[House Hearing, 105 Congress]
[From the U.S. Government Publishing Office]
U.S.-CHINA TRADE RELATIONS AND RENEWAL OF CHINA'S MOST-FAVORED-NATION
STATUS
=======================================================================
HEARING
before the
SUBCOMMITTEE ON TRADE
of the
COMMITTEE ON WAYS AND MEANS
HOUSE OF REPRESENTATIVES
ONE HUNDRED FIFTH CONGRESS
FIRST SESSION
__________
JUNE 17, 1997
__________
Serial 105-59
__________
Printed for the use of the Committee on Ways and Means
U.S. GOVERNMENT PRINTING OFFICE
51-705 CC WASHINGTON : 1998
------------------------------------------------------------------------------
For sale by the U.S. Government Printing Office
Superintendent of Documents, Congressional Sales Office, Washington, DC 20402
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 BARBARA B. KENNELLY, Connecticut
JIM BUNNING, Kentucky 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
JOHN ENSIGN, Nevada
JON CHRISTENSEN, Nebraska
WES WATKINS, Oklahoma
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
A.L. Singleton, Chief of Staff
Janice Mays, Minority Chief Counsel
______
Subcommittee on Trade
PHILIP M. CRANE, Illinois, Chairman
BILL THOMAS, California ROBERT T. MATSUI, California
E. CLAY SHAW, Jr., Florida CHARLES B. RANGEL, New York
AMO HOUGHTON, New York RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan JIM McDERMOTT, Washington
JIM RAMSTAD, Minnesota MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington WILLIAM J. JEFFERSON, Louisiana
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 June 3, 1997, announcing the hearing................. 2
WITNESSES
Office of the U.S. Trade Representative, Hon. Charlene
Barshefsky, U.S. Trade Representative.......................... 51
U.S. Department of State, Hon. Stuart Eizenstat, Under Secretary
for Economic Affairs........................................... 60
______
American Federation of Labor and Congress of Industrial
Organizations, Barbara Shailor................................. 191
American Textile Manufacturers Institute, Carlos Moore........... 186
Bauer, Gary L., Family Research Council.......................... 114
Blumenauer, Hon. Earl, a Representative in Congress from the
State of Oregon................................................ 102
Carr, John L., U.S. Catholic Conference.......................... 117
Children of the World, Joy Hilley................................ 132
China Outreach Ministries Inc., Rev. Daniel B. Su................ 127
Cohen, Calman J., Emergency Committee for American Trade......... 149
Dreier, Hon. David, a Representative in Congress from the State
of California.................................................. 12
Emergency Committee for American Trade, Calman J. Cohen.......... 149
Evergreen Family Friendship Service, Edvard P. Torjesen.......... 129
Ewing, Hon. Thomas W., a Representative in Congress from the
State of Illinois.............................................. 96
Family Research Council, Gary L. Bauer........................... 114
Hall, Robert, National Retail Federation......................... 180
Hilley, Joy, Children of the World............................... 132
Howard, John, U.S. Chamber of Commerce........................... 157
Kapp, Robert A., United States-China Business Council............ 168
Kolbe, Hon. Jim, a Representative in Congress from the State of
Arizona........................................................ 110
Levin, Hon. Sander M., a Representative in Congress from the
State of Michigan.............................................. 16
Moore, Carlos, American Textile Manufacturers Institute.......... 186
National Retail Federation, Robert Hall.......................... 180
Ohsman & Sons Co., Jim Williams.................................. 163
O'Quinn, Robert P., Heritage Foundation.......................... 195
Pelosi, Hon. Nancy, a Representative in Congress from the State
of California.................................................. 28
Pitts, Hon. Joseph R., a Representative in Congress from the
State of Pennsylvania.......................................... 126
Porter, Hon. John Edward, a Representative in Congress from the
State of Illinois.............................................. 88
Salmon, Hon. Matt, a Representative in Congress from the State of
Arizona........................................................ 105
Shailor, Barbara, American Federation of Labor and Congress of
Industrial Organizations....................................... 191
Smith, Hon. Christopher H., a Representative in Congress from the
State of New Jersey............................................ 20
Solomon, Hon. Gerald B.H., a Representative in Congress from the
State of New York.............................................. 9
Su, Rev. Daniel B., China Outreach Ministries, Inc............... 127
Torjesen, Edvard P., Evergreen Family Friendship Service......... 129
U.S. Catholic Conference, John L. Carr........................... 117
U.S. Chamber of Commerce, John Howard............................ 157
United States-China Business Council, Robert A. Kapp............. 168
Williams, Jim, Ohsman & Sons Co.................................. 163
Wolf, Hon. Frank R., a Representative in Congress from the State
of Virginia.................................................... 91
SUBMISSIONS FOR THE RECORD
American Association of Exporters and Importers, New York, NY,
Eugene Milosh, statement....................................... 201
American Chamber of Commerce in Hong Kong, statement............. 206
American Chamber of Commerce, People's Republic of China,
Beijing, statement............................................. 208
American Electronics Association, et al, joint statement......... 210
DeLaney, Paul H., Jr., statement and attachments................. 214
U.S.-CHINA TRADE RELATIONS AND RENEWAL OF CHINA'S MOST-FAVORED-NATION
STATUS
----------
TUESDAY, JUNE 17, 1997
House of Representatives,
Committee on Ways and Means,
Subcommittee on Trade,
Washington, DC.
