would suggest, of WTO membership, and they should be
a prerequisite for the annual MFN status. We need to relink it.
Unfortunately, the President delinked it. We need to be wise
enough to say human rights matter. We care what you do with
intellectual property rights and with copyright law, but if you
so abuse your own people, then we have a problem with that, and
we won't trade with any dictatorship that happens to come
along.
Mr. Chairman, in quarterly reports Amnesty International
has released since the President's visit to China, and I have
had them testify again before my Subcommittee, they have come
up with seven different categories of compliance. In every
category, the Chinese Government has failed miserably. For
example, release of all prisoners of conscience and Tiananmen
Square prisoners. According to Amnesty International, ``total
failure, regression.'' Review of all counterrevolutionary
prison terms. Amnesty International, ``total failure, no
progress.'' Allow religious freedom, ``total failure, no
progress.'' Prevent coercive family planning and harvesting of
organs. Amnesty International, ``No progress.'' Fully implement
pledges on human rights treaties, ``No progress.'' Review the
re-education through labor system, ``total failure, no
progress.'' End police and prison brutality, which of course
includes the systematic use of torture, ``total failure, no
progress.''
Mr. Chairman, the Communist government of the PRC continues
to engage in systematic violations of human rights on a massive
scale, including the genocide going on in Tibet. The failure of
the administration's current policy to affect any improvement
should come as no surprise. While the rulers of the Chinese
Communist Party may be ruthless and despotic, they are not
stupid. If there is no cost, if there is no penalty to their
brutality we will get more of it, and that is what has been
happening since the delinking.
Thus, let me just point out when big business and the
administration, and the bipartisan group of Congressmen really
want change, what do we do? We threatened sanctions on at least
three separate occasions. When intellectual property rights
were the issue, we dragged out the sanctions tool and said we
are willing to impose sanctions unless you change. Beijing got
the message and they made reforms and put them into effect.
Mr. Chairman, I hope that this year we more seriously
consider the human rights issue. We have paid attention to it
in the past, but I think those Members who have said in the
past let's just give it to them and hope things do improve,
constructive engagement has not worked. We can wait until
Christmas, until doomsday, we are not going to see a change. I
think we are only kidding ourselves. The dictatorship is
getting stronger. They are creating more and more military
capabilities, as we have seen. They have blue water navy
aspirations. When you piece it all together, this is not a
government moving on the path to reform, but quite the
contrary. They have had significant regression in every
category. I hope that we will withhold MFN this year. I hope
the Subcommittee will consider that. Thank you.
[The prepared statement follow:]
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Chairman Crane. Thank you.
Mr. Frank.
STATEMENT OF HON. BARNEY FRANK, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF MASSACHUSETTS
Mr. Frank. Thank you, Mr. Chairman. I believe the time has
come for a very drastic reorientation of our approach to the
People's Republic of China. We began that approach, after all,
during the height of the cold war. The initial approaches came
under President Nixon with Secretary Kissinger, explicitly to
throw the Soviet Union off balance. We began a triangular
relationship in which an American rapprochement with the
People's Republic of China was meant to cause maximum
destabilization in the Soviet Union's view of the world.
I think there was a great deal to be said for what was then
called ``playing the China card.'' But we are still playing the
China card, and the game is over. The table has been folded up.
It does not make sense. In a three-way relationship with the
Soviet Union as a problem, there was something to be said for
our trying to establish this good relationship with the
People's Republic. That is gone now, the Soviet threat. We,
however, are suffering from cultural lag. We still act as if
the Chinese are doing us a very big favor by letting us buy
five or six times as much from them as they buy from us, by
letting them continue on an oppressive internal regime with no
real serious objections from us, with increasingly being
uncooperative strategically, vetoing at the U.N. continued
peace forces in various parts of the world where things are
doing well.
In other words, I think we have transformed a strategic
relationship in which we were seeking a good relationship with
China to offset the Russians, to a situation now where we act
as if the Chinese are doing us a big favor in a relationship in
which they get all the advantages. I don't know a great deal
about Chinese reading habits, but my guess is that one of the
most popular books right now in the Chinese inner circles is
Tom Sawyer, because they have figured out how to get America to
paint the fence and act like they are doing us a big favor by
giving us the paintbrush. It is one of the most unequal
economic relationships in the history of mankind, the American-
Chinese trading relationship.
Now I can understand the dilemma some people would feel if
they took the abuse of human rights record of China, and let's
remember, China today is the greatest denier of human freedom
in the world, and probably by sheer bulk, the greatest denier
of human freedom in the history of the world, or certainly no
current contender comes close.
Now people might argue well, yes it's true they are
terribly oppressive, but we get some economic benefits from
dealing with them. Yes, you have to be pragmatic. Sometimes
economic benefits will lead you to overlook some oppression.
But in this case, we don't get economic benefits. They get
almost all the economic benefits. They have a fairly
mercantilist regime. They buy from us as little as possible.
They sell overwhelmingly, and they sell in part because they
have enormous advantages that come from the mistreatment and
exploitation of their own workers. We are not talking about
comparative advantage in the classic sense of free trade. We
are talking about a regime which has been so oppressive and
where the oppression extends to its own denial of the most
basic rights of its own workers so that that's one of the
reasons we have this exploitation.
So we are overlooking the terrible abuse of human rights in
return for them making money off the deal. Now you could argue
well, we have these strategic interests with them, and if they
were in fact a restraining influence on the lunatics who run
North Korea, that might be useful. But increasingly in the last
few years, they haven't done much of that. I guess we're
holding our breath to make sure they don't veto a resolution at
the U.N. that might lead us out of the Kosovo situation. But
the Chinese have certainly not been very strategically well and
kind toward us. At best they have been neutral on some issues,
and they have been disruptive, as I said, vetoing some U.N.
resolutions.
Well, then the final argument might have been well, but we
are a good influence on them. After all, as countries make more
money off us, they become more willing to support human rights.
That simply isn't true. This notion that there is something
inherently democratizing about the economic development process
hasn't proven to be the case in China at all. The notion that
the bigger our trade deficit, the more democratic they are
going to get just has no basis to it whatsoever.
Now that does not mean we should under no circumstances
allow them into the World Trade Organization, although I do
think that the annual review is very important. I note it is no
longer most favored nation. We now call it normal trade
relations, proving that political correctness, that is, concern
with the implications of semantics, is not confined to one
party or another. We just legislated a little political
correctness here by changing ``most favored nation'' to
``normal trade relations.'' Maybe we should go a little further
and say let's call it ``a big favor China does us.'' You could
get in maybe a couple more votes if you changed it a little bit
even more. But the fundamental point is that we get very little
gain.
Then the last point I want to make is this. Even on its own
terms, what we have now is people saying well look, you know we
are getting all these concessions from China. Well, the
concessions are China's promises to stop doing outrageously
abusive trade practices that they never should have done in the
first place. And we can't even be sure they are going to do it,
because what we are told is, and it seems to me contradictory,
and I'll close with this, Mr. Chairman. You better make this
deal with China because if we make this deal, they will stop
doing all these terrible exclusionary unfair things. But, we're
told, it is very tenuous that Zhu Rongji has got the votes to
do that--votes is obviously kind of a silly concept. I
apologize for imposing my values on China by talking about
something like votes. Zhu Rongji may not be able to pull this
off. Well, that's an explicit admission that there is enormous
resistance in China, even to stopping the exclusionary trade
practices they have been engaging in.
So the notion that we would put any agreement in place
without extremely tough safeguards and enforcement mechanisms,
given the recognition that these very concessions, that they
will stop doing these things they should never have been doing
in the first place, are so contested seems to me a grave error.
So I think we are a long way from reaching the utopia deal.
I hope we will continue to vote on normal trade relations or
whatever euphemism you call it next year, and I hope in fact
we'll vote it down.
Chairman Crane. Thank you, Mr. Frank.
Mr. Wolf.
STATEMENT OF HON. FRANK R. WOLF, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF VIRGINIA
Mr. Wolf. Mr. Chairman and Members, my objections to MFN
have historically stemmed from the concern about China's human
rights abuses, its proliferation of weapons and unfair trading
practices. There has been absolutely no improvement in any of
these areas. But there is a new element this year thrown into
the mix. That is, the undisputed evidence of China's espionage
of United States nuclear labs and its acquisition of knowledge
about our most advanced nuclear warheads.
As I look at the issue in the Cox report, it's almost like
the United States will be providing China the economic means
through trade to develop the missiles on which they are going
to attach advanced nuclear warheads that they took from us, and
target these missiles against our children and our
grandchildren. It's absolutely crazy. It is like an Alice in
Wonderland. We are giving them the economic--it's like giving
Nazi Germany the economic support to build its war system
whereby they can fight the men that are landing at D-Day.
While it may be painful for some if we restrict China's
abilities to trade on favorable terms, China is now, let's say
it, a greater threat to the United States security than it has
ever been. All said, they have tried to influence our political
process, and as Mr. Frank said, we now help them because they
are donating money to the process, and we then give them MFN.
The human rights abuses are the same. Catholic bishops--and
I know in an abstract thing maybe it doesn't matter--but they
have been in jail sometimes for 30 years, bishops and priests
have been in jail for 30 years. One that Mr. Smith got Holy
Communion from went to jail. What do we do? Even in the report
that we sent to the floor, we never even mention these issues.
It's give them MFN. We never mention the issues.
House churches are under terrific pressure. Evangelical
pastors are being arrested as we sit here today. Churches are
being destroyed. Bibles are being confiscated. In 1997, I was
in Tibet. The conditions in Lhasa are terrible. Lhasa is
nothing more than a dirty Chinese city that the Chinese run
with cameras all over. They have destroyed 4,000 to 6,000
monasteries. Every monastery that's still up has a cadre of
Chinese officials monitoring them. It would be like at your
church or synagogue there would be somebody from the CIA
running the operation. We do absolutely nothing.
The Muslims in the northwest portion of the country are
still being persecuted. No one speaks out for the Muslims.
Democracy activists are prohibited from demonstrating for
Tiananmen's 10th anniversary. Mr. Smith and I were in Beijing
Prison Number 1 in 1991. The guys we saw in the prison are
still in the prison. Imagine what you were doing in June 1989.
The Washington Post masthead has changed. Some of you are
older. Your hair is greyer. Things have changed. But these men
are still in the prisons and we have done nothing to help them
out.
They have gulag camps, slave labor camps. People in this
room are wearing clothing made in gulag camps that are being
exported to the U.S. They are taking kidneys and corneas out of
slave labor people and selling them in the United States for
$35,000 and $40,000. Nothing has really changed with regard to
human rights in China. Our policy has done absolutely nothing.
I think the best policy may be the one that Bill Safire
mentioned the other day in the New York Times. He said that the
best scenario would be for the Congress to reject MFN for
China, the President to veto the bill, and the Senate to
sustain the veto. That would at least put us on the right side
of history. If you watch the Chinese ambassador on the Sunday
talk shows. The arrogance that he has of what they are doing.
They trashed our Embassy, they bussed people there, and we want
to give them MFN.
This government will fall. They have copied the play book
of Ceausescu's Romania Government. They will fall. The more
trade we give them, the longer they will stay. The less trade
we give them, the faster they will fall. So I would urge the
Subcommittee, to reject MFN to China. I don't think we are
going to change anybody's mind, I really don't. I am not
optimistic, but we want to show up. As Woody Allen said, 90
percent of life is just showing up. I just want to show up so
that when Radio Free Europe covers this hearing, the people
that I talk to in Tibet know that there are people who still
care about them. Just like Sharansky would tell us, every time
the Congress spoke out on his behalf, if he knew, his life got
better, he got more food, he was taken care of, and his family
knew. But this government will fall.
I would just ask you this. When you send out your
resolution, at least put in a conference report, something
about the priest. Put something about the bishops. Put
something about Tibet. Put something about these issues so that
when this thing is covered, at least, even if it goes the other
way, they will know that the United States still cares. Look at
the exhibit over in the Cannon Caucus today commemorating
Tiananmen Square. The students had the Statue of Liberty, and
they quoted the words of Patrick Henry, ``Give me liberty or
give me death.'' At least when you send the report, at least
give a page or two or three talking, that even though you think
trade is going to go on, we do care and we do remember the
people that are being persecuted today. I thank you for the
opportunity.
[The prepared statement follows:]
Statement of Hon. Frank R. Wolf, a Representative in Congress from the
State of Virginia
Trade Privileges for China Are Not in the U.S. Interest
Mr. Chairman and members of the Subcommittee. Thank you for
the opportunity to testify before you today on China trade
privileges.
For a number years I have been a strong opponent of
extending Most-Favored-Nation trade status--now known as Normal
Trading Relations--to the People's Republic of China. My
objections have historically stemmed from my concern about
China's human rights abuses, its proliferation of weapons and
its unfair trading practices. There has been no improvement in
any of these areas.
But this year, a new element has been thrown into the mix--
undisputed evidence of China's espionage in U.S. nuclear labs
and its acquisition of knowledge about some of America's most
advanced nuclear warheads.
As I look at this issue and the Cox report, I am concerned
that the United States will be providing China the economic
means through trade to develop missiles on which to attach
advanced nuclear warheads designed with information stolen from
the United States so these missiles can then be used to hit our
grandchildren, or even our children.
The report of the bipartisan Select Committee on National
Security and Military/Commercial Concerns with the People's
Republic of China chaired by Rep. Chris Cox found clear
evidence that design information stolen from the United States
will enable China to build thermonuclear warheads and attach
them to ICBM missiles sooner than would have otherwise been
possible. It said ``the PRC has the infrastructure and the
technical ability to use elements of U.S. warhead design
information in the PLA's next generation of thermonuclear
weapons.... The PRC could begin serial production of such
weapons during the next decade....'' It also concludes, ``The
Select Committee judges that elements of the stolen information
on U.S. thermonuclear warhead designs will assist the PRC in
building its next generation of mobile ICBM's, which may be
tested this year.'' China's mobile ICBM missiles will have the
ability to hit the United States.
While it may be painful for some if we restrict China's
ability to trade on favorable terms with the United States,
China is now a greater threat to the U.S. national security
than it has ever been in the past.
We also need to remember that China has deliberately tried
to influence our political process through illegal campaign
donations.
Every year I share with this subcommittee a litany of human
rights abuses committed by the Chinese government. The human
rights abuses are the same this year. There has been no
improvement. Even the State Department acknowledged that in its
most recent human rights report.
Catholic bishops and priests are still being arrested,
fined, beaten and imprisoned. Some have been in prison for
many, many years--even decades.
House church Christians and laypeople are still being
arrested, fined, beaten and imprisoned.
Churches are still being destroyed.
Bibles are still being confiscated.
The Tibetan culture and religion is still being
systematically destroyed. Tibetan Buddhist monks and nuns are
being arrested and tortured. Tibetan Buddhist monasteries are
still being controlled by cadres of Chinese communist security
officials. The Tibetan people are still being deprived of their
freedom, their livelihood and their culture.
I have seen the repression in Tibet with my own eyes. It is
frightening.
Muslims in the Northwest portion of China are still being
persecuted--Amnesty International issued a comprehensive report
on persecution of Muslim Uighurs earlier this year. Uighurs are
being arbitrarily detained. Thousands of Uighur political
prisoners are in jail and are being tortured.
Democracy activists are still being watched, arrested,
imprisoned, held under house arrest and sent to reeducation
through labor camps.
Over one hundred Tiananmen Square protestors are still in
prison.
Those wishing to remember the 10th anniversary of the
tragic events of spring 1989 when hundreds of protestors were
brutally massacred at Tiananmen Square were prevented by the
Chinese government from doing so. The families of the dead,
wounded and exiled who are demanding an apology from the
government of China for its actions in 1989 are being
persecuted.
Th Ambassador insulted the intelligence of the American
people on Sunday talk shows with his demands.
China still runs a massive system of gulag slave labor
camps--the laogai.
It still has a program in which the kidneys, corneas and
other organs are taken from executed prisoners and sold to
foreign buyers for tens of thousands of dollars. Some of these
organs are being peddled in the United States, against U.S.
law.
It still engages in coercive population practices--
including forced abortions and sterilizations.
So nothing has really changed with regard to human rights
in China.
Our policy has done nothing to improve China's behavior
regarding proliferation. According to the Director of Central
Intelligence George Tenet, China remains a ``key supplier'' of
technology inconsistent with our nonproliferation goals--
particularly missile and chemical technology to Pakistan and
Iran. On April 15, 1999, the Washington Times cited
intelligence reports that the Chinese are continuing to sell
weapon technologies.
Finally, our policy has resulted in no improvement in
ending China's unfair trade practices. The U.S. trade deficit
with China continues to skyrocket (approaching over $60
billion), U.S. goods are shut out of China's market and U.S.
jobs continue to be lost to cheap Chinese labor. In 1989, at
the time of the Tiananmen massacre, our trade deficit with
China was only $6 billion. Today it is 10 times that.
Some say allowing China into the WTO will force China to
play by the rules. China doesn't abide by its commitments
regarding human rights and proliferation now. I doubt they will
in the future--especially if it is not in their interest to do
so.
Our policy with regard to China has been a total failure.
It has produced no positive change in the Chinese government on
issues of human rights, proliferation and trade and it has a
diminished the ability of the United States to speak credibly
on these issues. It is also endangering U.S. national security.
companies making money in China without standing firm on other
issues important to the United States. Our current policy is
hurting the interests of the American people and it is not
bringing freedom to China.
We are building up China's economy so that one day, a
strong, authoritarian China with some of the most advanced
nuclear weapons in the world can threaten our interests in the
region and threaten our people at home. Why are we doing this?
It just doesn't make sense.
This subcommittee, the Congress and the administration must
send China a strong message about its espionage, its human
rights abuses, its proliferation, its unfair trade practices
and the other issues on which we have concern. At the very
minimum, this subcommittee should include some statement in the
report accompanying this bill about the Catholic bishops and
priests that are in jail; the people of Tibet who are being
persecuted; the Tiananmen protestors who are still in jail and
the other grave abuses being committed by the Chinese
government. We must let these people know they are not
forgotten.
Congress should not rubber-stamp the administration's
request for Normal Trading Relations with China. William Safire
commented several weeks ago in the New York Times that the best
scenario would be for the Congress to reject MFN for China, the
President to veto the bill and the Senate to sustain the veto.
At least that would be something.
I oppose Normal Trade Relations with China. But, I believe
Congress will ultimately renew NTR for China and let them off
the hook. At a minimum, I urge this subcommittee and Congress
to follow the Safire scenario. Let's send China a message.
Chairman Crane. Thank you, Mr. Wolf.
Ms. Pelosi.
STATEMENT OF HON. NANCY PELOSI, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF CALIFORNIA
Ms. Pelosi. Thank you very much, Mr. Chairman, Mr. Levin,
and Members of the Subcommittee, for the opportunity to testify
today. I come here as one who is a supporter of free and open
trade. I serve as Ranking Member of the Appropriations
Subcommittee on Foreign Operations, where I have supported
increases in funding for the Ex-Im Bank, OPIC, TDA. I represent
a district that is built on trade, and I am blessed with a
large Chinese-American community in my district, and it is not
a monolith, in the democratic spirit of our great country,
contrary to their country of origin.
So I don't come here with a protectionist argument. I voted
for NAFTA. I sustained the President's veto on textiles. I
supported President Bush's fast track legislation. But I do
think that free trade is not stupid trade. Free trade should be
fair trade. So in that spirit, I come before you in
appreciation for the work that this Subcommittee does on trade.
I come here, Mr. Chairman, to put this debate in the trade
context. My colleagues have spoken very eloquently about the
human rights abuses in China. They are well known to you, and I
have no illusion that on the basis of any human rights
violations, this Subcommittee would change its recommendation.
I think that was made clear when in Tiananmen Square the
Chinese regime crushed its young people under tanks, gave an
order to kill, to use lethal force, and it has not affected
this Congress. So I don't think any exposition of further human
rights violations will move you.
But I have come to talk to you about the subject that this
Subcommittee is organized for, trade. Mr. Frank very humorously
referenced the name had changed to ``normal trade relations.''
I would say they are abnormal, because if this is normal, then
what China is extending to the United States is not normal.
There have been some name changes across the board in the
Clinton policy. First it was constructive engagement. Then they
turned to strategic partnership. Now it's called something
else, principal purposeful engagement, with our eyes wide open,
without illusions. Call it whatever you want. The policy
remains the same, a failure. A failure. So each year, we have
this opportunity on the MFN vote to hold it as a referendum on
United States-China policy, and is the policy in keeping with
the pillars of our foreign policy, three of which are promoting
democratic values, growing our economy through promoting
exports, and stopping the proliferation of weapons of mass
destruction. Three of those pillars have crumbled in the United
States-China relationship.
I ask you, my colleagues, why we give normal trade
relations to China, why don't they give it to us? Or why don't
we redefine the word ``normal,'' as long as we're changing
names. Is trade with China normal when the U.S. trade deficit
with China is surging every year to a projected $67 billion in
1999? Is it normal that China continues to maintain barriers to
U.S. goods and services entering the Chinese market, including
high tariffs, pervasive nontariff barriers, nontransparent
barriers, nontransparent trade rules and regulations,
restrictions on trading and distribution rights, restrictive
government procurement practices, and restriction on
investments? Is it normal that China continues to pirate United
States intellectual property, costing United States firms an
estimated $2.6 billion in lost sales in 1998 alone, according
to the International Intellectual Property Alliance, and that
China continues to utilize forced labor for production of
exports to the United States in violation of United States
laws?
For 10 years, advocates of unconditional, unquestioned,
blinded-by-the-light MFN have argued that economic reform would
lead to political reform in China, and that United States
exports would increase. Political reform of course has not
happened and the increase in United States exports to China as
a proportion of total United States exports has been so small
as to be politically insignificant.
For the record, Mr. Chairman, I have submitted two charts
that show that we sell more to Taiwan, Singapore, Belgium,
South Korea, those small countries, than we do to China, and
South Korea and Brazil, more to them, even though they are in
an economic crisis.
I see that the time is going by, but I have to take the
time always to talk about the overall trade numbers. For the
first quarter of 1999, the United States deficit with China was
$13.6 billion, up 18 percent over the same 3-month period last
year. What more do you need to know that this normal is very
abnormal? Indeed, it is grotesque in this trade relationship,
because this trade deficit springs largely from lack of market
access for U.S. products.
I can understand why the business community is here in full
glory. The exporting elites who have their access to the China
market or prospectively want to have access, are looking out
for themselves. They are looking out for their sector and
themselves. Those who are interested in having a platform of
cheap labor in China need MFN or NTR, whatever you call it,
grotesque trade status, to get those products back into the
United States They are interested in themselves. But who on
this Subcommittee is looking out for the American worker?
If we in Congress don't do that, I think that we are
abdicating our responsibility. I remind the Subcommittee of Mr.
Condit of Boeing's remarks about the Boeing planes, portions of
which are made in China, when he said every plane that flies to
China is returning home. That is because much of the production
of that plane is made in China. Insistence on production,
insistence on technology transfer. So now we come to this year,
which is very, very important because of the prospects for WTO.
I think it would be a good thing if China could be in the
WTO and abide by the rules. But if they cannot abide by the
rules, they can wreck the WTO and many of the Western
economies. Some say that while China has not kept its oral and
verbal agreements, it has kept its written agreements. Not so.
I have submitted for the record their violation of the market
access agreement which the administration's own report to the
President of the United States on trade agreement programs,
March 9, 1999, says, ``The restriction of imports remains a
serious problem.''
Intellectual property, I mentioned that, but I want to say
one point there. A particular concern in this same report is
the significant level of unauthorized use of software by both
private enterprise and government ministries. Prison labor, my
colleagues have gone into. The Chinese have violated the
Memorandum of Understanding on prison labor. They violated
understandings on market access, intellectual property, prison
labor, on proliferation of weapons of mass destruction. That is
all in my record statement. Of course getting back to human
rights, only from the standpoint of they signed agreements,
they never ratified it. They certainly have not enforced any
improvement in human rights in China. Again, these are written
promises that the Chinese Government never kept.
So when we talk about WTO accession, it has to be based on
performance, not promises. I think it would be great if we
could get to the point where we could trust what the Chinese
Government has to say. We have to though, as a Congress in this
country, recognize that workers' rights and the environment are
competitiveness interest issues and must be central to a WTO
accession for China. I think that if China is to come in to the
WTO, there has to be a year where these concessions are
implemented on the fast track so that we know that they are
capable of and willing to honor those concessions.
Then I would like to just in closing say, Mr. Chairman,
once again, that in our relationship with any country, we
should be making the people freer, the world safer, and the
trade fairer. Just again focusing on trade because that is this
Subcommittee's work, that goal has not been met. None of the
three has, but in terms of sticking strictly with the trade
issue, that goal has not been met. Before we move forward, we
must develop alternative mechanisms to ensure enforcement of
China's commitments and to preserve Congress' annual
opportunity to review the state of the United States-China
relationship.
Again, Mr. Chairman, I thank you so much for the
opportunity to testify today, to Mr. Levin, and Members of the
Subcommittee as well.
[The prepared statement follows:]
Statement of Hon. Nancy Pelosi, a Representative in Congress from the
State of California
Mr. Chairman, Ranking Member Levin, and Members of the
Subcommittee, thank you for the opportunity to testify today.
Once again, I am appearing before you to discuss U.S.-China
trade, and once again, I wish that I could report that the
Clinton-Bush China policy was working. Sadly, I cannot. Another
year has passed and U.S.-China policy has not made trade
fairer, people freer or the world safer.
All of the issues of concern in the U.S.-China relationship
deserve and need a full public airing. As this hearing is on
trade, I will focus my remarks on that topic. It is interesting
that many name changes have been made along the way in the
status quo China policy in order to try to make that policy
more palatable. The Administration has moved from so-called
``constructive engagement,'' to so-called ``strategic
partnership'' to, most recently, so-called ``principled,
purposeful engagement....with our eyes wide open, without
illusions.'' The problem is, the underlying policy remains the
same.
This Committee itself has helped with the name change
process, changing ``Most Favored Nation'' (MFN) status to
``Normal Trade Relations'' (NTR), begging the question of what
normal trade relations are or should be. Is trade with China
``normal'' when the U.S. trade deficit with China is surging
every year, to a projected $67 BILLION in 1999? Is it
``normal'' that China continues to maintain barriers to U.S.
goods and services entering the Chinese market, including high
tariffs; pervasive non-tariff barriers; non-transparent
barriers; non-transparent trade rules and regulations;
restrictions on trading and distribution rights; restrictive
government procurement practices; and restrictions on
investment? Is it ``normal'' that China continues to pirate
U.S. intellectual property, costing U.S. firms an estimated
$2.6 BILLION in lost sales in 1998 (according to the
International Intellectual Property Alliance) and that China
continues to utilize forced labor for production of exports to
the United States, in violation of U.S. law?
For ten years, advocates of unconditional MFN have argued
that economic reform would lead to political reform in China
and that U.S. exports to China would increase. Political reform
has not happened in China. And, the increase in U.S. exports to
China as a proportion of total U.S. exports has been so small
as to be practically insignificant. According to the
Congressional Research Service, in 1989, U.S. exports to China
in 1989 were 1.65% of U.S. exports worldwide. In 1998, U.S.
exports to China totaled only 2.1% of U.S. exports worldwide.
The overall numbers of the U.S.-China trade relationship
have gotten worse every year (see Chart I). For the first
quarter of 1999, the U.S. deficit with China was $13.6 billion,
up 18% over the same three-month period last year. 1999's first
quarter deficit alone is already larger than the U.S. trade
deficit with China for the entire year of 1991.
Of even greater concern in the 1999 first quarter numbers
is the stunning fact that U.S. exports to China were down 15%
from the same period in 1998, while imports from China
increased by 10% this year over last year. In the first quarter
of this year, the U.S. exported more to Canada, Japan, Taiwan,
Belgium, and Singapore than to China. We also exported more to
both Korea, which is recovering from an economic crisis, and to
Brazil, which is still struggling with one, than we did to
China (see Chart II).
The most strenuous advocates of unconditional ``Normal
Trade Relations'' with China are the handful of companies with
access to China's market--the ``exporting elite''--or those
companies that are using China's vast pool of cheap labor as a
platform for production of goods exported back into the United
States. I am neither surprised nor overwhelmed by the lobbying
efforts of these companies to preserve NTR for China. They
perceive that those activities are in their interests--and the
Chinese government rewards them for their efforts. The question
for us today should be, who is looking out for American
workers?
This year's debate about U.S.-China trade may be the most
important one Congress will have. China's possible accession to
the World Trade Organization (WTO) and Congressional action on
permanent NTR should engender a comprehensive consideration of
U.S.-China relations. Some will argue that the way to break
down China's barriers to U.S. products and services is through
China's accession to the WTO. They may be right. However, if
China's accession is not done carefully and on commercially
meaningful terms, it could destroy the WTO and hurt the entire
global trading system.
There is, unfortunately, little evidence in the U.S.
experience with the Chinese government over at least the last
ten years which indicates that it will honor the commitments
that it makes in either a bilateral or multilateral forum. Any
possible WTO agreement must be viewed against the background of
the pattern of the Chinese government either signing
agreements, not complying with them and requiring the
renegotiation of the commitment which it had already made; or
simply signing agreements and ignoring them. There is ample
evidence of this practice in the areas of trade, proliferation
and human rights. In addition, enforcement of existing
agreements remains a serious problem. Merely a few examples
follow:
On Trade:
Market Access
In 1992, then-U.S.T.R. Carla Hills negotiated a
Market Access Memorandum of Understanding. Because of Chinese
non-compliance, and only after extensive talks, the MOU was
renegotiated in 1994. The agreement has still not been fully
implemented, and according to the ``1999 Trade Policy Agenda
and 1998 Annual Report of the President of the United States on
the Trade Agreements Program,'' (submitted to Congress March 9,
1999) ``While China has phased-out formal measures, such as
quotas and licenses, non-uniform application of trade rules,
import substitution policies and use of sanitary and
phytosanitary standards to restrict imports remain serious
problems.''
Intellectual Property Rights
The Administration's ``1999 Trade Policy Agenda''
mentioned above documents the tortured history on China's many
agreements on IPR, including a 1992 MOU. Lack of Chinese
compliance led to a Special 301 investigation and to the 1995
IPR Enforcement Agreement. Lack of Chinese compliance led the
USTR to issue sanctions target lists, legislation was
introduced, and in June 1996, the U.S. and China signed yet
another accord, ``outlining the steps China took to implement
the 1995 Agreement and to provide more detailed market access
guidelines.'' To date, according to the 1999 Trade Agenda,
``Chinese enforcement of copyrights and trademarks is still
uneven from province to province. Of particular concern is the
significant level of unauthorized use of software by both
private enterprises and government ministries.'' (emphasis
added)
Prison Labor
Concerns about the export of forced labor products
into the United States, in violation of U.S. law, resulted in a
1992 Memorandum of Understanding between the U.S. and China in
which China agreed that it would not export such goods to the
U.S. and would allow visits by U.S. officials to suspect sites.
Lack of compliance forced Secretary Bentsen to renegotiate the
MOU in 1994. The Chinese have still not complied, and,
according to the State Department's Annual Country Report on
Human Rights, ``...cooperation overall has been inadequate. In
1998 U.S. Customs unsuccessfully pursued eight standing
requests....In all the cases, the Ministry of Justice refused
the request, ignored it, or simply denied the allegations made
without further elaboration.''
On Proliferation:
Examples of China not abiding by non-proliferation
agreements are legion, including:
The Chinese government's agreement with Secretary
Baker to abide by the Missile Technology Control Regime (MTCR),
then transfer of M-11 missile technology to Pakistan in
violation of the MTCR.
China acceded to the NPT in March 1992. Serious
concerns persist about China's compliance, in light of its
nuclear cooperation with Pakistan and Iran. Many analysts
believe that China's transfers to those countries violates the
spirit, if not the letter of the NPT.
The Chinese government committed to the Clinton
Administration to stop providing cruise missiles or WMD
technology to Iran. Recent reports raise serious questions
about whether the Chinese government is fulfilling this
commitment.
Questions also persist about China's compliance
with the Biological and Chemical Weapons Conventions, with the
Administration's own Arms Control and Disarmament Agency
reporting in 1997 that, ``there are strong indications that
China probably maintains its offensive program, `` and
concluding that, ``in the years after its accession to the BWC,
China was not in compliance with its BWC obligations and that
it is highly probable that it remains noncompliant with these
obligations.''
On Human Rights:
Again, agreements signed and not honored abound. Here are
the most recent ones.
In March 1998 in order to head off action against
its human rights abuses by the U.N. Human Rights Commission,
the Chinese government said that it would sign the
International Covenant on Civil and Political Rights (ICCPR).
It then put off signing the Covenant until October 5. The
ICCPR, which has not yet been ratified by the Chinese
government, pledges governments to respect basic freedoms
including free association, expression, assembly and religion.
In the months following the signing, the Chinese government has
not honored its commitment and has instead embarked on a severe
crackdown on the very freedoms it pledged to uphold in the
ICCPR.
In October of 1997, the Chinese government signed
the International Covenant on Economic, Social and Cultural
Rights, and has since taken no steps to ratify it.
China's compliance with a well-conceived, commercially
acceptable and enforceable WTO agreement would be a marked
improvement over China's wholesale violations of international
trade practices. However, with an economy as large as China's
and China's pattern of refusing to play by the rules, a WTO
agreement that is not enforceable will wreak havoc on the
international trade regime.
Last week, the international community observed the tenth
anniversary of the Tiananmen Square massacre. As I participated
in events to mark this sad occasion, I was struck again by the
short-sightedness of the choices that the Bush and Clinton
Administrations and the Congress have made, ignoring the
promotion of democratic reform in China for a handful of
business deals. Some argue that trade should be separated from
all other considerations, including human rights. I do not
agree and I will be, once again, opposing the annual renewal of
NTR for China. We should note, of course, that the Chinese
government has never hesitated to link trade with other issues,
most recently suspending the WTO talks because of outrage over
the bombing of their embassy in Belgrade.
While we disagree on some issues in the U.S.-China trade
relationship, I think we should all be able to agree that, for
the sake of the U.S. economy and U.S. workers, as well as U.S.
businesses, the Congress must fully consider the details of any
deal which the Administration might reach with the Chinese
government on WTO accession. China's accession to the WTO is
too important to be rushed. Congress should consider the annual
renewal of MFN/NTR separately from any proposal to provide
permanent MFN/NTR. And, in light of China's history of non-
compliance with multilateral and bilateral agreements, Congress
should insist on a period of at least one year in which China
must implement its accession commitments before permanent NTR
is adopted. Finally, before we move forward with permanent NTR
for China, we must develop alternative mechanisms to ensure
enforcement of China's commitments and to preserve Congress'
annual opportunity to review the state of the U.S.-China
relationship.
Thank you, Mr. Chairman, for this opportunity to testify
today.
[GRAPHIC] [TIFF OMITTED] T4126.004
[GRAPHIC] [TIFF OMITTED] T4126.005
Chairman Crane. Thank you, Ms. Pelosi.
With that, the Subcommittee will go into recess subject to
call of the Chair. Mr. Rohrabacher, Mr. Dooley, Mr. Blumenauer,
you will be immediately up as soon as we reconvene. That is as
quickly as we can get over there, cast our recorded votes, and
get back here. Thank you.
[Recess.]
Chairman Crane. Will everyone please take seats so the
Subcommittee can resume the hearing? Please everyone, find a
seat and take any conversation outside the door.
With that, we will resume the testimony from our
distinguished colleagues, starting with Mr. Rohrabacher.
STATEMENT OF HON. DANA ROHRABACHER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Rohrabacher. Thank you very much, Mr. Chairman. Mr.
Chairman, our government has been treating a hostile power, the
world's worst human rights abuser as a strategic partner.
Americans will pay a woeful price for this irrational, amoral,
greed-driven policy if we do not change it. The time has long
since passed where the United States should reexamine its
fundamental policies toward China. That certainly includes our
commercial policies.
The policies of the past decade have not worked in the
interests of our country, and have certainly not worked for the
interests of the freedom of the Chinese people. After some
initial progress, China has gone in exactly the opposite
direction, especially since the end of the Reagan
Administration and the tragic national reversal of China in
1989 at Tiananmen Square.
In the past 10 years, the genocide has continued in Tibet.
The Chinese democracy movement has been wiped out, and there
has been increasing belligerence by the clique that runs China.
The Beijing regime is modernizing and expanding its military
power, while threatening the United States and bullying its
neighbors, especially Taiwan and the Philippines.
Big business falsely claims that Communist China is a
country that is liberalizing through commercial engagement.
There is no evidence of that. In fact, empirical evidence
suggests the opposite. Furthermore, the trade relationship has
worked against the United States. The Chinese are using their
$60 billion annual trade surplus with us to modernize their
armed forces, including building nuclear missiles that are
aimed at the United States, and they are continuing to
proliferate weapons of mass destruction.
Here are some of the facts that explain why China is not
our strategic partner. According to Amnesty International,
there are thousands of political prisoners who remain in the
laogai forced labor camp prison system. There are at least
2,000 persons imprisoned for so-called counterrevolutionary
crimes, and some 200 Tiananmen Square protestors still in
prison for their peaceful participation or support of pro-
democracy protests 10 years ago.
During the past 2 months, the Chinese Government has issued
new laws that strengthen the Communist Party and further
restrict freedom of speech and the formation of new political
parties. Genocide continues in Tibet, where hundreds of
thousands have perished. Let me just say that the Communist
Chinese Government in Beijing could incinerate the whole
country of Tibet, and there would still be people here
representing the financial interests in our country, the few
financial interests in our country that are benefiting from
this trade, telling us that we should ignore that, that that
really isn't our business.
Then of course in Xinjiang Province in the far reaches of
China, Xinjiang Province, formerly called East Turkmenistan,
the suppression of religion, and political arrests continue.
Amnesty International in 1999 said that there were at least 190
executions of political prisoners in that province just last
year. In Tibet as well as in East Turkmenistan, the local
population continues to decline, part through forced abortion
and sterilization, and at the same time, we have millions of
ethnic Han Chinese moving into this area. When we talk about
ethnic cleansing, here our country has committed military force
in the Balkans for ethnic cleansing that runs exactly parallel
to what's going on in Tibet. Yet in China's case, we are asking
for most-favored-nation status to be continued. We are doing
trade with them. We are actually giving credits to people who
invest in Communist China, while they are practicing their
ethnic cleansing and genocide.
China is making major military moves in the Spratley
Islands. They are bullying other allies of ours, democratic
allies, threatening the sea lanes in the South China Sea, and
becoming even more clearly a hostile power.
The resolution I introduced yesterday of disapproving the
annual extension of normal trade relations, formerly most-
favored-nation status, does not intend to isolate China. This
perhaps is probably the most worrisome of the arguments. That
is, people are not arguing the real case here. No one is
talking about isolating China. No one is talking about that. We
are talking about people who go to invest in China should be
doing so at their own risk for their own capital, and giving
them normal trade relations opens them up to subsidies by the
American taxpayers to setting up their businesses to produce
goods and services that they export back to the United States.
No one is talking about isolating China and not letting them
buy our commercial goods here. In fact, it's going in exactly
the opposite direction.
What we are doing is through most favored nation status,
now called normal trade relations, what we are doing is
subsidizing American businessmen's investment in manufacturing
units in Communist China, which then will be used to put our
own people out of work. If there is anything--I haven't heard
of anything more sinful, a greater sin against the American
people than taxing them for that purpose.