The Subcommittee met, pursuant to notice, at 10:09 a.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
FOR IMMEDIATE RELEASE CONTACT: (202) 225-1721
June 3, 1997
No. TR-8
Crane Announces Hearing on U.S.-China
Trade Relations and Renewal of China's
Most-Favored-Nation Status
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 U.S.-China trade relations,
including the issue of renewing China's most-favored-nation (MFN)
status. The hearing will take place on Tuesday, June 17, 1997, in the
main Committee hearing room, 1100 Longworth House Office Building,
beginning at 10:00 a.m.
Oral testimony at this hearing will be from both invited and public
witnesses. 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:
Non-discriminatory MFN trade status was first granted to the
People's Republic of China on February 1, 1980, and has been extended
annually since that time. Annual extensions are granted based upon a
Presidential determination and a report to Congress that such an
extension would substantially promote the freedom of emigration
objectives in Title IV of the Trade Act of 1974, the so-called Jackson-
Vanik amendment. Subsections 402 (a) and (b) of the Trade Act set forth
criteria which must be met, or waived by the President, in order for
the President to grant MFN status to non-market economies such as
China.
The annual Presidential waiver authority under the Trade Act
expires on July 3 of each year. The renewal procedure requires the
President to submit to Congress a recommendation for a 12-month
extension by no later than 30 days prior to the waiver's expiration
(i.e., by not later than June 3). The waiver authority continues in
effect unless disapproved by Congress within 60 calendar days after the
expiration of the existing waiver. On May 29, 1997, President Clinton
announced his intention to renew China's MFN status for the period from
July 1997 to July 1998. In his report to Congress (House Document 105-
86), the President noted China's relatively free emigration policies.
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.
FOCUS OF THE HEARING:
The focus of the hearing will be to evaluate overall U.S. trade
relations with the People's Republic of China, and to consider the
extension of MFN status for China for an additional year on the basis
of that country's emigration performance. The Subcommittee requests
testimony on China's emigration policies and practices; on the nature
and extent of U.S. trade and investment ties with China and related
issues; and on the potential impact on China, Hong Kong, Taiwan, and
the United States of a termination of China's MFN status.
DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:
Requests to be heard at the hearing must be made by telephone to
Traci Altman or Bradley Schreiber at (202) 225-1721 no later than the
close of business, Monday, June 9, 1997. 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 of their
prepared statement and an IBM compatible 3.5-inch diskette in ASCII DOS
Text format, 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 close of business, Friday, June
13, 1997. 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 at least six (6)
single space legal-size copies of their statement, along with an IBM
compatible 3.5-inch diskette in ASCII DOS Text format only, with their
name, address, and hearing date noted on a label, by the close of
business, Tuesday, June 17, 1997, 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, at least one hour before the
hearing begins.
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 typed in single space on legal-size paper and may not exceed a total
of 10 pages including attachments. At the same time written statements
are submitted to the Committee, witnesses are now requested to submit
their statements on an IBM compatible 3.5-inch diskette in ASCII DOS
Text format only.
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, full address, a telephone number where the witness or the
designated representative may be reached and a topical outline or
summary of the comments and recommendations in the full statement. 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.GOV/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. Good morning. This is a hearing of the
Subcommittee on the important question of renewing China's
most-favored-nation, MFN, trade status. Each year, as required
by the Jackson-Vanik amendment to the Trade Act of 1974,
Congress considers the issue of U.S.-China trade relations.
It is important to emphasize that MFN status denotes normal
or standard trade treatment which the United States extends to
over 150 of our trading partners. I believe it is misleading to
characterize MFN as special tariff treatment or an indication
that the United States is granting approval to a country's
political system.
Although the Jackson-Vanik amendment addresses immigration
policy, a long list of other issues that the United States has
with China are debated when Congress votes on MFN. In my view,
the annual debate is not necessarily constructive and works to
reduce our ability to improve the human rights situation in
China. Cutting off trade will hinder, not help, the cause of
freedom in China because it sacrifices the best tool we have
for building channels of communications with the Chinese
people.
This year the debate also takes on greater significance for
Hong Kong as the territory prepares for the historic reversion
from British to Chinese sovereignty at the end of this month.
The future well-being of the Hong Kong people, the territory's
economic health, and a continuation of its role as a regional
and financial center depend on maintaining normal trade
relations between the United States and China. Renewing MFN
will strengthen the ability of the Hong Kong people to
safeguard their way of life after the transition. Loss of MFN
would be a devastating blow, fostering instability at an
extraordinarily delicate time.
I look forward to hearing the testimony today from our
distinguished colleagues and witnesses. Because we must break
between 12:30 and 2 p.m., I would ask you to try to limit your
oral testimony to 5 minutes and your written statements will be
included in the permanent record of the hearing. I would now
like to recognize Mr. Matsui, the Ranking Minority Member, for
an opening statement.
Mr. Matsui. Thank you, Mr. Chairman, for holding these
hearings today to review the status of U.S.-China trade
relations and to prepare ourselves for this year's legislative
activity on the renewal of China's most-favored-nation trading
status.
Although everyone is familiar, it is worth noting that MFN
is nothing more than normal trade status, as the Chairman said
in his opening statement. It is not preferential trade status
as some would portray it. Indeed, we grant MFN trade status to
almost every country on Earth with the exception of half a
dozen countries, including North Korea and Cuba.
It is no exaggeration to say the U.S.-China relations will
be the key to our peace, prosperity, and stability in the world
in the years ahead. However, our relationship with China is
multifaceted and complex. How we manage that relationship is
one of the greatest foreign policy and trade policy challenges
before us as a nation in this century and well into the next.
The public debate we have each year about whether to renew MFN
for China is not about the goals we seek with respect to China,
but rather about the means we use to achieve those goals.
With respect to our goals, we all want China to observe
international norms in areas such as human rights, nuclear
nonproliferation, and religious freedom. We all want China to
provide greater market access for our goods and services. We
all want China to participate constructively in the
international system and to define their own national interests
in a way that is compatible with our own interests and the
interests of the other nations of the world. Unfortunately, we
disagree among ourselves about the best way to achieve these
goals.
As you know, Mr. Chairman, I have argued for many years
that withdrawing MFN status from China will not advance our
goals toward China but rather will hinder achievement of these
goals. I believe that withdrawing MFN from China is tantamount
to declaring trade war on China and sending a strong signal to
China that we are no longer interested in pursuing a policy of
constructive engagement with the Chinese people.
There are those who argue that our policy of engagement
with China has been a failure. I think that the record provides
otherwise. While we admittedly continue to have our differences
with China on a host of issues, we have worked productively
with China on nuclear issues, on North Korea, on various U.N.
matters such as peacekeeping in the Balkans and sanctions on
Libya and Iraq, on the environment, and on intellectual
property issues. As Secretary Madeleine Albright has recently
stated, we must use a careful mix of targeted incentives and
sanctions to narrow our differences with the Chinese.
Revocation of MFN for China would not narrow those
differences but magnify them. As such, it would be a major
foreign policy mistake. It would also be a major trade policy
mistake since it would lead to a severe reduction of U.S.
exports to China, a reduction of jobs in this country related
to such exports, and an increase in prices for consumer goods.