The trade imbalance reflects this, and reflects the fact
that Americans have a low tariff on Chinese imports compared to
a high tariff imposed by China on American exports. So the
current trade policy with China is no good for our national
security, and it's no good for our economic well-being. Who is
it good for? It is good for a handful of billionaires who
contribute heavily to both political parties. For these
reasons, I am asking my colleagues to suspend this policy, at
least for the coming year, to support my resolution of
disapproval. Let's at the very least, send a message to the
government of Communist China, this clique that runs Communist
China, we do expect fair treatment of the United States
commercially, and we expect some liberalization to take place.
Why should we continue a policy that is so detrimental to the
well-being of our own working people and to the national
security of our country?
Thank you very much, Mr. Chairman.
[The prepared statement follows:]
Statement of Hon. Dana Rohrabacher, a Representative in Congress from
the State of California
Mr. Chairman:
The time has long since passed when the United States
should reexamine its fundamental policies toward China. That
certainly includes our commercial policies. The policies of the
past decade have not worked. After some initial progress, China
has gone in the opposite direction, especially since the end of
the Reagan administration and the tragic reversal in 1989 at
Tiananmen Square.
In the past ten years, the genocide has continued in Tibet,
the Chinese democracy movement has been wiped out, and there
has been increasing belligerence by the clique that runs China.
The Beijing regime is modernizing and expanding its military
power, while threatening the United States and bullying its
neighbors, especially Taiwan and the Philippines.
Big business falsely claims China is a country that is
liberalizing through commercial engagement. There is no
evidence of that. In fact, empirical evidence suggests the
opposite. Furthermore, the trade relationship is not good for
us. The Chinese are using their $60 billion annual trade
surplus with us to modernize their armed forces, including
building nuclear missiles aimed at the United States. And they
are continuing to proliferate weapons of mass destruction.
The resolution I introduced yesterday, disapproving the
annual extension of normal trade relations [formerly MFN] does
not intend to isolate China. Instead, it sends the Beijing
regime a direct message that the United States will stand by
our democratic principles. The Chinese communists have
manipulated our openness on trade and American taxpayers have
ended up subsidizing investment in China by private
corporations, who largely intend not to sell commercial
products, to set up manufacturing units that further undercut
American industry.
Current trade policy with China is not good for our
national security and it is not good for our economic well
being. It mostly benefits a handful of billionaires who
contribute heavily to both political parties. For these
reasons, I ask my colleagues to suspend this policy for the
coming year and to support my resolution of disapproval.
Chairman Crane. Thank you, Mr. Rohrabacher.
Mr. Dooley.
STATEMENT OF HON. CALVIN M. DOOLEY, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF CALIFORNIA
Mr. Dooley. Thank you, Mr. Chairman and Members of the
Subcommittee, for allowing me to testify today on the very
timely issue of United States-China relationships and the
possible accession of China into the World Trade Organization.
Clearly the United States relationship with China is
complicated. Recent events, including the bombing of the
Chinese Embassy in Belgrade, China's reaction to the bombing,
and evidence of spying at our national labs, have only added
complexities to that relationship. We are all in agreement that
we must take all steps necessary to protect our national
security interests and to ensure that our counterintelligence
programs prevent future security breaches. But at this critical
juncture, we would be foolish to abandon our economic and
political relationship with China and with it, our ability to
influence their economic, political, and humanitarian policies
in the future. We cannot afford to embrace a cold war mentality
that would demonize and isolate China. A policy of economic and
political engagement is the surest way to promote United States
interests in China, to advance democracy and human rights in
China, and to enhance future economic opportunities for United
States workers and businesses.
In order for the United States to remain the dominant
economic power in the world, we cannot close the door on the
most populous nation in the world. China will continue to have
a growing influence on the world's economy. For United States
businesses and workers to continue and prosper and grow, we
need continued economic engagement with China by renewing
normal trade relations, and finalizing a WTO Agreement that
will bring China into the international community.
The United States has been aggressively pursuing a WTO
Agreement for the past 20 months, and while an agreement has
not been finalized, the deal currently on the table represents
a tremendous opportunity for all sectors of the U.S. economy.
Ambassador Barshefsky as well as Ambassador Fisher and their
negotiating team, are to be commended for reaching this
unprecedented agreement.
You know, there has been a lot of talk about the trade
deficit with China that has grown in recent years. But also
people have been implying that this has had significant and
adverse impacts on our economy. But one should look at the
state of our economy now. It is as strong as it has been in a
generation. We have seen record low unemployment. We have seen
real wages growing at twice the rate of inflation. We have seen
inflation remaining low. While the trade deficit is important,
it is also one of the most compelling arguments for us to move
forward with the WTO accession of China, because in that
agreement are significant opportunities for U.S. interests.
Whether it's in the agriculture sector, where we will see beef,
our exports to China in beef, tariffs being reduced from 40 to
12 percent. Whether it's on wine, where we are going to see
tariffs reduced from 65 to 20 percent. When we move into
automobiles, we are going to see tariffs reduced 80 to 100
percent down to 25 percent.
These are all opportunities that will be available to our
workers and our businesses if we do continue a responsible
policy of economic engagement with China. While a WTO Agreement
would present tremendous opportunities by bringing China into
the WTO, it's more than just an issue of market share. China's
accession into the WTO would lock China into a rules-based
international organization and bring them into a legal
framework of the international community. In addition to tariff
reductions and other market access agreements, bringing China
under the umbrella of the WTO would make China accountable for
its trade practices and subject to WTO enforcement actions.
I support the administration's policy and am encouraged by
recent reports the negotiations will resume in the near future.
In spite of recent strains placed on our relationship with
China, it is in our overwhelming interest to finalize a WTO
Agreement and maintain our policy of economic and political
engagement. For some of the opponents in moving forward with
NTR with China and the legitimate concern that we all share
with human rights and the progress on religious freedoms, I
really think that we have to answer the fundamental question:
how can we have the greatest influence in seeing progress in
those areas? I contend it's going to be by strengthening
relationships. You cannot strengthen economic relationships
without also seeing a strengthening in cultural, social, and
political relationships. This strengthened relationship is
going to afford this country, the United States, the greatest
opportunity to influence the behavior and the conditions in
China.
Our greatest weapon to advance democracy throughout the
world and in China is not our military might. It is in fact our
economic might. By moving forward and maintaining a policy of
economic engagement with China, we will be successful in seeing
progress on an economic front, as well as a human rights front.
I encourage this Subcommittee to reject Mr. Rohrabacher's
resolution.
[The prepared statement follows:]
Statement of Hon. Calvin M. Dooley, a Representative in Congress from
the State of California
Chairman Crane and members of the committee, thank you for
allowing me to testify today on the very timely issue of U.S.-
China Relations and the possible accession of China into the
World Trade Organization (WTO.)
Clearly, the U.S. relationship with China is complicated.
Recent events including the bombing of the Chinese embassy in
Belgrade, China's reaction to the bombing, and evidence of
spying at our national labs have only added additional
complexities to that relationship.
We are all in agreement that we must take all steps
necessary to protect our national security interests and to
ensure that our counterintelligence programs prevent future
security breaches. But at this critical juncture, we would be
foolish to abandon our economic and political relationship with
China, and with it, our ability to influence their economic,
political, and humanitarian policies in the future. We cannot
afford to embrace a Cold-War mentality that would demonize and
isolate China. A policy of economic and political engagement is
the surest way to promote U.S. interests in China, to advance
democracy and human rights within China, and to enhance future
economic opportunities for U.S. workers and businesses.
Since the reestablishment of diplomatic relations with
China in 1979, total trade between our two nations has
increased from $4.8 billion in 1980 to $75.4 billion in 1997.
This makes China our fourth largest trading partner. China's
economy is growing at an average rate of almost 10 percent a
year, making it one of the fastest growing economies in the
world.
In order for the United States to remain the dominant
economic power in the world, we cannot close the door on the
most populous nation in the world. China will continue to have
a growing influence on the world's economy. For U.S. businesses
and workers to continue to prosper and grow, we need continued
economic engagement with China by renewing Normal Trade
Relations and finalizing a WTO agreement that will bring China
into the international trade community.
The United States has been aggressively pursuing a WTO
agreement for the past 20 months, and while an agreement has
not been finalized, the deal currently on the table presents
tremendous market opportunities for all sectors of the U.S.
economy including agriculture, information technology,
financial services, and manufacturers. Ambassador Barshefsky
and her negotiating team are to be commended for their
extraordinary efforts in reaching this unprecedented agreement.
As a member who represents the nation's number one
agricultural district, I want to thank the Administration for
negotiating an agreement that presents tremendous opportunities
for U.S. producers. With respect to agriculture, high Chinese
tariffs on nearly all agriculture products would be reduced
substantially over the next four years. On beef we would see
tariffs reduced from 45 percent to 12 percent, on citrus from
40 percent to 12 percent and on wine from 65 percent to 20
percent. In fact, the deal currently on the table would reduce
tariffs for agricultural products to levels below those of most
American trading partners. Furthermore, the agreement on the
table would eliminate China's export subsidies for agricultural
products including cotton, rice and corn, which will allow U.S.
farmers to compete on a more level playing field and enhance
U.S. efforts to curb European export subsidies.
It is projected that by the year 2003, 37 percent of the
world food demand will come from China. American ranchers and
farmers are the most efficient and competitive in the world.
The WTO agreement on the table would move to level the playing
field and allow U.S. agriculture tremendous access to the
world's largest agricultural market.
Agriculture isn't the only sector that would benefit. The
agreement would also open Chinese markets to a number of U.S.
industrial products and services including information
technology products, automobiles, insurance and financial
services. Quotas on information technology products would be
reduced from 13.3 percent to zero, and China would agree to
adhere to the Information Technology Agreement negotiated in
1996. In addition, the agreement offers U.S. investment in
telecommunications and entertainment for the first time, and
would subject China to WTO requirements on intellectual
property protection to ensure respect for U.S. copyrights,
trademarks and patents. Automobile tariffs would be reduced
from 80-100 percent to 25 percent. American insurance companies
would be able to sell a wide range or products throughout
China, as compared to the current policy that limits life
insurance sales to Shanghai and Guangzhou. And American banks
would be able to operate anywhere in China.
And while a WTO agreement would present tremendous
opportunities for U.S. workers and businesses, bringing China
into the WTO is more than just a matter of market share.
China's accession into the WTO would lock China into a rules-
based international organization and bring them into the legal
framework of the international community through the WTO. In
addition to tariff reductions and other market access
agreements, bringing China under the umbrella of the WTO would
make China accountable for it's trade practices and subject to
WTO enforcement actions.
I support the Administration's policy, and am encouraged by
recent reports that negotiations will resume in the near
future. In spite of the recent strains place on our
relationship with China, it is in our overwhelming interest to
finalize a WTO agreement and maintain our policy of economic
and political engagement. A policy of continued engagement is
the most effective tool we have to protect our national
security interests and promote our economic and political
ideals. I look forward to working with my colleagues on the
committee and with the Administration to advance this important
policy.
Chairman Crane. Thank you, Mr. Dooley.
Mr. Blumenauer.
STATEMENT OF HON. EARL BLUMENAUER, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF OREGON
Mr. Blumenauer. Thank you, Mr. Chairman. I am thinking back
to where Mr. Dooley and I were here with you just a couple of
weeks ago. We were speculating as to the best way to accomplish
changes in the international climate. Repeatedly the discussion
turned, as Mr. Dooley and I were talking just a few moments
ago, to Cuba, where we had more leverage, more impact
potentially, and it has not achieved the desired effect of some
of our very well-concerned colleagues.
I commend you for having this hearing today because I feel
the Ways and Means Committee can play a vital role in helping
guide our troubled relationship with the People's Republic of
China. Every Member of Congress is appalled by recent
developments in China, the continued struggle for human rights,
the situation in Tibet, the theft of American nuclear secrets,
alleged interference with our elections, and their clearly less
than stellar record of economic cooperation. I do commend our
colleagues who are deeply involved in the human rights issue.
It does make a difference.
But the harsh words, for instance, that we heard here just
a few minutes ago for the business community, I think are sadly
misdirected. We set the policy. I think it is time for us to
take a deep breath and reflect back. The analogy to Hitler and
Nazi Germany? Let's be realistic. I don't think any serious
scholar thinks, or concerned observer of the international
situation feels, that the Chinese are an active threat to world
domination. They are active in their sphere of influence as
they have been for millennia. Frankly, the Chinese can be
perplexed by our action, given our recent on-again, off-again
trade negotiations with them, and to an amazing amount of the
world, an inexplicable bombing of their Embassy. Frankly, if
they had destroyed one of our Embassies and killed Americans, I
doubt that our response would have been as restrained as the
response on the part of others.
It is understandable that given the current uncertainty,
Americans and a number of people in this Congress are undecided
about exactly what our next steps and strategies should be. But
we must make no mistake, China is a major force on the world
stage. It has more people than any other country. The Chinese
population living abroad represent a huge minority in a wide
number of other countries. The Chinese have an incredibly
strong and ancient culture, and they have the veto power, and
they have the nuclear weapon. They have practices that have
pre-dated our history for millennia.
Notwithstanding all the problems we have with China, there
have been undeniable real advances since Nixon's visit a
generation ago. People whose judgement I respect, including
people from the community of faith, sketch a picture of a much
different country than 40, 25, or yes, even 10 years ago.
It is important for Members of Congress and the American
public to put these current controversies in perspective. I
mean spying yes, but how many examples do we know of spying
that's occurred by our friends and our allies, not just
military but industrial contexts, and it's well known to every
Member of this Subcommittee that we spy all over the world as
well.
Despite our differences, America and China clearly rely on
each other. They can assist us with foreign policy objectives.
They were a key strategic ally against the Soviet Union, which
helped hasten the end of the cold war. They have helped us
contain North Korea, the place we are most likely to see
American troops engaged in ground war. Both countries have
benefited from each other's economic cooperation. There is a
reason why we buy all those goods from China.
In the future with our relationship with China, we need to
be very clear-eyed and pragmatic. Nothing about extending
normal trade relations means we have to be goofy about it, that
we can't be firm and strategic. I am certain that this Congress
and people in the administration will do so. But I come down
unequivocally on the side of the careful management of that
policy of engagement. I firmly believe normal trade relations
with China should be renewed. I think the Chairman asked the
right question in terms of whether or not those strategic
objectives are going to be advanced if we were to deny it, or
if we were to send some bizarre confusing signal about one
House approving, and one House disapproving, or if it has to be
subjected to the President's veto. That is the sort of strange
muddle that makes the practice of economic and foreign policy
even harder.
I will conclude at that point. I thank you for your
courtesy. I appreciate what this Subcommittee under the
leadership of you here on the dias can do in helping us
continue progress with this important international
relationship.
[The prepared statement follows:]
Statement of Hon. Earl Blumenauer, a Representative in Congress from
the State of Oregon
The Ways and Means Committee can play a vital role in
helping guide our troubled relationship with the People's
Republic of China, and I thank you for holding this hearing
today.
Every member of Congress is appalled at the developments in
China: the continued struggle for human rights, the situation
in Tibet, the theft of American nuclear secrets, alleged
interference in our election, and their less than stellar
record of economic cooperation.
I commend my colleagues who are deeply concerned about and
involved in monitoring human rights throughout China. Their
words will make a positive difference in the long run for the
cause of freedom.
However, I believe it is a mistake to direct harsh words
towards the business community and imply they are directing
American foreign policy. It is our solemn responsibility in the
Congress to set what we believe to be the correct policy toward
China, and I do not delegate my vote to anyone.
Also, the earlier statement comparing the Chinese regime to
Hitler and Nazi Germany is also misguided. The Chinese have no
ambitions to dominate the world or attack the United States,
they are very active in their own sphere of influence in Asia.
Instead of indulging in hyperbole, we need to step back and
take a deep breath before moving forward on what is undoubtedly
the most important foreign policy relationship in the post-Cold
War era. The Chinese can be perplexed by our actions, and
understandably so, given our recent on-again-off-again trade
negotiations with them and what was to them and many others our
inexplicable bombing of their embassy. Frankly, if they had
destroyed one of our embassies and killed Americans, I doubt
our response would have been one of sustained outrage.
It is understandable that given the current uncertainty,
Americans and a number of people in this Congress are undecided
about exactly what our next steps and our strategy should be.
But make no mistake--A China is a major force on the world
stage and will continue to be for some time. It has more people
than any other country, and Chinese people living abroad
represent a huge minority in a number of other countries. The
Chinese have an incredibly strong and ancient culture, as well
as nuclear power and a veto on the United Nations Security
Council. They have traditions and practices that predate our
existence and culture by millenia.
Notwithstanding all the problems we've had with China, it
is undeniable that real advances have been made since Nixon's
visit a generation ago. Tremendous progress has been made in
the last 25 years including more individual freedoms for many,
increased prosperity, and what we would termed modernization
and global connection for hundreds of millions of Chinese.
People whose judgement I respect, including those in the
community of faith, tell me they see a very different
environment in China from what existed 40, 25 or even 10 years
ago.
It is important for members of Congress and the American
public to put the current controversy into perspective. In
regard to the spying, it is an unfortunate fact of life that
nations tend to spy on one another. We've had a number of
episodes where we discovered our friends and allies conducting
both military and industrial espionage on the United States.
Our nation in turn spies all around the world; that's no secret
as well.
On trade, our relations are in turmoil with our allies. We
currently have quite a few conflicts with our friends in the
European Union on key trade and economic issues.
Despite our differences, China and America can help each
other. China can assist us in our foreign policy objectives.
They were a strategic ally against the Soviet Union, which
helped hasten the end of the Cold War. They have helped us
contain North Korea, the place we're most likely to see
American troops in a ground war. Both countries have benefited
from each other economically, and the stability we provide by
being a reliable market for the Chinese has an invaluable
effect. We can only look forward to more cooperation in the
future with China on the economic front if we stay the course.
The most important thing to keep in mind with China is that
we have to be very clear eyed and pragmatic. Our choices are to
isolate it, ignore China, treat it like an enemy, or, carefully
manage how we engage China.
Last month, I sat in front of this very same committee with
my colleagues and argued in favor of a more reasoned approach
to sanctions reform. I believe we have more tools at our
fingertips than just the blunt instrument of sanctions. I
believe we can cultivate relationships carefully without
pulling the rug out from other countries, as revoking Normal
Trade Relations with China would do. The United States attempt
to isolate tiny powerless Cuba has not softened their policies
and Castro remains in power.
I come down unequivocally on the side of careful management
of a policy of engagement. We should be both firm and strategic
in our thinking when dealing with China's continuing emergence
into the family of nations. We should avoid overreaching in
isolating ourselves from China, not so much because of loss of
economic opportunity but because of the risk of losing a
valuable opportunity to connect with the Chinese. We can help
accelerate the evolution of this ancient and proud society in a
thoughtful and environmentally sensitive manner. Failing to do
this, and thus freezing China into a hostile posture, is not
good long-term policy for the United States, it is not good for
China and it is not good for the world.
It would be a grave mistake to approve this resolution
disallowing Normal Trade Relations.
I cannot stress enough the impact of this committee's
leadership. Trade is a language that people understand. This is
the first major item in regard to China on the agenda since all
the furor broke out over the embassy bombing and the Cox
Report. Your guidance and leadership is going to help set the
tone for this next important stage of the Chinese-American
relationship.
Chairman Crane. Well, we thank you, Mr. Blumenauer, Mr.
Dooley, and Mr. Rohrabacher, and reassure you that this will be
a bipartisan effort. We want to do the best job we can.
We respect your differences of opinion, Dana. While we may
not agree on everything, I think we agree on most things. But
at any rate, we will attempt to move forward in a positive
direction, reflecting not Republican or not Democratic
positions, but what we conclude may be in the best interest of
the United States. So we thank you for your testimony.
Now we are going to bring on our next witness, who is
already packed, I hope, and ready to run to the airport. The
Honorable Richard Fisher, Deputy U.S. Trade Representative, and
Hon. Stanley Roth, Assistant Secretary, East Asian and Pacific
Affairs at the State Department.
We will let Ambassador Fisher testify first so that if you
have to, Richard, don't hesitate to speak and run. I would like
to ask both of you if you will try and keep your oral testimony
to roughly 5 minutes, and any written testimony will be made a
part of the permanent record. With that, we yield to Mr.
Fisher.
STATEMENT OF HON. RICHARD W. FISHER, DEPUTY UNITED STATES TRADE
REPRESENTATIVE
Ambassador Richard Fisher. Mr. Chairman, I want to thank
you and the Members of the Subcommittee for inviting me to
testify today. My distinguished colleague and friend, Assistant
Secretary Roth and I are here to review with you the
administration's reasons for granting an extension of China's
normal trade relation status. Assistant Secretary Roth is best
equipped to address the diverse and important nontrade specific
issues that impact Congress' decisionmaking on this vital
issue. As such, Mr. Chairman, with your permission, I will
confine my remarks today to the trade-specific considerations.
Fundamentally, American trade policy in China rests on the
vital interests our country has in a peaceful, stable, and
prosperous Asian-Pacific region. China's economic isolation
during the cold war was vastly damaging to both China and the
Pacific area. For nearly 40 years, China's economy was almost
entirely divorced from the outside world. Asia's largest nation
had little stake in prosperity and stability beyond its
borders. Every Pacific nation felt the consequences not only in
economics and trade, but in terms of peace and security.
Our Nation's efforts to undo this isolation is a long-term,
bipartisan, patient policy, which has continued over nearly 30
years since President Nixon's visit to China in 1972, and the
signing of the Shanghai Communique. It has included the lifting
of the U.S. economic embargo in the midseventies, our initial
commercial agreement on mutual grant of normal trade relations,
then most-favored-nation or MFN status of 1979 and 1980, a
decision, and let me add, Mr. Chairman, in which I participated
as a boy during the Carter Administration, the consistent
renewal of NTR for the past 20 years, and the market access,
textile and intellectual property agreements we have negotiated
in the nineties.
The effort has had multiple goals: creation of opportunity
for American businesses, working people, and agricultural
producers; guarantees of fair trade principles; support for
economic reform and the rule of law within China; and
strengthening China's own stake in the stability and prosperity
of its neighbors. This effort has succeeded over the years. It
has increased China's contacts with the outside world, bringing
new ideas and opportunities to its people and giving China
greater common interests with its Asian neighbors and with us.
China now sees important national interests in its good
trade and investment relations with its neighbors. China's
constructive approach to the Asian financial crisis may well be
at least a partial consequence. Despite numerous trade
barriers, some of which have been mentioned today, it has
created a market for over $14 billion in annual sales of
American goods exports, and $3.5 billion in sales and services
which we seek to expand.
In summary, Mr. Chairman, the goals of our trade policy in
China are to advance concrete American interests. The results
our policies have achieved over the years through Republican
and Democratic administrations alike, have helped realize those
interests. Thus, our trade engagement with China has won
bipartisan support in this hallowed chamber for nearly 25
years, and has remained stable throughout periods of warmer
bilateral relations as well as in periods of tension.
Renewal of normal trade relations is fundamental to any
continuation of this policy. NTR tariffs are the standard
tariff rates, now averaging less than 4 percent, which we
accord virtually all of our trade partners. Under the Jackson-
Vanik provisions of our trade law, however, as you well know,
certain economies, including China, are ineligible for these
rates unless the President grants an annual waiver. In accord
with this law, last Thursday, President Clinton sent to the
Congress this waiver extending NTR to China for another year.
Congressional support for this decision will benefit
American consumers. It will also allow American farmers,
manufacturing workers, and entrepreneurs to continue to benefit
from our existing access to the Chinese market. At the same
time, it will allow us to continue our pursuit of a more fair
and open Chinese market.
By contrast, Mr. Chairman, failing to renew NTR would
severely damage American interests in a number of fundamentally
important areas. It would harm the interests of American
consumers, and at the same time, threaten markets and
consequently jobs and farm incomes for American farmers and
businessmen and women and workers. It would likely end our
effort to create a more open rules-based China market through
the WTO negotiations. It would do immense harm to our friends
and allies in the Pacific, directly damaging the Hong Kong
economy, which is experiencing a recession, and risking a new
economic upheaval in the region, which would badly set back the
efforts of South Korea and Thailand and the Philippines and the
newly elected Indonesian Government, to recover from the
financial crisis of the past 2 years.
As we look to the future with NTR renewed, we have
significant opportunities to improve our trading relationship
and address many of the issues that were raised by your
distinguished colleagues today. Today it is true that China
retains high trade barriers and numerous unfair trading
practices. China's formal and informal trade barriers remain
high. Its agricultural standards are based on bureaucratic fiat
rather than on science. Key service sectors like distribution,
finance, and telecommunications remain closed. These create
inefficiencies within the Chinese economy. They slow the
process of integration with regional and world economies. They
cause frustration and sometimes injury to American farmers,
workers, and businesses.
Our principal arena for addressing these vexing trade
issues is China's pending accession to the World Trade
Organization. To enter the WTO, China must agree on a set of
market access commitments, and they must negotiate a protocol
dealing with fair trade rules. This is worth underscoring, Mr.
Chairman. WTO accession would not be a favor for China.
Instead, WTO accession is a means of opening and reforming
China's markets, and of holding China to the rules of the
global trading system.
Thus, China's WTO accession allows us to address the issues
at the root of our trade problems in a comprehensive way. The
administration is prepared, as you know, to work closely with
you and with the Congress, to secure permanent NTR status for
China, but only in the context of a commercially meaningful
accession to the WTO.
As to the state of the WTO accession talks, in April, as
you well know, we substantially completed a market access
package on agriculture, industrial goods and services, as well
as fair trade rules. This includes a commitment by China to
participate in the most recent WTO Agreements on information
technology, basic telecommunications and financial services.
Talks must continue on several unresolved market access and
protocol issues, however, including many that must be addressed
multilaterally.
I would like just to say a couple of words with respect to
our progress thus far. The set of commitments that China has
made thus far includes four major features. First, it is
comprehensive. It embraces agriculture, industrial goods and
services, trade barriers, including tariffs and nontariff
measures, transparency and others, unfair practices, including
export subsidies, forced technology transfer, offsets of local
content requirements, and protection against import surges.
Second, it grants no special favors. It requires China to
reduce its trade barriers to levels comparable to those of
major trade partners. Third, and specifically addressing some
key points that were made by Congressman Levin and others, it
is fully enforceable through a combination of our own trade
laws, through WTO dispute settlement mechanisms, and other
mechanisms. Fourth, its results will be rapid. On accession to
WTO, China will begin opening its market from day one.
The central point to bear in mind is that all of these are
essentially one-way commitments by China. China's WTO entry
will open export opportunities and strengthen our guarantees of
fair trade without requiring special concessions in return.
American tariffs, together with our dumping and countervailing
duty laws, will remain unchanged after China enters the WTO.
Likewise, our export control policies will remain unchanged.
Decisions on such policies will not be affected by WTO entry.
The political environment surrounding the WTO talks of
course, as we have heard today, is clearly complicated by
events outside of trade policy. Most notably, we have held no
formal negotiations with the Chinese since the accidental
bombing of the Embassy in Belgrade a month ago. Our colleagues
in other agencies are preparing a report on that event, which
they will review with the Chinese upon completion of that
report. Our hope is that negotiations on WTO accession will
resume shortly thereafter. The rash of media accusations and
public activity in Beijing in the aftermath of Belgrade,
together with the release of the Cox Commission report on
allegations of Chinese espionage, have also raised tensions.
But this does not alter, Mr. Chairman, the fundamental
premise of the approach to trade policy taken by Republican and
Democratic administrations, through thick and through thin over
the years since the Shanghai Communique in 1972. That is, that
we believe that an open, rules-based, and reformed Chinese
economy remains in the interest of the United States and in the
interests of the Chinese people. We remain committed to a
commercially meaningful accession based upon commitments China
has made and mutually satisfactory resolution of the remaining
issues. We intend to continue pursuing the goal of WTO
accession.
Let me just say in conclusion that this is an ambitious
goal, and it requires very complex negotiations. We will of
course, Mr. Chairman and Members of the Subcommittee, consult
closely with you as we proceed. Let me stress in closing,
however, that renewal of normal trade relations is central to
our ability to achieve any of our goals in these talks. We very
much appreciate this Subcommittee's support for NTR in the
past. We hope to work closely with you to ensure its renewal
once again this year. Thank you.
[The prepared statement follows:]
Statement of Honorable Richard Fisher, Deputy United States Trade
Representative
Mr. Chairman, Congressman Levin, Congressman Rangel,
Members of the Subcommittee, thank you for inviting me to
testify on the President's recommendation to renew Normal Trade
Relations with China.
The past weeks have been eventful ones for our trade
relationship. Since the beginning of this year, in the context
of China's accession to the World Trade Organization, we have
carried on highly productive negotiations in all major areas of
American trade concern: agriculture, industrial goods, services
and rules. China has made significant commitments across the
range of sectors and issues of concern to us, but a number of
issues remain to be resolved. At the same time, of course,
recent events outside the trade relationship--notably the
accidental bombing of the Chinese Embassy in Belgrade, the
resulting demonstrations in China and damage to U.S. diplomatic
facilities, and the release of the Cox Committee report on
allegations of espionage in nuclear and other technological
areas--have created new tensions in the broader relationship.
Our colleagues in other agencies are addressing the broader
US-China relationship. With respect to trade policy in general,
and to the renewal of Normal Trade Relations and the WTO
negotiations in particular, the Administration intends to
remain focused on the long-term commercial and strategic
interest of the United States: a more open, transparent and
rules-based Chinese market; support for economic reform within
China; and the accession, on commercially meaningful terms, of
China to the WTO.
This afternoon I will review with the Committee the role of
trade in our broader China strategy, the basis on which the
President has decided again to renew Normal Trade Relations,
and the progress we have made towards China's accession to the
WTO.
Trade in U.S. China Policy
Fundamentally, American trade policy in China rests on the
vital interest our country has in a peaceful, stable and
prosperous Asia-Pacific region. Essential to realizing this
interest, as a commercial goal and a complement to our
strategic and security policies, is support for China's
economic integration into the Asia-Pacific region and the world
economy.
China's economic isolation during the Cold War was vastly
damaging to both China and to the Pacific region. For nearly
forty years, China's economy was almost entirely divorced from
the outside world. The consequent loss of foreign markets and
investment impoverished China at home, and meant that Asia's
largest nation had little stake in prosperity and stability
beyond its borders. Every Pacific nation felt the consequences
not only in economics and trade but in peace and security.
Our effort to undo this isolation is a bipartisan, patient
policy continuing over the nearly thirty years since President
Nixon's visit to China in 1972. It has included the lifting of
the U.S. economic embargo in the mid-1970s; our initial
Commercial Agreement and mutual grant of Normal Trade Relations
(NTR; then Most Favored Nation or ``MFN'' status) in 1979 and
1980--a decision in which I participated as a member of the
Carter Administration; the consistent renewal of NTR for the
past 20 years; and the market access, textile and intellectual
property agreements we have negotiated in the 1990s. The effort
has had multiple goals: creation of opportunity for American
businesses, working people and agricultural producers;
guarantees of fair trade principles; support for economic
reform and the rule of law within China; and strengthening
China's own stake in the stability and prosperity of its
neighbors.
This effort has succeeded over the years. It has increased
China's contacts with the outside world, bringing new ideas and
opportunities to its people and giving China greater common
interests with its Asian neighbors and with us. China's
constructive approach to the Asian financial crisis may well be
at least a partial consequence. And despite numerous trade
barriers, it has created a market for over $14 billion in
American goods exports, and $3.5 billion in services.
In summary, the goals of our trade policy in China are
concrete American interests; and the results our policy has
achieved over the years have helped realize those interests.
Thus, our trade engagement with China has won bipartisan
support for nearly twenty-five years, and has remained stable
throughout periods of warmer bilateral relations and periods of
tension.
The Role of Normal Trade Relations
Renewal of Normal Trade Relations is fundamental to any
continuation of this policy.
Normal Trade Relations tariffs are the standard tariff
rates, now averaging less than 4%, which we accord virtually
all our trade partners. It is a non-discriminatory, non-
preferential treatment which allows trade to proceed on an
equal basis with virtually all our partners. Under the so-
called Jackson-Vanik provisions of our trade law, however,
certain economies, including China, are ineligible for these
rates unless the President grants an annual waiver.
In accord with the law, on June 3rd, 1999, President
Clinton sent to Congress this waiver, extending normal trade
relations to China for another year. Congressional support for
this decision will benefit American consumers and also allow
American farmers, manufacturing workers and entrepreneurs to
continue to benefit from our existing access to the China
market. At the same time, it will allow us to continue our
pursuit of a more open and fair Chinese market. By contrast,
failing to renew NTR would severely damage American interests
in a number of fundamentally important areas.
First, ending normal trade relations would amount to the
severing of our trade relationship. It would raise tariffs on
Chinese products to a trade-weighted average of 44%. This would
make American consumers pay significantly more for goods such
as shoes, toys, clothing and small appliances. Manufacturers
would see the cost of goods made with Chinese components rise
sharply, reducing the competitiveness of our goods in domestic
and international markets.
Second, China would likely retaliate against U.S. exports
by increasing tariffs and other measures, endangering direct
U.S. goods exports valued at $14.3 billion last year, and
services exports valued at $3.7 billion in 1997 (the last year
for which we have figures). This would threaten the jobs of
manufacturing workers, the income of farmers, the employment of
young workers in retailing, software engineers and workers in
every other walk of life.
Third, ending normal trade relations would also derail our
bilateral and multilateral negotiations. As I noted earlier,
and as I will explain in greater detail in a moment, we have
come very close to completion of a WTO accession agreement with
China that would dramatically open Chinese markets to American
goods, services and agricultural products. Revoking NTR would
be certain to end these talks. It could also lead China to
reduce or end enforcement of our intellectual property
agreements; refuse to implement our bilateral Agricultural
Cooperation Agreement of last April, which lifts long-standing
bans on American meats, citrus and grains; and halt much of the
human contact between Americans and Chinese, limiting the
exchange of ideas and values across the Pacific.
Fourth, these effects in trade would likely be matched by
severe damage to relations, in areas from cooperation on drugs
and international crime to human rights. And it could threaten
cooperation in national security questions such as the four-
party talks on Korea and missile sales in the Middle East.
And fifth, ending normal trade relations would badly damage
many of our other Asian allies, friends and trading partners.
Most deeply affected would be Hong Kong, whose experts have
estimated in the past that ending NTR would slash the
territory's trade volume by up to $34 billion, and income by
some $4.5 billion. This would dramatically worsen the economic
pain caused by Hong Kong's current recession. At the same time,
the economic upheaval created by revocation of NTR would
gravely complicate our efforts to end the Asian financial
crisis, at the very moment when Thailand and South Korea are
beginning to show signs of recovery, and a newly elected
Indonesian government will begin its effort to recover from an
extraordinarily difficult economic crisis.
Altogether, then, the vote on whether to disapprove Normal
Trade Relations is a vote on whether to protect fundamental
U.S. interests from jobs and growth at home to stability and
return to economic health in Asia. The Administration thus
strongly supports renewal of Normal Trade Relations.
U.S. Trade Agenda in China
As we look to the future, with NTR renewed, we have
significant opportunities to improve our trade relationship.
Today, China retains high trade barriers and numerous
unfair trade practices. China's formal and informal trade
barriers remain high. Its agricultural standards are based on
bureaucratic fiat rather than science. Key service sectors like
distribution, finance and telecommunications remain closed.
These create inefficiencies within the Chinese economy; slow
the process of integration with the regional and world
economies; and cause frustration and sometimes injury to
American farmers, workers, and businesses.
China remains insecurely integrated, and only
opportunistically so, with the world outside; and its economy
faces severe challenges which, over time, more open trade could
help to solve. Likewise, China's neighbors remain blocked from
an economy which could be an engine of growth in the present
financial crisis and in the future.
Our principal arena for addressing these issues is China's
pending accession to the World Trade Organization. To enter the
WTO, China must agree on a set of market access commitments,
and negotiate a Protocol dealing with fair trade rules. Thus,
China's WTO accession allows us to address the issues at the
root of our trade problems in a comprehensive way. And it is an
opportunity to advance broader interests beyond trade:
-- As a matter of trade policy, a sound agreement will open
Chinese markets to our exports, and give American domestic
industries stronger protection against unfair trade practices.
-- As a matter of strategy, WTO membership will complement
our efforts to maintain peace and stability in the Pacific by
helping to advance economic reform within China, linking
China's economy more closely with the world's, and
strengthening constituencies within China for stability beyond
its borders.
-- And as a matter of values, WTO principles--transparency,
fair and independent judicial practices, peaceful settlement of
disputes, the rule of law--are those we hope to advance in
China and worldwide.
China, of course, is pursuing WTO membership as a matter of
its own national interest. The reforms entailed in a strong,
commercially meaningful agreement will help create jobs in
labor-intensive fields such as distribution services, make
rural and urban economies more productive, and create the
competition necessary for innovation and sustainable growth.
Thus, as WTO membership offers a short-term source of
confidence, it will advance China's long-term goals of domestic
economic reform and guarantees of access to world markets.
We believe that to win the full range of benefits, for both
the U.S. and China, an agreement on WTO accession must be
commercially meaningful, addressing our concerns in a detailed,
enforceable and rapid way. This is the principle we have
followed in all recent WTO accessions--the most recent
successful accessions were those of Latvia, Kyrgyzstan and
Estonia, all of which made commercially meaningful commitments
in the range of issues of concern to the United States. A weak
agreement also would not yield the full potential for economic
efficiency and growth in China. Thus, we are committed to a
commercially meaningful accession. In the context of such an
accession, the Administration is prepared to work closely with
Congress to secure permanent NTR status for China.
Progress Thus Far
While we have not yet reached agreement on such a package,
in the past months we have made significant progress toward the
goal. In April we substantially completed a market access
package on agriculture, industrial goods, and services as well
as fair trade rules. This includes a commitment by China to
participate in the most recent WTO agreements on Information
Technology, Basic Telecommunications and Financial Services.
Talks will continue on several unresolved market access and
Protocol issues, however, including many that must be addressed
multilaterally.
1. Major Features
With respect to our progress thus far, the set of
commitments China has made includes four major features:
-- It is comprehensive, covering agriculture, industrial
goods and services; trade barriers including tariffs, non-
tariff measures, transparency and others; unfair practices
including export subsidies, forced technology transfer, offsets
and local content requirements; and protection against import
surges.
-- It grants no special favors. It requires China to reduce
its trade barriers to levels comparable to those of major trade
partners.
-- It is fully enforceable. China's commitments are
specific and will be enforceable through our trade laws, WTO
dispute settlement and other mechanisms.
-- And its results will be rapid. On accession to the WTO,
China will begin opening its market from day one.
One other essential point is that all of these are
basically one-way commitments by China. China's WTO entry will
open export opportunities and strengthen our guarantees of fair
trade, without requiring special concessions in return.
American tariffs, together with our dumping and countervailing
duty laws, will remain unchanged after China enters the WTO.
Likewise, our export control policies will remain unchanged,
and decisions on such policies will not be affected by WTO
entry.
2. Specific Commitments
Let me also make a few comments on the specific commitments
made before and during Premier Zhu's visit to the United States
this April.
The Protocol, which establishes broad rules and frameworks
for trade, creates a product-specific safeguard to address
import surges. It also bans forced technology transfer policies
for investors, including a commitment to refuse to enforce
these provisions in existing contracts. It will ensure that we
continue to use ``non-market economy'' methodology in anti-
dumping cases, and take account of China's unique
characteristics in subsidies. It will eliminate abusive
investment requirements designed to take jobs to China:
offsets, export performance, current-account balancing and
local content. And it will guarantee China's state trading
companies and state-invested enterprises operate on commercial
terms, and that their purchases are not subject to any
different rules. Again, we continue to discuss several issues,
notably the duration of special provisions. While they will not
continue in perpetuity, very rapid phaseouts are not
acceptable.
With respect to market access, some highlights are as
follows:
Agriculture:
China will apply sanitary and phytosanitary standards based
on science. It will cut tariffs to an average of 14.5% for our
priority items, and bind them at the applied levels. Thus,
unlike many countries, China will not have a right to raise
tariffs again after it enters the WTO. It will adopt a new and
more liberal system of tariff-rate quotas in bulk commodities.
And it will agree not to provide agricultural export
subsidies--a major achievement in its own right, and a step
toward our goal of totally eliminating export subsidies in the
next WTO Round.
Industrial goods:
China will grant rights to import and export products
without Chinese middlemen, and to distribute products within
China. It will cut its tariffs on average for U.S. priority
items to 7.1%--a figure comparable to most major U.S. trading
partners. This includes participating in the Information
Technology Agreement, and deep cuts in everything from autos to
wood products, chemicals and construction equipment. And it
will eliminate all quotas.
Services:
China has made a comprehensive set of commitments extending
from distribution to insurance, telecommunications,
architecture, engineering, legal, travel and tourism, computer
and business services, environmental services, franchising and
direct sales, and more. Talks continue in several areas--
banking, audiovisual, securities--but in several of these as
well, China has made a set of commitments that already open
significant opportunities.
These are a very broad set of commitments. They may well
bring opposition from vested interests at home in China. But
other countries have made comparable commitments, and China is
entirely capable of making them as well. More important, WTO
accession on commercially meaningful terms is good for China:
it will mean increased employment, economic growth and social
stability in the long run.
3. Work Remaining
Finally on the WTO accession, the work is not yet done.
Some important issues remain unresolved in the services field,
and in the Protocol as well. As in all accessions, conclusion
depends on the acceding government, and China of course must
meet the concerns of other WTO members apart from ourselves.
But the issues which remain are limited, and I am confident
that the trade policy challenges they raise can be resolved.
NEXT STEPS
At the same time, however, the political environment
surrounding the WTO talks, of course, is clearly complicated by
events outside trade policy.
Most notably, we have held no formal negotiations with the
Chinese since the accidental bombing of the Chinese Embassy in
Belgrade a month ago. Our colleagues in other agencies are
preparing a report on the event, which they will review with
the Chinese on completion. Our hope is that negotiations on WTO
accession will resume shortly afterwards. We remain, of course,
committed to a commercially meaningful accession, based upon
the commitments China has made and mutually satisfactory
resolution of the remaining issues.
CONCLUSION
This period is a test for the broader US-China
relationship, and the ability of leadership in both capitals to
focus on longer-term interests. The WTO accession is a key
component of a longer-term strategy to achieve these interests.
Completing it, on commercially meaningful grounds, will benefit
both countries. This remains a shared view, as we continue the
talks with a goal of entry this year.
Thank you, Mr. Chairman, and I will now take your
questions.
Chairman Crane. Thank you, Mr. Fisher.
Mr. Roth.
STATEMENT OF STANLEY O. ROTH, ASSISTANT SECRETARY, EAST ASIAN
AND PACIFIC AFFAIRS, U.S. DEPARTMENT OF STATE
Mr. Roth. Thank you, Mr. Chairman. I will be very brief,
not only because of your offer to put my statement in the
record as drafted, but also to enable you to have some
opportunity to ask some questions to my distinguished colleague
before he departs for the airport.
Let me simply say that I think I would like to emphasize
two points. First, this Subcommittee has made a reputation for
itself over the past decade, in giving very measured
consideration to the facts, what is and what isn't happening in
China, and what are the stakes in the United States-China
relationship. That has always influenced your decisionmaking.
In listening to some of the presentations, I couldn't help
think that there was a large array of, shall we say,
overstatements of the current situation in China. No one is
going to dispute the fact that we have very serious problems
with China, and we have them in a large number of areas,
whether it's human rights, trade, nonproliferation, or
elsewhere. This can't be swept under the rug, and I don't
intend to do so.
But at the same time, to go to the opposite extreme, to
make statements that China is the worst abuser of human rights
in the world, a statement that I think, considering some of the
murderous regimes we see elsewhere, is hard to sustain. If one
says it is the least free society in the world, I would reply
that I can think of several less free just within my own area
of jurisdiction. The suggestion that we have no cooperation
with them on any strategic issue cannot be sustained. Just at
this time that we are meeting, there is a high level North
Korean delegation in Beijing that we believe the Chinese are
talking to about the missile issue that is so vital to our own
security. I think there have been some statements that simply
vastly exaggerate the negative side of the story, and
underestimate the positive side of the ledger.
In my statement, I have tried not to rebut the testimony,
of course, that I hadn't seen prior to coming here, but rather
to lay out the positive case for engagement, to indicate the
benefits that we have already achieved from engagement, and
what we hope to accomplish in addition in the future.
The second point that I would like to make I think is even
more fundamental, which is: would revoking NTR make the
situation any better? Would it help us make progress on the
problems that we care about? Or, would it in fact make things
worse? I think that this issue was largely ignored in the
preceding panel. But, in fact, I think there is no reason at
all to believe that if NTR were denied to China, that the human
rights situation would get better. It would only get worse, as
China would undoubtedly crack down even further. Any ability we
have to have dialog with them on these issues would vanish. I
think our prospects for achieving strategic cooperation on any
of the key regional issues that we're working on--whether it's
the Korean Peninsula, South Asia, Persian Gulf, South China
Sea, or any of these areas--would be nil in the context of the
revocation of MFN or NTR.
So I think we have to ask ourselves not are there problems
in United States-China relations, but rather, is this the
mechanism for addressing it? I believe that if we want to see
more progress with China on a whole host of issues, that we
have sufficient policy levers elsewhere, and that NTR is not
the means by which we should try to affect Chinese policy on a
number of other issues. We are more likely to do harm than
good. Why don't I stop at that point.
[The prepared statement follows:]
Statement of Hon. Stanley O. Roth, Assistant Secretary, East Asian and
Pacific Affairs, U.S. Department of State
Mr. Chairman, thank you for the opportunity to address the
Ways and Means Committee, Trade Subcommittee, on the important
issue of Normal Trade Relations--NTR--with China.
Introduction
Last year when I addressed this topic on the eve of the
President's state visit to China, I began my testimony by
noting that the hearing was very timely. I then made the
argument that engagement with China, and specifically what was
then termed ``Most Favored Nation'' status for China, were in
the best interest of the United States. This year, with
circumstances clearly much more difficult, I am still persuaded
by the fundamental reasoning in favor of engagement with China
in general and ``Normal Trade Relations'' in particular: they
are in America's best-interest.
Engagement
In his speech of April 7, the President explained the
purpose of engagement with China as the means to ``build on
opportunities for cooperation with China where we agree, even
as we strongly defend our interests and values where we
disagree. . . . [The purpose is] to use our relationship to
influence China's actions in a way that advances our values and
our interests.''
The President's words were spoken before the tragic
accidental bombing of the Chinese Embassy in Belgrade, before
the infliction of severe damage on the U.S. Embassy in Beijing
by angry Chinese mobs, before the hiatus in our negotiations
over China's accession to the World Trade Organization (WTO),
and before the findings of the Select Committee regarding
Chinese efforts to acquire sensitive information concerning
U.S. nuclear capabilities. Clearly, however, the President's
articulation of engagement is just as applicable now as the day
it was given.
Despite our current bilateral differences, there remains a
lot at stake in U.S.-China relations: the U.S. and China
continue to have compelling mutual interests in promoting peace
and stability on the Korean Peninsula, working to minimize
nuclear tensions on the Indian subcontinent, and advancing the
economic well being of Asia. We need to continue serious
discussions with the Chinese about the importance of reducing
tensions across the Taiwan Strait, as well as potential areas
of friction in the region, such as the South China Sea.
China's cooperation is essential to keep under control
technologies used in the production of weapons of mass
destruction and their delivery systems. China has joined us in
the Nuclear Non-Proliferation Treaty and the Chemical Weapons
Convention, and has said it will soon submit for ratification
the Comprehensive Test Ban Treaty. It has committed to provide
no new nuclear assistance to Iran, joined a major international
nuclear suppliers group (the Zangger Committee), and put into
place comprehensive nuclear export controls. The U.S. and China
have agreed that we will not target nuclear weapons at each
other, and China has agreed to actively study joining the
Missile Technology Control Regime.
We and China should continue to cooperate on economic
issues in APEC and other regional fora. Engagement helped
solidify China's constructive response to the Asian financial
crisis. China maintained its exchange rate at a time when other
currencies in the region were extremely vulnerable and has
accelerated the reform of its own troubled financial sector.
Some might argue that China would take all of these
measures regardless of U.S. policy, regardless of engagement,
simply because these steps are in China's self-interest. I
disagree. Persistent, principled, and purposeful engagement
with China's leaders and China's people enables us to identify,
and work towards, shared goals. As a result of our engagement
we have been able to persuade China to work with us on an
increasing number of important issues, some of which had
previously been contentious such as South Asia, the Persian
Gulf, and Nuclear Non-proliferation. China is acting on the
basis of its self-interest, but we are helping to define that
interest in ways that complement U.S. objectives.
Earlier I mentioned some of the changed circumstances
surrounding this NTR hearing and that of last year. Clearly,
the issue of Chinese efforts to acquire sensitive information
regarding U.S. nuclear capabilities is a significant factor. In
this context, the question is whether abandonment of engagement
with China, or specifically denial of NTR status, is the best
and most appropriate response? It is not. Abandoning engagement
with China will not reduce Chinese efforts to acquire sensitive
information. We didn't have an engagement policy with the
former Soviet Union but we certainly had a great deal of
espionage.
The effective response is better security. In this regard
President Clinton has launched a comprehensive effort to
address U.S. vulnerabilities. Punishment of the Chinese for
their activities by disengaging, or denying NTR status, would
come at a very high policy cost to the U.S.--we would no longer
be able to actively pursue U.S. interests with China as we have
over the past decade--and at a very high economic costs to U.S.
businesses and consumers.
The Merits of NTR
In his statement last week regarding his decision to seek
renewed NTR status with China, the President urged this
Congress to maintain NTR with China because renewal will
promote America's economic and security interests. ``Normal
trade relations'' is, of course, a status we have extended to
all but a handful of nations, e.g. Cuba and North Korea.
Exports to China and Hong Kong support an estimated 400,000
U.S. jobs. Over the past decade, U.S. exports to China have
more than tripled to $14.3 billion and China has now become our
fourth largest trading partner. These gains have been fostered
by extending NTR, or at the time ``most favored nation,''
status to China. A decision not to renew NTR could cost U.S.
consumers up to half a billion dollars more per year in higher
tariffs on shoes and clothing alone.
And, although I have promised to leave the primary analysis
to my colleague, I cannot help but touch on the potential
impact on U.S.-China WTO accession negotiations. Assuming that
China agrees to the necessary commercial changes to join the
WTO and thereby becomes subject to standard international trade
rules and opens its market, U.S. companies and workers could
develop major new export opportunities. By contrast, refusal to
renew NTR would effectively derail efforts to finish the
necessary WTO negotiations. My colleague this afternoon, Amb.
Fisher, is, I know, an excellent negotiator, but I would not
want to be in his shoes if this Congress chooses not to renew
NTR for China.
Refusal to renew NTR would also undermine those in the
Chinese leadership who have advocated better relations with the
U.S. As the President recently noted, we must remember that the
debate we are having about China today in the United States is
mirrored by a debate going on in China about the United States.
We have an opportunity to influence the course of China's
development in the next century. We should use it.
Refusing to renew NTR with China would also have
repercussions on other Asian economies already battered by the
1998 Asian Financial Crisis. Hong Kong and Taiwan would be
particularly susceptible. With contracted investments of more
than $30 billion in the mainland, much of it in export
industries geared towards U.S. consumers, Taiwan investors
would take a serious hit if normal trade relations status with
China were revoked.
More than 40% of U.S.-China trade goes through Hong Kong's
port. Refusal to renew NTR, clearly a serious disruption to US-
China trade, would therefore severely damage Hong Kong's well
being. In fact, Hong Kong authorities estimate that refusal to
renew NTR with China would slash Hong Kong's trade by up to $34
billion and reduce its income by $4.5 billion. These figures do
not incorporate any additional damages which might be the
consequence of retaliatory Chinese actions. Clearly, such blows
would undermine Hong Kong's ability to maintain its open
economy, civil liberties, and way of life. This would be
contrary to the U.S.'s fundamental policy to support Hong
Kong's autonomy.
Conclusion
Each year when this subcommittee has reviewed the renewal
of NTR--previously MFN--status for China, the bilateral
relationship has experienced formidable problems in such areas
as Taiwan, trade, human rights, and non-proliferation--to name
only a few of the familiar issues. Each year this subcommittee
has recognized that not renewing NTR status would only make the
existing problems worse.
This year, there are tough problems in our bilateral
relationship with China. Nonetheless, continued engagement with
China is the best path, as is renewal of NTR. A clear-eyed
strategy of principled, purposeful engagement with China
remains the best way to advance U.S. interests.
Chairman Crane. Thank you, Mr. Secretary.
Ambassador Fisher, the Congressional Research Service
recently completed an analysis of the potential gains for the
United States exports that would result from Premier Zhu's
April 8th offer on a WTO Agreement. The potential commercial
gains for U.S. firms and workers are beyond what many of us
believed were possible to get from China. How locked in are the
Chinese to these possible commitments?
Ambassador Richard Fisher. Mr. Chairman, we did note that
study. Indeed, the numbers are impressive. I noted that the
reduction in Chinese tariffs, according to that calculation,
would generate $11.6 billion in additional United States
exports, I presume annually, and $2.4 billion in increased
United States investment in China. As you have pointed out, the
discussion we had and the point where we had reached on April
8th is broad, comprehensive, all-encompassing.
As I mention in my testimony, we have some unfinished
business. We wish to pursue that unfinished business and
resolve this issue. Again, we are waiting for a signal to
engage in those discussion. Once we do, we will continue down
that path.
Chairman Crane. Besides the few market access issues, such
as banking, securities, and audio-visual services, that weren't
resolved during his visit here, what are the other issues that
must be negotiated before China's WTO accession would be
complete?
Ambassador Richard Fisher. Well, Mr. Chairman, we have the
so-called protocol issues. These are what established the
rights and obligations that are enforceable through WTO dispute
settlement procedures, in addition to a continuation or
completion of the market access issues that you have mentioned.
Again, our objective here is to put these in place so that we
may proceed.
An important point to underscore here, however, is that we
do not wish to move backward, we wish to move forward. We have
reached a point of agreement as of April 8 on a vast majority,
in Premier Zhu's words, 99 percent of the agenda in terms of
the market access aspects of this potential agreement. A point
I wish to underscore to you as we have talked about to this
Subcommittee before is that what we need now at this juncture
is to reengage in this discussion and move forward, not
backward from that point.
Chairman Crane. One of the questions often raised about
China's WTO accession is whether China can be counted on to
live up its commitments, and how will we monitor and enforce
China's WTO commitments?
Ambassador Richard Fisher. Mr. Chairman, first of all, I do
wish to underscore what I said in my testimony. That is, that
the full range of our United States laws are still available to
us, even upon WTO accession, as long as those laws of course
are in keeping with the rules of the road, which they are. The
first objective we have is to obtain clear, specific
obligations on the part of China that will be enforceable in
dispute settlement procedures. We then will of course use the
WTO dispute settlement process to undertake any action that
would be necessary if they were to violate the rules of the
WTO. I might add also that additional mechanisms are under
consideration to include in China's WTO accession protocol.
These include perhaps a transitional review mechanism that
would provide a forum for monitoring China's implementation of
its commitments. Again, on these and all issues, as we proceed,
we will consult very closely with the Congress, because we know
that this issue of enforceability is critical.
We have said repeatedly, and we believe firmly, that in
addition to having the force of U.S. law, it is important to
have in essence, the force of the laws of 130 other nations
being brought to bear here. The odds of enforcing agreements
that are reached with the Chinese are much greater in its
multilateral context and add the particular muscle which our
own laws apply.
Chairman Crane. Secretary Roth, I have always believed that
getting China into the WTO would represent a huge success for
Taiwan because WTO member countries have agreed that the two
countries should enter the WTO together. How important do you
think WTO membership is for the future position of Taiwan?
Mr. Roth. Mr. Chairman, I think you have characterized the
situation accurately. As you know, the administration's policy
is to totally consider the applications of China and Taiwan on
their merits, and that we have said and we mean, that whenever
Taiwan is ready to join, we believe its application should be
considered.
Having said that, there is also the question of pragmatism,
getting a consensus, which is how you get into the WTO. In that
sense, we believe that regardless of the United States
position, that there have been very real obstacles to Taiwan
getting in ahead of China, regardless of when it is ready. So I
think what you point out is simply to state the obvious, which
is that if China gets in, it obviously makes it much easier for
Taiwan as well.
But I want to make it absolutely clear that from the
perspective of the U.S. Government, as soon as Taiwan is ready,
we support its accession.
Chairman Crane. I would imagine that returning home without
a successful WTO deal after he had revealed his willingness to
make so many meaningful concessions had to be a very difficult
experience for Premier Zhu. How are he and other Chinese trade
officials faring politically in light of the administration's
unwillingness to conclude a deal at that time?
Mr. Roth. Well, leaving aside your choice of words, and I
don't know that I would say ``our unwillingness to conclude a
deal'' as opposed to the right deal wasn't yet available to us,
but leaving that aside, I think we should be very careful not
to exaggerate the implications for Premier Zhu. I think there
has been a lot of speculation about him being seriously
damaged. But when we look at the information, we don't see any
indication that he is under fundamental challenge back home.
I think the more important point is whether we can in a
sense obviate this discussion by clinching the deal. So the
administration has been anxious to get back to the negotiating
table as soon as possible, and to try to finalize the
negotiations, something which I know my colleagues at USTR are
very anxious to have take place. The problem there has not been
on the U.S. side. We have been willing to negotiate immediately
almost from the day the delegation went home.
Chairman Crane. Are you worried that opposition is building
in China against undertaking the probably painful economic
reforms that will have to be made for China to join WTO?
Mr. Roth. Thus far, I must say that I have been more struck
by the commitment of Premier Zhu and President Jiang to
carrying out a very broad range of economic reforms, and that
this goes well beyond just the trade issues involved in the WTO
talks, but in terms of the privatization of state economic
enterprises, some banking reforms, getting the military out of
the economy, and the like.
I think as a matter of common sense, it's obvious that when
you undertake as many reforms as they have simultaneously, that
there has to be some opposition to this. We would be foolish to
think that there wasn't. But at this point, we have no
indication that the government is undertaking a retreat from
this policy of economic reform across the board.
Chairman Crane. Very good.
Mr. Levin.
Mr. Levin. Thank you. I think your testimony has helped
make a point that needs to be underlined. That is, even if
there had been no Tiananmen, if there had been no Cox-Dicks
report, if there had not been an accidental bombing--and I
disagree with those who say the United States would have
responded to an accidental bombing like the Chinese did. I
think their reaction was reprehensible. But even if none of
these events had occurred, there still would be an intensity
about this issue. I hope we can take it out of the humdrum. We
are talking about integrating into a market-based, rules-based,
international organization the largest country in the world
with the largest nonmarket, nonrules-based economy. That is a
big set of issues and we need to understand the ramifications
for it and build some intensity into this discussion, avoid the
polarization.
China is different. We talk about what has been negotiated
and we talk about how we are going to enforce agreements. We
are trying to enforce through the WTO Agreements in an economy,
in an economic structure, that has virtually no transparency,
very little flow of information. So if American entrepreneurs
or American organizations here, business or labor, want to find
out what is going on, it isn't easy. So just saying integrating
China into the WTO is going to all of a sudden solve the issue
of enforcement is just misguided. And that is why you have been
negotiating some additional structures.
And the same about it is not an open market. It surely
isn't in terms of capital or in terms of labor. And that is the
basis of the concern, a lot of the concerns. Because China as a
nonmarket, both capital and labor, nonrules-based economy is
not only a subject for our goods, an object for our goods, a
consumer opportunity, but it is also going to be increasingly a
competitor. We found that the first 2 months of this year in
terms of their influx of steel. It was not shoes; it was steel.
And it was bought. It was a good product, apparently.
So maybe it has been a mistake for us to talk about
commercially viable. We should really be talking about an
economically viable agreement in terms of businesses and
workers in this country. And I am optimistic we can proceed and
reach an agreement if we are clear about this and intensive
about this.
And, Mr. Fisher, where you talked--and I know it wasn't the
main subject of your topic--about the work remaining, let no
one think this is just ho-hum, humdrum. Protocol sounds very
unimportant or kind of routine, but these issues include
discussions over safeguards in the event that this non-rule-
based, still nonmarket economy ends up competing with our
businesses and workers in a way that is basically harmful to
our economy.
And one other thing. We have had a lot of discussions and I
am just urging you to try to illuminate this so that we can
have an intelligent discussion. On human rights, you heard the
discussion here. And, clearly, we are going to have to find a
way, an alternative mechanism--I don't think NTR effectively in
this regard--we are going to have to find alternative
mechanisms to press the Chinese on human rights issues. So let
us now and for the rest of this hearing have some intensity,
some fervor about this, about the problems as well as the
opportunities. Because this is a big deal, to use the language
that we all understand.
Now let me just ask, then, just one question if I might as
we talk about proceeding further. What do you think is the
status of what we have negotiated so far? The United States
issued a document. Is this, as far as you are concerned, the
starting point for further negotiations or are we going to go
back and renegotiate where we once were?
Ambassador Richard Fisher. Let me make two points here, if
I may, Congressman. And, first, let me say that I agree with
your general statement and your plea. This is a big deal,
hypercomplex, and we have to keep our eye on the ball in terms
of what we are trying to achieve here and it goes beyond just
establishing trading rights with a country. It deals with all
the other aspects of putting together an economy that is driven
by the rule of law, that is transparent, where we can
distribute our products once we establish trading rights, and
so on.
But, addressing your specific question, in terms of what we
achieved in April. First, we did sign an agreement. That is,
Ambassador Barshefsky and Madame Wu Yi, who is a State
councilor, concluded and signed a bilateral agreement on
agricultural cooperation which addressed the sanitary and
phytosanitary issues and barriers to the U.S. exports of citrus
and meats and Pacific Northwest wheat. That has been done.
Second, we reached a market-access agreement on the
majority of the market issues affecting industrial goods and
agriculture and services. We do, as you pointed out, have some
unresolved issues. Congressman Crane pointed out in banking
securities and audiovisual services and other areas.
And the April 8 agreement is subject to verification and
rectification. That is, we have to go through the schedule and
have a discussion to make sure that we got every point right.
We have released to you and to other Members of both the House
and the Senate a 17-page summary of where we were as of April
8. And, again, I want to underscore that we will not move
backward from that point. We move forward from that point. We
move forward from that point and not backward, in answer to
your question.
Mr. Levin. Thank you.
Ambassador Richard Fisher. We still have to resolve these
other issues and we have to finalize the discussion on the
protocols, but we don't view that as a point to move backward
from but rather to move forward from.
Mr. Levin. All right, then, you need to, if I might say
so--and we have talked a lot about this--describe for this
Congress and the American public the issues that are left to be
resolved. When Premier Zhu was here, I think it was an
effective bargaining point to talk about 99 percent there,
but----
Ambassador Richard Fisher. His description.
Mr. Levin [continuing]. But those issues that are
outstanding are important issues that need to be resolved and
we have a considerable ways to go and that needs to be
understood within these halls and also by the American public.
Because my--and I will finish with this--I am convinced that
the majority of my constituents--and I think this is going to
be true for most Members--in the end, when permanent NTR comes
up, if it does--and it will have to if there is an accession
agreement--they will ask the question: As important as these
other issues are, what is it going to mean for my standard of
living, in the short term and the long term? And we have to be
in a position where we can stand up and not just repeat the
usual platitudes or whatever they are, but point out why this
will work most likely, economically, to the benefit of the
American public in the short and the long term.
So don't be inhibited about talking about the work
remaining to be done because, otherwise, we are going to be
talking about all the other issues except the trade, economic
issues that are the heart of these negotiations and I think, in
the end, will determine, more than anything else, the votes in
this institution. Thank you.
Ambassador Richard Fisher. Thank you, Congressman.
Chairman Crane. Mr. Fisher, we know your time constraints,
so you keep an eye on the clock and you let us know when you
have to run to the airport. And, with that, I yield to Mr.
Houghton.
Mr. Houghton. Well, I will keep an eye on the clock and
thanks very much for your testimony. I have the Protocol, I
have listened and read your testimony, and I have no questions.
Chairman Crane. Mr. Rangel.
Mr. Rangel. Ambassador, always good to see you and I thank
you for your eloquent testimony. I wondered whether you can
tell me whether there was any difference in terms of the
support and the emphasis on trading with Communist China and
the embargoes on this little Communist country called Cuba? I
mean, when you talk about encouraging trade and stabilizing
government and helping people and all of the great things
America stands for throughout the world, it just seemed to me
that if it is good for 1 billion people in China, that it makes
a lot sense for about 8 million in Cuba.
Well, you don't really have to respond to that----
Ambassador Richard Fisher. I hear that. [Laughter.]
Mr. Rangel. It is just that the same way you have a handful
of people being political as it relates to Cuba, we have more
than a handful of American businesspeople being political as it
relates to trade with China. And when the President,
Republicans, and Democrats make a political decision, it is
very difficult to undo those things. But it is difficult for us
to explain why we are trading with Vietnam, and China, but we
are afraid of the Communist menace in Cuba.
Having said that, one of things I assume the administration
would support is that expanded trade means expanded jobs for
Americans and that China is a classic example. I assume,
though, you recognize that with trade, with lower wages, with
working conditions that are substandard or at least different
from ours, that there has been a lot of displacement in the
United States. My colleague mentioned steel, but certainly in
the textile and apparel industry. Do you have any records that
would indicate how many jobs we gained? How many jobs we have
lost? And, more specifically, the type of jobs that this
progress has cost us?
Ambassador Richard Fisher. Mr. Rangel, that is always a
very difficult calculus. We do believe that, presently, even
with the low levels of market penetration we have achieved in
China, that some 400,000 U.S. jobs are dependent on the current
market access that we have. It is hard to quantify, although
the Subcommittee has made some efforts to quantify the numbers
that will result from a WTO accession by China. But the effort
here is to reduce the trade deficit, to expand our penetration
of that market, to sell more products made by American workers,
farmers, and service providers into that economy.
Mr. Rangel. But is there any way----
Ambassador Richard Fisher. But, in terms of the specific
numbers, Congressman----
Mr. Rangel. Well, you know that certain industries have
been hit and hit hard by Chinese textile manufacturing and by
the apparel industry. And I don't think anyone challenges that,
with progress, you find these types of displacements. But we
have to know, one, which jobs are being lost but, more
importantly, which jobs are being gained to make a case as to
why expanded trade is good for all America and not just one
small segment of it. And this is particularly so as it relates
to--what do they call those state factories?
Ambassador Richard Fisher. State enterprises.
Mr. Rangel. State enterprises. Are there millions of
Chinese that work in the state enterprises?
Ambassador Richard Fisher. There are, by some estimates,
100 million Chinese that work in state-owned enterprises and
they are enterprises which the reformists within China----
Mr. Rangel. The what?
Ambassador Richard Fisher. They are enterprises in which
the reformists in China are seeking to rationalize. They are
extremely inefficient.
Mr. Rangel. Yes, but my point is that these factories have
nothing to do with the free marketplace. Right? I mean, this is
their unemployment compensation. This is their welfare program.
This is the antirevolution program. And I don't see how, when
we talk about reviewing the standard of compensation and the
standard of working conditions, we are not even saying that we
intend to dismantle those factories, those, quote,
``enterprises'' are we?
Ambassador Richard Fisher. Actually, we deal with this
specifically in what is known, as Mr. Levin said, it sounds
obscure, but the protocol aspects of this WTO discussion.
Mr. Rangel. That is good, but I mean----
Ambassador Richard Fisher. And let me just talk to that
point----
Mr. Rangel [continuing]. We are not saying that they are
going to have to dismantle those in order to get our support to
go into the WTO are we?
Ambassador Richard Fisher. Yes, we are saying that they
will need to ensure that these enterprises act on a commercial
basis.
Mr. Rangel. When? What year?
Ambassador Richard Fisher. This is part of their accession
agreement to the WTO.
Mr. Rangel. You mean----
Ambassador Richard Fisher. They have agreed that----
Mr. Rangel [continuing]. That these factories, these
enterprises, will operate on the same way that democratic
countries expect the free enterprise system to work? With labor
standards and minimum wages and things that we Americans know
what it is about? That, until they do that, we will not support
their entry into the WTO?
Ambassador Richard Fisher. What I am saying, Congressman
Rangel, is that, as part of the Protocol aspects of the WTO
accession, China has agreed that it will ensure that state-
owned and state-investment enterprises will act like commercial
enterprises, that is, make purchases and sales based solely on
commercial considerations such as price and quantity and
availability and marketability, which they do not do now. That
they will provide U.S. firms and foreign firms with the
opportunity to compete for sales and purchases on
nondiscriminatory terms and conditions. And that they will not
influence these commercial decisions, either directly or
indirectly, unless it is in a WTO-consistent manner.
Now I am not telling you that they are saying they will pay
the same minimum wage as the United States and so on. So it is
not as complete and comprehensive as you requested.
Mr. Rangel. No, I didn't mean, for instance, to suggest
that, but I visited China many times and they have never
indicated that they intend to commercialize these institutions
that are basically not there for productivity but are there to
satisfy the great unemployment that they have in China and that
they consider this to be a social program, not a free
enterprise program. And our labor leaders are concerned that
the more we support a subsidized work force, much like we do in
our prisons, that we will not be able to compete against that.
Is there a section in the Protocol that you can direct that
I can get more information?
Ambassador Richard Fisher. Yes, sir. May I suggest,
respectfully, Congressman, in the interest of time, that I send
you that section.
Mr. Rangel. Yes.
Ambassador Richard Fisher. So you can see where we stand on
that issue and I would be happy to do so.
[The information was forwarded to Mr. Rangel and is being
retained in the Committee files.]
Mr. Rangel. Thank you. Thank you, Mr. Chairman.
Chairman Crane. You bet. And let me just add a footnote to
what you were talking about and that is I understand that there
is a major effort underway right now to start importing labor
since we have been at full employment for about 3 years.
I yield now to Mrs. Johnson.
Mrs. Johnson of Connecticut. I thank you very much, Mr.
Chairman. I have just one question. It is my understand that in
the agreement as it now stands that, after 5 years, the special
mechanism that we developed for the pricing of products in
nonmarket economies will expire. This is of some concern as it
would make enforcement of our antidumping laws and other
mechanisms that we have on the books to enforce fair trading
protocol would be very difficult to enforce. Is my
understanding of that point correct?
Ambassador Richard Fisher. Congresswoman, the duration of
this provision remains under discussion. We have not reached
agreement as to its duration. We have agreed that we will be
able to maintain our current antidumping methodology, which
treats China as a nonmarket economy, which is, I believe, what
you are referencing, in future antidumping cases. Moreover,
when we apply our countervailing duty law to China, we will be
able to take the special characteristics of China's economy
into account when we identify and measure any substantive
benefits that may exist.
That much we have established. What we have not
established, Mrs. Johnson, is the duration period.
Mrs. Johnson of Connecticut. It does seem to me that
duration is not the issue, that market structure is the issue
and, perhaps, the phasing-out of this could be paired with the
phasing-in of transparent pricing mechanisms in China. But I am
glad to know there isn't a 5-year limit and I would hope that
there wouldn't be.
Ambassador Richard Fisher. And we would be happy to, again,
discuss this further with you.
Mrs. Johnson of Connecticut. Thank you.
Ambassador Richard Fisher. Again, I am a little worried
about missing my plane, to be honest with you. Although I don't
want to be disrespectful.
Chairman Crane. You are not being disrespectful, you are
being properly respectful by making your son's graduation. So
you run to the airport, unless, Richie----
Mr. Neal. I have a question for Mr. Roth.
Chairman Crane [continuing]. You or Xavier have specific
questions for----
Mr. Neal. Mr. Roth.
Chairman Crane [continuing]. Ambassador Fisher?
Mr. Neal. No, I have a question for Mr. Roth.
Chairman Crane. OK. Well, then, you are excused and thank
you for your testimony.
Ambassador Richard Fisher. Thank you.
Chairman Crane. Have a good graduation ceremony.
And, with that, then, I would yield to Mr. Neal to pose a
question to Secretary Roth.
Mr. Neal. Thank you, Mr. Chairman. Mr. Roth, I have been a
consistent supporter of normal trade relations. You said that
if we were not engaged in normal trade relations with the
Chinese or we did not have what is formally known as MFN, that
human rights conditions would be far worse in China. Yet if you
listen to the testimony earlier this afternoon of Mr. Frank,
Mr. Rohrabacher, and Mr. Wolf, I think the consistent theme
that they offered was that, in their judgment at least, human
rights conditions in China are indeed worse than they were a
few years ago, even though we are engaged in the process of
attempting, once again, to elevate normal trade relations.
Mr. Roth. I don't think there is a contradiction between
those two things. I think that the human rights situation,
unfortunately, in China, we have seen, has gone up and down
over the years, depending on internal developments within
China. And I would like to emphasize that I think a lot of what
is happening in China right now has nothing to do with United
States policy and a lot to do with internal political dynamics
within China itself.
At the same time, I think that it still remains clear that,
as bad as the current human rights situation is, it could
certainly get significantly worse and that aspects could get a
lot worse. This includes things such as: further rounding up of
dissidents; longer prison sentences; denial of additional
access from the outside community to some of the people within
China; denial of access to areas such as Tibet, where we have
had some delegations allowed to go. China could withdraw from
its commitments to ratify the two covenants that we have talked
about.
So, again, without any way trying to suggest that the human
rights situation is satisfactory in China, I think it is just a
matter of common sense that it could be still be far worse and
I think that we have no prospects of getting better progress
for it if we revoke NTR.
Mr. Neal. What about Mr. Wolf's assertion today that normal
trade relations, if once again passed by the Congress, will
only prolong the current regime in China? Is there any basis in
fact to that or would you challenge that statement?
Mr. Roth. I would certainly challenge that statement simply
by saying that I think we have seen a pattern, throughout Asia
and in some other regions of the world, where economic
modernization has ultimately led to a process of political
modernization. Not in the kind of straight-line fashion that we
would like or in a predictable fashion so that I could tell you
in x years China will be democratic like us, but I think that
we have seen already enormous changes in Chinese society. And I
think back to my first trip to China 19 years ago and what it
looks like now, it is not the same China. And a lot of that
relates to the economic modernization that has taken place and
China's exposure to the outside world. And so I think that, in
fact, it is the opposite of what Mr. Wolf suggested.
Mr. Neal. You are arguing that reform in the marketplace
will generate greater demand for democratic reforms as well.
Mr. Roth. Over time.
Mr. Neal. Thank you, Mr. Roth.
Chairman Crane. Mr. Becerra.
Mr. Becerra. Thank you, Mr. Chairman. Actually, I just have
one question, I believe, and perhaps a couple of quick
comments. First, my recollection of the hearing we had not long
ago on the whole issue of unilateral sanctions probably has a
lot of relevance to what we are discussing here today, although
we are not talking about full sanctions upon China and we are
talking more about whether we reinstitute normal trade
relations. Certainly, some of the same aspects of the
discussion on unilateral sanctions applies to this discussion
as well.
And, given that, it seems to me that, since we are such a
high-tech, short attention span society when we operate under
these 20-second sound bites, if you look at it from that
perspective, the relationship with China can, at times, look
very bad. We have a $57 billion trade deficit, if you believe
the numbers that we have. The human rights situation, the
espionage, all of those things, obviously, make it difficult
for us, in 20 seconds, to make the relationship between the two
countries seem healthy.
But one of the things I have discovered in this
Subcommittee is that you have to try to look beyond some of
that and I would be interested in asking you a question, hoping
that you can give me a response that, to the degree possible,
reflects a neutral position or an objective observation of
this. If you look at the fact that we have a $57 billion
deficit in our trade with China and you extract only the fact
that, in terms of imports from China, we provide them with some
$71 billion worth of capital resources, funding, dollars for
the goods that they provide us, you would have to admit that
there is a case to be made that that is real leverage. That
could be a stick that could be used to try to force China to
change its ways in other matters.
If you could give me a quick comment there, because then I
would like to ask you about what happens, actually, if we were
to go to that stage of actually closing those doors,
economically, and would we really find that we would have that
big a stick?
Mr. Roth. It is an awfully hard question to answer with a
pat formula. I think you have to answer it at several different
levels. I think, one, you have to answer it at the systemic
level. What does it mean when we stop, when we change from our
commitment to open-trading regimes that has been our global
policy and that has enormously benefited the United States
overall and, instead, go to a situation where we try to use
this kind of leverage, whether it is against China or some of
the other countries with which we have large deficits. Is that
going to get us into a pattern of tit-for-tat retaliation with
other countries and cause the disintegration of the current
regime that has been so beneficial. So I think you have to deal
with it on a global level first.
Second, I think you have to deal with it on the China-
specific level and ask yourself the question: Is China
necessarily going to allow itself to be pushed around? Is China
going to be an economic determinist and, for the sake of our
access to markets, do anything that we ask? Those of us who
have seen Chinese nationalism at work would suggest that the
answer to that is no. We have some leverage but to make it into
the categorical assertion that we can use our market access to
get anything we want from China, I think, simply won't hold up
in terms of the facts.
Mr. Becerra. And that is probably where the example that
Mr. Rangel brought up is very telling. Those who support this
economic embargo on Cuba feel that there could be some success
there, yet, over the last 40 years and for a country as small
as it is, both in terms of population and its economic ability,
it hasn't caved in to some of these United States demands, what
would cause us to believe that a country that is 4 times as
large as we are populationwise and, probably, in the next 20
years, will surpass us in its economic productive capacity,
would yield as well?
Let me ask you a couple of quick questions in that regard
to this discussion. I believe that I have read that China is
the second-largest recipient of foreign investment after the
United States. And if you were to categorize it only with
developing countries--which it is--it would be the largest
recipient of foreign capital investment in the world. It would
seem to me that, given that what they are importing from us are
things like aviation--actually, let me look at this chart here
to be specific--electric machinery, power generation, air and
spacecraft, if we were to stop trading those products, sending
those products to China and stop them from sending over to us
the toys, the electrical machinery, the footwear, the power-
generation equipment, would China be closed to all markets to
obtain those same goods and would China be closed to its
markets to sell its goods?
Mr. Roth. I think it is obvious that if we blocked what we
were willing to sell, others will be more than happy to move
into the breech. And I think it is equally obvious that if
China feels that we have barred access to our markets, they
could decide to punish us in terms of whom they decide to
purchase from. To use your example of aviation, I think it is
pretty obvious that we don't have a monopoly on that market. So
I think we have to be very careful in terms of our actions and
the retaliation it might provoke.
Mr. Becerra. Thank you. Thank you, Mr. Chairman.
Chairman Crane. Thank you. And we want to express
appreciation to you, Ambassador Roth, for your testimony. And
let me add just a footnote to what you were asking about,
Xavier. Our population in our entire hemisphere, North and
South America and Central America, is equal to about two-thirds
of the population of China. A big market.
Mr. Becerra. And, by the way, Mr. Chairman, if I could
just--for the record, you made a comment that I hate to see go
without some response. You stated that we have been operating
for the last 3 years at close to no unemployment and that we
are close to having to import workers. I would be very cautious
about that because that 4.2 percent unemployment rate still
translates to about 6 million people in this country who are
unemployed. They would not see that as no unemployment and
certainly I hope, before we get to the stage of thinking of
importing people to do the work in this country, we would look
closely to the folks that are still seeking work or those we
are going to kick off the welfare rolls before we start talking
too seriously about the fact that we have near-full employment.