Moreover, it would have a destabilizing effect on Hong Kong and
adverse implications for managing our trade relations with Asia
as a whole.
Mr. Chairman, engagement with China is not an endorsement
of Chinese policy. Engagement does not mean ignoring our
differences; it means actively seeking to resolve those
differences. It means protecting our interests when dialog
fails to produce results.
We are perfectly capable of taking calibrated actions to
protect our interests when circumstances dictate, as we have
shown in the past when we have imposed targeted trade sanctions
and technology sanctions, monitored and publicized human rights
shortcomings, and even engaged in responsive naval and military
activities, as we did recently in the case of Taiwan.
In conclusion, Mr. Chairman, let me state again my strong
support in favor of continuing most-favored-nation treatment
for China. It has been said that we cannot isolate China from
the world; we can only isolate ourselves from China. Revocation
of MFN will only lead down the road toward isolating ourselves,
and surely this is not a policy that serves the best interests
of the United States.
Thank you, Mr. Chairman.
[The opening statements of Mr. Ramstad and Mr. Stark
follow:]
Opening Statement of Hon. Jim Ramstad, a Representative in Congress
from the State of Minnesota
Mr. Chairman, thank you for calling today's hearing to
discuss US-China trade relations and the renewal of Most
Favored Nation (MFN) trade status for China.
Over the last 15 years, we have witnessed noticeable
advances in economic and personal freedoms in China. Certainly,
increased trade with Western countries has contributed by
exposing the people of China to democratic values and
practices.
Clearly, however, further improvements in human rights
conditions for Chinese citizens must be made, and we must
continue to encourage the Chinese Government to adhere to
international trade and nuclear proliferation agreements.
It is important that we carefully consider which U.S.
policies will most effectively help us achieve these goals.
That's why I believe U.S. engagement in China through continued
trading relationships is the best way to influence China's
policies.
We must also keep in mind that MFN status is not a form of
special treatment. MFN refers to the normal, non-discriminatory
tariff treatment that the U.S. provides to and receives from
its trading partners.
Finally, we must recognize that the U.S.-Sino trade
relationship is very important to U.S. businesses and jobs.
China is one of the fastest-growing markets in the world and is
home to over 1.2 billion people--20% of the world's population.
US-China bilateral trade has grown from $2 billion in 1978 to
nearly $60 billion in 1996.
Merchandise exports to China alone in 1995 totaled nearly
$12 billion, which supported over 170,000 American jobs--jobs
that pay 13-16% more than non-trade related jobs. We in
Minnesota understand what this means. In 1996, we exported over
$60 million worth of goods to the growing Chinese market, and
we are currently working on improving that figure through the
Minnesota Trade Office's Minnesota China Initiative. The
Minnesota state legislature just authorized $350,000 for this
effort to establish Minnesota companies as known and preferred
vendors in China.
Knowing how crucial a normal, engaged relationship between
the US and China is for improving the lives of people in both
countries--as well as those of Hong Kong, Taiwan and other
Pacific Rim nations--I want to thank you again, Mr. Chairman,
for calling this hearing. I look forward to hearing from
today's witnesses about the importance and implications of US-
China Trade relations and China MFN renewal.
[GRAPHIC] [TIFF OMITTED] T1705.001
[GRAPHIC] [TIFF OMITTED] T1705.002
Chairman Crane. Thank you for your opening statement and
your strong support for extending normal trade status to China.
Let us now begin receiving testimony from our distinguished
colleagues. We will begin with Congressman Jerry Solomon and
then proceed in the following order: Congressman David Dreier
from California; Congressman Sandy Levin from Michigan;
Congressman Chris Smith from New Jersey; and Congresswoman
Nancy Pelosi from California. And let me again ask you to
please try to confine your oral testimony to 5 minutes;
everything else will be made a part of the permanent record.
Thank you.
STATEMENT OF HON. GERALD B.H. SOLOMON, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW YORK
Mr. Solomon. Thank you, Mr. Chairman, Mr. Matsui, others
that might come, and Bill Thomas.
First, let me apologize to the Members, the Chairman, and
the panel for having to leave early. We have to arrange the
schedule for the remainder of this week and next week, and that
is going to be hectic trying to do that.