Chairman Crane. Yes, that 4.2 percent figure is the
government figure of what is defined as full employment.
All righty. I would now like to invite our next panel of
witnesses and I am going to yield to colleagues here on the
Subcommittee who have special parochial interests in
introducing some of our distinguished panelists. And I would
yield first to my good friend and colleague from New York. Is
that the State? New York?
Mr. Houghton. That is right.
Chairman Crane. Mr. Houghton.
Mr. Houghton. Thank you very much, Mr. Chairman. Not a
parochial interest, an international interest. I would like to
introduce George Fisher. He is sitting down here to my right.
He is chairman and chief executive officer of Eastman Kodak,
one of the outstanding business people in the country and is a
distinguished citizen for a variety of reasons, one of them
being that he lives in upstate, rather than downstate, New
York.
Mr. George Fisher. Thank you, Mr. Chairman.
Chairman Crane. And introducing our next panelist is our
good friend from I think also that little State up east there.
Mr. Rangel, you want to welcome our next panelist?
Mr. Rangel. Thank you, Mr. Chairman. While all of the
panelists are welcome, being from New York City, I want to
particularly welcome two, Harold McGraw, who is the president
and chief executive officer of The McGraw-Hill Companies in New
York, as well as my old friend Sy Sternberg who is the chairman
and president and chief executive officer of the New York Life
Insurance Company. As I said earlier I am concerned with the
good jobs we have lost, as we see in New York City, but I also
believe it is important one talk, as this panel may, about some
of the jobs that we have gained.
Thank you, Mr. Chairman.
Chairman Crane. And next to welcome a panelist is our
distinguished colleague from Michigan, Mr. Camp.
Mr. Camp. Thank you, Mr. Chairman. I also would like to
welcome Mr. Steve Van Andel, the chairman of Amway Corp. of
Ada, Michigan who will be testifying on behalf of the United
States Chamber of Commerce. Thank you.
Chairman Crane. And I also would like to welcome Steve
because I served on the board of trustees at Hillsdale with his
dad. A remarkable gentleman and he is part of Steve's history,
a major part, in the development of Amway and I think Steve in
his testimony comments that it started in the basement, didn't
it? And built up to a $7 billion enterprise.
And I would like to welcome also two other panelists and
that is George David, chairman and chief executive officer of
the United Technologies Corp., and Frederick Smith, chairman
and president and chief executive officer of FDX Corp. And,
with that, gentlemen, will you proceed in the order that you
are listed on the panel? Mr. Fisher, you kick off. And try and
keep your oral testimony, if you will, to 5 minutes. Any
written testimony will be made a part of the permanent record.
STATEMENT OF GEORGE M. C. FISHER, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, EASTMAN KODAK COMPANY, ROCHESTER, NEW YORK, ON BEHALF
OF BUSINESS COALITION FOR U.S.-CHINA TRADE
Mr. George Fisher. Thank you, Mr. Chairman. I appreciate
the opportunity to speak to all of you today. I thought I would
use my time today to briefly describe why having China as a
member of the World Trade Organization would be good not only
for the United States and for China, but also for my company,
Eastman Kodak. Then I would like to spend a few moments
addressing some of the arguments of those who would suggest
that we put our trade relationship with China on ice.
Let me focus immediately on the most important point. As I
see it, the largely complete WTO market access agreement would
be a great deal for this country. To illustrate, just consider
industrial tariffs as an aspect alone, which are quantifiable
and therefore easy for us to measure. Under the Uruguay round
GATT Agreement, final average bound tariffs in developing
countries like India, Brazil, and Indonesia ended up between 27
percent and 32 percent. Under the current draft, China WTO
Agreement, overall average tariffs for industrial goods would
be about 10 percent. That is a two-thirds reduction from the
current rates and would put China's average tariffs lower than
the WTO commitments of many other developing countries. And
this is just one example of how the proposed China WTO
Agreement provides better market access than we now have with
some current WTO members.
Second, I would like to suggest that the proposed WTO deal
would in fact be very good for Kodak in five important ways.
First, it would lower tariffs on input materials that we will
export to China, such as raw materials and sensitizing goods.
Duties in these areas would drop by about 50 percent over 5
years.
Second, in a growth area like digital cameras, China has
agreed to completely eliminate those tariffs, going from 45
percent to 0 by 2005.
Third, and for the first time, Kodak will be able to
provide after-sales service on medical imaging equipment sold
to Chinese hospitals because of China's bold commitments to
open its service sector.
Fourth, our motion picture film business would also be
helped by a significant increase in the number of foreign
movies that can be shown every year and mostly on Kodak-print
film.
And, fifth, WTO membership would, I believe, stabilize the
commercial environment so that our $1 billion investment in
China can proceed more effectively. This would facilitate more
exports of Kodak materials and high-end products from our
United States factories to China for finishing and final
assembly. In fact, 80 percent of our current exports from Kodak
from the U.S. go to one of our foreign subsidiaries for further
work, making overseas factories our best customers for made-in-
USA products and materials.
I would like to now turn, for a moment, to some of the
criticisms of trade with China. In recent weeks, some have said
that China should not be allowed to join the WTO because of
concerns over national security or perhaps human rights issues.
We cannot and should not minimize the importance of those very
important issues which must be addressed as part of an overall
United States-China relationship.
But I believe those critics who would link these issues
with WTO membership proceed with a slightly flawed assumption.
They view WTO membership for China as a reward for improved
behavior. I would suggest that is wrong. China's entry into the
WTO is not a reward, but rather a challenge. WTO membership
will, in fact, require China to make difficult and sometimes
painful economic reforms. For China, joining the WTO is, I
believe, the hard part. Staying out would be the path of least
resistance and also the one that would harm the U.S. the most.
Then there are other critics who would argue that China
will not comply with its WTO obligations and, therefore,
shouldn't be allowed. Well, as many of you on this Subcommittee
know, I have had considerable firsthand experiences with
countries that skirt their WTO obligations. And if, in fact,
that becomes the chief test, it is going to be a big party of
outcasts. Moreover, China's accession protocol is already more
comprehensive than the obligations of some of the current WTO
members and China's leaders, and unlike others--and I might
suggest Japan--are aggressively restructuring their economy
with actions and not just promises.
In sum, getting China into the WTO is strongly in this
country's best interests. But please remember that without
permanent NTR, all of the hard-won benefits of this agreement
would accrue to our foreign competitors from Europe and Japan
while American companies and workers sit on the sidelines. With
your Subcommittee's leadership, I am really confident that the
ultimate logic of free trade with China will continue to
prevail. Thank you.
[The prepared statement follows:]
Statement of George M.C. Fisher, Chairman and Chief Executive Officer,
Eastman Kodak Company, Rochester, New York on behalf of Business
Coalition for U.S.-China Trade
Thank you, Mr. Chairman; I appreciate the opportunity to
speak with you today in my role as CEO of Kodak and as a
participating member in the Business Coalition for U.S.-China
Trade.
I thought I would use my time to briefly describe why
having China as a member of the World Trade Organization (WTO)
would be good for the United States and for Kodak. Then I'd
like to spend a few minutes answering the arguments of those
who have recently suggested that we put our trade relationship
with China on ice.
Benefits to the United States
Let me focus immediately on the most important point: the
largely-complete WTO market access agreement would be a great
deal for America.
In fact in many ways, the draft agreement with China would
be a model for other developing countries to follow, and would
provide U.S. firms with even better market access than we have
in some countries which are already members of the WTO.
To illustrate, consider industrial tariffs, which are
quantifiable and therefore easy to measure. Under the Uruguay
Round GATT agreements, which Congress passed overwhelmingly in
1994, final average bound tariffs in developing countries like
India, Brazil and Indonesia were between 27% and 32%.
Under the draft China WTO agreement, overall average
tariffs for industrial goods would be about 10%. That's a two-
thirds reduction from current rates, and would put China's
tariff average considerably lower than the Uruguay Round
commitments of comparable developing countries.
But there is much more to this deal than industrial
tariffs. In other critical areas like financial services,
telecommunications, distribution and retailing, the China WTO
agreement is a model for reform that would open markets, foster
change in inefficient state enterprises, and force local firms
to meet expanded competition from foreign companies.
Benefits to Kodak
Let me turn to Kodak specifically. Five years ago, China
was Kodak's 17th largest market and we trailed Fuji in market
share for film and photographic paper. Today, China is our
third largest market and may soon pass Japan to be the world's
second-largest photographic market. Kodak is now the Chinese
market share leader in consumer film and paper, and there are
about 4,000 Kodak Express retail outlets in China, with new
ones being added every day.
Our growth in China is due in large measure to a $1 billion
investment we're making there. In a novel approach to state-
enterprise reform that was championed by Premier Zhu Rongji,
the Chinese government essentially allowed Kodak to acquire a
major portion of its state-owned photographic products
industry. We're upgrading the facilities, building new
factories, and will soon have the capacity to produce 100
million rolls of film per year in China. Importantly, as we buy
and upgrade old state-run factories, Kodak is already making
significant improvements in worker safety and environmental
compliance.
The proposed WTO deal would help Kodak grow in China even
more dramatically in the future, in five important ways:
1. It would substantially lower tariffs on critical input
materials that we will export to China, such as raw chemicals
and sensitizing emulsions: duties in these areas will drop by
about 50% over five years.
2. In important growth areas like digital cameras, China
has agreed to completely eliminate tariffs on digital cameras--
going from 45% today to zero by 2005.
3. For the first time, Kodak will be able to provide after-
sales service on medical imaging equipment sold to Chinese
hospitals, because of China's bold commitments to open its
service sector.
4. Our motion picture film business would also be helped by
a significant increase in the number of foreign movies that can
be shown in China every year... on Kodak print film, of course.
5. Finally, a WTO deal and permanent normal trade relations
would stabilize the commercial environment so that our $1
billion investment in the Chinese market can proceed.
I want to emphasize that our Kodak factories in China will
be important customers for Kodak exports made in the United
States, as we ship raw materials and high-end products to China
for finishing and final sale. In 1998 alone, we exported more
than $100 million in goods and materials to China, mostly to
our own facilities. In fact, about 80% of Kodak's U.S. exports
go to our own foreign subsidiaries for finishing and final
sale, making Kodak's overseas factories our best customers for
Made-in-USA products and materials.
Answering Criticisms of Trade With China
Now, let me turn to the critics of trade with China. In
recent weeks, some have said China should not be allowed to
join the WTO because of concerns over national security or
human rights issues.
We cannot minimize the importance of these issues, which
must be addressed as part of the overall U.S.-China
relationship. But I believe critics who would link WTO to these
issues proceed from a fundamentally flawed assumption. They
view WTO membership for China as a reward for improved
behavior. That's wrong. China's entry to the WTO is not a
reward, but a challenge. WTO membership will require China to
make difficult and sometimes painful economic reforms. The hard
work is on China's side. The U.S. has to give up very little.
It simply makes no sense to look at WTO entry as a
political weapon to pressure China on non-trade issues. Denying
WTO membership would only strengthen the hand of those in China
who oppose economic reform, who want to protect Chinese
industry, or who prefer to isolate Chinese people from Western
influences. For China, joining WTO is the hard part. Staying
out would be the path of least resistance.
The record of trade with China provides strong evidence
that economic engagement produces positive results. China's
entry to WTO would accelerate a trend toward market-driven and
more open foreign investments--an approach exemplified by
Kodak's acquisition of Chinese state-owned assets. Ten years of
involvement by U.S. companies in China demonstrates that the
presence of American companies helps to improve the living
standards of Chinese workers. And American firms bring with
them practices that improve China's environment and worker
safety. In Kodak's case, we bought very old state-owned
photographic plants in Wuxi, Shantou and Xiamen, upgraded them,
significantly improved environmental compliance, and recently
celebrated 5 million safe work hours at our new plant under
construction in Xiamen.
Finally, there are some who argue that China won't comply
with its WTO obligations, and therefore shouldn't be allowed
in. Well, Mr. Chairman, I have some first-hand experience with
countries that skirt their obligations to the WTO, and if this
is the chief test for membership we'll have a long list of
outcasts. In China's case, there are two important factors to
consider. First, China's protocol is already more comprehensive
than the existing obligations of some current WTO members. And
China's leaders--unlike Japan's--are restructuring their
economy with tough actions, not words.
Summary
In sum, Mr. Chairman, getting China into the WTO is
manifestly in America's interests. But please remember that the
greatest irony would be for the Administration to conclude a
China WTO deal, but then see Congress reject permanent NTR.
This would deliver all of the market access benefits won by our
negotiators into the hands of America's foreign competitors,
while leaving American firms and workers standing on the
sidelines. With your committee's leadership, I'm confident that
the ultimate logic of free trade with China will prevail.
Thank you.
Chairman Crane. Thank you.
Mr. McGraw.
STATEMENT OF HAROLD ``TERRY'' MCGRAW III, PRESIDENT AND CHIEF
EXECUTIVE OFFICER, MCGRAW-HILL COMPANIES, NEW YORK, NEW YORK,
ON BEHALF OF EMERGENCY COMMITTEE FOR AMERICAN TRADE
Mr. McGraw. Thank you, Mr. Chairman. And, Members of the
Subcommittee, thank you for this opportunity as well to be here
today. I am Terry McGraw. I am the president and chief
executive office of The McGraw-Hill Companies and I am here
today on behalf of the ECAT, the Emergency Committee on
American Trade, an association of the heads of the major
American firms with international operations. ECAT was formed
over three decades ago to support measures that expand U.S.-
international trade and investment. In addition, Mr. Chairman,
ECAT and McGraw-Hill Companies are strong supporters of the
Business Coalition for United States-China Trade.
The McGraw-Hill Companies is a global information services
provider and one of the world's leading providers of financial
information and rating services and publishers of educational,
business, and professional information. We employ 16,500 men
and women in 400 offices in 32 countries. I think you probably
best know us through the McGraw-Hill imprint in education,
Standard and Poor's, and Business Week, to name some of our key
brands. The McGraw-Hill Companies have a relatively modest
business interest in China, accounting for less than 1 percent
of our total companies' revenues, but for our company, like
many others, the commercial opportunities are tremendous.
As exciting as the future prospects may be, let us first
consider the impact and success of engagement with China in
recent years. The changes have touched nearly every aspect of
Chinese society: Government, technology, finance, and
education. In terms of government, there has been a devolution
of power to local authorities. There have been elections in
China. Hundreds of millions of rural Chinese go to the polls
every 3 years. And although they are only local, the elections
have introduced such democratic concepts as the secret ballot,
a choice of candidates, and a public vote count.
The technology revolution has brought 2.2 million Chinese
users to the Internet, even though it only became available 3
years ago. Earlier this year, China launched its own government
on the Internet project. More than 60 percent of the government
departments are expected to be online by the end of this year
and 80 percent are expected to be online by the year 2000.
In the financial arena, it was not too long ago that ``red
chips'' referred to something other than a red poker game. Now
red chips mean large, publicly traded, Chinese companies with
growth potential. In fact, there are now between 25 million and
30 million individual stockholders in China.
While there is a long way to go, obviously, in the
liberalization of financial services, there has been
significant change. And, in terms of education, there are
equally important changes. Did you know, for example, that in
1984, only one university in China offered MBA courses and by
the end of 1997, more than 56 universities were licensed to
offer MBAs in China? And, speaking of education, I am proud to
say that a teacher education delegation from China organized by
the Chinese Ministry of Education is visiting our elementary
school division today to learn about the American system of
teacher education.
Our challenge now is to find a way to encourage continued
changes in China, especially on the human rights front, while
we address other bilateral and multilateral issues.
Another issue is enforcement. There is an urgent need to
get China to play by the rules of international commerce. China
must be subject to the rules of the multilateral trading system
and its enforcement mechanisms. In 1995, I joined then-U.S.
Trade Representative Mickey Kantor in Beijing for the signing
of a historic intellectual property bilateral agreement with
China. We fully understood then that it would take some time to
halt the piracy of intellectual property but we were hopeful
the agreement would be honored. It has been a deep
disappointment. In 1998, United States book publishers alone
lost $125 million to China book piracy. This is obviously a
serious matter and it cannot continue.
We need to bring China into the world trading system and
use the binding dispute resolution mechanism to protect United
States intellectual property rights. As a WTO member, China
would be required to protect those rights. If we do not bring
China into the world trading system, there is certain to be
continued loss for United States companies and the support
mechanisms necessary to keep engagement moving forward will
diminish. Countless opportunities will never be realized.
Finally, I want to stress the need for action. There will
always be issues between our two countries. There is no such
thing as a perfect time in a relationship as complex and
multifaceted as ours. Change is a process. It takes time. The
changes in China have been huge and have happened in a
relatively short period of time. But we are under no illusions.
China still has a long, long way to go. If we want changes in
China to continue, we must remain engaged on all levels:
Diplomatically, commercially, culturally, socially. Further
engagement will mean further changes and it will mean having a
way to enforce laws and ensure fair play.
Finally, our discussion today is not one of commerce versus
values. Rather it is about what is in the long-term best
interests of America and the rest of the globe. Let us build on
the momentum of the positive changes already underway in China.
To do that, ECAT calls on the Congress to support the
continuation of China's normal trade relation status; to
endorse the swift conclusion of our negotiations with China on
WTO membership, based on a commercially acceptable protocol of
accession; and to move forward with consideration of permanent
NTR treatment for China as soon as we conclude.
Mr. Chairman and Members of the Subcommittee, you have long
understood the benefits of engagement with China. By holding
these hearings today, you are demonstrating your commitment to
a thoughtful and careful approach to the entire issue of United
States-China relations. Thank you for the opportunity to be a
part of this discussion.
[The prepared statement follows:]
Statement of Harold ``Terry'' McGraw III, President and Chief Executive
Officer McGraw-Hill Companies, New York, N.Y., on behalf of Emergency
Committee for American Trade
I. INTRODUCTION
My name is Terry McGraw, and I am President and Chief
Executive Officer of The McGraw-Hill Companies. The McGraw-Hill
Companies is a multi-media publishing and information company
headquartered in New York City. We employ 16,500 people in over
40 states and 30 countries. We provide financial services
through our global network of offices for Standard & Poor's,
educational and professional publishing, and information and
media services. McGraw-Hill's textbooks and multi-media
learning materials are used in classrooms around the world and
our publications--such as Business Week, the fastest growing
business publication in Asia--appear on newsstands here at home
and abroad.
As an information provider, the expansion of the global
economy and the progress of technology are keys to our growth
into the twenty-first century. The Chinese market is a good
example of this. Our company currently has relatively modest
business interests in China. But for us and many other U.S.
companies, the potential for commercial opportunities in the
Chinese market is significant. Maintaining stable bilateral
commercial relations with China through continuation of its NTR
status and broadening market access in China for U.S. goods and
services through a strong WTO market-access agreement are
important to ensure continued global economic expansion and
greater opportunities for The McGraw-Hill Companies and other
American companies in China.
I am appearing before the Trade Subcommittee today on
behalf of the Emergency Committee for American Trade, an
association of the heads of major American companies with
global operations representing all principal sectors of the
U.S. economy. The annual sales of ECAT member companies total
over $1 trillion, and the companies employ approximately four
million men and women. Building stable, bilateral commercial
relations with China is a priority for ECAT member companies.
In addition, ECAT and The McGraw-Hill Companies are strong
supporters of the Business Coalition for U.S.-China Trade, an
ad hoc group of America's leading companies and major
associations working for China's accession to the WTO on strong
market terms and congressional extension of permanent NTR
treatment to China.
ECAT recognizes that current U.S.-China relations are
severely strained by the weight of serious diplomatic and
security issues. Times of trouble, however, can be times of
great opportunity. As the United States seeks to deal with the
difficulties in its relations with China, strong commercial
links can continue to serve as the backbone which reinforces
bilateral ties. ECAT commends the Chairman and members of this
Committee who have expressed clearly and forcefully the
importance of moving forward with commercial relations with
China.
To strengthen bilateral commercial relations with China, we
in ECAT believe that China's NTR treatment must remain
uninterrupted while efforts are made to conclude negotiations
as expeditiously as possible on the terms of China's WTO entry.
At the same time, we must prepare the way for the extension of
permanent NTR treatment to China if the United States is to
finally enjoy the full fruits of China's WTO membership.
II. IMPORTANCE OF MAINTAINING CHINA'S NTR STATUS AND THE U.S. POLICY OF
ENGAGEMENT
The U.S. policy of engagement with China has contributed to
the dramatic transformation of the Chinese economy over the
past two decades. It has enabled significant growth in U.S.
trade and investment in China, provided the basis for U.S.-
China cooperation on efforts to alleviate the Asian financial
crisis as well as on foreign policy and security issues, and
spurred greater individual economic freedom, higher living
standards, and greater access to outside information for the
average Chinese citizen. Engagement has also supported the
continued economic health of Hong Kong.
Maintaining China's NTR status is the cornerstone of the
U.S. policy of engagement and the commercial, foreign policy,
and security objectives that it supports. Interruption of
China's NTR treatment would undermine these key objectives.
NTR treatment does not confer any special status on China.
It simply means that we are agreeing not to discriminate
against China's goods in favor of those of a third country. In
return, China must agree to extend NTR treatment to the United
States. NTR treatment is most-favored-nation status, a well-
established principle under international law and the WTO
rules. The United States grants NTR treatment to virtually all
of its trading partners, with the exception of Afghanistan,
Cuba, Laos, North Korea, and Vietnam. Therefore, the extension
of NTR status to China simply confers what is normal trade
status for the majority of U.S. trading partners.
The Contribution of China's NTR treatment to U.S. Trade and Investment
Since the normalization of U.S.-China relations two decades
ago, U.S. exports to China have increased nearly 20 times,
totaling $18 billion in 1998 and directly supporting over
200,000 American jobs in the manufacturing and agricultural
sectors and indirectly supporting tens of thousands of
additional U.S. jobs in retailing, distribution, and other
sectors. During the same time period, U.S. investment in China
has grown to roughly $21 billion. China is already the fourth
largest market for U.S. agricultural exports, and the American
agricultural community has called China its most important
growth market for the 21st century.
There is also vast potential for further sales of U.S.
services and manufactured goods in China over the next decade
as its 1.2-billion-person economy expands and China spends more
than $700 billion on infrastructure projects to support its
growing population and commerce. A foothold in the China market
is also key to expanding access to other Asia-Pacific markets
that, in the long term, hold important potential for growth in
U.S. trade and investment. Disrupting China's NTR treatment
would jeopardize existing U.S. trade and investment in China
and cut off opportunities for future growth.
The McGraw-Hill Companies sees significant growth
opportunities in China for our information products and
services. We want to provide Chinese workers and consumers with
our educational and information products and services. The
McGraw Hill Companies' subsidiary, Standard & Poor's, recently
established a relationship with Xinhua Financial Consultancy,
through which real-time international financial data and news
is provided to the Chinese investment community. The McGraw
Hill Companies' School Division is hosting a visit from a
Chinese Ministry of Education delegation as we speak. The
delegation is here to learn about the American system of
teacher education. Through these and many other activities, we
believe we can help the Chinese improve their standard of
living and assure economic growth. We want the opportunity to
continue and expand our activities in China.
China's NTR Treatment, U.S. Security Interests, and Efforts to
Encourage Greater Economic Freedom and Openness in Chinese Society
The continuation of China's NTR treatment is critical to
far more than just commercial interests. It is also essential
to strengthening China's strategic cooperation and promoting
greater openness in Chinese society. Our commercial ties with
China have contributed to China's willingness to play a
constructive role in encouraging North Korea to end its nuclear
weapons program, brokering a peace agreement in Cambodia, and
trying to halt the arms race between India and Pakistan. China
is also playing a major role in restoring Asian financial
stability by maintaining the value of its currency and
contributing to IMF recovery packages for Asian economies.
Withdrawal of China's NTR treatment would disrupt these vital
areas of strategic cooperation and further weaken our already
damaged diplomatic ties.
China's NTR status and the U.S. policy of engagement should
also be maintained to help fuel the remarkable ongoing
transformation of Chinese society that has occurred over the
past 20 years. As China's internal markets have opened and
foreign investment has increased, Chinese government control
over the lives of average Chinese citizens has decreased. As a
result, the Chinese people now enjoy higher living standards,
greater economic freedom, and more access to outside
information than ever before. The Chinese government is now
actively encouraging private home ownership. Use of the
Internet by average Chinese citizens is burgeoning with over 2
million Chinese Internet users, bringing an even greater flow
of outside information and ideas into China. In addition,
several hundred million Chinese have participated in village-
level elections.
Despite this tremendous progress, Chinese society is not
fully open and much work remains to be done. The Asian
financial crisis and ongoing efforts to restructure China's
state-owned enterprises have contributed to rising
unemployment, civic disturbances, and, unfortunately, renewed
government efforts to repress political dissent. We must
continue to press China to respect the rule of law and to honor
its commitments under the International Covenant on Civil and
Political Rights which it recently signed. Engagement and
continuation of China's NTR status provide the basis for
continuing progress on these issues.
China's NTR Treatment and the Continued Stability of Hong Kong and
Taiwan
Hong Kong remains a vitally important gateway to Mainland
China, and trade with Mainland China is a fundamental part of
its economy. Its economy is an ongoing positive influence on
Mainland China. The continuation of China's NTR treatment is
therefore critical to the health of Hong Kong's economy.
Withdrawal of China's NTR treatment would decrease Hong Kong's
trade by tens of billions of dollars, result in a loss of tens
of thousands of jobs in Hong Kong, and destabilize its
financial markets.
Maintaining China's NTR treatment is also an important part
of supporting our nation's ``One-China'' policy, under which
the United States formally recognizes the People's Republic of
China, acknowledges that Taiwan is part of China, and maintains
only unofficial commercial relations with Taiwan. This policy
has enabled the United States to move forward with its
commercial and political relationship with China while
preserving commercial ties with Taiwan, which remains an
important U.S. export market.
The ``One-China'' policy has also encouraged China and
Taiwan to develop their trade and investment ties and to move
toward renewal of their bilateral dialogue. Trade flows between
China and Taiwan have grown to over $17 billion, and Taiwanese
companies have invested over $35 billion in China over the last
decade. The disruption of China's NTR status would undermine
U.S. efforts to allow Taiwan to prosper as a vibrant democracy.
It would also threaten Taiwan's efforts to join the WTO, as
there is an informal understanding that Taiwan will not be
admitted to the WTO until after China has acceded. If China's
NTR status were withdrawn, it is unlikely that further progress
could be made in our bilateral negotiations with China on its
WTO accession, thereby stalling both China's and Taiwan's WTO
membership indefinitely.
III. THE UNITED STATES BILATERAL TRADE DEFICIT WITH CHINA DOES NOT
WARRANT DENIAL OF CHINA'S NTR STATUS
While our bilateral trade deficit with China is of concern,
it would only be exacerbated by the removal of China's NTR
status. Denial of China's NTR treatment would result in the
erection of additional barriers to U.S. goods and services in
the form of high tariffs and other retaliatory measures that
would lead to a worsening of the trade deficit. The best means
to address our trade deficit with China is pursuing the removal
of market access barriers in our bilateral negotiations with
the Chinese on the terms of their WTO accession. Until
negotiations are completed on China's WTO accession, we must
stand firm in insisting that China adhere to its existing
bilateral market access commitments.
It is also important, however, to put our bilateral trade
deficit with China in perspective. The trade deficit reflects a
shift in production of low-wage consumer products, such as
footwear and toys, to China from economies such as Taiwan. A
portion of the bilateral trade deficit is also due to U.S.
unilateral sanctions against China, such as restrictions on the
export of high-speed computers. In addition, although they are
reported separately, a large portion of U.S. exports to Hong
Kong, as much as 40 percent, is ultimately destined for China.
Finally, alternative approaches to the Department of Commerce
methodology used to compile trade data suggest that the China
trade deficit may be one-third lower than indicated in official
U.S. Government statistics.
IV. SECURING CHINA'S WTO MEMBERSHIP AND THE EXTENSION OF PERMANENT NTR
STATUS TO CHINA THIS YEAR
ECAT believes that the United States has a unique window of
opportunity this year to move beyond annual NTR renewal to
create a more stable commercial relationship with China. If an
agreement is not reached on China's WTO accession in the near
future, there is a real risk that a final agreement will be
delayed for years. Of course, China must do its part and agree
to resume the bilateral negotiations with the United States on
WTO accession.
Benefits of China's WTO Membership
It is in the U. S. interest to bring China into the WTO on
the basis of a commercially-acceptable protocol of accession.
The McGraw-Hill Companies and other ECAT member companies
cannot gain a secure foothold in the Chinese market until China
is subject to WTO rules and dispute settlement. We cannot build
a solid commercial foundation in China based on piecemeal
enforcement of bilateral commitments through counterproductive
unilateral sanctions. We must ensure that China abides by
uniform multilateral rules, and we must be able to enforce
those rules through WTO dispute settlement.
In our case, we will not be able to extend our information
services and distribute our publications in China until
existing foreign investment and distribution restrictions are
liberalized and China agrees to abide by the WTO Trade-Related
Aspects of Intellectual Property Rights (TRIPS) Agreement.
Currently, our ability to do business in China is severely
limited by restrictions on distribution rights and foreign
investment. Piracy of our textbooks and educational materials
is also a serious problem, as China accounted for the highest
level of book piracy in the world last year, costing U.S. book
publishers an estimated $125 million in lost sales.
China's WTO membership is also a critical part of fully
integrating China into the global economy and encouraging China
to play a more positive role in ensuring future global economic
stability and growth, particularly in Asia. China's WTO
membership would help to bolster China's commitment to
maintaining the value of its currency, which has been key to
restoring stability to Asian financial markets. China's WTO
membership would be a significant vote of confidence in the
multilateral trading system.
Securing China's WTO membership is also the best means to
stem our rising trade deficit with China in that it would
comprehensively address Chinese market access barriers.
Achieving binding WTO market access commitments enforceable
under WTO dispute settlement procedures is the way to deal with
such barriers. The longer China's WTO accession is delayed, the
more U.S. business opportunities are lost.
In addition, China's WTO membership will further structural
reform in China through the fundamental changes in China's
economic regime that will be required as part of the process of
joining the WTO and accepting its obligations. This in turn
will create a more open climate for trade and investment in
China that will spur economic growth, create new jobs, and
improve the living standards of average Chinese citizens.
Concluding WTO Bilateral Negotiations with China
This past April during the U.S. visit of Chinese Premier
Zhu Rongji, the United States and China achieved major
breakthroughs in bilateral market access negotiations on the
terms of China's WTO entry which would dramatically open
China's markets to American goods, services, and agriculture.
The breakthroughs announced by the Administration in April
will:
Be comprehensive, covering agriculture, industrial
goods and services, elimination of quotas, removal of sanitary
and phyto-sanitary barriers to agriculture, export subsidies,
tariff elimination, removal of limits on trading rights and
distribution, and restrictions on services;
Grant no special favors to China and require China
to reduce its trade barriers;
Be fully enforceable under U.S. trade laws, WTO
dispute settlement procedures, and special enforcement
mechanisms to be included in China's protocol of accession; and
Be implemented swiftly upon China's accession,
with the exception of China's commitments to remove its
sanitary and phyto-sanitary standards barriers to agricultural
products, as they are already being implemented.
It is also important to note that China's market access
concessions are one-way and do not require the United States to
make any concessions in return.
The April negotiations have put the United States at the
doorstep of a commercially-acceptable WTO protocol of accession
with China. For The McGraw-Hill Companies, the WTO bilateral
agreement being negotiated with China will mean that
restrictions on market access to books, periodicals and
magazines will be removed, restrictions on investment will be
eased, and protection of our intellectual property rights will
be improved. Most importantly, the United States will be able
to enforce these commitments through binding WTO dispute
settlement.
We cannot afford to lose this opportunity, and ECAT
believes that both the U.S. and Chinese governments must
redouble their efforts to resolve any outstanding issues to
further open markets and to conclude a market access agreement.
Need to Extend Permanent NTR Treatment to China
The United States cannot take full advantage of the
benefits of China's WTO membership and its market access
commitments unless it extends permanent NTR treatment to China.
Permanent NTR or MFN treatment is a core obligation under
Article I of the GATT and the WTO. The Jackson-Vanik provisions
of Title IV of the Trade Act of 1974 prohibit the United States
from granting permanent MFN treatment to China. Once China is
admitted to the WTO, if the United States extends WTO benefits
to China, the Jackson-Vanik provisions could immediately be
challenged by the Chinese as denying MFN treatment in violation
of Article I. The United States has therefore taken the
position that it would not apply WTO benefits to China until
the Jackson-Vanik provisions have been amended to allow the
permanent extension of NTR treatment to China.
ECAT urges the Congress to begin to consider extending
permanent NTR treatment to China as soon as the bilateral
negotiations on market access and the protocol of accession
have been completed between the United States and China.
V. CONCLUSION
The continued extension of China's NTR status clearly
advances our national interest. The McGraw-Hill Companies and
other ECAT member companies believe that the United States
should take advantage of the historic opportunity before us to
conclude negotiations with China on a commercially-acceptable
protocol of accession as expeditiously as possible. Based on
such an agreement, The McGraw-Hill Companies and ECAT are
committed to working with the members of this Committee and
other members of Congress to build bipartisan support for the
permanent extension of NTR treatment to China.
I appreciate the opportunity to appear before the Trade
Subcommittee on behalf of ECAT.
Chairman Crane. Thank you, Mr. McGraw.
Mr. David.
STATEMENT OF GEORGE DAVID, CHAIRMAN AND CHIEF EXECUTIVE
OFFICER, UNITED TECHNOLOGIES CORPORATION, HARTFORD,
CONNECTICUT, AND MEMBER, U.S.-CHINA BUSINESS COUNCIL, ON BEHALF
OF BUSINESS COALITION FOR U.S.-CHINA TRADE
Mr. David. Mr. Chairman, thank you and thank you for the
opportunity to appear before your Subcommittee. This
Subcommittee is already thoroughly informed on the issues, so I
thought I would take my time today, brief as it is, and offer
simply some data on United Technologies Corporation and our
experiences in China, which may be helpful to you.
First of all, we are a large American manufacturer, ranking
number 21 on Fortune's list of industrial companies. We are
America's ninth largest exporter. We also have had a good sized
and long-time presence in China with sales there of about $1
billion a year. And about a fifth of those sales to China are
high-technology exports from the United States, principally
aerospace products. You will also recognize our company by its
principal trademarks, Pratt and Whitney aircraft engines, Otis
elevators, Carrier Corp. air conditioning, and Sikorsky
Aircraft helicopters.
Our history in China is rich. We first sold elevators there
in the year 1900. We sold air conditioners there in the
thirties, and, Pratt and Whitney's then ``piston'' engines in
the same decade. Our ventures in China today number 21 and we
employ about 10,000 people locally.
I have four points to make today: First, we are a big
exporter to China, and an exporter of high-technology products,
which support America's best jobs. UTC's exports to China
supported 3,000 jobs altogether last year, based upon the
Commerce Department's guidelines. Pratt and Whitney jet engines
are the largest portion of our exports. They have totaled over
$500 million over the 3 years 1996 to 1998. Most of these jobs
for aircraft engines are in Connecticut, and Pratt's paid
manufacturing wage in Connecticut is $20.64 per hour, which is
more than half again above the average U.S. manufacturing wage.
These are great jobs at great wages.
Now, we don't manufacture aerospace products to any
material degree in China, but we do manufacture our commercial
products like elevators and air conditioners because they don't
ship economically. But the fact that we have a manufacturing
presence for those commercial products there certainly helps us
to be able to export our top-of-the-line equipment from the
United States. Sales in that category have approached $200
million over the last 3 years.
Let me give you a couple of good examples of our sales in
China: One is the chiller equipment in the Great Hall of the
People. Carrier Corp. provided it, chlorine-free, ozone-
friendly, and it is manufactured in Syracuse, New York, at a
wage rate of about $18.16 per hour. Again, that is way over the
average U.S. manufacturing average. Another example is that we
have the elevators in the Shanghai TV Tower, which is the third
tallest structure in the world. Those elevators were built in
Bloomington, Indiana, and, again, at way over the average U.S.
wage rate. The bottom line is that our exports generate great
U.S. jobs at great wages, which is why we so much strongly
endorse this WTO accession agreement.
In China, we employ 10,000 people. We are, I believe, an
effective force for change and this is the reason why. First,
we pay our employees good wages. For example, one of our
subsidiary companies in Shanghai, Hezhong Carrier, employs more
than 300 people. It pays just slightly less than twice the
prevailing wage in Shanghai which is not unusual for American-
controlled ventures in China.
My second point is that we apply UTC's environment, health,
and safety standards uniformly across the entire world
including China. The same standards for environment, health,
and safety apply in Shanghai or in Beijing that apply in
Connecticut or Indiana.
Third, many of our employee benefits are available
globally. There is one I would like to mention just briefly,
and that is UTC's employee scholar program, which has been
publically recognized by President Clinton and Labor Secretary
Herman. That program today supports 11,000 Americans in college
in advanced degree course work, and that is 15 percent of our
U.S. population, 100 percent on UTC's nickel. In China, we have
100 people in the same program. Our belief is that an educated
work force is a great work force; an educated people are
thoughtful people, pro-reform and advance the ideals that we,
as Americans, hold dear.
My fourth and final point is that China has already made a
lot of progress, I believe, in opening itself to the world. The
average inbound foreign direct investment (FDI) in China is $44
billion a year, which is second after only our country in the
whole world. The cumulative total of FDI in China is $269
billion, which is 5 times more than in Japan at any time. Japan
is a closed economy in terms of investment while China is open.
And imports into China are currently $140 billion a year, which
is 14 percent of China's GDP. That is a percentage that is even
higher even than in the U.S. China is in that sense, more open
to imports than we are.
Now we know that there have already been important and even
unique concessions negotiated by Ambassador Barshefsky's WTO
team. Two of them apply to us: One has been mentioned earlier,
which is the reduction of the external tariff to a flat 9
percent rate. That compares to tariff rates today in the 30
percent to 40 percent range for our elevator and air
conditioning equipment. And the second is the agreement to
eliminate restrictions on distribution companies. Today we
control the distribution of Carrier products made in China.
However, Carrier's only United States-made product may not go
through our distribution channels in China, and the Barshefsky
agreement, we believe, eliminates that problem.
In summary, therefore, not only does engagement with China
generate great U.S. jobs, it also brings the Chinese to embrace
and reaffirm the reform agenda that we as a Nation properly
seek. There is no better way to teach than by example and by
participation. History also shows that windows of opportunity
are rare, and that when presented, they are to be treasured and
seized. For countless reasons--and this is the experience of
one employer--this seems to be the window of opportunity right
now, to approve a WTO agreement, if negotiated by our
government on satisfactory terms, and also for Congress to
grant permanent NTR and, at a bare minimum, to extend NTR for
another year.
[The prepared statement follows:]
Statement of George David, Chairman and Chief Executive Officer United
Technologies Corporation, Hartford, Connecticut, and Member, U.S.-China
Business Council, on behalf of the Business Coalition for U.S.-China
Trade
Good afternoon. My name is George David. I am Chairman and
Chief Executive Officer of United Technologies Corporation and
a board member of the U.S.-China Business Council. I am also
appearing today on behalf of the Business Coalition for U.S.-
China Trade.
At UTC, we sell each year about a billion dollars of our
products and services in China. Two hundred million of this
total is exports from the United States, principally aerospace
products, and these exports support some of the best jobs in
America. We also employ 10,000 people in China, provide wages
and working conditions there we can be proud of, and are
consequently an effective force for change in that vitally
important country and economy.
I know this group is substantially partial to pro-China
trade arguments. You are also highly informed legislators on
this subject. I propose to limit myself therefore mostly to
facts about our company and our experiences in China, saving
the rhetoric for the end of these remarks and with only a few
words then.
I feel I am informed personally about China. I went there
first in 1985, and have returned every year since and typically
more than once. I am acquainted individually with a cross
section of China's leadership and have negotiated business
deals with Chinese counterparts, met countless employees in our
ventures, and traveled widely throughout the country. My views
reflect these personal experiences.
United Technologies Corporation is one of America's largest
and most international companies. Fortune magazine ranks us
number 21 among all industrial companies, and the United
Nations identified us several years ago as one of only four
American companies with more than 100,000 employees outside the
United States. We are also a high technology company, with our
subsidiaries including Pratt & Whitney (jet engines), Otis
(elevators), Carrier (air conditioning), Sikorsky
(helicopters), and Hamilton Standard (aerospace systems). We
are also just about to complete our acquisition of Sundstrand
Corporation, along with Hamilton Standard a premier aerospace
systems provider.
Our history in China dates to 1900, when we shipped the
first Otis elevators there. We provided Carrier de-
humidification and cooling systems for industrial applications
in China as early as the 1930s, and Pratt & Whitney's then
piston engines to China also in the 1930's.
More recently, Pratt & Whitney's JT-3D engines powered the
Boeing 707's delivered to China following President Nixon's
visit in 1972, and today Pratt & Whitney powers more than a
third of all large commercial aircraft in China.
We returned to China in 1984. Since then, we have formed 21
ventures, all of them UTC majority owned. These are the
centerpieces of our $1 billion in sales there, and of the $200
million of exports accompanying and caused by this presence.
Taking the Department of Commerce's recently revised figure of
$65,000 per job, these exports equate to 3,000 U.S. jobs.
These exports are also of high value added products, and
the 3,000 jobs are among the highest wage and best ones our
country has anywhere. Our largest export category in fact is
jet engines, with sales over the three years 1996-1998 totaling
more than half a billion dollars. For reference, the hourly
wage at Pratt & Whitney is $19.32 per hour, more than 40% above
the average U.S. manufacturing wage of $13.66.
The second largest category is air conditioning. We are a
manufacturer in China, because air conditioning equipment is
physically large and typically doesn't ship economically. But
the top of the line equipment comes from the United States,
with these Carrier exports to China totaling almost $140
million over the same three years. A great example is the
chiller equipment just replaced in the Great Hall of the
People. It's Carrier for sure, manufactured in Syracuse, New
York, and it's chlorine free and ozone friendly to boot.
Carrier's wage rate in Syracuse is $18.16, again well above the
average U.S. manufacturing wage.
It is also perfectly clear to us as an exporter and
competitor in China that our local and joint venture presence
is what got us the Great Hall of the People job. Without one,
we don't have the other, and it is the foreign direct
investment that comes first, always.
Otis exports to China too, and these exports again are made
possible by its local joint venture presence there. The
signature building in China is Shanghai's TV Tower, the third
tallest in the world, and the elevators taking us to the top
were built by Otis in Bloomington, Indiana. Otis' wage rate in
Bloomington is $15.12, again well above the U.S. average.
The bottom line to these exports is great U.S. jobs at
great wages.
We do build products and provide services in China that
don't ship economically from the U.S. or that can't physically
be done here. But in working directly in China, we are a
powerful and effective force for change. I offer three points
in support. First, our local joint ventures pay significantly
more than competing and locally owned enterprises. For example,
Hezhong Carrier in Shanghai, which we acquired in 1986 and
which makes commercial air conditioning systems, employs more
than 300 people at a rate twice the prevailing Shanghai level.
Second, we apply UTC's environment, health and safety
standards uniformly across the world and specifically in China.
These standards are set against U.S. law and regulation, and we
flatly do not export dangerous or environmentally abusive work.
One example that I am personally proud of is our company's dual
redundancy standard for safety devices for presses, brakes and
shears, and the more dangerous tools in factories. Not only is
this UTC standard unusually high as compared to U.S. industry
in general, it is also worldwide in its application and at a
cost to us of about $50 million. To be specific to one of our
China factories for a moment, I have shut down personally a
non-compliant tool, and will do so again, anywhere, anytime.
A third program for which UTC has received recognition and
even from President Clinton is our Employee Scholar Program.
Today, almost 11,000 of our U.S. employees are in school and
taking college and advance degree coursework, all entirely at
our cost and with some special features, including a graduation
award of UTC stock, that cause us to enroll three times the
U.S. national average. But the point specific to China is that
we extended this program worldwide a little over a year ago,
and today 62 of our Chinese employees are in colleges and
universities under this program. This is less than one percent
of our China workforce and a small figure indeed as compared
with our U.S. number of 15%, but it is a start and we can be
confident of steady increases. And we have learned that
educated employees are the best employees, and educated people
are characteristically democratically inclined people, people
open to change, people open to the ideals we as Americans hold
dear.
In short, this is no race to the bottom.
Taking a broader view, I believe the Chinese experience
over the last twenty years is different from that of many other
countries, and remarkably so. The bottom line, and contrary to
views held by many, is that China has been open indeed to
foreign direct investment and to moving from a closed economy
with little or no external trade to trade levels that as
percentages of GDP already exceed our own. The society has also
used this openness to fuel and continue reforms.
I don't for a minute believe this is starry eyed idealism,
nor that the Chinese economy is as open as it must or will be.
Instead, the hard statistics confirm that there has been
progress, important progress, and it behooves observers and
critics to recognize this. For foreign direct investment, China
is already the second highest destination country, after only
our own. Inflows there have averaged $44 billion annually over
the last three years, and the cumulative total since 1979 is
$269 billion. Note please that I use the more conservative
definition of funds expended as compared with funds contracted.
This compares with Japan at $50 billion cumulatively over all
time, a hardly noticeable excess over the Chinese annual rate.
Rough estimates are that these Chinese foreign direct
investments now support a million jobs, and inside this total,
American investment support 200,000 jobs. The point is that we
want the Chinese to embrace a change agenda and an open markets
and democratic agenda, and there can be no better way than
showing them how Western systems work, right inside their own
markets and country.
On trade, there has also been important progress, although
the large bilateral deficit between our two nations remains a
difficult problem, and one that must be corrected. But let's
not lose sight, in the controversy over the deficit, of one
fundamental point. The first is that China has moved from an
essentially wholly closed economy twenty years ago to today
importing $140 billion annually, 14% of GDP and a level already
higher than our own. Exports are higher, at $184 billion and
19% of GDP, and it is unfortunate that more than all of this
surplus is concentrated on and reciprocally becomes our deficit
with China. This is why there must be continuing market opening
pressures from the U.S. side, and why significant further
concessions are required from the Chinese. Yet from effectively
zero to 14% over twenty years is no small accomplishment and
worthy of recognition.
These trade and investment data make a key point, and I
believe make it decisively. The Chinese have made progress and
important progress on the opening agenda. At the same time, we
and the Chinese must both recognize a long road ahead.
We need China in the WTO, and this Trade Subcommittee knows
and supports this as much as any body in our Government. China
is today a trillion dollar economy, the seventh largest in the
world, and by many forecasts will be the third largest in the
world within a decade or shortly thereafter. China has also
made progress on liberalizing trade and investment, and will
make significantly more under this WTO accession agreement.
Following the line of UTC specifics to be helpful to you, I
recite here the two principal points we understand to have been
negotiated successfully by our Government's team to date.
First is the general Chinese external tariff reduction to a
flat 9% rate, by the year 2005. For comparison, our elevators
today face 38% tariffs as complete systems and 19% as component
parts. Our air conditioning equipment faces tariffs varying by
product category but typically in excess of 30%. The impacts
will be fundamental for us, will increase our exports to China,
and will augment those totals for great U.S. jobs I recited
earlier.
Second is the reportedly agreed elimination of restrictions
on trading and distribution rights. Carrier does have majority
control of its joint venture distribution company and network
in China. However, current regulations prohibit us from selling
imported U.S. equipment and parts through this company and
network, instead limiting us to Chinese manufactured products.
This restriction elimination, which we understand to have been
agreed already, covers distribution for all foreign investors
in China, and will be a tremendous plus to U.S. exporters.
However, any recommendation to complete the China WTO
accession agreement must be contingent upon our Government's
satisfaction with this agreement, and with its containing the
levels of Chinese concessions reported. The World Trade
Organization is about rule and compliance with rules, and the
Chinese as all other countries need to step up to these.
To come to the rhetoric, China is a critically important
economy and country to our nation's future. Already the world's
seventh largest economy, it may well become the third largest
within the foreseeable future. America's exports to China today
total $15 billion, are typically of America's highest value
added products, and support 220,000 of our country's best jobs.
China has also already been remarkably open to foreign
direct investment and to increasing trade. It has used these
devices more than most other emerging societies to start and
maintain the reform and open markets and open society agenda we
as Americans so badly want.
Our WTO negotiators have reportedly succeeded in securing
unprecedented concessions in the WTO accession agreement, and,
if the specific reports are accurate, this is certainly the
case for the products we as UTC know best.
Finally, history shows that windows of opportunity are
rare, and that when presented they are to be treasured and
seized. Just because of the current events and environment,
this is the opportunity. Along with so many others, I urge us
to seize it, approving a WTO accession agreement and granting
permanent NTR if the Chinese concessions are even close to
those reported, and alternatively and at the barest minimum
extending NTR for a further year.
Chairman Crane. Thank you, Mr. David.
Mr. Van Andel.
STATEMENT OF STEVE VAN ANDEL, CHAIRMAN, AMWAY CORPORATION, ADA,
MICHIGAN, ON BEHALF OF THE U.S. CHAMBER OF COMMERCE
Mr. Van Andel. Thank you, Chairman. And I am chairman and
chief executive of Amway Corp., as you so rightly indicated,
was started by my father 40 years ago in the basement of his
house. It has now grown substantially to a multinational
company that has over $6 billion in retail sales and, of
course, we go through the direct selling industry to the direct
selling business. But today, actually, I am here on behalf of
the U.S. Chamber of Commerce where I serve as a board member
and have a direct role in shaping their international
positions.
The Chamber is the world's largest federation representing
more than 3 million businesses in different regions and I am
pleased to have the opportunity to talk a little bit about the
United States-China trade relations for the Chamber. In the
interest of time, I am going to summarize those remarks by
highlighting three major positions in support of normalizing
trade relations with China on a permanent basis within the
context of China's accession to the WTO.
First and most critically, China has recently committed to
open its markets as a condition of the WTO accession. The
Chinese have offered to remove barriers to United States
products by lowering tariffs, by eliminating quantitative
restrictions, and by opening sectors that previously were
unavailable for foreign participation. This would allow
companies not only to market their products, but also service
their products throughout China. Last year, the United States
exported over $14 billion in goods and services and, while that
is significant, I think it could be much higher. United States
companies can only reap the benefits of this agreement when
China is accepted into the WTO and Congress extends permanent
NTR status to China.
Second, WTO membership will encourage economic and
ultimately political reforms in China. Foreign investment
requires stability that can be achieved only with rule of law.
With the WTO membership, China will need to abide by the
international trade rules that include protection of foreign
investment. Because it is the rule of law the ultimately
guarantees human rights, it follows that, with the economic
advancement, we also will see a strengthening of those basic
principles that advance personal or individual freedom in
China.
I don't want to leave you with the impression that China
does not now respect laws. In fact, my company can attest to
the fact that China does try to apply laws in a fair and
responsive manner. China recently enacted a ban on direct
selling and our experience shows that the government responds
both to the demands of its citizens as well as to foreign
investors. I won't go through all of the details of the ban
that briefly halted our operations, but I do want to stress
that the Chinese Government worked with us to develop
regulations that protected its citizens from fraud while
allowing us to honor our commitment to our distributors.
Some critics portray China as a totalitarian dictatorship
obsessed with control. Our experience has given us an insight
into a far more complex situation. China is striving to adapt
to modern global challenges in a way that respects its
complicated history. We believe it is possible to work with the
Chinese Government, provided that it is done with respect for
their internal political priorities. Many outstanding issues
can be resolved in a manner that advances U.S. interests if we
remember that solutions must be politically acceptable to both
sides.
And, finally, the Chamber recognizes that there are serious
questions regarding national security and our relationship with
China. I am not going to address the substance of those or the
substance of the charges that are in the report filed by Mr.
Cox, other than to say that it is a serious study of the issues
worthy of careful consideration by Congress. Yet, even in the
context of that report, we see no reason to forego the
commercial opportunities presented by China's offer to open its
market. That opening is in our best interests. We lose nothing
by accepting it, but if we fail to act, we lose the opportunity
to bring China more fully into a world trading system.
To conclude, the U.S. Chamber believes that the time has
come to finalize those negotiations, so that U.S. companies can
take full advantage of the market opening measures. We believe
that Congress should join with U.S. businesses to press the
administration to move more rapidly to this agreement before
the next WTO administerial meetings. It is our judgment that
China's membership in WTO will ensure that modernization of its
economy occurs in a manner consistent to the international
standards. If China is not a member prior to the next round of
trade negotiations, it will be more difficult than ever to
bring them into an international trading system. We have got a
window of opportunity to secure access to the Chinese market
and the ability to advance rule of law in China. It would
certainly be a tragic mistake to forego this opportunity. Mr.
Chairman, thank you.
[The prepared statement follows:]
Statement of Steve Van Andel, Chairman, Amway Corporation, Ada,
Michigan, on behalf of the U.S. Chamber of Commerce
Thank you, Mr. Chairman, for the opportunity to testify
today before this Subcommittee on Trade on the critical issue
of US trade relations with China. I am Steve Van Andel,
Chairman of Amway Corporation, a Michigan-based company known
for its quality products and use of the direct selling system
that encourages people around the world to succeed by owning
their own businesses. Amway has proudly maintained a
partnership with its distributors that has enabled the company
to grow from a tiny operation in the basement of my father's
home into a multinational enterprise with annual retail-
equivalent sales nearing $7 billion.
Today, I am appearing on behalf of the US Chamber of
Commerce, where I serve as a member of the Board of Directors
and have a direct role in shaping the Chamber's international
policy positions. The US Chamber is the world's largest
business federation, representing more than three million
businesses and organizations of every size, sector and region.
I am pleased to have this opportunity to present the views of
the Chamber on US-China trade relations at this critically
important time.
The US Chamber has long supported normalization of US-China
commercial relations. The Chamber supports permanent and
unconditional extension of normal trade relations (NTR) status
to China. We support its entry into the World Trade
Organization (WTO) under commercially viable terms. We also
advocate the removal of unilateral economic sanctions on China.
Those of us who are involved in or associated with the US
Chamber believe that a strong commercial foundation will
enhance our relationship with the People's Republic of China.
Moreover, we are convinced that it will foster cooperation on a
range of issues including controls on proliferation of weapons
of mass destruction, human rights and global financial
management.
Increasing Public Understanding
Before turning to the subject at hand, I want to thank you,
Mr. Chairman, for holding this hearing, which affords the
American public an opportunity to give due consideration to
this critical issue. The Chamber is committed to increasing
public understanding of the benefits to the United States of
enhanced trade with China. The Chamber is drawing on its state
and local chamber of commerce affiliates as well as small-and
medium-sized member companies to strengthen public
understanding of the importance of our commercial relationship
with China.
As part of its education efforts in 1998, the US Chamber
issued a report on Small Business Success Stories in China,
which highlighted the successes of just a sampling of 30 small
US companies that have developed markets for their products in
China. This year the Chamber released an educational brochure
on US-China issues that explains why stronger relations are in
the interest of the United States. The document offers a brief
history of trade between the two countries and answers some
commonly asked questions about our commercial relationship.
That report was sent to each member of the House and Senate, to
over 650 state and local chambers of commerce and to selected
Chamber member companies small and large.
Greater public understanding about the many facets of our
relationship with China is critical to an informed debate on
trade policy issues because understanding brings an
appreciation of the vast opportunities that exist for US
companies and workers. As US manufacturers, workers, farmers,
service providers and others learn the extent to which China
has offered to open its markets, they have become convinced
that China should be admitted to the WTO. Moreover, I can tell
you that the US Chamber will campaign to inform the American
people that this market-opening agreement is in their interest.
I am confident that there will be strong grassroots support for
China's WTO accession and for those Members of Congress who
back this agreement.
China's Accession to the World Trade Organization
For well over a decade, China has been negotiating to gain
admission into the world trading body. Without regard to the
length of these negotiations, US and Chinese negotiators agree
that significant progress has been made. While differences
remain concerning specifics, China has committed to open its
markets and abide by the rules of the international trading
system that apply to WTO members. These moves are part of the
modernization of the Chinese economy and will benefit both the
Chinese people and China's trading partners. The Chinese people
will find that their economy will become more dynamic and its
growth potential will increase. We will benefit because a WTO
agreement rooted in commercially viable principles will result
in the removal of barriers to US products by lowering tariffs,
eliminating quantitative restrictions, opening sectors
previously closed to foreign participation and allowing US
companies to distribute their goods and to service products
after sales throughout China.
The US Chamber believes that the time has come to conclude
these negotiations so that US companies can take full advantage
of these market-opening measures. We believe that Congress
should join with US businesses to press the Administration to
move rapidly and complete this agreement before the next WTO
ministerial meeting. In our judgment, China's membership in the
WTO will ensure that the modernization of its economy occurs in
a manner consistent with international norms and standards. If
China is not a member prior to the start of the next round of
trade negotiations it will be ever more difficult to bring
China into this international trading system on mutually
acceptable terms. Simply put, there could be no better time
than the present to resolve these issues.
Permanent Normal Trade Relations for China
I must stress the importance of pushing this agreement to
its conclusion. Permanent NTR status is critically important to
securing China's commitments. US companies can only reap the
market-opening benefits of this agreement when China is
accepted into the WTO. The Congress will then be asked extend
permanent Normal Trade Relations (NTR) status to China under
standard WTO terms. If the Congress does not permanently extend
NTR or normal US tariff levels to China, their government will
not be bound to honor its market-opening commitments to the
United States. Our competitors, however, will benefit from
China's market-access policies.
Last year, the United States exported over $14 billion in
goods and services to China. These exports supported hundreds
of thousands of jobs in the United States that pay 10 to 15
percent more than the US average. Trade with China also
supports tens of thousands of jobs at ports, retail
establishments and consumer good companies. While $14 billion
in exports is not insignificant, US exports to China can and
should be much higher given the quality of our products and
China's need for what the United States has to sell. China's
membership in the WTO and removal of annual NTR review by
Congress will eliminate barriers to US exports and will help
improve our trade imbalance with China.
The greatest potential increase in exports to China will be
in the agriculture and infrastructure sectors. China is the
sixth largest export market in the world for US farmers. That
market is expected to grow significantly in the coming years
thanks to the bilateral agreement on agriculture that took
effect in April. In that agreement, China pledged to use only
science-based standards to evaluate agricultural imports from
the United States. When combined with tariff cuts pending in
the WTO negotiations, it promises very significant
opportunities for US farmers doing business with China.
China's market-opening commitments would also increase the
likelihood that US companies will benefit from China's massive
infrastructure development needs. China is undertaking major
infrastructure projects in sectors where US companies are
particularly competitive. Given the chance to bid on equal
terms with firms from other countries, US companies will be
very competitive.
US consumers and small shop owners have much to gain from
the increased trade that China's WTO accession and permanent
NTR status would likely generate--and also a great deal to lose
without that NTR status. Without NTR, tariffs on US imports
from China would increase by at least 30 percent and in some
cases as much as 50 percent. Based on 1996 import data, these
tariff hikes would impose a tax increase of at least $300 on
the average family in the United States. This burden would have
the greatest impact on low-income and working households who
would pay more for consumer goods such as apparel, footwear,
and toys. Small and medium-sized US companies selling these
goods would also be hard-hit.
Beyond the direct commercial benefits of WTO accession and
permanent NTR for China, expanding US-China trade is in our
broader national interest. Trade has been a pillar of a
relationship that brings together two of the most powerful
countries on earth. US-China trade has fostered and accelerated
dramatic economic reforms in China. These in turn are
generating internal political reforms. By our operations in
China, US Chamber members establish benchmarks for corporate
practice in such areas as personnel management, corporate
citizenship, fairness and equal opportunity. Many members have
made their commitments to ethical business practices explicit
through a corporate statement of principles. US Chamber members
have been and will continue to be forces for positive change in
China.
Some critics argue that by extending permanent NTR, the
United States ignores China's human rights record. We disagree.
Our operations establish standards that Chinese citizens then
begin to demand from other employers in China. Removing NTR
will not lead to progress on human rights. It would erode our
economic relationship, harm the forces in China that are most
sympathetic to political reform and isolate Chinese officials
who argue for an improved relationship with the United States.
The US Chamber and all others who support human rights should
recognize that the best way for the United States to promote
political reform in China is to maintain a policy of commercial
engagement.
It is my firm belief that progress in the area of human
rights and democratic reform will be hastened by adherence in
China to the rule of law. Moreover, it is the rule of law that
ensures that both citizens and business are treated fairly. My
company can attest to the fact that China is striving to
formulate and apply laws in a manner that is responsive to the
demands of its citizens as well as foreign investors.
Amway's Experience in China
Permit me to recount for you our experience in China during
the past year, as doing so will provide a vivid example of
improvements in the rule of law and the commercial environment
for foreign companies that have already been made in China.
Amway is one of the largest direct selling companies in the
world. We manufacture more than 400 home and personal care
products as well as the Nutrilite line of vitamins and food
supplements. Amway only sells products through a network of
independent contractors who own and operate their own
businesses.
We initiated operations in China as Amway (China) Company,
Ltd.--or ACCL--in 1995, and soon developed strong business
growth and acceptance within the Chinese public. Amway has
invested US$100 million in China, making us one of the largest
investors in China. Our plant was the first chemical facility
in China to be given ISO 9000 certification. By providing
business opportunities to Chinese citizens, Amway is helping to
meet the country's employment and income needs while training
people in basic business skills. ACCL consolidated sales
reached US$178 million in 1997 with over half-a-million Chinese
distributors.
As Amway began to succeed in China, others tried to emulate
our operations and direct selling companies began to
proliferate. Although most of these were legitimate operations,
several con-artists established operations that included
``pyramid'' schemes and inventory-loading scams. In April 1998,
responding to demands from Chinese citizens who had lost large
sums of money in what is called chuan xiao--literally ``chain
selling''--the Chinese government announced a ban on all forms
of chuan xiao in China. Because Amway was licensed under chuan
xiao regulations, we were forced to halt operations.
We were told that we could resume operations by opening
retail shops. However, because the founders of the company had
been distributors, they understood the hard work and effort
that goes into building a successful business. They had long
operated the company with a pledge to distributors that the
company would not compete with them. To ``go retail'' would
have caused the company to break faith with three million
distributors around the world.
Amway worked with the Chinese government to explain to
officials that a properly regulated direct selling industry
could contribute to economic growth without exposing Chinese
citizens to fraud. In June, two full months after the ban was
imposed, Chinese officials announced new regulations that
permitted us to reopen in a manner that allowed us to maintain
our obligation to our distributors. Amway was the first company
to be re-licensed under these rules. Our business is again
growing and we now operate in more than 20 provinces and four
direct municipalities in China.
Although this was a difficult challenge, we came away from
it with greater respect for and a better understanding of the
Chinese government. The government demonstrated that it would
respond to the demands of both its citizens and foreign
investors. Notwithstanding the sudden imposition of the ban,
the process demonstrated a commitment on the part of Chinese
officials to the rule of law.
Some critics portray China as a totalitarian dictatorship
obsessed with control. Our experience has given us an insight
into a far more complex situation. China is striving to adapt
to the modern challenges in a way that respects a complicated
and conflicted history. In this context, it is possible to work
with the Chinese government, provided that you do so with
patience, sophistication and respect for internal political
priorities. It is axiomatic that all politics is local. Our
problem was resolved because the solution was consistent with
internal political realities as well as the operational
imperatives of direct selling companies. By the same token, we
must now proceed to address both the problems and opportunities
in US-China relations with patience, sophistication and respect
for the political dynamics in China as well as the United
States. All of these issues can be resolved in a manner that
advances US interests if we remember that the solution must be
politically acceptable both here and there.
Current Challenges
Allow me, Mr. Chairman, to say a few words about the
recently released report on US national security concerns with
respect to China as outlined in the report filed by Congressmen
Cox of California and Dicks of Washington. These concerns about
Chinese espionage and illegal transfers of US technology are
quite grave. We believe that the allegations are the result of
a serious investigation and that they should be analyzed
carefully. Make no mistake: The business community is strongly
committed to protecting US national security interests.
Individuals or companies that have compromised our security
must be held accountable to existing laws.
The Chamber strongly believes that a healthy and
competitive technology industry is essential to enhancing
national security. Revisions to our export control regime must
be carefully calibrated to ensure that essential and critical
technology is safeguarded. Yet, in that regard, we must not
allow our reach to exceed our grasp. A control regime that
strangles US industry not only saps our economic strength, it
wastes precious national security resources on efforts to
control technologies that are freely available in the
international marketplace. Congress faces a clear challenge: It
must strengthen the regime that guards critical technologies
while permitting sales of those products that do not put our
national security at risk.
Our relationship with China, as with other nations, will
always remain dynamic. While there are problems at present,
such as the evidence of apparent espionage and the NATO bombing
of the Chinese embassy in Belgrade, it is important to note
that there are opportunities as well.
I was encouraged by a letter that Senator Max Baucus and 29
other Senators recently sent to the President. The message in
that letter was compelling. While the United States must not
ignore the challenges of our relations with China, we must
examine each aspect of the relationship in an objective manner
to determine what is in the best interest of the United States
and then act accordingly. The letter concludes that our best
interest is served by the rapid conclusion of the WTO talks and
extension of permanent NTR status to China. These actions will
secure an unprecedented opening of China's market to US
agricultural products, services and manufactured goods.
Conclusion
The US Chamber believes we have a window of opportunity to
conclude the negotiations on China's accession to the WTO,
extend permanent NTR status and secure broader and more
consistent access to China's market. As I noted at the
beginning of my remarks, these have been longstanding goals of
the US Chamber. We believe it would be a tragic mistake to
forego this opportunity.
Mr. Chairman, this concludes my formal presentation. Thank
you. I would be happy to respond to any questions.
Chairman Crane. Thank you, Mr. Van Andel.
Mr. Sternberg.
STATEMENT OF SY STERNBERG, CHAIRMAN, PRESIDENT, AND CHIEF
EXECUTIVE OFFICER, NEW YORK LIFE INSURANCE COMPANY
Mr. Sternberg. Thank you, Mr. Chairman. I am Sy Sternberg,
chairman and chief executive officer of New York Life, a
Fortune 100 company and one of the largest U.S. life insurance
companies. I am honored to be here today to discuss the
importance of international trade with China for United States
insurance companies.
The U.S. insurance industry is at a crossroads. The
domestic life insurance market is mature with annual growth in
the purchase of insurance policies averaging 1.5 percent over
the past 10 years. Some of our peer companies are responding to
market realities by expanding into financial services,
brokerage, and banking. We have determined, however, to stick
to what we know best, insurance. We intend to leverage our
skills in actuarial science, in underwriting, in insurance
sales to expansion into international markets. Over the next 3
years, New York Life will invest more than $1 billion in high-
growth, emerging, international markets.
We have already established businesses in Taiwan and Hong
Kong, Korea, Indonesia, Argentina, and Mexico. Our highest
expansion priorities are China and India. China is by far the
largest insurance market in the world. It is currently closed
and underserved. With more than 20 percent of the world's
population, only 30 percent of the Chinese currently have any
type of insurance. There is an emerging middle class with a 40
percent savings rate and increasing disposable income. China is
an ideal market for life insurance.
If New York Life were to gain just 1 percent of the
potential market in China, we would more than double our
existing client base. Today we cannot do business in China
because the market is closed to insurers that do not have
licenses. Only 3 U.S. life insurance companies have been
granted licenses over the past 10 years. They have been
restricted to two cities, cannot sell group life, health, or
pension products, and must partner with a Chinese insurance
company. We need a WTO Agreement to open the market.
The good news is that Ambassador Barshefsky has negotiated
an outstanding agreement. Upon accession, licenses will be
available to all companies based on established, prudent, and
published criteria. Twenty-four of our highest priority cities
will be open by January 2003 and all of China by 2005. Foreign
insurers will be able to offer a full range of products by
January 2005. Joint venture partners will no longer be narrowly
restricted to Chinese insurance companies. Life insurers will
be able to own 51 percent of joint ventures by January 2001.
This is a world-class, very forthcoming agreement with high
standards for market openness and rules-based discipline.
Frankly, it offers some concessions that are better than those
available from existing WTO members. This deal should be done.
It is a win-win. We hope that the United States and China will
shortly resume negotiations and conclude the bilateral
agreement and, if they do, we urge Congress to extend permanent
NTR status to China so that America's insurance companies can
reap the benefits of the agreement.
We recognize that there are extremely important issues
other than trade that are on the table now. There are serious
issues regarding U.S. national security, the accidental bombing
of the Belgrade Embassy, and human rights and religious freedom
in China. Responsible business leaders cannot ignore the very
real problems between our two countries. However, we are
convinced that problems in one area can be resolved on their
own merits without damaging our overall policy of engagement or
undermining our position on issues still in conflict.
WTO is not a gift to China. Let me repeat that. WTO is not
a gift to China. American businesses across the board will
directly benefit from China's accession to the WTO. And we also
believe the benefits in the trade arena will actually advance
the broader agenda of political, legal, and economic reforms
which we all want to see. Accession to the WTO will facilitate
the development of the regulatory infrastructure necessary for
an open and competitive market in China. Agreeing to live by
the rule of law will facilitate a legal system in which claims
between competing business entities can be fairly adjudicated.
Submitting to competition and regulation will help advance
democracy as China becomes part of the global economy. WTO
accession will introduce an international set of standards that
will facilitate the development of the rule of law and a legal
infrastructure throughout China.
I would like to thank Chairman Crane and Ranking Members
Levin and Rangel for their leadership in holding today's
hearing and giving me the opportunity to present the position
of New York Life and the insurance industry. Thank you.
[The prepared statement follows:]
Statement of Sy Sternberg, Chairman, President, and Chief Executive
Officer, New York Life Insurance Company
I'm Sy Sternberg, and I'm Chairman, President, and Chief
Executive Officer of New York Life Insurance Company. We are a
Fortune 100 company and one of the nation's largest insurance
firms. We have operations in all 50 states and overseas through
a network of 12,000 employees and 10,000 agents. Our assets
under management in 1998 were $122.6 billion and our revenues
topped $19 billion.
We are committed to strengthening New York Life's presence
in the international marketplace and believe strongly that
United States leadership on international trade is essential to
achieving our goal. For this reason, I'm honored to be here
today to discuss the importance of international trade with
China for U.S. insurance companies; our assessment of China's
WTO offer; the very significant benefits for the United States
once China enters the WTO, and, equally critical, the granting
of permanent Normal Trade Relations (NTR) status with China.
The Importance of International Insurance Markets
To appreciate the importance of international trade with
China to companies like New York Life, it is critical to
understand the nature of the United States insurance business
and its trends for the future. We have a very mature domestic
market with the vast majority of American families already
depending on life insurance to provide economic protection. The
most recent data available indicates approximately 85 percent
of all married couples in the United States own some form of
life insurance to protect their families.
With this level of market penetration and the demographics
of our aging population, it's understandable that industry-wide
trends for life insurance sales in the United States are
modest. For example, the face values of life insurance
purchases over the past 10 years have increased only 3.8
percent annually. During this same period, the annual growth in
the purchase of individual policies has been just 1.5 percent.
These low rates, combined with flat growth projections over
the next 25 years for United States insurance sales, would not
allow us to expand our businesses and to strengthen our future
financial competitiveness. New York Life, and most other major
American insurance firms, must look to the global market to
achieve those goals.
That is why after 154 years of successful operations, we
are interested in doing business in a country half a world
away. New York Life needs to become a significant international
player to sustain our financial strength well into the next
century.
We are financially well positioned for expansion. In 1998,
New York Life had a banner year. We added more than $1.3
billion to our surplus and investment reserves, the largest,
single-year increase in our Company's history. With our surplus
and investment reserves totaling $7.7 billion, we have one of
the industry's highest surplus-to-assets ratios -8.5 percent.
In addition, we were number one in the country in new life
insurance sales in 1998.
In addition, we have the core skills needed to build life
insurance businesses in emerging, high-growth, foreign markets.
Since 1845, life insurance has been our most vital and valued
product. It fulfills a unique social responsibility for which
there is simply no substitute. New York Life's core
competencies--actuarial expertise, underwriting and marketing--
are unmatched and will be leveraged in emerging global markets.
The Importance of China as an International Insurance Market
Working from our international base of operations in
Argentina, Hong Kong, Indonesia, Mexico, South Korea and
Taiwan, we began in 1997 to pursue a number of initiatives to
give our Company a stronger international presence. We
conducted a comprehensive review of potential overseas markets
with emphasis on demographics and market size; competitive
intensity of the insurance marketplace; and, the regulatory and
political environments. Worldwide, we identified seven
countries as having immediate potential for New York Life.
China was one of these prime markets.
China is by far the largest insurance market in the world
that is currently both closed and under-served. Its
demographics of 1.2 billion people--with 26 percent under age
14 and 68 percent ages 15 to 64--make it the world's premiere
market for financial security in the form of life insurance,
annuities and pensions. Only 30 percent of the Chinese
population currently have any type of life insurance. And while
the 1997 per capita GDP was $3,460, the annual savings rate has
averaged more than 40 percent. Thus, with more than 20 percent
of the world's population, China accounts for less than .02
percent of the world's current life insurance market. Were New
York Life to capture just one percent of the potential market
in China, we could more than double our existing customer base.
And a strong global presence will inevitably enhance our
ability to serve domestic markets.
Unlike most of my colleagues here today, New York Life does
not currently do business in China. Since 1994, we have been
engaged in a series of preliminary steps to demonstrate our
qualifications and our long-term interest in the country. We
have concluded that our ability to secure a license is
considerably increased by China's entry into the World Trade
Organization (WTO).
It is within this context that I come before this committee
to express my strong support for the completion of the U.S.-
China WTO bilateral negotiations, the accession of China to the
WTO and the granting by Congress of permanent NTR status to
this country.
The Importance of U.S.-China Relations
We fully recognize that this is a critical time in our
relations with China. The public policy debate surrounding the
aftermath of the accidental bombing of the Chinese Embassy in
Belgrade and the release of the Cox Committee report has raised
legitimate questions about Chinese intentions and how the
United States should interact with the world's most populous
nation. Some voices are suggesting that these concerns are
reason not to proceed with China's WTO accession. At New York
Life we believe these issues should be resolved on their own
merits and in their own arenas.
The arena for economic and commercial issues is the WTO.
There is no question that it is in America's strategic interest
to bring the world's largest emerging economy into the WTO
legal framework. The WTO is the foundation of an open, rules-
based international trading system, and membership is a
privilege not a right. WTO membership requires a country to
meet standards of market openness and agree to apply WTO rules,
including the rules of dispute settlement. They provide a
credible and effective tool to enforce United States rights,
backed up by the threat of WTO-authorized sanctions for non-
compliance.
WTO accession is America's best means of opening the
Chinese market and ensuring the continued development of
China's legal infrastructure. It's a vast improvement over our
current trade destabilizing approach to gaining market access
in China--an approach that relies on piecemeal, bilateral
agreements and the threat of unilateral sanctions. It
permanently locks China into an open, transparent, non-
discriminatory trade regime enforced by dispute settlement
procedures.
Reducing the trade deficit and guaranteeing that it lives
up to its agreements does not require us to punish China by
keeping it outside of the system of global trade rules. As the
largest emerging economy in the world, China's integration into
the rules-based international trading system is essential to
ensuring that it undertakes the obligations and
responsibilities of the trading system from which it benefits.
Its accession into the WTO's legal framework will create new
incentives and pressures for it to undertake economic and
regulatory reforms and to abide by international trade rules.
New York Life also maintains that if China and the United
States conclude an acceptable accession agreement, we will
firmly support the extension of permanent NTR status to it. NTR
status is not a favor for China. It simply provides to that
country the same treatment the United States offers virtually
all of its trading partners. More importantly, the United
States will not receive the full benefits of China's WTO market
access commitments until it takes this step. WTO accession
requires the reciprocal extension of permanent NTR status by
the United States and China, and with that reciprocity we can
end the need for the divisive annual debate in Congress on NTR
status renewal.
The Recent WTO Negotiations
New York Life, like most observers of the China WTO
accession process, was discouraged last year when it appeared
Beijing was reluctant to make the hard decisions necessary to
complete the negotiations. We had hoped the momentum in
bilateral relations sparked by the exchange of state visits in
October 1997 and June 1998 would create the impetus needed to
conclude the decade-long negotiations. But we also had
consistently maintained that China should not be allowed into
the WTO for political reasons, nor should it be kept out of the
WTO solely on that basis.
To ensure the Administration understood our position, the
insurance industry developed a priority agenda for the USTR to
pursue. We developed this agenda working with the American
Council of Life Insurance, the U.S. Chamber of Commerce, the
U.S.-China Business Council, the Emergency Committee for
American Trade (ECAT), the Coalition of Service Industries and
the U.S. Committee of the Pacific Basin Economic Council (PBEC-
US).
By working with organizations representing a broader
coalition of American trade interests with China, New York Life
is confident that the insurance industry's objectives were
consistent with the principles sought by other United States
industries. These include full market access, national
treatment, transparency, and high levels of WTO discipline.
We believed our objectives would enable us to be
competitive in China and allow our potential Chinese
policyholders to enjoy the full benefits of our insurance
products. We also believed and made clear to the Administration
and the Chinese that an agreement satisfying one industry, but
failing to address the issues of other core industries, such as
agriculture or telecommunications, would not win broad support.
Finally, we made it a point that negotiations yield immediate
real benefits on market access to all sectors of the United
States economy.
Ambassador Barshefsky has secured Chinese commitments that,
pending WTO accession, will address the great majority of our
industry's market access objectives. For example:
Today, New York Life and most other American insurance
companies are not allowed access to the Chinese market. The
process by which China has awarded insurance licenses has been
both unpredictable and non-transparent. But once the WTO
agreement is implemented, China will award licenses on the
basis of established, prudent and published criteria without
imposing an economic needs test. Insurance firms will know in
advance the process for securing a license.
Today, insurance firms with licenses in China can pursue
business in only two cities--Shanghai and Guangzhou. But once
the WTO agreement is implemented, all of China will be opened
to foreign insurers by January 2005. In the interim, 24 of our
highest priority cities will be opened by January 2003.
Today, foreign insurance firms operating in China are not
allowed to offer the full range of their products. But once the
WTO agreement is implemented, foreign insurers will be able to
sell group life, health and pension lines of insurance by
January 2005.
Today, foreign insurance firms in China are limited in
their form of ownership and are restricted in their choice of
joint venture partner. But once the WTO agreement is
implemented, joint venture partners will no longer be narrowly
restricted to Chinese insurance companies and foreign firms
will be able to select their own joint venture partners. In
addition, life insurers will be able to own 51 percent of a
joint venture by January 2001 and non-life insurers can have
100 percent ownership by January 2002.
This forthcoming agreement represents an historic
breakthrough for the United States insurance industry in China.
Did we get everything we wanted as quickly as we wanted it? No.
But the nature of negotiations is predicated on compromise, and
this agreement is truly a ``win-win.'' American insurance firms
will have the opportunity to enter the Chinese market and to
compete. Chinese consumers will benefit from this competition
and from the wide range of new products and services we will
offer. Even the Chinese insurance firms, which have enjoyed the
protection of the current restrictions on foreign firms, will
benefit from the professionalism and innovations we will bring
to their marketplace.