Second, let me congratulate your Ways and Means Committee.
You are the keeper of our tax dollars, and I understand you are
going to keep much less of them. And so I am very happy about
that.
Mr. Chairman, last, let me say enough is enough is enough.
If ever a policy were out of touch with reality, it is our
current policy of appeasement toward Communist China. Just look
at this headline today: ``China Joins Forces With Iran on
Short-Range Missile.'' And let me tell you something, Mr.
Chairman: Do you know what that means? It means that innocent
human beings are going to be killed because of this appeasement
policy. It is going to mean American soldiers and sailors later
on if we are inevitably drawn into the Middle East, as we
inevitably will be.
And, of course, this continuous unlinked granting of MFN is
the cornerstone of that appeasement policy. That is why I have
introduced this resolution that would revoke MFN for China,
whether on a temporary or permanent basis.
Hardly a day goes by when the economic picture in trade
with China does not get worse, and you know it. China's refusal
to grant open and fair access to American goods has resulted in
our trade deficit with that country skyrocketing to almost $40
billion last year, and toward $50 billion this year. When is
that going to stop? When it reaches $100 billion?
The United States, in accepting this free flow of
subsidized goods--goods that now overflow in American stores
everywhere--has cost thousands of Americans their jobs. I want
you all to look around; look at the labels in your shirts.
Where were they made? And where were the watches on your wrists
made? Go to any store and take a look. Enough is enough is
enough.
Free traders keep hoping that U.S. exporters will get
access to this vast Chinese consumer market in return for this,
but that remains an elusive myth, my friends. American
merchandise exports to China totaled only $12 billion in 1996;
that is less than one-fifth of 1 percent of the U.S. economy.
Isn't that significant? One-fifth of 1 percent of the U.S.
economy.
Mr. Chairman, that is a very slim return when you consider
that we give China favorable tariffs on over one-third of their
entire exports--one-third. Let's wake up.
But even more important, Mr. Chairman, hardly a day goes by
without reading of yet another act of aggression, another act
of duplicity, or another affront to humanity committed by this
dictatorship in Beijing. We ought to be ashamed of ourselves
for putting up with this and doing nothing about it.
Consider human rights: The same people who conducted the
massacre in Tiananmen Square and the inhumane oppression of
Tibet have been systematically eradicating the last remnants of
the democracy movement in China and, as we speak, they are
preparing to squash democracy in Hong Kong. Are we going to sit
here and let this continue to happen?
According to the U.S. State Department's annual human
rights report--and I hope you grill them, they are sitting
behind me--let me quote: ``Overall in 1996, the authorities
stepped up efforts to cut off expressions of protest or
criticism.'' They stepped it up. ``All public dissent against
the party in government was effectively silenced by
intimidation, by exile, the imposition of prison terms,
administrative detention or house arrest.'' That is getting
worse, not better. I emphasize the words ``stepped up,'' Mr.
Chairman, because human rights in China is getting worse, and
you sitting there know it.
That is exactly the opposite of what is supposed to be
occurring according to the proponents of the engagement theory.
China has also ramped up its already severe suppression of
religious activities having, among other things, recently
arrested the coadjutor bishop of Shanghai. And what is more
ominous, Mr. Chairman--and I think everybody in this room
better pay attention to this--is that in the field of national
security, we see a relentless Chinese military buildup,
evermore frequent exports of technology, of weapons of mass
destruction--like chemical weapon factories going into Iran as
we sit here right now, carried by some ships by the name of
COSCO--and an increasingly belligerent Chinese foreign policy.
While every other country in the world has reduced its
military spending, Communist China has increased its military
spending by double digits for several years running, this year
again by 15 percent, and totaling 50 percent in the nineties.
What are they trying to buy with that money? Soviet-made
Sunburn missiles from Russia, that is what.
The Sunburn was designed for the express purpose of taking
out U.S. ships and killing American sailors, and Communist
China is buying it with the express purpose of intimidating the
U.S. Navy. Now, who said that? That was said by the top Chinese
military leaders in 1993 when they labeled the United States
``their international archenemy.''
Mr. Chairman, these are the very bitter fruits of
engagement. And, Mr. Chairman, one of the most incredible
events of the past year is the revelation that the Chinese
Embassy here in Washington has sought to buy influence with the
U.S. Government through campaign contributions and conduct
economic espionage and national security breaches against the
United States.
And almost as bad, Mr. Chairman, at the same time, it has
been established that President Clinton met with the head of a
Chinese weapons trading firm accused of, among other things,
smuggling AK-47 rifles into street gangs in America. And I am
going to refer you to an article in today's Los Angeles Times
about this guy, John Huang, and what was done; and I suggest
you all read it and read it and read it over again. That
meeting was arranged by Charlie Trie, an Arkansas entrepreneur
with alleged ties to rogue elements in Asia, who along with six
others has left the country to avoid testifying about these
economic espionage activities and national security breaches.
Mr. Chairman, our China policies are failing before our
very eyes and it is high time we all start to wake up to this
fact before it is too late.
Mr. Chairman and Members, no MFN was given to the Soviet
Union under Ronald Reagan, and peace through strength brought
down the Iron Curtain. That is what our policy should be
against Communist China today. I am going to tell you--and I am
going to be blunt about this--you owe it to your country to cut
off this MFN to China until they become responsible
participants in human rights behavior around this world. Don't
you be responsible for the loss of American lives 5 or 6 or 7
years down the line with this continued appeasement toward this
country that calls us their international archenemy.
I thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of Hon. Gerald B.H. Solomon, a Representative in Congress
from the State of New York
Mr. Chairman, If ever a policy were out of touch with
reality, it is our current policy of appeasement toward
Communist China. And of course, the continuous, unlinked
granting of MFN is the cornerstone of that appeasement policy
and that is why I have introduced H.J.Res 79, which would
revoke MFN for China.
Hardly a day goes by when the economic and trade picture
with China does not get worse.
China's refusal to grant fair and open access to American
goods has resulted in our trade deficit with that country
skyrocketing to $38 billion last year and toward $50 billion
this year. The U.S., in accepting this free flow of subsidized
goods.....goods that now overflow in American stores
everywhere.....has cost thousands of Americans their jobs.
Free traders keep hoping that U.S. exporters will get
access to the vast Chinese consumer market in return for this,
but that remains an elusive myth.
American exports to China totaled only $12 billion in
1996...... less than \1/5\ of 1% of the U.S. economy.
Mr. Chairman, that is a very slim return when you consider
that we give China favorable tariffs on over \1/3\ of their
exports.
On other fronts, hardly a day goes by without reading of
yet another act of aggression, another act of duplicity, or
another affront to humanity committed by the dictatorship in
Beijing.
Consider human rights:
The same people who conducted the massacre in Tiananman
Square, and the inhumane oppression of Tibet, have been busily
eradicating the last remnants of the democracy movement in
China.....and as we speak, they are preparing to squash
democracy in Hong Kong.
According to the U.S. State Department's annual human
rights report, and I quote.......
``Overall in 1996, the authorities stepped up efforts to
cut off expressions of protest or criticism. All public dissent
against the party and government was effectively silenced by
intimidation, exile, the imposition of prison terms,
administrative detention, or house arrest.''
I emphasize the words STEPPED UP, Mr. Chairman. Human
rights in China are getting WORSE. That is the EXACT OPPOSITE
of what is supposed to be occurring according to the proponents
of the engagement theory.
China has also ramped up its already severe suppression of
religious activity, having, among other things, recently
arrested the co-adjutor Bishop of Shanghai.
In the field of national security, what we see is a
relentless Chinese military buildup, ever more frequent exports
of technology for weapons of mass destruction, and an
increasingly belligerent Chinese foreign policy.
While every other major country has reduced its military
spending, Communist China has increased its military spending
by double digits for several years running, this year again by
15%. What are they buying with that money? Soviet made Sunburn
missiles from Russia, that's what. The Sunburn was designed
with the express purpose of taking out U.S. ships and killing
American sailors, and Communist China is buying it with the
express purpose of intimidating the U.S Navy.
These are the very bitter fruits of engagement, Mr.
Chairman.
And Mr. Chairman, one of the most incredible events of the
past year is the revelation that the Chinese embassy here in
Washington has sought to buy influence with the U.S. government
through campaign contributions and conduct economic espionage
against the U.S.