Finally, through its market opening commitments, China is
sending a strong signal to foreign investors that it is moving
toward the rule of law in trade matters. China's current WTO
offer eliminates an array of Chinese barriers and creates new
opportunities for American businesses, farmers and workers.
China's offer is a comprehensive market opening agreement on
agriculture, sanitary and phyto-sanitary barriers, industrial
products and services. It has agreed to a series of bold steps
including significant and permanent tariff cuts, elimination of
most import quotas, application of national treatment,
extension of trade and distribution rights, greater access for
information technology and telecommunications firms, and
resolution of longstanding agricultural disputes over meat,
citrus and wheat.
But we face one problem. The incredible progress achieved
by USTR cannot begin to be translated into market access for
American exports unless and until the United States bilateral
agreement is completed and the remaining negotiations on
China's accession are finalized. Over the past several weeks,
in our meetings with the Administration, Members of Congress
and with Chinese officials, New York Life has communicated our
clear position that both sides should wrap up the talks on the
bilateral market access package as quickly as possible.
Otherwise, the concessions gained from China could be lost, the
momentum of the negotiating process could be lost, and the
Chinese agreement to play by the rules could be lost. Frankly,
a great deal is at stake here.
My Company has been actively involved the Business
Coalition for U.S.-China Trade. We have also been working with
members of Congress to increase understanding of the benefits
that would accrue to the United States economy from an
agreement. We look forward to working with members, including
those of this committee, to develop a broad bipartisan
coalition in support of China's WTO accession and extension of
permanent NTR status.
Conclusion
We have not adopted our position lightly. New York Life
acknowledges the serious issues regarding United States
national security, Asia-Pacific stability, and human rights and
religious freedom in China. But as I've said, we believe that
these issues should be resolved on their own merits, in their
own arenas, and that it's a false choice to suggest our
relations with China are a zero-sum game.
Few business decisions or life decisions are black and
white, and I believe leaders in the business community and the
American public will reject this either/or mindset. The choices
facing the United States and China are complex and nuanced.
Solutions will not be found at the polar ends of the debate.
No matter how strongly some may suggest that American
business is seeking profits at the expense of other important
American interests, we believe it would be a mistake to turn
back the clock on the 25 years of improvements in U.S.-China
relations. Major gains have been made on security, trade,
nonproliferation and human rights issues precisely because of
the engagement policy pursued by all Administrations and
Congress since 1973.
Responsible business leaders do not ignore the very real
problems between the United States and China. However, we are
convinced that problems in one area can--and should--be
resolved without damaging our overall relations or undermining
our position on issues still in conflict.
The common ground that has been achieved on economic and
commercial issues between the United States and China should
not be held hostage to other important, but unresolved, issues.
Moving forward in areas where both sides can and do agree might
well improve the chances of success on issues where agreement
has not been reached. In fact, China's accession to the WTO
will significantly advance the broader agenda of political and
legal reforms which we all want to see in China.
Promoting American values does not require us to cut off
interaction with China. Indeed, moving China toward
internationally accepted standards of conduct is more likely to
be achieved if China is exposed to Western values, ideas and
commerce. Such exposure will strengthen further the economic
and political forces that are changing Chinese society.
The WTO understanding announced in early April is the
culmination of 12 years of hard work and constant pressure. It
is not a ``political deal'' or a gift to China. The concessions
are all China's--a fact perhaps not yet fully understood. China
will earn its place at the table in Geneva the ``old-fashioned
way,'' by providing genuine access to its market and by its
commitment to accept the rules and standards of the
international trade regime.
There seems little doubt that if we do not conclude the
bilateral agreement, prospects for China's WTO membership will
fade for several years. The next global trade talks, set to be
launched in Seattle next December, would take place without the
benefit of China's participation and it would remain outside
the system of trade rules for an indefinite period of time.
Finally, we urge members to recognize that even with
China's market access offer in place, America's firms, farmers
and workers--your constituents--will not reap fully the
benefits of the agreement unless we extend permanent NTR status
to China.
Thank you.
Chairman Crane. Thank you, Mr. Sternberg.
Mr. Smith.
STATEMENT OF FREDERICK W. SMITH, CHAIRMAN, PRESIDENT, AND CHIEF
EXECUTIVE OFFICER, FDX CORPORATION, MEMPHIS, TENNESSEE
Mr. Frederick Smith. Thank you, Mr. Chairman. We have
submitted a written statement. My name is Frederick W. Smith. I
am the founder of Federal Express and the chief executive
officer of FDX, which owns Federal Express and a number of
other transportation companies. On behalf of our 185,000
employees, who are, like those UT employees, very high wage
earners, we appreciate the opportunity to appear before you.
We have a major interest in China as the largest United
States all-cargo air transportation company. In fact, we are
the world's largest all-cargo carrier operating some 625
airplanes, 60,000 trucks, and handling some 5 million shipments
per day throughout the FDX companies. The primary things which
we transport are all of the high-tech and high-value-added
items that are making America prosper: The electronics and
computers, the fiberoptics, the pharmaceuticals, the medical
drugs, hospital supplies, and so forth.
Although air transportation only accounts for about 2
percent of the pounds moved in worldwide trade, it accounts for
about 40 percent of the value. And if you take out petroleum
and agriculture, it is almost 60 percent. So when you think
about international trade and trade to China, you should think
more about our airplanes as the clipper ships of the computer
age rather than container ships.
In China where we operate as one of three United States air
carriers and the only all-cargo air transportation company--the
other two carriers being Northwest and United--we face
formidable barriers doing business. Particularly in our ground
operations, our interface with customs, all of the distribution
problems that have been commented upon earlier by some of the
panelists. We congratulate Ambassador Barshefsky and her team
on negotiating this WTO Agreement because, at the end of the
day, it would eliminate many of the problems that we have
experienced, including our current difficulty in getting our
joint venture for the integral ground operations for our air
system approved.
It seems to me that in the last 10 years since the
Tiananmen incident there has been significant progress in
liberalization in China and I noted the other night, watching
some of the student leaders of that period of time on
television, how adamant they were about those improvements in
China. And we feel very strongly that the proper approach for
the United States is to continue to engage China, not to try to
turn them into an enemy, and to use trade and business
relationships as a liberalizing force which will correct many
of the problems that have been brought up here today.
So we very much appreciate the opportunity to appear before
you and I take pride in quitting before the green light goes
out. [Laughter.]
[The prepared statement follows:]
Statement of Frederick W. Smith, President, Chairman, and Chief
Executive Officer, FDX Corporation, Memphis, Tennessee
Mr. Chairman and Members of the Committee, I am pleased and
honored to have the opportunity to speak before you today on
China's accession to the WTO. I can think of no single issue of
greater importance to the long-term health and viability of the
world trading system. The direct and indirect implications for
American business and the America economy are profound.
At the outset, let me state that the position of Federal
Express is unequivocal. FedEx supports China's accession to the
WTO and, with it, the extension of permanent Normal Trade
Relations (NTR) rights by the United States to China--just as
we have with every other major trading partner. Simply put,
China's accession to the WTO will move China's economy toward
integration with the global economy, and this is good for
American business. I have conveyed this view to Ambassador
Barshefsky, whom I want to commend for having done an
outstanding job in concluding this agreement.
I am particularly encouraged at the liberalization
scheduled for the distribution field. With China's WTO
accession, FedEx will be able to sell our services directly in
the market place in four years, instead of leaving it to
agents. Whether we choose to exercise that right, would depend
of course on market conditions. But that's the point, isn't it?
With China integrated into the WTO, our decisions on how to
operate in China would be based on commercial considerations,
not determined by government fiat.
Let me try to describe my perspective on the question of
China's WTO accession by briefly relating the role of the air
express industry to trade facilitation; outlining the obstacles
we face now in China; and assessing how WTO accession affects
our situation.
Even within our own country many do not realize the rapidly
changing nature of world trade and the increasingly critical
role of integrated air express. At present almost 40 percent of
the value of all world trade goes by air. Representing only
some two percent of the tonnage of trade, air shipments clearly
account for the high value end of production.
Today's trends in e-commerce and just-in-time logistics
underlie the phenomenal expansion of the integrated air express
industry and reinforce growing requirements for fast, time-
definite transportation of cargo from door-to-door. Air express
is both a cause of, and a response to, the changing nature of
competition in international markets. The ability to ship
packages to destinations around the world in only hours or days
widens the field of competition in all industries and
accelerates the pace of commerce.
No country can expect to operate a modern economy of be at
the forefront of trade in the 21st century without a strong air
express service. China is no exception. At present, outside of
WTO discipline, China is a hodgepodge of regulatory barriers to
efficient air express service. Let me cite a few.
Currently, foreign-owned companies are not allowed to
conduct customs brokerage and clearance, ground transportation,
warehousing, consolidation, forwarding, or related services.
These functions, which lie at the heart of an integrated air
express carrier's operations, all have to be conducted through
joint ventures or agents and this means that the foreign
integrated carrier loses control of the process. For a company
like FedEx, the lose of control over these functions,
jeopardize our ability to guarantee time-definite service, the
essence of our products.
Joint venture regulations raise further disincentives. We
are prohibited from taking a majority share of a joint venture
and are limited geographically in where and how fast we can
expand joint venture operations. As a non-majority partner, we
do not control the sales force, must negotiate investment
decisions and have no guarantee that introduction of new
technology will yield optimum returns.
There may be good reasons to have an agent of JV partner
for some functions in the distribution chain, but the decision
should rest on commercial interest not regulatory restrictions.
The net result of these artificial barriers is increased prices
for our customers, lower quality of service and limits on
growth--for the integrated express carrier and the Chinese
economy.
How does China's WTO accession affect this? Simply put, the
restrictions I have noted above in the distribution field would
be removed within four years. FedEx would be able to set up
wholly-owned subsidiaries and, for the first time have the
opportunity to provide the same standard of service to
customers in China that we do in the United States and
elsewhere in the world.
Of course, some will say that the Chinese may not keep
their commitments. But, at least, if China were a WTO member,
it would have to justify its actions before that body. The more
a part of the system China becomes, the more the outside
factors influence its behavior. In other words, the costs of
non-compliant behavior go up. That is no guarantee of
implementation, but it is an important, even critical, step in
creating a more open, user-friendly economic environment in
China. At present, if we encounter problems, there is no
recourse to any system other than the homegrown variety. I
prefer to take my chances in the more transparent WTO
environment.
Finally, let's consider the alternative: a world trading
system which excludes China. Does a China less subject to the
discipline of the World Trade Organization transform itself
more or less quickly into a responsible member of the world
community? Does more or less contact with China influence it in
a positive direction? Does attempting to isolate China from the
responsibilities of WTO membership advance anyone's interest
but those who oppose reform and a more modern, open China?
I think the answers to these questions are self-evident.
Few would dispute that China has changed for the better in the
past twenty years and that the lives of individual Chinese have
improved. Livelihood, freedom of choice and, gradually, even
human rights have become better not than at any time in modern
Chinese history. The trend toward openness and reform is in the
right direction, and American business has been a positive
force for change.
I believe the continuation of this trend is in the interest
of everyone and that China's accession to the World Trade
Organization and the establishment by the United States of
permanent, normal bilateral trading relations with China is
fundamental to its achievement.
Thank you.
Chairman Crane. Well, we thank you for your testimony, all
of you. Out of curiosity, Mr. Smith, I had heard you folks had
the address of the Chinese Embassy in Belgrade. Is that
correct? [Laughter.]
I am not kidding.
Mr. Frederick Smith. We could have probably found it, Mr.
Chairman.
Chairman Crane. Seriously, you and the UPS had it and the
CIA couldn't update it in 6 years.
Well, at any rate, we appreciate your testimony. I have a
question for all of the Members of the panel and we have heard
some input about labor conditions and worker rights
deteriorating in China and, on the other hand, American
businesses that have been operating in China have come back
with much more positive comments on worker conditions, in no
small measure because of our presence there. What is your
general assessment of that?
Mr. George Fisher. I might comment on that. I think George
David appropriately said when we, in fact, put up factories in
these countries, we bring with us the environmental standards
that we practice in this country, the labor standards, all the
general good conditions that exist in this country are carried
with us. Safety, for instance. We are building a factory now
where we have 5 million hours without any lost time from
injury, which is an all-time record in putting up a factory in
China. And some of our environmental records now on the
chemical side are unlike anything China has ever seen. And they
have set new standards of performance. I think all of these
companies that deal there--all of the Western companies--can
probably say about the same thing.
Chairman Crane. Would you all concur with what George just
said?
Mr. David. Yes, sir.
Mr. McGraw. Yes, sir, Mr. Chairman. I would only add that
they are representing for the most part the heavy manufacturing
and agricultural side. From the information business side, it
is still very, very thin. We have no problems in terms of the
types of workers that we are able to attract. Our concerns here
are much more in the intellectual property rights and the
enforcement of those property rights.
Chairman Crane. Well, here's the reason I posed that
question. I have Motorola's corporate headquarters in my
district and they told me some time ago the same thing you just
said, George, that you have to maintain clean working
conditions, health benefits for employees, and pay for overtime
work. And they went a step beyond and built a huge apartment
complex that their employees can move into after 5 years. After
10 years they can own their own apartments. And I asked them at
the time, did you impose these conditions from back home? Just
unilaterally bring them here? And they said, no, that was
Chinese law for companies that were coming in from the outside.
But my understanding is that it doesn't apply universally
to domestic Chinese companies. And the observation I made at
the time and have made many times since is that if I am working
for Motorola in that kind of a situation and Sandy's working in
some grungy Chinese factory that doesn't have to live up to any
of those standards and we are having Tsingtaos after work and
he is moaning about his working conditions, I would say,
logically, hey, Sandy, why don't you come work for Motorola?
And Ben Franklin made that observation: A good example is
the best sermon. And my contention has been that our presence
over there is that good example that is the best sermon,
helping to get that message out. So I want to just pay tribute
to all of you. Keep the faith. Fight the good fight. And, with
that, I will yield to my distinguished Ranking Minority Member
Mr. Levin.
Mr. Levin. Well, now that you have opened the subject, let
us talk a little more about it because it is one of the issues
here and I think we need to be very clear. And I say this with
all respect. Some of us know each other pretty well and I
admire the efforts we have worked on trying to break down
barriers in Japan, for example, and some other trade issues.
But when we talk about bringing environmental standards to
another country, that may be one thing. But when we talk about
bringing labor standards, worker rights, I do think we ought to
understand the limitations and the differences. You are not
bringing the ability of workers to associate. Right?
Mr. George Fisher. Is that your question? What we try to
bring is a basic value system, which is, perhaps, thought to be
very Western, but respect for the dignity of the individual,
uncompromising integrity in everything all of our employees do,
trust, credibility, and continuous improvement. It is based on
this very basic set of human values that we build a culture.
Mr. Levin. And I deeply respect that, George, but I think
part of the issue here is as we integrate this huge Chinese
economy, which is structured so differently, I think we ought
to be very open about the differences and the challenge.
Because the workers within your plants don't begin to have the
rights that is true of American workers. So I think there
should be----
Mr. George Fisher. Well, Sandy, I think you should ask the
people in our factory before you assert that, because----
Mr. Levin. Well, I have been in some of the factories--not
yours--and in no factory I have been in China do the workers
have the full right to associate, the full right to bargain
collectively. In most of these factories, the union is
government-dominated. In several factories that I have been in,
the State enterprise has shadow--at least one of them--has
shadow participation in business decisions, let alone a free
labor market set of circumstances. And so I do think that we
need to understand these differences, and they are vast between
China and the United States in terms of labor market issues.
In terms of capital, there is no doubt progress was made in
the negotiations, in terms of ownership of joint ventures.
There is a reference here to movies. It is 40 movies. And I
agree that it is better than zero. Foreign films, right, Mr.
McGraw? There is a limit, 40, and it goes up a certain number
every year. But this is not a free society.
But let us go back to the labor market issues. There was a
reference here to twice the prevailing wage. Mr. David, the
prevailing wage is what? In your factories?
Mr. David. The figure is twice the average wage, which is
about $2.50 an hour.
Mr. Levin. All right. So let us put that in perspective
because, for example, in the steel import surge, you were
talking about steel that was being produced in China when
workers were being paid $1.25, $1.50 an hour. And they are
being paid $15, $20, or $25 here. And the question becomes for
the typical worker in the business that feeds into the American
steel industry that can't lift up and go immediately to another
country, how am I going to compete? And that raises the whole
issue of dumping and countervailing duties, and so forth.
And I raise it because I don't want us to ignore the
challenges of putting together these two very different
structures. And I wish that, in a sense, this panel were mixed
with the next panel so that you would have the kind of
discussion that I think needs to be sparked.
Let me suggest the same is true--and I wanted to ask, in
terms of enforcement--and maybe Mr. McGraw or Mr. Fisher or
somebody wants to comment on this. It is true that there will
be fewer barriers on paper than Japan, I think, at least in
some areas. Japan is going to have a tighter--still has a
tighter set of informal restrictions. I am not sure how
strongly the informal restrictions would be in China. But there
is a vast difference in transparency. And----
Mr. George Fisher. Which way?
Mr. Levin. I think we are going to have more trouble
figuring out what is going on in China, in many respects, than
we do in Japan. I mean, it is not a rule-based society. It has
a restrictive flow of information. I think that is of concern
to all of you. It is in terms of intellectual property, right?
To this day, we are not exactly sure--when I was there last
time, it isn't really clear what is going on in terms of
pirating, right?
Mr. McGraw. But we have some numbers. Just in terms of U.S.
book publishing activities, we are estimating that somewhere
around $685 million is pirated in the world today. But, of
that, $125 million--that was just in the last year--$125
billion of that was coming out of China. So the proportion is
so much higher.
Mr. Levin. All right. And it is not easy to gather
information in China.
Mr. McGraw. It is difficult.
Mr. Levin. I just want to alert you--I want everybody to be
realistic. You bring them into the WTO. Mr. Fisher, as we found
out--you found out better than anybody else--in the Kodak case,
it is one thing to have a right, it is another to be able to
enforce it. And the problems that related to Kodak in Japan, as
misguided as I think the WTO was, they exacted a level of
information that is going to be very hard to obtain when you
enforce rights in China.
Mr. George Fisher. Sandy, I think you are right on how
complex some of this could be. But I must say, at a very
microlevel, both in my experiences with Motorola and with Kodak
in China, that whenever I have had a good agreement, a good
agreement being defined as not a lopsided one, good for both
sides, that it has been very easy to get both sides to honor
that agreement and I have never, never had a situation yet in
China where I thought I was told one thing and it went the
other way.
Mr. Levin. With intellectual property, that is really what
has happened.
Mr. George Fisher. Well, intellectual property, as we all
know, is one of the more serious issues. And it wasn't a
question of having the laws, it was the question of enforcement
on intellectual property. But I can tell you this, at least
from the electronic side, it is getting better and better. And
that is the whole story in China. 10 years ago, we would have
this discussion and there would be horror stories all over the
place. There still are. But things are a lot, lot better, even
on intellectual property, today.
Mr. Van Andel. I know even with our organization--I am a
little different than others around the table because I am
probably more low-tech and everybody else is a little more
high-tech--but I know that is really the point with our
organization, too. I look at what we did. We built a factory in
Guangdong province. We basically built a duplicate of what our
factory is in Michigan. So we have some very good comparisons
that we can make. Sure the labor rates per person may be lower
in terms of the actual dollar amount. But the quality of life
of our workers has improved compared to the quality of life
that they had last year or the year before. And I think that is
the point.
Mr. Levin. And I will finish because my time is up. I think
there is no doubt that when someone is paid $2.00 an hour, it
is better than $1.00 an hour. And I think that is a plus for
the worker there. But let us remember, in arenas that will be
increasingly competitive, there is legitimate reason for
concern about the differential and whether, over time, market
conditions will allow that differential to narrow. And that is
why we need to talk this through and not have closed minds or
just automatic polarization on these as well as other issues.
And it is different, to some extent, in the service industries
than it is in the industrial sectors. Thanks.
Chairman Crane. Mr. Houghton.
Mr. Houghton. Thanks, Mr. Chairman. Well, you know, there
are always going to be differentials, no matter where we go.
The differentials between New York State and the Deep South,
Canada and the United States.
I think one of the most important things that I remember
Mr. Fisher saying is that if you have a job here and you have a
job there, it doesn't mean if you have a job there you are
taking one away from here. You are actually creating a
customer. So if you transfer a job overseas, you are putting
that there, but also you are doubling the capacity--or some
sort of increment--in this country. And that is a basic
economic philosophy that is at work here.
We have several issues here. We have got the temporary
approval vote, which will be a Full Committee vote, not this
Subcommittee, for normal trading relations. And then we will
have the adjustment, hopefully, of Jackson-Vanik. Because if
Jackson-Vanik is not adjusted, then exceptions will be taken
and we will not be able to enjoy the opportunities of the World
Trading Organization. And then, ultimately, we will have the
vote on a permanent normal trading relation.
But I think the critical question to me is to flip this
thing around. Suppose we don't do this? What happens to your
businesses? What happens to the jobs in this country? Maybe you
would like to answer that question.
Mr. George Fisher. I'll--do you want to jump in? OK, let me
just say, one aspect of the whole agreement being negotiated,
really what we are talking about in many ways is a one-way
agreement. The United States market is open to the Chinese. The
Chinese market is not fully open to us. What we are talking
about is really, I think, what Congressman Levin was talking
about in terms of beginning a process. By starting and getting
the World Trade Organization, we are starting to build toward
that rules-based, market-based, trading kind of economy. If we
don't do this, U.S. business is going to be seriously impaired
in terms of being able to treat that economic growth in a
region that is so populous and is going to have such
opportunity.
So, I agree that we don't want an agreement of any sort. We
want a good agreement, but not at any price. We don't want to
oversell this. We are at the beginning of a process. But we
want one in terms of engagement and one where we can begin to
build toward a higher level of enforcement to make sure that we
are all benefiting from this economic growth.
Mr. McGraw. And, Congressman----
Mr. Van Andel. When you look at this agreement, it is an
agreement for U.S. business. Absent permanent NTR status, we
are excluded from the benefits while other countries gain are
advantage. With permanent NTR we start on an even playing
field. So it is really an agreement for us to have the same
rules as the rest of the world.
Mr. David. I would comment, if I may, as well, that first,
I think the principal impact on UTC individually would be the
aerospace sector. The aerospace sector in the U.S. runs about a
$2 billion annual trade surplus with China. I think it must
easily be the sector with the biggest trade surplus. There are
alternate foreign suppliers for engines and air frames and I
think that in the event that NTR is not extended, that work
would all migrate to Europe and the ultimate suppliers to China
will be Rolls Royce and Air Bus.
Second, to reinforce the point I made earlier, there is a
lot in this agreement for U.S. business. I think that the
reduction in tariffs from basically the 30-percent to 40-
percent range down to below 10 percent is a tremendous plus for
U.S. exports in the future. Also, not to minimize it, the
provisions that would allow distribution companies to be
American-owned and allowed to distribute U.S. imports into
China, is a fundamental change. The current situation is a huge
disadvantage for us today. These are two, very special features
of the WTO agreement Ambassador Barshevsky has negotiated,
which is a great agreement.
Mr. Sternberg. Congressman, there are 70 insurance
companies now waiting for licenses to do business in China and
the process is not a transparent process, so without WTO, we
might very well get the next license in a year or 2 or we might
have to wait 10 years for a license. With WTO, that licensing
would be transparent and most of the insurance companies that
are requesting licenses would immediately get access to the
Chinese market.
Chairman Crane. Mr. Camp.
Mr. Camp. Thank you, Mr. Chairman. I want to thank all of
you for your testimony this afternoon, but I would like to
direct my question to Mr. Van Andel. And I understand that the
Chinese Government has limited your operations in China to the
extent that you cannot sell merchandise to distributors for
resale. And do you believe that the Government of China either
directly or indirectly is sending the signal that it objects to
the entrepreneurial nature of your company or is objecting to
its citizens being exposed to the concepts of entrepreneurship?
Mr. Van Andel. You know, when they enacted the ban on
direct selling, after the ban, they would allow us to open
through traditional retail channels, through stores. They would
allow us to operate back through stores. But in discussions
with them, he showed them, actually, how our business enhanced
the quality of life for citizens and that our distributors
gained valuable business and entrepreneurship skills. After
that they recognized that what we did for the citizens of China
was what they needed. The training that we gave to the people
in China was what they were looking for.
And so we worked with them to create an ability to come
back in and restart under a new mode that allowed us to keep
our distributors in place. They recognized the quality, I
think, of entrepreneurship or business fundamentals or training
as a very important quality for them. And we were proud that we
were able to do that.
Mr. Camp. Your answer seems to say the government officials
may have recognized some of that. What about the average person
there and the whole concept of free enterprise and being
exposed to free markets? Do you have any comment on that?
Mr. Van Andel. Well, you know, it is amazing. As I have
gone through different countries in different parts of the
world, I always wondered whether our concept of free enterprise
would translate into different markets. And I have watched it
in China. I have watched it translate, although we talk about
it a little bit differently. But the whole concept of owning a
business for yourself, doing something for yourself. Owning
your own business and becoming successful based on that is a
concept that I have seen translate into every culture,
including China.
Mr. Camp. Well, thank you very much. Thank you, Mr.
Chairman.
Chairman Crane. Mr. Becerra.
Mr. Becerra. Thank you, Mr. Chairman. I think before you
even get to the whole question of accession to the WTO, to
where we stand with normal trade relations with China, these
days, because of all the other issues that cloud the
relationship, we have to address that shadow that lurks there.
I think we would be deceiving ourselves to believe that the
politics of this country at this time, so close to a
Presidential election, will allow us to talk solely in terms of
pure economics and trade matters, with regard to what we do
with China in the future and, obviously, with the WTO as well.
Having said that, I would associate myself with some of the
remarks made earlier by Mr. Levin. But let me focus a bit on
another aspect of the trade question which I think we can do
something about, and I believe is essential for us to move in a
very bipartisan, more conciliatory fashion in this country
toward a healthy trade agenda. That would be dealing with the
domestic components of trade.
This year we are supposed to reauthorize the Trade
Adjustment and Assistance Act. The TAA has always been
something that has been used domestically to try to offset the
difficulties caused by our expansion of trade abroad. The
problem is, it has never really worked very well, nor have many
training programs for that matter. It has always made it
difficult for anyone who has promoted trade to be able to point
to the ability of our country and our economy to soften the
impact for those that will lose jobs. I don't think anyone
denies that we will lose jobs. We can't deny that we are going
to gain a whole bunch of jobs as well as a result of trade. I
think we all do ourselves a disservice by not doing more
through private enterprise and certainly through the public
means to try to address the concerns of those who may be
dislocated.
At this stage, it seems to me that it would behoove those
who are going to benefit most directly, most immediately from
any expansion of trade, in this case with China, to look
closely at the whole issue of TAA and how we can improve it to
make it work, working with government, but also again, I think
the private sector is such an important component of this. If
the voice of the two can be merged so that we do a better job
domestically of addressing the needs of those workers who do
become dislocated, it will be in those lower skilled areas. We
are talking mostly about folks who will be very difficult to
retrain and placed in positions that will pay well. But if we
don't deal with it, of course we'll deal with those very
partisan on both sides of the aisle who produce 20-second
commercials that show that American worker who lost his or her
job, and use that loss as a reason we should not expand our
relations with other countries.
I would hope that one of the things that we can all do,
both those of us in government and those of us in the private
sector, especially those who stand to gain by increased trade,
would be to find a way to come together, merge some good ideas
and see if we can try to improve on what we have right now with
TAA so that at the end of the day, at least domestically, we
can deal with some of those issues that are within our grasp. I
don't know if we will be able to close the door on the issue of
espionage any time soon, the whole issue of the bombing of the
Chinese Embassy is going to haunt us for a time. But certainly
when it comes to a displaced American worker, I would hope that
there might be some ideas brewing among those who are in the
private sector to help us come up with some ways to try to deal
with this as well.
If government is left to its own devices to try to do this,
we will fail. We don't have the resources, nor do I think we
have the ingenuity in government to do it by ourselves. It
really will take the efforts of the private sector. Those that
are most likely to gain, who don't have to worry so much about
displacing workers in their own industry, I would hope would
recognize that opening up that trade will benefit you all very
much and bring back a little bit home, you know, put a little
back in the domestic market. This will help you help all the
rest come to terms with the whole issue of expanded trade.
Hopefully it will be freer and it will be fairer for everyone.
I don't really have a question there. If anyone wishes to
comment, I would open up the rest of the time that I have. If
not, Mr. Chairman, I'll yield back.
Chairman Crane. Mr. Ramstad?
Mr. Ramstad. Thank you, Mr. Chairman.
I want to thank all the distinguished business leaders on
this panel for being engaged in this important issue. I think
Mr. Sternberg, you best summed up the issue of WTO accession
for China by saying that this deal should be done. It is a win-
win. Of course it is. As one who has worked as a member of the
bipartisan WHIP team to try to get this legislation passed, I
do appreciate your active involvement as corporate leaders.
Let me ask any of the members of the panel a question,
whether the annual uncertainty that we experience with the
renewal of NTR for China hurts United States' businesses. This
wouldn't obviously apply to any of you, but those businesses
trying to enter the Chinese market--whether the uncertainty
associated with renewal of normal trade relations each year is
detrimental to those businesses trying to enter the Chinese
markets.
Mr. Sternberg. Congressman, it's not the uncertainty, but
unless Congress grants permanent status, we cannot bring China
into the WTO. WTO requires permanent NTR status. So all of the
concerns that we have raised or the opportunities that we have
identified that this country would get and our industry would
get because of WTO entry by China, would not be available
unless we moved from this annual approach to permanent NTR
status.
Mr. Ramstad. I understand that, but hasn't over the past
several number of years, hasn't the uncertainty created havoc?
Certainly that's another reason why we need to pass permanent
trade relations.
Mr. Sternberg. Yes.
Mr. Ramstad. I don't think anybody would disagree with
that.
Mr. Sternberg. No.
Mr. Ramstad. Let me also ask, I think all of you, I would
assume also do business in Hong Kong and Taiwan. Can any of you
comment on what impact would it be on Hong Kong and Taiwan if
the United States does not grant normal trade relations to
China, or if China doesn't accede to the World Trade
Organization.
Mr. McGraw. Well I would only comment that I think
Ambassador Fisher said it correctly. I think that on the issue
of Taiwan, as soon as they fully met the requirements, I think
the push is going to be to have Taiwan go for the WTO. So I
don't see any problem from that standpoint. I just think it
would be such a damaging blow to United States business
interests to be locked out of such a major market like China,
that that would be the overriding factor. But the influence on
Taiwan I think would be a separate issue. Hong Kong is part
of----
Mr. Van Andel. Just to address Hong Kong, although Hong
Kong is obviously a much smaller market than China. China talks
about Hong Kong in terms of--even though Hong Kong is now a
part of China--they talk about it in terms of being a single
market but two systems, having the Hong Kong system and the
China system. Hong Kong really operates economically
independently as it did before. So I don't know whether there
will be any impact one way or the other, depending on what
happens with China, because it does operate independently.
Mr. Ramstad. Let me ask a final question of you, Mr. David,
if I may, please. You touched on, I guess in response to the
Chairman's line of questioning, the protection of intellectual
property rights, which has been a real problem in China for a
number of constituent businesses in Minnesota, which I
represent. Certainly such protection is critical. Do you
believe, and if so, how would China's WTO accession help in
this regard, in terms of protection of intellectual property
rights?
Mr. David. I think the first comment I would make is that
our own experience with intellectual property rights in China
has not been adverse. In fact, we had one interesting and
notable litigation over pirating of the Carrier trademark with
five start-up, Chinese companies. Carrier, of course, is a
proud name in air conditioning. We were able to get an
administrative ruling with teeth that took effect within 6
months time. So our experience with intellectual property has
not been adverse at all. I think that whatever we can do to
continue to apply the pressure to bring China into the WTO, and
thereby bring them up to Western standards, is going to be
highly beneficial in the area of intellectual property
protection, as in every other area.
Mr. Ramstad. A final comment before my time expires, Mr.
Chairman. Thank you again for your active involvement. It is
important. We need it to get this passed, to educate not only
members of this panel, but the entire Congress. When we come,
if we do, to action on fast track again, I hope the business
community is similarly engaged, because last year the silence
of business leaders was deafening in terms of fast track.
That's one of the reasons we don't have fast track authority
today. So thank you for your engagement on this issue. I hope
you and your counterparts in American business are as active
when it comes time for fast track.
Thank you, Mr. Chairman.
Chairman Crane. Thank you.
Mr. Herger.
Mr. Herger. Thank you, Mr. Chairman. I thank each of you
for being here on this panel. This is an incredibly complex,
controversial issue, certainly here in the United States and
certainly with the electorate that all of us represent. But it
is also, I believe, one of the most important issues to face
our Nation, not only economically, but certainly with our
relations with a country that represents 20 percent of the
population of the world. I believe really the decision we have
to make is are we able to stand isolated as the most powerful
country in the world, as the leader of the free world, are we
able to isolate ourselves? Is that in our advantage to isolate
ourselves, basically? Or is it in our advantage to allow
individuals like yourself to be able to enter into their
society, to share with them, to assimilate into their society
basically, the groundwork, the Judeo-Christian type of
foundation that we have in our country that brings about the
lessening of the human rights abuses that we see. I really see
this as so much of the issue.
The area I represent in northern California is probably one
of the most agriculturally rich, productive areas any place in
the world. We grow a number of specialty crops, a very large
percentage of them, including rice, a large percentage of
peaches, walnuts, almonds, prunes. We cannot eat all the
products that we grow. We are dependent on being able to export
to other countries. It certainly seems to me that at a time
when our duties for other countries, including China, to be
able to export into our country are very low, the fact that we
do not have agreements, that we are not working there to be
able to bring their tariffs down, to be able to allow us equal
access, I believe is completely and totally unacceptable.
So I believe there are a number of reasons why we need to
be moving in a direction, hopefully that we are presently
moving, and that I believe each of you is advocating. But with
that, we certainly have our challenges. I would like to maybe
just ask a general question. Given the large and growing trade
deficit that we have with China, how do you respond to critics
who argue that normal trade relation treatment has benefited
China but not the United States? Would either of you like to
comment on that?
Mr. George Fisher. I think that that would get at the
essence of why we say the WTO Agreement is really a challenge
to China. In fact, under the tariff reductions, our products
become much more competitive. The opening of services in
various markets, means we could sell more products. I think a
good WTO Agreement like the one whose draft we are aware of,
will in fact help us sell a lot more products there, and hence,
have a significant impact on the trade deficit.
Mr. David. Congressman, of course the agreement is still
private, and so we are operating on some degree of inference,
guesswork and rumor. But the flavor of everything that any of
us has read is that the WTO draft agreement is decidedly pro
U.S. That is, there are multiple, multiple concessions by the
Chinese and practically none by ourselves. In fact, this
agreement is a means of redressing part of this historic
imbalance, where we faced 30 percent external tariffs going
into China while they have had MFN or NTR tariff status on our
side. I think that the important point is that NTR status is
the device to get China into the WTO, which is the device to
redress this historic imbalance.
Mr. McGraw. Congressman, I would just add a few points to
that. The trade deficit can only get worse without resolution
here and getting this agreement, and getting China into the
WTO. I would also say that the United States has probably been
the most active in use of the binding dispute resolution
mechanisms. I think that it's there, that you are going to
start to begin to see more of the equity that you are talking
about in terms of a level field.
Mr. Van Andel. I would completely agree, that the WTO is
what begins to level the playingfield with everyone. NTR is the
means by which we get WTO benefits from China.
Mr. Herger. Thank you. Those are the answers I was looking
for. I mean basically it would seem like we have virtually
everything to gain and very little to lose on almost all these
scores. Hopefully again, we are looking at a nation that's been
around for 5,000 years. It takes a bit of time to get them to
evolve to the point where we are now. But I appreciate your
involvement, both for what it will do, I believe, to help our
economy and certainly the economy for my northern California
district. But also I believe it is the right thing to do and
helps speed up an improvement on human rights more than the
other way. So thank you very much.
Chairman Crane. Thank you.
Mrs. Johnson.
Mrs. Johnson of Connecticut. Thank you very much. Thank you
all for your testimony. Welcome, Mr. David, it is a pleasure to
have you before our Subcommittee.
I just want to say as an aside, after all of those attacks
that I have taken on how do we compete with 25 cents an hour,
it is very nice to know that we pay $15 and $18 an hour and
export to China, and thank you very much, that we will export
more if we can reduce tariffs of 38, 30 and 12 percent on a lot
of our products and parts.
I also think it is very interesting that you really
demonstrated quite clearly that more exports will flow to China
as a result of this agreement as it appears to be shaping up
rather than fewer. Your comment that China now imports a
greater percent of its GDP than we do I think is very
important, that over a short number of years, they have really
become big importers. If they drop these barriers, they will
become even bigger importers. That is very much in our
interest.
But this issue of human rights is in the minds of many of
my colleagues. I would like to hear each of you just talk
briefly about how you believe the practices of your companies
affect your employees' view of their rights and
responsibilities as individuals. I thought, Mr. David, your
comment about your enormous education project in China--
certainly people with good education do see themselves
differently and believe their future is different. But I know
that a number of you are doing quite different things in the
area of benefits, fostering home ownership and other things
like that. So if you would just give us a little sense of what
you see in your experience as the way in which people's view of
their own self and their rights and opportunities is changing
as a result of American policies in China and American
corporate presence in China. I think that would be helpful to
us.
Mr. David, do you want to start?
Mr. David. Nancy, I might respond with a couple of
anecdotes. I recall addressing employees at our elevator joint
venture in Tianjin, which is the fourth largest city in China,
about 3 years ago. That venture started in 1984. This was a
typical Chairman's speech. About halfway through, just because
of the way the speech went, I had occasion to ask employees how
long they had all worked for this company. I started out by
asking, ``how many of you were here from the beginning? ''
Every hand in the room went up. Every single one. The point of
that, which I am subsequently going to rant about a little is
that our employees never leave us in these companies. They love
American employers.
I have a second story. I recall meeting the shop steward of
one of Carrier's companies in Shanghai in 1986. She was rather,
shall we say, hard-edged with me. I think she thought I was one
of these ``imperialist, yellow running dogs from America,'' or
something like that. Today she is the deputy general manager.
She was a ranking Communist Party official in 1986, and today I
think she is pretty pro-capitalist, pro-Western, and pro-
democratic. The reason is because her family has benefited from
her participation and exposure to Western institutions and
systems and beliefs. I think the way you do this, and I have
seen it so much, is by rewarding seniority and commitment, and
when people see it they like it. We know they are persuaded
when they say, ``We would like to see more of this.'' That's
how we will change the minds of the Chinese people.
Mrs. Johnson of Connecticut. Does anyone else care to
comment?
Mr. George Fisher. I think as I said earlier, that
practicing of certain, you might call them Western values, but
they are universal values, but particularly respect for the
dignity of the individual in everything you do as a practice
and continue personal renewal through education and training
where people gain self respect, I think there is nothing more
powerful than really continually relentlessly practicing and
preaching those values. It works.
Mrs. Johnson of Connecticut. I was very interested in the
comment about your experience with intellectual property rights
problems. What about contract enforcement? China doesn't have a
very strong contract law. So don't you find yourselves arguing
about contracts all the time? Does arguing about it help
gradually to build understanding of the mutual obligations
under contract law?
Mr. McGraw. There's no question about that, Congresswoman.
The whole issue of enforcement has been a very difficult one.
The comments I made earlier about the signing of the
intellectual property bilateral agreement in 1995, we have seen
nothing but abuse in terms of the continuation of piracy. We
believe, and our hope is, that as part of the World Trade
Organization, that you are going to have further leverage and
further muscle to be able to get resolution there.