While at the same time, it has been established that
President Clinton met with the head of a Chinese weapons
trading firm, accused of among other things smuggling AK-47
rifles in to street gangs in America....... and that the
meeting was arranged by Charlie Trie, an Arkansas entrepreneur
with alleged ties to rogue elements in Asia.
We do not know if there was any connection between these
meetings and donations and our China policies, but the odor of
money and influence peddling has recently spread over this
entire debate.
What we do know Mr. Chairman is that our China policies are
failing before our very eyes, and it is high time we all start
to wake up to this fact before it is too late.
My colleagues, no MFN was given to the Soviets until Ronald
Reagan and peace through strength brought down the Iron
Curtain, and that should be our policy against Communist China.
Chairman Crane. Thank you, Mr. Solomon.
Mr. Dreier.
STATEMENT OF HON. DAVID DREIER, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF CALIFORNIA
Mr. Dreier. Thank you very much, Mr. Chairman. And as I do
my whip count, I suppose we should put Mr. Solomon in the
undecided column at this point.
I want to thank you for inviting us to once again make our
annual pilgrimage before the Trade Subcommittee to discuss an
issue which I, frankly, don't believe should come up annually,
time and time again. I think that we should try and resolve
this issue. But let me say that Jerry is one of my very dearest
friends. I have the privilege of serving as the Vice Chairman
of the Rules Committee where he is Chairman, and he and I agree
on most issues, but, frankly, we do disagree on this. But
having said that, I am not going to disagree with him on many
of the issues that he raised, which are of understandable
concern.
Mr. Matsui said it very clearly: That as we look at this
issue, this is not a stamp of approval on the policies of
China, with which international norms and the United States of
America disagree. So what we need to look at is the fact that
the single most powerful force for positive change in the 5,000
year history of China has been China's market-oriented reforms.
And that is why, as we look at every single one of these
concerns that Jerry has appropriately raised, it seems to me
that what we need to do is to look at the one positive thing
and build on that, rather than pull the rug out from under the
vehicle which has dramatically improved the lot of the 1.2
billion people of China who have been struggling for some kind
of improvement in their standard of living.
Now, we know that ``most-favored-nation status'' is not the
appropriate euonym to describe our relationship with China. It,
in fact, is normal trading relations. And I think if we look at
what normal trade relations have brought about in the past
couple of decades, they have a history of success.
Now, if we look at the repressive human rights policies of
authoritarian regimes in the Pacific rim and in this hemisphere
we have, under the policies of Ronald Reagan and George Bush
and, in fact, Bill Clinton, seen improvement as we have
maintained engagement and trade relations. The two best
examples in the Pacific rim are Taiwan and South Korea. It took
a half century for Taiwan to move toward democracy following
Chiang Kai-shek's move to that island.
Last night, Phil Crane and I were on an airplane and we sat
with a fellow from Chile who talked about the fact that it was
trade and engagement that brought about the end of Augusto
Pinochet's regime there. The same thing happened in Argentina.
So this policy of trying to isolate countries, which really
means isolating the United States, is wrong. It has been proven
to have failed in the past.
Jerry talked about Ronald Reagan's policy and the fact that
we didn't have MFN for the Soviet Union. The fact is when
Ronald Reagan stood in Berlin and said, ``Mr. Gorbachev, tear
down this wall,'' he did so so that those in the Eastern bloc
could mingle with the West. And what some of my good friends
here are talking about is tantamount to erecting another Berlin
Wall--preventing the most populous nation on the Earth from
having the chance to mingle with the West.
Look at the positive changes that have taken place
following China's economic reforms. I am privileged to serve on
the board of the National Endowment for Democracy's Republican
Institute; I work with Jennifer Dunn and others. Thanks to our
Republican Institute's efforts, we have seen 800 million of the
1.2 billion Chinese people participate in local village
elections with noncommunist candidates. We have seen incumbents
actually thrown out because of those elections.
The Chinese Government is, in fact, moving in the direction
of legal reforms which would recognize the rule of law. The
Chinese media is, in large measure because of this global
technology that we have today, improving greatly and, in fact,
out of the control of the government.
But one of the most important things that we face, Mr.