On the question of employees and the understanding of basic
common values, I would echo the same as both Georges. From my
standpoint, you know, we have a very strong code of business
ethics that we make sure that each employee knows and
understands, and we routinely go through those kinds of issues.
We have management forums and employee forums around the world.
We just make sure that there's a continuous effort in terms of
making sure people understand those kind of values.
I would agree as well that a lot of the employees that we
have, some of our most loyal employees, are people that you
would have thought years ago would have been just the opposite.
They are so thankful for the opportunity to be able to get
ahead.
Mrs. Johnson of Connecticut. Thanks. Thanks, Mr. Chairman.
Chairman Crane. Thank you. The Subcommittee is going to go
into recess.
Mr. Rangel. I have one question.
Chairman Crane. Oh yes. Mr. Rangel.
Mr. Rangel. If expanded trade with China is so important to
move that great country into a democratic form of government,
should not those same principles apply as it relates to Cuba?
Is there anyone that challenges that, if it's good for a 1.3
billion people that those same principles should apply for 8
million people that are 90 miles from our border? Does anybody
here support the embargo against Cuba?
Chairman Crane. It's a unanimous vote, Charlie.
Mr. Rangel. We're going to need some help here because
democracy is not a part-time job, you know. If it makes a lot
of sense for those Communists in China and Vietnam and North
Korea, then I think we ought to give our friends in the
Caribbean a break, too.
Chairman Crane. Let me add, free trade is not a part-time
job. Having communications from presidents and chief executive
officers is vitally important. More important as individual
votes come up, however, are your transmission of the importance
of free trade to your employees and the communication from
those employees to their elected representatives. So please get
the message out.
Again, thank you for putting up with us. You did an
outstanding job.
We stand in recess, subject to call of the Chair.
[Recess.]
Chairman Crane. I now would like to reconvene the
Subcommittee for our final panel. That includes John Sweeney,
president of the AFL-CIO, Jack Valenti, president and chief
executive officer of Motion Picture Association, Neil Gambow,
president of Post Glover Resistors, Inc., and Robert Kapp, the
president, United States-China Business Council. If you
gentlemen will take your seats and proceed accordingly. Try and
keep your oral testimony to 5 minutes. Any printed statements
will be made a part of the permanent record.
Mr. Sweeney.
STATEMENT OF JOHN J. SWEENEY, PRESIDENT, AMERICAN FEDERATION OF
LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS
Mr. Sweeney. Thank you, Mr. Chairman, for this opportunity,
and Members of the Subcommittee, to be able to present the
views of the AFL-CIO on China's accession to the World Trade
Organization. The AFL-CIO believes strongly that we have a
responsibility to work to strengthen democratic forces, improve
economic conditions, and advance human rights in China. In the
long run, we believe the ties between our countries will be
strengthened rather than weakened by such efforts.
An overriding concern for the labor community is China's
horrendous record of human and workers' rights violations.
There should be no accession or grant of permanent or annual
normal trade relations until China makes material progress to
protect the rights of workers. Furthermore, any accession
agreement must effectively address serious unresolved issues
with the draft commercial terms, and ensure that the United
States retain broad and effective tools to address problems
with compliance.
China repeatedly and flagrantly violates internationally
recognized core labor standards by denying Chinese workers
freedom of association and the right to organize and bargain
collectively, as well as by the abuse of prison labor. The end
result, as the 1998 State Department Human Rights Report
confirms, is that no independent labor unions are allowed to
function in China. Existing unions are completely controlled by
the Communist Party, and many are not independent of
management.
A recent report by the International Confederation of Free
Trade Unions documents two disturbing trends. First, many labor
activists have been jailed or sentenced to reeducation camps
for the crimes of advocating free and independent trade unions,
protesting corruption, embezzlement, and nonpayment of wages by
managers and for providing information on workers activities to
journalists.
Second, there have been increasing confrontations,
sometimes violent, between protesting workers and the police.
In January of this year, for example, police attacked 100
retired factory workers who were protesting unpaid pensions.
Ten of the elderly activists were beaten, including a 70-year
old man, who was knocked unconscious.
It is clear that the Chinese Government is implementing an
economic policy based on strategically restricting access to
its home market, while aggressively promoting exports. The
systematic violation of internationally recognized workers'
rights is a crucial component of this strategy. Often, China's
actions represent an explicit violation of bilateral agreements
between China and the United States. At the 1996 WTO
Ministerial in Singapore, WTO members committed themselves to
observe core labor standards, including freedom of association,
the right to organize and bargain collectively, and
prohibitions on child labor, forced labor and employment
discrimination.
The next WTO Ministerial will take place later this year in
Seattle. This will be a crucial opportunity to press for
further progress in strengthening the WTO's commitment to
promote core labor standards. Labor leaders from all over the
world will gather in Seattle to press the trade ministers and
heads of state, to incorporate enforceable workers' rights and
environmental standards into WTO rules.
Given the current workers' rights and human rights problems
in China, it is therefore essential that United States
negotiators insist on three conditions prior to China's
accession to the WTO. First, that the Chinese Government
observe and effectively enforce core labor standards as a
condition of accession. Chinese workers must be allowed to join
together, organize, and bargain for better working conditions
and wages. Second, the Chinese Government must immediately free
all jailed human and labor rights activists. Third, the Chinese
Government must agree to support United States efforts to
incorporate enforceable workers rights into WTO rules,
including establishing a working party on workers rights, which
would allow a constructive dialog on workers rights to take
place at the WTO.
In addition, the AFL-CIO continues to have serious concerns
about the unresolved commercial terms of accession, as well as
the enforceability of any agreement with China, given China's
poor record of compliance with past bilateral agreements and
the failure of the United States Government to aggressively
enforce these agreements. The central enforcement issue is
whether bringing China into the WTO will improve or worsen the
United States Government's ability to enforce China's
compliance with the letter and the spirit of the international
trading and workers' rights norms. While accession will in
principle bring China under the discipline of WTO rules and
dispute settlement, the United States will forfeit its ability
to use some U.S. trade measures unilaterally. For example, the
trade measures available under section 301 are very limited as
applied to WTO members.
Human rights, worker rights, and compliance with
internationally recognized trading norms are necessary
components of a well-functioning international trade system.
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of John J. Sweeney, President American Federation of Labor
and Congress of Indutrial Organizations
Thank you, Mr. Chairman and members of the Subcommittee,
for this opportunity to present the views of the AFL-CIO on
China's accession to the World Trade Organization (WTO).
The AFL-CIO believes strongly that we have a responsibility
to work to strengthen democratic forces, improve economic
conditions, and advance human rights in China. In the long run,
we believe the ties between our countries will be strengthened,
rather than weakened, by such efforts.
An overriding concern for the labor community is China's
horrendous record of human and workers' rights violations.
There should be no accession or grant of permanent or annual
normal trade relations (NTR) until China makes material
progress to protect the rights of workers. Furthermore, any
accession agreement must effectively address serious unresolved
issues with the draft commercial terms and ensure that the
United States retain broad and effective tools to address
problems with compliance.
China repeatedly and flagrantly violates internationally
recognized core labor standards, by denying Chinese workers
freedom of association and the right to organize and bargain
collectively, as well as by the abuse of prison labor. The end
result, as the 1998 State Department's Human Rights Report
confirms, is that no independent labor unions are allowed to
function in China today. Existing unions are completely
controlled by the Communist Party, and many are not independent
of management.
The State Department's report notes that the Chinese
government's ``human rights record deteriorated sharply
beginning in the final months of [1998] with a crackdown
against organized political dissent.'' Restriction of religious
freedom intensified in 1998, according to the report. The
repression of workers' rights likewise worsened in late 1998
and early 1999.
A recent report by the International Confederation of Free
Trade Unions (ICFTU) documents two additional disturbing
trends. First, many labor activists have been jailed or
sentenced to reeducation camps for the crimes of advocating
free and independent trade unions; for protesting corruption,
embezzlement, and non-payment of wages by managers; and for
providing information on workers' activities to journalists.
According to the ICFTU, at least 78 people have been detained
in connection with independent labor activities since 1989.
Second, there have been increasing confrontations, sometimes
violent, between protesting workers and the police. In January
of this year, for example, police attacked one hundred retired
factory workers, who were protesting unpaid pensions, in Wuhan.
Ten of the elderly activists were beaten, including a 70-year
old man who was knocked unconscious.
The ICFTU notes that many workers are being penalized for
protesting unpaid wages or unpaid pensions. The ICFTU warns
that this trend is likely to increase with China's economic
slowdown, as workers increasingly face situations where wages
or pensions cannot be paid due to mismanagement or embezzlement
of funds from defunct state enterprises.
It is clear that the Chinese government is implementing an
economic policy based on strategically restricting access to
its home market, while aggressively promoting exports. The
systematic violation of internationally recognized workers'
rights is a crucial component of this strategy. Often China's
actions represent an explicit violation of bilateral agreements
between China and the United States.
In a 1992 Memorandum of Understanding on market access, for
example, the Chinese government agreed to eliminate ``all
import substitution regulations, guidance and policies.'' Two
years later, according to the United States Trade
Representative's 1997 National Trade Estimate Report on Foreign
Trade Barriers, China announced an automotive industrial policy
that explicitly called for ``production of domestic automobiles
and automobile parts as substitutes for imports'' and
established local content requirements, which forced companies
to use domestic products, even when less expensive or better-
quality foreign products were available. This policy caused
U.S. exports of auto parts to China to plummet, from $218
million in 1993, the year before the policy went into effect,
to $132 million in 1998. U.S. imports of auto parts from China,
meanwhile, rose from $339 million to $1.036 billion during the
same period. It is unlikely that WTO accession, in and of
itself, will bring about the necessary changes in China's
domestic economic policies that have been promised,
particularly in light of past compliance problems.
The skewed U.S.-China trade relationship continues to
worsen. Last year, the United States racked up a merchandise
trade deficit with China of $57 billion, up from $50 billion
last year and balance in 1980. The United States imported $71
billion worth of goods from China in 1998, while exporting only
$14 billion worth, a ratio of more than 5 to 1, by far our most
asymmetrical trade relationship.
At the 1996 WTO ministerial in Singapore, WTO members
committed themselves to observe core labor standards, including
freedom of association, the right to organize and bargain
collectively, and prohibitions on child labor, forced labor,
and employment discrimination.
The next WTO ministerial will take place later this year in
Seattle. This will be a crucial opportunity to press for
further progress in strengthening the WTO's commitment to
promote core labor standards. Labor leaders from all over the
world will gather in Seattle to press the trade ministers and
heads of state to incorporate enforceable workers' rights and
environmental standards into WTO rules.
Given the current workers' rights and human rights problems
in China, it is therefore essential that U.S. negotiators
insist on three conditions prior to China's accession to the
WTO. First, that the Chinese government observe and effectively
enforce core labor standards as a condition of accession.
Chinese workers must be allowed to join together, organize, and
bargain for better working conditions and wages. Second, the
Chinese government must immediately free all jailed human and
labor rights activists. Third, the Chinese government must
agree to support U.S. efforts to incorporate enforceable
workers' rights into WTO rules, including establishing a
working party on workers' rights, which would allow a
constructive dialogue on workers' rights to take place at the
WTO.
In addition, the AFL-CIO continues to have serious concerns
about the unresolved commercial terms of accession, as well as
the enforceability of any agreement with China, given China's
poor record of compliance with past bilateral agreements and
the failure of the U.S. government to aggressively enforce
these agreements.
In order to adequately address these commercial concerns,
the accession agreement should include:
-- a safeguard provision against unpredicted import surges
that will remain in place for at least 15 years and/or until a
review determines that Chinese conditions no longer warrant
such a measure.
-- provisions ensuring that parties other than the U.S.
government can take action when imports cause market
disruption. Unions, among others, should have standing to bring
cases or appeal when the U.S. government fails to act.
-- an effective general safeguard, with multilateral
surveillance measures, including periodic reviews with accurate
and adequate information provided.
-- measures to address the problem of company-to-company
offset agreements, in addition to those addressing government
requirements.
-- provisions to ensure that labor unions will have access
to the information necessary to make complaints regarding
performance requirements and offsets, especially since many of
these deals are secret, and the parties involved do not have an
incentive to make them public.
-- a review process to determine when the period during
which China will be considered a non-market economy for
purposes of calculating dumping margins will end.
-- a ten-year phaseout on the quotas on Chinese apparel and
textiles. The longer phaseout is necessary to prevent
disruption of U.S. and other countries' apparel and textile
markets.
-- a guarantee that the U.S. will retain the ability to use
Section 301 and other trade remedies effectively in the event
that China fails to comply with the accession agreement.
The central enforcement issue is whether bringing China
into the WTO will improve or worsen the U.S. government's
ability to enforce China's compliance with the letter and the
spirit of international trading and workers' rights norms.
While accession will in principle bring China under the
discipline of WTO rules and dispute settlement, the U.S. will
forfeit its ability to use some U.S. trade measures
unilaterally (for example, the trade measures available under
section 301 are very limited as applied to WTO members).
Since the WTO does not allow trade sanctions based on
workers' or human rights violations, the U.S. will clearly lose
the ability to withdraw trade benefits (or threaten to do so)
in response to China's egregious and persistent violation of
internationally recognized workers' rights. The annual
congressional debate over renewing normal trade relations has
at least succeeded in keeping public attention focused on these
problems.
These issues must be addressed before China is allowed to
join the world trading community. Human rights, workers'
rights, and compliance with internationally recognized trading
norms are necessary components of a well-functioning
international trade system.
Mr. Chairman, members of the Subcommittee, thank you for
your time and attention.
Chairman Crane. Thank you.
Our next witness, Jack Valenti.
STATEMENT OF JACK VALENTI, PRESIDENT AND CHIEF EXECUTIVE
OFFICER, MOTION PICTURE ASSOCIATION OF AMERICA, INC.
Mr. Valenti. Thank you, Mr. Chairman. I want to say that
the Motion Picture Association strongly supports the granting
of normal trade relations with China. We think that it would be
useful for this Subcommittee to consider the fact that you
should grant permanent NTR to China. It would be frustrating
for U.S. industries for China to have accession to the World
Trade Organization and not get NTR because then industries that
should benefit from WTO accession would be left out. That
doesn't make any sense at all.
I have made four trips to China in the last 20 months. I
think I have a little better grasp of what is going on there
than I did before I visited, though I don't come back as an
expert. I don't think four trips to China makes you an expert.
But let me tell you something about why intellectual property
is important in a long-term relationship with China.
I don't have to tell this Subcommittee that intellectual
property: movies, television, home video, books, music, and
computer software, represent today the largest gatherer of
international revenues of any industry in the United States,
bigger than automobiles and auto parts, larger than aircraft,
larger than agriculture. We are riding a rising curve into the
future. Intellectual property will become even more of a great
trade prize in the next 5 years than it is today. In China we
are making some headway. I am hopeful that as part of the WTO
accession and the granting of NTR, that the U.S. Trade
Representative can make some gains which I think were in
progress at the time that the premier was here, Zhu Rongji, and
went back to China without the WTO in his knapsack.
We know that there is one issue that we have to get
settled. That is, we need more movies accessible to the Chinese
marketplace. Right now, there is a de facto, unwritten,
unofficial, unspoken quota of 10 films per year in what we call
revenue sharing, which is the norm all over the world. That is,
we split the box office with the theater, 50 percent goes to
the threater owner, 50 percent to the distributor. Ten films is
too small. I have made suggestions that they go 17 films next
year, and then 24 after that until we reach a level that I
think would be normal.
We have made great progress in reducing tariffs from 6 to
15 percent down to zero to 6 percent as part of the agreement--
I don't know where it stands now. When the WTO negotiations
were in progress, for the first time, the Chinese were willing
to let us come in and own and operate and control cinemas.
China is very underscreened, one screen for every 122,000
people. In the U.S., we have one screen for every 8,600 people,
so you can see the disparity.
I believe that we can make larger headway. Now our revenues
from China are pathetic, about $18 million in 1997. We are
losing about $80 million, we estimate, from box office as a
result of this 10-film quota. We are losing about $120 million
a year in piracy. So we have got a $200 million market there
that we could gather in quickly.
I do have to say that the Chinese have been very fruitful
in the way they have responded to our pleas to combat piracy.
They ran a lot of the pirates out of Guangdong Province in the
south. They migrated over to Macao, where they are operating
now, but the Chinese will take over Macao later this year. I
have been very pleased with the fact that when they have made a
promise, they have redeemed it; when they have made a pledge,
they have kept it.
So I believe overall, that our prospects for a progressive
trade relationship with China are going to grow exponentially.
We just have to get through this difficult and frustrating, and
even lacerating period, but I think we will. I am hopeful that
we keep our eye on the distant objective and not the one
nearest us. Mr. Chairman, I'll give you back the time.
[The prepared statement follows:]
Statement of Jack Valenti, President and Chief Executive Officer,
Motion Picture Association
``I urge you to consider providing authorization now to the
President to extend permanent NTR status upon the President's
certification that he has completed an acceptable WTO accession
package for China. It is difficult to imagine anything more
frustrating than having the U.S. Government conclude a good WTO
accession package with China, but not being able, as U.S.
industries, to benefit from the agreement.''
I am pleased to have the opportunity to share with you the
views of the Motion Picture Association on U.S.--China trade
relations and the possible accession of China to the World
Trade Organization
The Motion Picture Association is a trade association
representing seven of the largest producers and distributors of
filmed entertainment (theatrical motion pictures, television
programming and home video) in the United States. Its members
include Buena Vista International, Inc. (The Walt Disney
Company), Columbia TriStar Film Distributors International,
Inc., Metro-Goldwyn-Mayer Inc., Paramount Pictures Corporation,
Twentieth Century Fox International Corporation, Universal
International Films, Inc., and Warner Bros. International
Theatrical Distribution.
The U.S. copyright-based industries, which include the
motion picture, sound recording, computer software, and book
industries, were America's number one export sector in 1996.
These industries together achieved foreign sales and exports of
$60.18 billion, surpassing every other export sector, including
automotive, agriculture and aircraft.\1\ The U.S. filmed
entertainment industry alone earned about $12 billion in
foreign revenues in 1997, 40% of the total revenues earned by
the U.S. film industry.
---------------------------------------------------------------------------
\1\ Siwek, Stephen E. and Mosteller, Gale, Economists Incorporated,
``Copyright Industries in the U.S. Economy: The 1998 Report,'' prepared
for the International Intellectual Property Alliance, 1998.
---------------------------------------------------------------------------
MPA SUPPORTS RENEWAL OF NTR STATUS FOR CHINA
MPA strongly supports renewal of normal trade relations
(NRT) for China this year. Moreover, MPA urges you to consider
providing authorization now to the President to extend
permanent NTR status upon the President's certification that he
has completed an acceptable WTO accession package for China. It
is difficult to imagine anything more frustrating than having
the U.S. Government conclude a good WTO accession package with
China, but not being able, as U.S. industries, to benefit from
the agreement. Yet, this is what could happen unless Congress
authorizes unconditional NTR by the time China joins the WTO.
If the U.S. were not in a position to extend unconditional NTR
to China, the U.S. would have to invoke the non-application
clause of the WTO. The end result would be that every other
country in the world would enjoy the full benefits of China's
accession--but the United States would be left out.
MPA SUPPORTS PROMPT CONCLUSION OF NEGOTIATIONS ON OUTSTANDING ISSUES
FOR CHINA'S WTO ACCESSION
MPA strongly supports the goal of China's accession into
the World Trade Organization.
MPA believes that it would be substantially more effective
for the U.S. and China to manage their trade relationship from
within the agreed standards of the global trading community.
However, it is important as part of the accession process
that China agrees to improve access to its market in sectors
that are important to the U.S. economy--including the filmed
entertainment sector. China has taken some important steps
toward this goal, but one critical piece is still missing--some
liberalization of the restrictions on exports of US films under
revenue sharing conditions.
MPA member companies currently face market access problems
in China that severely limit the size of U.S. filmed
entertainment exports. Total U.S. revenues earned in China in
1997 were only around $18 million. We conservatively estimate
that losses due to restrictions in import and distribution of
motion pictures cost the U.S. industry at least $80 million
annually. This estimate does not include the potential growth
in the export of filmed entertainment, if the infrastructure
were significantly expanded, for example, through
liberalization of foreign investment in cinemas or broadcast,
cable or satellite television. In addition to the losses
resulting from market access restrictions, the U.S. filmed
entertainment industry lost $120 million to piracy in China
last year. In short, if the barriers to film distribution were
lifted, and if a legitimate video sales and rentals market
captured the market now lost to piracy, an increase in US
revenues in China in excess of $200 million is achievable. That
number could grow even higher, if additional reforms were
undertaken to expand the distribution of films and television
programming.
Access for motion pictures--the missing piece:
American motion pictures face quantitative limits on access
to China's market. Before the WTO accession negotiations are
completed, it is essential that the USG secure a commitment
from China to relax restrictions on import of foreign films
under revenue sharing \2\ conditions in a modest way. There is
a de facto limitation of 10 films per year on the first-run
films that may be brought into China under revenue-sharing
conditions. MPA's main goal in the accession negotiations is to
secure a gradual increase in the number of films.
---------------------------------------------------------------------------
\2\ Revenue-sharing refers to the commercial terms that are the
industry standard for MPA member companies. Under ``revenue sharing''
the distributor and the cinema owner negotiate the percentage of the
box office receipts each will receive, such as a 50/50 split.
---------------------------------------------------------------------------
Cinemas:
China has made useful commitments in the WTO accession
negotiations to allow foreign investment in joint ventures to
build, own, operate, and manage cinemas. This could help build
up the infrastructure and expand the total market for motion
pictures in China--for US films, as well as Chinese films. At
present, foreigners are not permitted to own or operate cinemas
in China.
China remains one of the more under-screened markets in the
world. There are about 3000 cinemas exclusively dedicated to
exhibition of motion pictures. In addition, there are
approximately 7000 others theaters that exhibit motion pictures
on a part-time basis; included in this number are theaters that
also host live exhibitions (dance, concerts, opera) and
theaters that serve specialized clientele, such as the workers
in a large factory, rather than the general public. The ratio
of screens per person is only 1 screen per 122,000. This
compares to a total of 30,825 screens in the United States and
a ratio of screens per person of 1 per 8,600 people.
However, the value of this commitment is limited, at
present, by the restrictions on access for foreign films.
Without knowing that more foreign films will be available to
fill all the new screens, investors are unlikely to be
interested in building new cinemas in China.
Tariffs:
China made meaningful commitments in its accession package
to reduce the heavy burden of import duties on filmed
entertainment products. Some technical work remains on the
valuation method for assessing those duties. Prevailing world
practice is to value films on the basis of the ``material
substrate.'' U.S. duties, for example, are expressed in terms
of cents per meter of film, or, in the case of optical media
products, on the value of the blank diskette. Chinese valuation
practices remain unclear.
Protection Of Intellectual Property:
Since 1996 China has achieved a remarkable record in an
important area of intellectual property protection. China has
stemmed the unauthorized reproduction and halted the export of
Video Compact Discs and other forms of pirated optical media
products. China's domestic market continues to be plagued with
extremely high levels of piracy -90 percent for home video
entertainment in 1998. Based on China's record for combating
export piracy and the good working relationship that MPA has
developed with China's copyright enforcement authorities, MPA
is confident that China can make rapid progress in
significantly lowering domestic piracy rates to meet the
standards contained in the WTO's Agreement on Trade Related
Intellectual Property (TRIPS.)
CONCLUSION
MPA strongly supports renewal of normal trade relations
(NRT) for China. If the vote on annual renewal is the vote that
first comes before this body, then MPA urges support for annual
renewal. But, a better approach would be to provide
authorization now to the President to extend permanent NTR
status, to be effective upon the President's certification that
he has completed an acceptable WTO accession package for China.
China has made commitments in the accession negotiations
that could potentially benefit MPA's member companies, but only
if these commitments are supplemented by some liberalization of
access for U.S. motion pictures distributed on a revenue
sharing basis. As soon as this final step is taken, MPA looks
forward to supporting strongly China's accession into the WTO.
Chairman Crane. Thank you, Mr. Valenti.
Our next witness, Mr. Gambow.
STATEMENT OF NEIL E. GAMBOW, JR., PRESIDENT, POST GLOVER
RESISTORS INC., ERLANGER, KENTUCKY
Mr. Gambow. Thank you, Mr. Chairman and Members of this
Subcommittee, for giving me the great privilege of placing
testimony before you today. My name is Neil Gambow, and I am
president of Post Glover Resistors Co. We can trace our roots
back to 1892. We are a small company in Erlanger, Kentucky,
employing about 110 people, making heavy-duty power resistors
for the industrial power distribution market.
We have export sales of about 10 percent of our output with
China, the ASEAN countries and Mexico being our principal
export markets. In 1989, we began export trading, with our
first customers being the ASEAN countries. We developed that
market over the past, up until 1993, when we actually
established a small manufacturing and assembly operation in
Johore Bahru in Malaysia. Today that operation employs about 10
people.
In 1995, we identified China as the next market to attract
our attention. The Chinese Government was going to spend a lot
of money on electrification projects, creating a very bright
market for our neutral grounding resistor products. Entry into
the market, however, seemed very difficult, especially for a
small company with limited resources. Some of the barriers we
saw were language, vague import regulations, identification of
the potential customer base, definition of product, certainly
the duties as we found out later on, difficult banking
relationships, and so on.
While studying our entrance strategies, we were approached
by a company called the Shenzhen Farad Complete Equipment Co.,
who found us as a result of an article we had published in an
Asian electricity trade journal. From that first meeting in
mid1995, we have developed a partnership with that company.
Today, our company in the USA produces the basic parts of these
power resistors and their company in turn buys them from us,
assembles them into the final product, and sells them to the
power authorities in China throughout the entire country.
Members of our staff, both myself and the people from our
plant, and from the Malaysian operation, have visited their
operations in Shenzhen, China, a total of 20 times in the last
4\1/2\ years to develop that relationship. Our relationship has
even helped create a few jobs in their factory.
Outside of the USA, China certainly is the largest single
market in the world, a fact that we just can't ignore. As a
company that has a dominant position in the USA, although we
are a small company, we look to export sales as being a
significant engine of growth for our company. We have found
that in China, the American products are very well received.
They are received as being high quality, premium price of
course, but certainly well received. We feel that the Chinese
market will pay these prices, especially to get the kind of
quality they are looking for. I think when the quality is
there, we absolutely see a welcome embrace for the products
that we produce. I think this is a terrific opportunity not
only for big companies, but for small companies like ourselves
it is a terrific opportunity.
Many small companies are afraid to try China, to try to
enter the market because of the seemingly huge barriers that
have to be overcome, as I mentioned earlier. Good, stable trade
relationships will help to minimize some of those barriers, and
maybe create an environment for smaller companies to give it a
try and try to get to the Chinese market. I believe that the
World Trade membership for China is a big step in this
direction. It appears to us now that Ambassador Barshefsky has
hammered out a good initial position toward the expansive
bilateral market access agreement in preparation for approving
membership in the WTO. I think this is the time to press hard
in Congress to get the approval to endorse China for this full
membership. I think continuing to delay risks the loss of all
these relationships and the possibility of not getting anything
done.
Of particular interest to Post Glover are the world trade
issues of technology transfer, protection of intellectual
property, and the dropping of import duties. By dropping these
and making it easier for smaller companies to get into the
market, I believe a number of us and a number of my colleagues
would be very happy to really make an entrance to those
markets.
I am also concerned about the huge trade imbalance. You
know, lack of permanent long-term trade relationships, I
believe, are keeping our exports to China artificially low.
Reducing these barriers and making it less expensive for
smaller companies to get to this country, I believe, is a good
way to start chipping away at this trade imbalance. There are
thousands of small companies out there that I think could
actually help do that.
If we are to chip away at this trade imbalance, the World
Trade membership for China and a stable long-term policy are a
must. I think without these two elements, we are doomed to
relive each year the same as the prior one, much as the movie
Groundhog Day, where the main character lived the same day
every day until he decided to make a big change. I think this
is time to make the big change in Congress.
We are a small company. We have many small companies in the
USA. We are all ready to give a try to entering the Chinese
market. I urge you in the strongest way to do what's necessary
to bring China into the WTO. We believe that this would also
help in facilitating progress on all the issues like the human
rights discussions we have just heard about. Trade is an
enduring legacy which can be leveraged to keep relationships
between our countries on a much more even keel. Thank you very
much.
[The prepared statement follows:]
Statement of Neil E. Gambow, Jr., President, Post Glover Resistors
Inc., Erlanger, Kentucky
Thank you, Mr. Chairman, for allowing me to place this
testimony before this Subcommittee on Trade. I am Neil Gambow,
President of Post Glover Resistors Inc. Today I am appearing on
behalf of our company in support of annual renewal of normal
trade relations (NTR) with China, and eventually permanent NTR
with China.
History Of Post Glover Resistors Inc. (PGR) And The Development Of The
Heavy Duty Power Resistor Market In China
Post Glover Resistors Inc., established in 1892, is a small
company located in Erlanger, KY employing 110 people in the
design and manufacture of heavy duty power resistors for
industrial power distribution and other electric power
management markets. While our products are used throughout the
world, we find countries with emerging infrastructure the best
candidates for market penetration.
In 1989, we recognized the infrastructure building going on
in the ASEAN countries as a great opportunity to expand our
export sales. That year we began serving the ASEAN market with
Neutral Grounding Resistors which sell for prices in the range
of $5,000-$30,000 per unit. This sales success of this business
endeavor led to the establishment of Post Glover Sdn. Bhd. in
1993. It is an assembly operation located in Johore Bahru,
Malaysia employing 10 people. As this business developed, we
began to look at the market for Neutral Grounding Resistor
products in China. After evaluating investment goals put forth
by the Chinese government for developing the electrical power
generation and distribution systems, we concluded that China
represented a significant market opportunity for this product
line. Entry into the market, however, seemed to be very
difficult especially for a small company with limited
resources. Some of the barriers we saw included language, vague
import regulations, lack of knowledgeable market contacts,
identification of a potential customer base, definition of the
exact product for the local market, difficult banking
arrangements and so on.
In 1995, while studying market entry strategies, we were
approached by the Shenzhen Farad Complete Equipment Company
located in Shenzhen, China. Their engineering staff had need
for our Neutral Grounding Resistors and were not satisfied with
local products. A key engineer had heard about us through a
technical article we published on the subject in a regional
trade journal.
We quickly agreed to a meeting in Shenzhen where it became
obvious very quickly that there was a good match of skills for
a successful business venture. PGR had the technical know how
and product quality. Shenzhen Farad had the market knowledge
and product definition background. Our partnership began with
an initial order for a number of units placed during that first
meeting. As our relationship grew, we agreed to jointly
manufacture products. PGR now manufactures the resistor
components in the USA and sells them to Shenzhen Farad who, in
turn, manufactures enclosures, assembles the final product and
sells the finished product to the Chinese power authorities.
Members of my staff and I have made about 20 trips to China to
support our market penetration in these last four years.
Our joint effort has grown to the point where sales in
China through Shenzhen Farad will represent 3-4% of our USA
volume this year. These sales provide employment for 4 people
here and at least 10 people at Shenzhen Farad.
The Importance Of Maintaining A Solid Trade Relationship With China.
Our trading experience in China over the last four years
has demonstrated the value of a solid trading relationship.
China presents many challenges to companies wishing to access
the market there. In addition to language barriers, many of the
challenges stem from radically different cultural paradigms. To
be successful in a foreign company, a healthy respect and
understanding of cultural differences is critical. This is not
something that can be learned by reading books and playing
tapes. You must visit and form personal relationships. These
relationships will transcend any trade or political problems
that ebb and flow over time.
The relationship with Mr. Tu Fankui, Managing Director, and
his associates at Shenzhen Farad have smoothed over the
inevitable bumps in the road. Open and frank communications
have overcome disparities in technical knowledge, slow sales
times, differing views of cost sharing and so on. We trust one
other to look out for individual interests while respecting and
accommodating the other's interest. Much should be applied from
this in dealing with the accidental bombing of the Chinese
Embassy in Yugoslavia and the Cox report. Understanding and
communication get participants much further than confrontation
and aggressive retaliation.
An example of improving understanding and communication is
our support for technical seminars demonstrating the use of
Neutral Grounding Resistors. Mr. Tu values of having a
representative from our company at these seminars and feels
that his company's credibility is significantly enhanced by our
presence. At the same time he recognizes the impact on a small
company of the high cost of travel from the USA to China so we
work out the most effective travel schedule to help control our
costs and get the most impact from our visits. This means his
people handle many of the local seminars and we support him at
large regional and national seminars where our presence will
result in orders which help pay for a trip.
We have also found out just what it means to have an
American product that is in demand. Compared to like products
produced in China, American products are generally perceived as
high quality with a premium price especially with freight and
duty added. However, the Chinese market will pay these prices
to get the quality where local products are deemed to be of a
significantly lesser quality. There is an underlying desire for
high quality products which minimize service problems. It is
our opinion that China as a whole is moving towards higher
quality products and is willing to pay for them. This is a
solid opportunity for both small and large US companies.
Many companies are afraid to try the Chinese market because
of the perceived barriers to overcome. Good trade relations at
top levels help minimize these barriers and encourage companies
to jump in. The markets are huge and ready for American
products.
What Would Unconditional Normal Trade Relations Status and WTO
Membership For China Mean To PGR?
It appears to us now that Ambassador Barshefsky has
hammered out a good initial position towards an expansive
bilateral market access agreement. This is the time to press
hard in Congress to get approval to endorse China for full
membership in the WTO. Again, we would not have gotten this far
in penetrating the market without solid personal relationships
in China. We cannot afford to have our efforts to establish
these relationships squander this even in the harsh light of
the accidental bombing of the Chinese Embassy in Yugoslavia and
the Cox report.
Of particular interest to PGR are the WTO issues of
technology transfer, protection of intellectual property and
dropping of import duties. Currently, we are offering product
technology that is one generation behind that of current US
products. We fear that we will see our products copied and
coming back to the US as a competing product. With more
protection of intellectual property, we will be able to offer
our latest technology with some assurance our investments would
yield an acceptable return.
Our sales growth in China has been slow but steady. With
China having full WTO membership, the import duties would be
reduced and make us even more competitive. This would be true
for many US products. We have supported admission of China to
the WTO since we became involved there and view this as a solid
step to allow further penetration of the market with our
products. In fact, we estimate that our business in China would
double in a year with this approval.
The job impact on our company is obvious. Not only will our
employment increase but we would be in a position to offer more
of our products to the China market. But the impact on Shenzhen
Farad and its employees may not be so obvious. Employment is an
important element of raising living standards for Chinese
citizens. Each time we help employ a local Chinese citizen, we
make human rights issues that much smaller. And, believe me, we
are happy to do our part in this.
For other small companies, any improvements which would
make it more affordable to enter the market would be
advantageous to trade growth. The emphasis is on the word
``affordable.'' Small companies often have good products for
the China markets but cannot afford to enter the market. WTO
membership would lower market entry expense reducing the costs
of paperwork to get goods into the country, enable banking
relationships to be established to insure prompt payment for
goods. Many small companies cannot afford to wait 60-90 days to
be paid. I believe WTO membership for China would open the
doors for more small companies to enter the China market.
I am also concerned about the huge trade imbalance between
our countries. Lack of permanent long-term trade relationships
keeps our exports to China artificially low. If we are to
improve this, WTO membership for China and a stable, long-term
trade policy must be in place. Without them, we is doomed to
relive each year the same as the prior one much like in the
movie ``Groundhog Day'' in which the main character relives the
same day every day until he finally decides to make a big
change. This is the time for Congress to make the big change.
PGR and many other small US companies have product ready to
serve the market and anything Congress can do to facilitate the
movement of our products into China helps reduce this trade
imbalance and facilitates progress on many fronts including
Human Rights discussions..
Conclusion:
I urge you to push as hard as you can for unconditional
normal trade relations (NTR) status and full WTO membership for
China. I know we are in a difficult time with the bombing of
the Chinese Embassy in Yugoslavia and the Cox report. But these
fences will, no doubt, be mended by people who know we cannot
afford a poor relations between our countries for any length of
time. Let's allow the politicians solve these problems within a
framework of support based on solid trade relationships. I
believe this works.
China is the largest single market in the world outside the
USA. By maximizing access to the China markets, we give our
respective countries and business sectors the opportunity to
grow and prosper. This, in turn, provides a solid foundation
for nurturing the necessary mutual trust and respect needed
between China and the USA.
Thank you for your time and attention.
Chairman Crane. Thank you, Mr. Gambow.
Our final witness, Mr. Kapp.
STATEMENT OF ROBERT A. KAPP, PRESIDENT, UNITED STATES-CHINA
BUSINESS COUNCIL
Mr. Kapp. Thanks, Mr. Chairman. I am delighted to be here
today. I want to start by saying that this Subcommittee has
hued very closely to its mandate and has discussed the issues
before us principally on trade grounds. That is what we need to
do. But I think we all recognize that right outside the door of
this room, there is a very challenging environment with regard
to United States-China relations generally which cannot be
entirely ignored when it comes to any vote on trade with China.
Therefore, in my own written testimony, I have tried to
open by pointing out that it is time for the Congress to
readdress issues of a positive and constructive and forward-
looking nature in the relationship with China, even as the
Congress exercises its responsibility to address those areas of
enormous dispute and difficulty with the PRC. Obviously, the
economic and commercial issues that Congress may address this
year, including the possibility of a vote to establish a full
WTO member status for China, are an area in which I would hope
that the Congress could restore that element of positive
forward-looking balance in the relationship which unfortunately
is largely absent from the environment today.
I want to take a couple of minutes to try to respond to
specific points made by individual Members earlier in today's
hearing. Let me start with Congressman Crane, who imagined
himself a worker in China drinking a beer with fellow worker
Congressman Levin, and saying, ``Why don't you come over and
join my company? After all, I work for a good American company,
we pay good wages, and so forth, in China.''
The thing we Americans don't want to see is, if you will
pardon the expression, sir, Sandy Levin working for that
decrepit old state industry, saying to Phil Crane, ``Why do I
want to work for your company? It's an American company and
working for an American company is a career-buster.'' That is
implicit in the high level of acrimony and in the sort of
potentially self-propelling negativism that now envelopes the
United States-China relationship.
We must not reach a time when Americans and Chinese alike
conclude that individual decisions by people in all levels of
work--bureaucrats, Committee Members, Chief Executive Officers
both here and in China, in large organizations and small--to
work for a better, more positive, more profitable, more
beneficial relationship with each other's connter part is no
longer good for one's health. We must avoid the time when,
after work, the worker in the Chinese enterprise says to the
worker in the American enterprise, ``I would never go to work
in your plant here in China. You are an American company, and
that's so bad for us and so bad for me, that it is no longer
something we want to do.'' That is an issue that this entire
relationship needs to deal with.
To Congressman Levin on the basic differences, as you have
pointed out, between the market orientation and the rules-based
system that the United States and many WTO members, to
different degrees, embody, and which in your view China does
not embody, it does strike me that that is the very point of a
world system. That is to say, of course the world does not
consist of countries all of which have exactly the same
traditions and political and social and economic institutions,
legal frameworks, customs, and so forth. That is why we have
world institutions in the first place. That is why we have what
we consider to be universally accepted systems of commitments
and obligations; of rules of the road for all nations. There
might be something to be said in that regard with respect to
the value of WTO precisely because of the conditions that you
adduced.
To Representative Barney Frank, who is no longer here, let
me tell you what China is reading today. I refer to his comment
about what China's leaders might be reading. Here are this
week's best sellers at the best bookstore in Beijing. The first
one this week: New Capitalism. The second one: The Coming
Conflict with China by Dick Bernstein and Ross Huuro,
translated into Chinese. The third one: Class: a Guide to the
American Status System, by Paul Fascell, translated. The fourth
oneThe New China Transportation Map. The fifth one: The SAS
Survival Manual, a Chinese translation of a British commando
wilderness survival manual. The sixth one: The Poetry of Wang ,
the great Chinese linguist. The seventh: From Hippies to
Yuppies, a Personal Account of the Sexual Revolution, by James
Clifden, in translation. Number eight: a book full of the
cartoons of a particular Chinese cartoonist. Number nine: Old
Photographs from 19th and 20th Century China. Number 10: The
Contract Law of the People's Republic of China.
So lest we still be stuck with the image of a China in
which everybody reads the Little Red Book and is told what to
read and what to think, this suggests something very different.
Now, to the trade issues themselves.
The key issue, it seems to me, if we do get permanent NTR
this year, that needs to be defined for every Member, and in
this Committee I think it will be obvious, is this: Is the
United States going to say to China after successfully
negotiating from China a range of commercial commitments which
are in, in many ways fundamentally transformative of the way
China runs its own economy and deals with the rest of the world
economically, are we going to say to the Chinese when it comes
to the PNTR vote, ``thanks for making all those concessions,
but on second thought, we don't want them. We want you to give
them to the Japanese. We want you to give them to the
Europeans. We want you to accord them to everybody else in the
WTO. But as you join the WTO, we have decided that we would
rather not have these benefits, even though we are the ones who
squeezed them out of you in the first place.''
Ultimately, the PNTR vote is the vote, necessary only in
the United States because of existing law, which will either
bring to the United States these tremendous benefits and
opportunities or else will turn them away.
If we are fortunate enough to face that vote this year,
that is the essence of the question that Members of Congress
will have to face. If we are at that vote, it means that China
has closed its negotiation with the United States. If they are
closing them with Japan, Europe, and their other trade partners
and moving toward accession this fall, that PNTR vote will mean
that either we take the benefits home to the communities and
the factories and the companies and the farmers and the workers
of America, or we say ``thanks; we don't want the benefits.
Give them to Japan, Europe, and everybody else instead.''
I will close only by mentioning that agriculture is not
represented on today's panel. But I think as Members of
Congress, you know that the revelation by the United States of
what is at the brink of acceptance in the WTO negotiations,
when added to the agricultural agreements already signed on
wheat, meat, and citrus, has wrought a tremendous response from
U.S. agriculture. You have received letters from 40 or 50 major
agricultural associations, from the Farm Bureau Federation on
down to the specific commodity associations and product
associations. I know that if anyone from agribusiness were here
today, that he or she could make that point far more
effectively than I.
Thank you for your time. We appreciate very much the chance
to be here.
[The prepared statement follows:]
Statement of Robert A. Kapp, President, United States-China Business
Council
Mr. Chairman, members of the Subcommittee:
Thank you for permitting me to offer testimony before this
hearing on US-China Trade Relations and the Possible Accession
of China to the World Trade Organization.
I am Robert Kapp, President of the United States--China
Business Council. The Council is a private, nonprofit and
nonpartisan business association headquartered in Washington.
We support the business development efforts of more than 250
leading American companies in a broad range of commercial
fields. Founded in 1973, the Council is the principal
organization of US firms engaged in trade and investment with
China. Many of our member companies have been working hard on
their businesses in China for two decades; others are newer to
the field, and approach opportunities for productive commerce
with China with the innovativeness and energy that
characterizes America's young, creative, and rapidly
internationalizing business sectors.
I. U.S.-China Relations: The River and the Rapids
Mr. Chairman, we have had difficult moments over the past
year on the China front, particularly in the very recent past.
Both the United States and China have found, especially in the
past few months, occasions to doubt each other's intentions, to
wonder about the other's motivations, and above all to
criticize the other's actions harshly and publicly.
Two months ago, the intense US-China effort to reach a
decisive WTO package by the time of Premier Zhu Rongji's visit
to the United States came tantalizingly close, but fell short;
the past two months have apparently been unproductive. The
shocking bombing of China's embassy in Yugoslavia took place a
month ago; events within China in supposed response to the
bombing have, not been helpful, to say the least. Two weeks ago
came full publication of the Report of the Select Committee on
U.S. National Security and Military/Commercial Concerns with
the People's Republic of China, and with it not only renewed
attention to the apparent chronic failings of American
management of national secrets but also another ear-splitting
exchange of media and political salvoes, some with truly
apocalyptic overtones and some--in both countries--with gritty
racial insinuation. Last week came the tenth anniversary of the
Tiananmen violence, whose date happens to fall only one day
after the legally-mandated deadline for presidential renewal of
standing U.S. tariff policy toward China, and which continues
to galvanize both public memory and media attention.
And yet, as I write this testimony on Sunday, June 6,
momentary silence reigns. There appears not a single news
report, feature article, opinion essay or editorial relating to
China in those three news organs that sometimes seem to define
the attention of the nation's policy-makers--the Los Angeles
Times, the Washington Post, and the New York Times. The Sunday
TV talk shows, too, have moved on to other topics. For the
moment, China is ``off;'' other stories are ``on.''
Mr. Chairman, U.S.-China relations are volatile, and they
are spasmodic. On the surface, they are characterized by sudden
eruptions of public, media, and political attention. They are,
as people say, ``event-driven.'' Time and again, the U.S. and
China remind me of two people stuffed into a single kayak,
running the rapids of a turbulent stream.
But the U.S. and China are heavyweight players in a very
big game that does not live by news cycles, legislative
calendars, Central Committee schedules, or other domestic
rhythms alone. The task of policy makers in both countries, who
do live in a world of such pulsing rhythms, is to build
structures and forge enduring policies aimed at advancing
national and shared interests over the long term. They must
navigate a broader, and longer, river.
The U.S. and China have a big and growing relationship--
bilaterally, in the Asia-Pacific Region, and globally;
economically, politically, culturally, and even ecologically.
Beneath the jagged, seismograph-like lines of day-do-day events
in the US-China relationship, there is and must be a quieter
flow of longer-term involvement between the world's most
powerful nation and largest economy on the one hand and the
world's most populous and most rapidly-developing society on
the other. Sustained, stable, and growing economic relations
are a key element in this deeper process.
This hearing by the Trade Subcommittee of the House Ways &
Means Committee provides a crucial opportunity, on Capitol
Hill, for us all to remember the longer-term flow of U.S.-China
involvement from which neither country can, or should in its
own national interest, turn away.
II. NTR Renewal and China's Prospective WTO Membership
Mr. Chairman, I appear before the Subcommittee this year
for the sixth time. In past years, the Trade Subcommittee
hearing has been built around one thing: the Resolution of
Disapproval offered annually in the House with the stated
intention of overturning the action of the president in
retaining for one extra year the ordinary tariffs (so-called
``NTR,'' or ``Normal Trade Relations'' levies) on Chinese
imports. Current U.S. law leaves these tariffs open to
cancellation every summer. Passage of the Resolution would
rupture U.S.-China economic relations and much, much more.
Members of this Committee need no reminders of the
intensity of views that has usually accompanied this annual
exercise; or of the intensity of the legislative and political
maneuvering occasioned by the yearly NTR campaign; or of the
ensuing feelings of resignation and futility that many Members
of Congress have expressed as the annual NTR mini-drama has
played itself out.
The U.S.-China Business Council has never, and will never,
take for granted the renewal of these plain-vanilla tariffs on
Chinese imports; we will never assume that this lowest-common-
denominator baseline for the continuation of normal trade with
our country's fourth-ranked trade partner, is immune to
derailment, so long as the annual review mandated by a 1974 law
written to force a now-defunct Soviet Union to permit the free
emigration of Soviet Jews remains pointed at the heart of
nearly $100 billion in legitimate US-China merchandise trade
and more than $20 billion in legitimate American investment in
China.
And yet, Mr. Chairman, as you have pointed out in calling
this hearing, and as the comments by leaders of a set of key
U.S. corporations (several of them members of the Board of
Directors of the U.S.-China Business Council) have suggested
today, this Annual NTR Renewal hearing of the Ways & Means
Trade Subcommittee might--just might--turn out to be the last
hearing of its kind.
With luck, with perseverance, and above all with a clear-
eyed rededication to the stabilization and development of US-
China relations by leaders and policy makers in both nations,
the Congress may in coming months face the opportunity--and the
challenge--of bringing home to America a majestic array of
economic and commercial benefits achieved by U.S. negotiators
after nearly thirteen years of tough engagement with China.
That opportunity, of course, will lie in the Congressional
decision on whether to provide full WTO-member treatment to the
People's Republic of China, and thus ensure for the United
States full WTO-member treatment from China, as the PRC accedes
to the global trading system's rules and obligations embodied
in the World Trade Organization.
From evidence already in hand, it is apparent that the
United States and China have made massive progress, much of it
in the weeks and days preceding the visit of Premier Zhu Rongji
to the United States in April, on a package of market-opening
provisions that add up to the biggest advancement of U.S.
commercial interests with China since the dawn of U.S. trade
with the PRC in the 1970s. The remarks of business leaders
earlier in today's hearing, and the numerous written statements
addressed to Congress and the president in recent weeks from
Members of the House and Senate as well as from dozens and
dozens of companies and associations in agriculture,
manufacturing, services, and consumer business, attest to the
breadth of economic benefits to our country expected to flow
from successful conclusion of negotiations over China's entry
into the WTO.
Should the United States and China together rally the
wisdom and the far-sightedness needed to return to the table,
resolve outstanding issues, and complete the U.S.-China
bilateral agreement on PRC accession to the World Trade
Organization, it will fall to Congress to answer the question:
Having secured China's agreement to the broad menu of
market-opening and other measures that we have fought for in
the name of a ``commercially viable'' agreement for so many
years, will the U.S. act to bring those benefits home to our
companies, our manufacturing producers, our farmers, our
consumers, and our communities? Or will we, instead, turn
inexplicably away, spurning the very commercial and economic
concessions that we have fought successfully to achieve, while
those benefits flow to every other WTO member--including our
bitter competitors in Europe, Japan, and elsewhere?
We hope, Mr. Chairman, that if this historic opportunity
does materialize this year, Congress will decisively choose the
first of those two options.
Mr. Chairman, in the Annual MFN/NTR review process over the
years, this hearing of the Trade Subcommittee has heard
thoughtful comments from witnesses within and outside the
Congress, not only about the specifics of U.S.-China commercial
relations but about almost every aspect of U.S.-China relations
and about many aspects of China's domestic affairs. The hearing
has served as a useful opportunity each year to put both
immediately-related and more broadly relevant issues on the
table for Members, in the weeks preceding the annual vote on
elimination of ordinary U.S. tariffs on Chinese imports.
Each year, for nearly a decade, Members of the House have
listened, read, discussed, and sometimes argued these issues
with all parties willing to engage them. I know personally how
much time Members of Congress and their staffs have been
willing to make available to me and others from the US-China
Business Council, and to my colleagues from other associations
and companies as well, under the broad rubric of the Business
Council for U.S.-China Trade, whether each Member has been
entirely to our views or not. We know that Members have
listened with equal courtesy to other views on NTR renewal and
on U.S.-China relations, sometimes expressed with great
intensity of feeling. Each time we meet and engage on these
questions, I feel a sense of excitement and pride at the unique
openness of our system of government and the good will of those
elected to make our laws.
And each year, the House has ultimately chosen to maintain
the simple baseline of a normal economic relationship between
ourselves and China--not a favor to China, not the preferential
tariff treatment we grant to several dozen other nations, but
simply standard tariffs. The House's decision has not been
unanimous, but it has been commanding; it has been thoughtful,
and it has been bipartisan.
That decision to sustain--or perhaps better, not to
rupture--our country's massive economic interaction with China,
has been a critical prerequisite to the powerful progress that
the U.S. has managed to achieve this year on the hundreds of
issues surrounding China's admission to the WTO; without NTR
over the years, it is impossible to imagine the two countries
moving as far as they apparently now have done on the bigger,
more structural changes that WTO imposes on China.
III. Conclusion
Thus, Mr. Chairman and Members of the Subcommittee, the
decision to maintain NTR tariffs for the coming year is as
fully justified as it has been in the past: it is the
cornerstone of a normal bilateral trade and economic
relationship and the precondition for gradual expansion of the
broad stream of positive U.S.-China contacts. Make no mistake:
the continuation of normal economic intercourse between China
and the U.S. augurs well for China's continued movement in
directions that virtually all Americans would applaud, while
the rupturing of economic ties as a result of NTR elimination
would, in our view, contribute nothing to the elimination of
conditions within China to which many Americans take exception.
Beyond that, though, NTR renewal is a humble but critical
prerequisite for something far bigger, and something far more
promising for the long-term interests of the United States:
conclusion of US-China bilateral negotiations on the terms of
China's accession to the rights, rules, and obligations
embodied in the World Trade Organization. We urge the
Subcommittee, the House Ways & Means Committee, and the
Congress to support vigorously annual NTR extension by
defeating the Resolution of Disapproval. The US-China Business
Council urges the Congress to support with equal vigor, when
presented with the opportunity, the extension of full WTO-
member status to China, so that we can enjoy the fruits of what
promises to be a very significant victory for the American
economy and for global economic progress.
Thank you for including these remarks in the record. I have
attached a few additional items, by way of illustrating the
dimensions of current US-China commercial relations and by way
of illustrating an example of what we believe is the
constructive role American business plays in the broader US-
China Relationship. The recent announcement of grants from the
U.S.-China Legal Cooperation Fund is a small but promising
example of support--in this case by member companies in the US-
China Business Council--for the kind of long-term building-
block work that US-China relations require. To date, the
Congress has declined to provide any support for similar work
at the government-to-government level, in spite of repeated
annual requests. We hope that the Congress might in the future
be willing to do its part to help with this and other positive
programs of US-China cooperation in areas of truly shared
interest.
[Attachments are being retained in the Committee files.]
Chairman Crane. Thank you, Mr. Kapp.
Mr. Sweeney, you suggested that labor conditions and worker
rights are deteriorating in China. How would a failure to renew
NTR improve the conditions for the Chinese people?
Mr. Sweeney. Well, I think that we have to address the
issues of core labor standards, environmental protection. They
are all, as I suggest in my full testimony, there are different
approaches to how we do that in terms of the question of
China's accession to the WTO, how we consider a working group
to explore these issues, and work in conjunction with the ILO.
There are basic conventions from the ILO that have been adopted
at the ILO regarding all of these basic rights that workers
have.
We are not talking about the same wage for Chinese workers
as American workers, but we are talking about some freedoms.
There are sufficient studies that show the abuses of what is
going on in China in terms of wages. We can protect our
intellectual property. It is about time we took some concern
and care for workers.
Chairman Crane. Well, our immediate vote that will be
coming before us of course is the disapproval resolution on NTR
renewal. We don't vote on WTO.
Mr. Sweeney. I understand.
Chairman Crane. I am wondering if you have any views on NTR
renewal.
Mr. Sweeney. We are opposed.
Chairman Crane. You are opposed to renewing NTR?
Mr. Sweeney. Yes.
Chairman Crane. Does that help Chinese working conditions?
Mr. Sweeney. Until the conditions of workers in China are
addressed, yes.
Chairman Crane. All right. Thank you.
Mr. Levin.
Mr. Levin. Mr. Kapp, thanks for raising this subject and
let me lobby you, try to persuade you. You say we have a global
organization because there are differences. What I have been
urging, and I feel deeply about this, is that China represents
a set of very considerable differences. It presents the supreme
challenge of how do you integrate a nonmarket, a still very
nonmarket economy, nonmarket in terms of capital or labor, and
a nonrule based economy, by far the largest, into an
organization whose very premises are market's and rules.
So I don't want you to define away the issue. I don't think
you can cite any country that is in the WTO of any real size
that has anything close to the combination of China's nonmarket
economy and nonrule based system. India, which I have had some
chance to spend some time in, is not fully a market economy,
but compared to China, it is really very different. That is
surely true in terms of the rules. Indonesia, we can argue. But
China represents the supreme task. So therefore, it is a
difference not of degree, but of kind.
The gentleman sitting next to you raises one set of those
issues. There is no country that begins to approach China in
size that has its tight control over its labor markets. So we
need to face these sets of issues. To some extent, the
discussions have. For example, and this was raised by Mr.
Sweeney, is the commercial issue, but I think it's also a labor
market issue, the discussion about a general safeguard
mechanism that the USTR has raised, is presented by them in
part because of the huge differentials in labor market
conditions. The notion is if the impact of those conditions is
very harmful in general to the U.S. economy, we would have a
general safeguard protection. I think that is part of the gist.
So I urge you, as we face this, not to narrow the
differences so much that Members here don't become engaged in
the discussion. By widening them, by being realistic, I don't
think it means they are unsolvable or that we accomplish
everything over night. Mr. Sweeney said we don't expect the
wage differentials to disappear overnight. That's not the
issue. That isn't going to happen. The question is whether
there is going to be the fluidity in their system so that over
time there will be the kind of progress that we want.
Mr. Kapp. Congressman, if I can just quickly respond. First
of all, I thank you for your goodwill on this. I think your
point, that there needs to be the fullest possible dialog
between people of somewhat different views, is absolutely
correct. My earlier comment was not meant as a kind of a
dismissal of the whole question, although I certainly stand by
the point I made.
I do think that the fact that China is systemically very
different needs to be balanced, however, by the fact that China
is a system in enormous change, as you and everyone in this
room knows very well.
There is more of a labor market already than there was 20
years ago, when everybody was told where to go to school, and
what to study, and what job he or she would have for the rest
of his or her life. This is a society in the midst of a vast
transition.
There are some who would argue that until the transition is
done, China should not be accepted into world institutions.
That, I think, is probably not an argument that I or perhaps
even you would subscribe to.
Mr. Levin. I doubt if many do really subscribe to that.
Mr. Kapp. I do think that the forces of what Americans
would consider more progressive change in China are the very
forces that are the best, if you will, allies that we can seek
as China enters the world trading system.
Let me call your attention to today's Wall Street Journal
article about the man who set out, almost accidently, to break
up the Chinese telecom monopoly. It is a fascinating story. It
is suggestive of the kind of change which is already happening
in China and which I think will be assisted and aided by
China's integration under the rules and with the obligations
and enforcement mechanisms of the WTO, into the norms of the
world system.
Mr. Levin. I think that should be the arena to debate, not
trying to settle it by narrowing the challenge and the
differences.
Just quickly 30 seconds to Mr. Valenti. I don't think it
will happen, as you suggest, that we will give authorization
now.
Mr. Sweeney. If I may, Mr. Chairman, there are no rules in
the WTO at the present time for addressing labor-related
issues.
Mr. Levin. That is why I think the suggestion about Seattle
is so important. We need to have discussions of that with some
open minds on it and move it into the forefront. That gets to
my point with Mr. Valenti, and I'll finish.
I think we are not going to do that, authorize now, and
also I think it would have the negative effect of misleading
the Chinese as to what they need to agree to further, including
in the area that you suggest. I think it would weaken our
bargaining position. Also, I think it would reduce the
engagement of Congress in these issues, these last critical
months. We need to be fully engaged. So we'll work hard on the
issue you raise.
Chairman Crane. Thank you. Mr. Houghton?
Mr. Houghton. Thanks, Mr. Chairman. Well, gentlemen, thank
you very much for being here. I think this is the best panel we
have heard so far. Mr. Sweeney is trying to protect American
workers. Mr. Valenti and others are trying to protect American
products. They are both worthy causes.
But let me just sort of hone in on a couple of things.
Jack, if I can ask you first. We heard Michael Eisner a few
weeks ago talking about the movie, is it Mulan, that he said
was one of the great movies that was just right for China and
thought it was going to be a barn burner, and it didn't sell a
copy because it was printed. How are you going to stop
something like that without a judicial system?
Mr. Valenti. It didn't sell as many as they wanted to,
let's put it that way. There are two things I want to say.
First, overall in our foreign policy, I think it would be a
grave blunder if we disengaged from China. Its population of
1.5 billion people is growing fast, and it is undergoing
radical change in the political system and in the business
climate. You cannot judge one culture by the standards of
another. We have to keep in mind that China is vastly different
from us. They are going through a revolution, unlike Mao
Zedong's revolution, the Great March from Chongqing. They are
going through a revolution of the marketplace. Anybody who has
spent any time in China is struck almost bewilderingly by the
change that has taken place in the last several years. Once you
unbottle the genie of change, you can't stuff it back in. The
leaders of China know that.
That is why I think in the long-term thinking of this
country, we have to have relationships with China. I can
understand where Mr. Sweeney is coming from. He represents the
working man in this country. It is shameful what things go on
there. But we have a lot of things in our country that we find
a little bit shameful too. The fact is, we cannot disengage.
Second, piracy is not just indigenous to China. The theft
of our copyrighted material is a cancer in the belly of our
business. I must say that every day I deploy forces all over
this world in 41 different countries, a constabulary that's
dealing with this problem of thievery. If you add in all
intellectual property, we probably lose about $20 billion a
year. When the Internet gets in full bloom and with broad ban
access, I shutter to think, unless we are able to find some
magical technological armor plate which will protect our
property when it goes into cyberspace.
But the Chinese have been very good, Mr. Houghton, in
responding to our pleas to deal with piracy. They have been far
more responsive than some other countries with whom we have a
warmer relationship, but who I will not name at this table.
They have been very good about that. I am hopeful that that
will increase. But I do believe that we have to deal with China
as a full-fledged equal. That means NTR on a permanent basis,
accession to the WTO, and then we'll compete with them as best
we can.
Mr. Houghton. Thank you very much. I know time is going on.
I would just like to ask Mr. Sweeney a question very briefly.
You know obviously we don't want to see American jobs leave
this country unfairly. Obviously we don't want to have the
increased trade deficit. Certainly we don't want to have
Chinese military companies strong arm American companies for
technology and all sorts of things like that. But you know, I
was struck by Cal Dooley's testimony. Although we're not there
yet, he said, ``Bringing China into the World Trade
Organization''--I'm quoting now--``is more than just a matter
of market share. China's accession into the WTO would lock
China into a rules-based international organization.'' How do
you feel about that?
Mr. Sweeney. As I said a few minutes ago, Congressman, the
rules aren't there within the WTO at the present time for
addressing labor, any issues around labor rights or core labor
standards. There has been this discussion going back and forth
between the WTO and the ILO as to who should really be
addressing these issues. Until the WTO introduces some process
such as a working group, which we tried to get in Singapore and
we're hopeful there may be some more attention paid to it in
Seattle, but until we get some process where these issues can
be taken up and addressed, there are no rules for this.
Mr. Houghton. OK. Thanks very much. Thank you, Mr.
Chairman.
Chairman Crane. Thank you.
Mr. Rangel.
Mr. Rangel. Thank you. Well, Mr. Sweeney, I worked very
hard in Singapore. We had hoped that we would get some
standards, some international standards at the WTO. Because Ms.
Barshefsky was so aggressive it could be that in Seattle we
could see something. But you've speaking about having labor
standards, freedom of association, right to organize,
collective bargaining, political, religious freedom, and quite
frankly, I don't know how in the world we could ever monitor
that in China when we don't monitor that in Washington Heights
in the Lower East Side. When we have prisoners--and one out of
three black kids between 18 and 35 in this country ends up in
the criminal justice system--we have them doing work competing
with the private sector. We have sweat shops. We have welfare
workers replacing civil servants right here in this country by
the government making these decisions.
I just don't believe that most of our businesspeople really
think that they are going to take these hundreds of millions of
workers in these factories and tell them that they are going to
have to go to the marketplace and earn a living like most
people do in other industrialized countries. Have you ever
talked to the Chinese yourself in terms of dealing with the
problems they have and the transitions that they would have to
go through? Have you dealt with them yourself as a national
labor leader?
Mr. Sweeney. We have had meetings with Chinese government
officials, but it has been a one-way conversation. We have
attempted to bring international union delegations to China,
but the Chinese government refuse to allow us to see or meet
with any of the political activists or the labor activists who
are in prison. That is one of the criteria that we set for our
trip.
Mr. Rangel. I would like to sit and meet with you to see
what tools we have to work with, because when they talk about
dismantling these factories, the Chinese are talking about
transition. It sounds to me like they are talking about 100
years. Thank you.
Mr. Houghton [presiding]. Mr. Becerra.
Mr. Becerra. Thank you, Mr. Chairman. I'm going to be
brief, because we have to run to vote. Let me first thank
everyone for their presentations and I appreciate the comment
that Mr. Sweeney made with regard to the WTO and the fact that
at this stage, we don't have anything that does deal with the
issue of labor, at least nothing that is binding that would
deal with the issue of labor.
Let me limit my question to one, and address it to Mr.
Kapp. You went through and commented on some of the remarks
that others had made previously. Give me, if you can, just a
real quick response to my comments with regard to domestic
concerns of folks who lose their jobs here, and TAA, and if we
are going to reauthorize it, what we can do to make it better
and how we could partner with the private sector to see it
work.
Mr. Kapp. Mr. Becerra, I have the pleasure of not running a
company. I run an association with 22 employees. It's not only
nonprofit, it's not even--well, I won't bore you with my
finances. So, to speak as though I represent by experience
large American business organizations and their views on
something like trade adjustment is beyond my ability.
I will tell you what I did think. The fact that you chose
to raise that subject, I think, is indicative of a very
important underlying issue that Mr. Levin has also touched upon
that goes to, if you will, the politics of the WTO and the
politics of permanent NTR. Underlying the comments of Mr.
Levin, I believe, and the point you particularly chose to
mention on TAA, is the idea that there has got to be some way
for those who are actually or who perceive themselves to be at
risk as China fully enters the world trading system to have
their needs addressed, and that that is a political reality
that exists right in this building and in the two adjoining
buildings every day of the week. In that regard, I take your
comments very seriously.
Exactly how trade adjustment ought to be rewritten or how
to make it work, when as I'm sure Mr. Sweeney would attest or
agree with you, it has not worked perfectly at any time in the
past, I cannot even begin to suggest. But the importance of the
substratum of what you are talking about, which is, how we deal
with the perceived spinoffs of this historic change in the
relationship of the United States and China with each other and
within the world trading system is something that I listen to
very carefully and take very seriously. I do the same with Mr.
Levin's repeated injunctions today and at earlier meetings that
there be a dialog, and that nobody operate with closed minds,
that nobody go in so armored with his views on these issues
that he is impervious to the ideas of others. I take your
comments in the same vein.
Mr. Becerra. Thank you, Mr. Chairman. I yield back.
Mr. Houghton. Thank you, gentlemen, Mr. Kapp, Mr. Sweeney,
Mr. Valenti, Mr. Gambow, thank you very much for being with us.
The meeting is adjourned.
[Whereupon, at 5:45 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of American Apparel Manufacturers Association
Thank you for providing this opportunity to comment on US/
China bilateral commercial relations.
The American Apparel Manufacturers Association (AAMA) is
the national trade association for the US apparel industry. Our
members are responsible for about 85 percent of the $100
billion worth of garments sold at wholesale in this country
every year. Our members manufacture every type of garment and
are located in nearly every state. Many also import from nearly
every part of the world. Our industry employs about 700,000
Americans.
WTO Accession
Our members have been closely following the discussions
regarding China's possible accession to the World Trade
Organization (WTO). Our members have a strong interest in the
provisions of any China WTO accession protocol--both those that
deal with textile and apparel as well as those that deal with
other elements of China's trading regime.
Some of our members view China as a competitor. Many rely
solely upon domestic production while others base their
production and sourcing strategies on partnerships with the
Caribbean Basin. At the same time, a number of our members view
China as a potential partner. They either source products from
China now or, pending a liberalization of the trading regime,
would like to do so in the future.
Uniting these diverse views is the belief that China's WTO
accession bid should proceed in a manner that is transparent,
consistent with international trading rules, and based on
commercial, and not political, grounds.
Accordingly, our association recently approved a resolution
supporting an accession protocol for China to join the WTO on
the following commercially meaningful terms:
Textile and apparel imports from China shall be
integrated in the Multilateral Fiber Agreement (MFA) phaseout
on the same schedule as those from other current WTO members.
China shall provide market access for textile and
apparel products on a priority and non-discriminatory basis.
Such market access shall include liberalization of tariffs,
elimination of non-tariff trade barriers, establishment of non-
discriminatory trading rights, and implementation of non-
restrictive investment policies. Liberalization shall commence
upon implementation of an accession protocol and must be
achieved by January 1, 2005.
China shall ensure currency convertibility.
China shall, on an expedited basis, implement the
Trade Related Intellectual Property (TRIPs) agreement.
The United States shall extend permanent,
unconditional normal trade relations (NTR) to China.
This position is consistent with the terms of the 1997
Memorandum of Understanding (MOU) which provided for Chinese
integration into the Agreement on Textiles and Clothing. It is
also consistent with our obligations under the WTO, which is to
afford unconditional NTR to member countries. We believe
keeping the quotas on China long after they have been discarded
for the rest of the world--as some have advocated--is an
invitation for transshipment. Moreover, prolonging the apparel
quotas on China creates a disincentive for China to adopt the
commitments and reforms necessary to ensure greater
transparency and access for its market.
China represents too large a participant in the world
market to be left out of the disciplines of the international
trading regime. Yet, Chinese accession is not an end in itself.
Although we believe such accession is important, and is not a
goal that should be readily discarded, we would be equally
dismayed if an unsatisfactory or unsustainable agreement were
adopted merely to meet an arbitrary timetable or a narrow
political end.
For China's accession to the WTO to work, it must be done
in a way that permits China to assume both the benefits and the
responsibilities of full WTO membership.
Normal Trade Relations
AAMA supports the President's action to extend normal trade
relations for another year. We believe this step was necessary
to comply with the Jackson-Vanik provisions. However, we
believe this annual review of China's trading status is
disruptive and unnecessary. Unfortunately, the WTO negotiations
were not completed in time to avoid the annual debate over NTR
this year. As noted above, we would support, in conjunction
with a WTO accession agreement, legislation to grant permanent
NTR to China.
Statement of American Textile Manufacturers Institute
This statement is submitted by the American Textile
Manufacturers Institute (ATMI), the national association of the
domestic textile mill products industry.
ATMI opposes and urges Congress to oppose the accession of
the People's Republic of China to the World Trade Organization
(WTO) unless major reforms are implemented by China. This
opposition is not based on China's egregious behavior with
respect to human rights, espionage, or nuclear proliferation--
all of which are important matters which can be better
addressed by others--but on China's abysmal record with respect
to market access, trade policy, investment, and intellectual
property protection. China's behavior in these regards
disqualifies it from WTO membership. These concerns, as well as
China's market distorting fiscal policies and relentless
dumping and subsidization, are shared by many other sectors of
U.S. industry and ATMI would like to add its voice to those
demanding real reform in these areas before (emphasis added)
China is admitted to the WTO.??
In addition to the above-mentioned, ATMI wishes to call
attention to two aspects of trade with China which are unique
to the domestic textile industry, its suppliers and apparel
producing customers. These are the schedule of phaseout of the
quantitative restraints (quotas) maintained by the United
States on China's exports of textiles and apparel and China's
illegal transshipments of textiles and apparel in order to
evade those restraints.
With regard to the first of these, the Uruguay round
Agreement on Textiles and Clothing (ATC) stipulates a ten-year
phaseout of quotas, beginning on January 1, 1995. We are now at
the halfway point of that process, with one-third of total
textile and apparel imports declared quota-free and remaining
quotas increasing, on average, a generous 8.7 percent
annually.\1\ All WTO members will have waited ten years before
attaining quota-free trade: Thailand has to wait ten years;
South Korea has to wait ten years; Turkey has to wait ten
years; Bangladesh has to wait ten years. But China does not
want to wait ten years. China has flatly rejected the United
States' call for a ten-year phaseout and, instead, has insisted
that, upon its accession to the WTO, it has the right to join
in at the same stage of the phaseout process as all other
members. China, the world's largest textile and apparel
producer and exporter; China, the world's worst violator of the
former Multifiber Agreement; China, the world's biggest
subsidizer and dumper, is demanding a five year (or four year,
or three year, depending on the date of accession) phaseout.
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\1\ Approximately five times the annual growth rate of U.S.
consumption.
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This is clearly wrong, inequitable and unfair, and
therefore should not be permitted. It is wrong for China to be
granted a truncated phaseout when all others have to wait ten
years, particularly in view of the fact that China is willing
to pay nothing for this extraordinary benefit. It is simply bad
trade policy and an abnegation of the principles of equity and
equal treatment which are (or should be) the cornerstones of
the WTO.
It is wrong also because China has repeatedly demonstrated
that it can wreak havoc in any market it exports to, not just
the United States. In negotiating the ATC, WTO members agreed
that ten years was necessary for both developed and developing
countries to make the adjustments needed to a quota-free
trading environment. The presence of the world's largest
exporter entering that environment on terms more favorable than
other WTO members was not factored into that decision. Now that
China is a factor, WTO members (including and especially the
United States, the world's largest textile and apparel
importing nation) must be allowed ten years to make the further
adjustments newly required. Many WTO members have indicated
support privately to U.S. officials for a 10-year phaseout for
China, while remaining silent publicly--usually as a show of
developing country solidarity or out of fear of China's
retaliation.
China's transshipments of textiles and apparel to the
United States are not an imaginary or sometime occurrence. They
have all been well and repeatedly documented. On more than a
dozen occasions, CITA (the Committee for the Implementation of
Textile Agreements) has published notices in the Federal
Register advising of reductions to China's textile and apparel
quotas as punishment for transshipping. The U.S. Customs
Service has said on several occasions, most notably in
Congressional testimony, that the value of textile and apparel
products transshipped by China to the U.S. most likely exceeds
$2 billion annually. Customs has published the names of
hundreds of firms in Hong Kong and Macau which have been found
guilty by their governments (emphasis added) of transshipping
Chinese goods to the United States. The government of Taiwan
has stipulated that some of its exporters have been similarly
engaged. Then, there is the matter of Peter Yeung, a citizen of
Hong Kong, who has pleaded guilty in federal court in New York
to violations of U.S. law by transshipping Chinese textiles and
apparel.
China's transshipments are no minor irritant. They take
jobs away from U.S. workers. They are a violation of U.S. law,
the U.S.-China bilateral trade agreement and, more to the
point, the WTO Agreement on Textiles and Clothing. One is
forced to ask how in the world China can be admitted to an
international organization, one of whose basic tenets China
repeatedly and grievously violates. The answer is that China
cannot be admitted until it changes its behavior. Reform and
change first; then admission.
Statement of International Mass Retail Association
This statement is submitted on behalf of the International
Mass Retail Association (IMRA), which represents the mass
retail industry--consumers' first choice for price, value and
convenience. IMRA's membership includes the fastest growing
retailers in the world--discount department stores, home
centers, category dominant specialty discounters, catalogue
showrooms, dollar stores, warehouse clubs, deep discount
drugstores, and off-price stores--and the manufacturers who
supply them. IMRA retail members operate more than 106,000
American stores and employ millions of workers. One in every
ten Americans works in the mass retail industry, and IMRA
retail members represent more than half a trillion dollars in
annual sales.
All of IMRA's members are dependent upon imports to provide
American consumers with quality and value. Many IMRA members
import products directly from China. 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 operate stores in China.
Consequently, IMRA's member companies have a strong
interest in seeing stable U.S.-Sino relations, both political
and economic. IMRA therefore strongly supports renewal of
China's Normal Trade Relations (NTR) in 1999; but, more
important, supports the eventual accession of China into the
World Trade Organization (WTO), and the granting of permanent
NTR status.
Revoking NTR will seriously disrupt Christmas
Should Congress revoke China's NTR status suddenly, under
the terms of the Jackson-Vanik provision of U.S. trade law,
serious economic repercussions will result that will harm U.S.
consumers, retailers and manufacturers. The loss of NTR status
would mean markedly higher import tariffs on a wide range of
products, from roller blades to kitchenware. Tariffs would
increase on from an average of about 4% to an average of 60%.
In some cases, the duty would jump as high as 100%. It has been
estimated that revoking NTR would cost American households $300
per year.
More important, tariffs of 60% or more 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 product products at the same
value price. By eliminating NTR in June or July--during the
peak months for entering Christmas merchandise--the result will
be significantly higher prices and shortages of key Christmas
1999 products.. This obviously would hurt American families
more than it would the Chinese. Christmas sales account for
well over one-third of U.S. retail sales for the entire year.
Taking this action, now, will have a significant impact on
annual retail sales figures--one of the main drivers of the
current economic prosperity.
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. They are also 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.
Loss of NTR would also hurt IMRA's catalog store members.
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. Should NTR be revoked, 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.
Revoking NTR now will jeopardize WTO accession talks
China's market is currently closed to American retail
stores. It is exceptionally difficult for American retailers to
open stores because in China, because of Chinese licensing
requirements. Obtaining a license can take months or even
years. Large-scale retail operations, with many stores, are
impossible, because each store location must be separately
licensed and financed with unique local partners.
In addition, 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 for an American mass
retailer.
During the WTO accession negotiations which took place in
April, the Chinese agreed phase out all restrictions on
distribution services within three years. This means that
American retailers will 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.
American mass retailers can act as a beach head for American
products. It is very important the Chinese do not reneg on
their commitments made in April.
It is also important to remember that once China becomes a
member of the WTO, they 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 their trade regime.
Unilateral sanctions will not result in widespread
democratic change in China; they certainly will not enhance the
reciprocal trade relationship; and they will harm U.S. economic
interests. However, 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.
Statement of Bernard D. Brill, Executive Vice President, SMART
RE: China's Desire to Join the WTO
Congressman Philip Crane, Chairman, Subcommittee on Trade
As Chinese Prime Minister Zhu Rongji campaigns to gain
entrance to the WTO, our association members are asking a
simple question, ``If goods from China are allowed into the
U.S. without special rules and tariffs, why aren't U.S. goods
being given the same consideration? ''
Believe it or not, recycled clothing is officially banned
in China at the same time millions of pounds of new clothing is
exported to the U.S. SMART asks that the U.S. Government inform
Chinese officials that only when there is ``fair'' trade will
there be ``free'' trade.
SMART, the Secondary Materials and Recycled Textiles
Association, represents nearly 300 businesses involved with the
recycling of pre and post recyclable textile materials. Our
industry employs approximately 25, 000 unskilled and semi-
skilled people. Most of these companies are small, family owned
business located in our country's inner cities--where jobs are
often most difficult to find. In fact, many of our members have
hired people off the welfare rolls and other disadvantaged
individuals!
While members of this industry agree with the premise of
allowing China into the WTO, why should U.S. companies be
banned from this market? This is an excellent opportunity to
completely open the trade lanes for U.S. exporters and help
offset our country's growing trade deficit. Please do not miss
the opportunity to settle this matter once and for all.
Background
Members of SMART are capable of shipping large quantities
of recycled clothing, fabric, and other household textile
products to developing countries. According to the U.S.
Department of Commerce, recycled textiles are this countries
eighth most exportable item--just behind automobile parts and
wheat! This ``environmentally correct'' industry has existed
since the industrial revolution and provides important products
and services while providing thousands of jobs.
While this industry does not generate a great deal of
publicity, it is responsible for providing clothing to those in
non-OECD countries. However, certain countries like China
forbid the importation of recycled clothing!
As you decide on whether to include China as a partner in
the World Trade Organization, please give this matter serious
consideration. While SMART encourages and believes free trade
is in the best interest of all concerned, we urge the U.S. to
maintain a ``level playing field'' in this endeavor.
Please insist that China and all countries deal fairly with
U.S. exporters to encourage free trade in today's global
marketplace.
Submitted by,
Bernard D. Brill
Executive Vice President
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