Chairman, as we move ahead, is this issue of Hong Kong. I think
that, while many of my colleagues who plan to vote for a
resolution of disapproval say, I really don't want to revoke
MFN but I want to send a signal, the signal that we are about
to send, Mr. Chairman, is not to Beijing, it is to Hong Kong.
The likes of Martin Lee and Chris Patten and other strong
advocates of democracy and freedom have said, that it is of
little comfort to the people of Hong Kong that if China comes
in and rattles our cage our jobs will go to the United States
of America.
The one disagreement that I have with Mr. Solomon is that
we in the United States of America enjoy the highest standard
of living because the world has access to our consumer market.
I think we need to recognize that the jobs that have moved to
China have moved from other countries in the Pacific rim, and
we have to look at our overall trade deficit with that region.
I think that we have a great opportunity to do the right
thing, Mr. Chairman, rather than simply do what makes us feel
good. Of course, one's gut reaction is, Let's stand up to these
people. But you know what? They are not the Soviet Union. They
have not exported their revolution into Latin America and taken
over their neighbor's territory as the Soviet Union did. Yes,
it is very serious. We must as a country maintain our military
preeminence in the Pacific rim. Our allies want us to do that.
But our allies also want us to make sure that we do not isolate
the greatest country in the world, the United States of
America, from the most populous country, China.
Thank you very much, Mr. Chairman.
[The prepared statement follows:]
Statement of Hon. David Dreier, a Representative in Congress from the
State of California
Mr. Chairman, Members of the Committee, thank you for
holding this important hearing on the question of whether the
United States should maintain normal commercial relations with
the Peoples Republic of China, or undertake to start a trade
war with the most populace and fastest growing economy in the
world.
Fostering freedom and human rights around the world is a
universal foreign policy goal in Congress. That was the case in
1989, when I joined nearly a dozen of my colleagues, Democrats
and Republicans, in a march to the front door of the Chinese
Embassy to protest the brutal massacre of student protesters in
Beijing's Tiananmen Square. It remains a bipartisan priority
today because support for freedom and democracy is part and
parcel of what it means to be American.
The question of maintaining trade with China does not offer
a choice between American jobs and American values. Instead, we
must answer the question whether trade sanctions offer an
effective means to achieve the goal of bringing democracy and a
respect for human rights to China. Be assured, it would be a
mistake for China's leaders to interpret this debate over MFN
as a weakening of our resolve on human rights.
In looking at conditions in China over the past twenty
years, the path to democracy of numerous countries around the
globe, and the effectiveness of unilateral economic sanctions
to improve human rights for people living under the boot of
other repressive regimes, it becomes unmistakably clear that
such sanctions will not improve human rights in China. If
anything, economic sanctions will set back the cause of
freedom.
Achieving greater human freedom in China is an important
priority if for no other reason than the fact that one-fifth of
the human race lives in that vast country. Today, the Chinese
people lack individual rights, political freedom, and freedom
of speech, religion, association and the press. Even the most
basic human freedom of having children is regulated by the
authoritarian national government.
When looking at repression in China, however, I am reminded
of the ancient saying that in the land of the blind, the one-
eyed man is king. It does no good to evaluate progress toward
freedom in China by comparing it to the United States or any
other democracy. Instead, an historical perspective is needed.
While China offers a four thousand year story of political
repression, some of its bleakest days have come in the past
generation. Over 60 million Chinese starved to death during
Chairman Mao's disastrous Great Leap Forward, and another one
million were murdered by the Communist Government during the
international isolation of Mao's Cultural Revolution. The
Chinese people were scarred by those brutal events, and no one
wants to return to the terror of economic calamity and
starvation.
Stapelton Roy, the former American Ambassador to China, put
the current conditions in China in the following perspective:
``If you look at the 150 years of modern Chinese history...
you can't avoid the conclusion that the last 15 years are the
best 15 years in China's modern history. And of those 15 years,
the last 2 years are the best in terms of prosperity,
individual choice, access to outside information, freedom of
movement within the country, and stable domestic conditions.''
Today, the Chinese economy is the fastest growing in the
world. While many Chinese remain poor peasants, few go hungary,
and hundreds of millions of Chinese have seen their lives
improved substantially through economic reform. Many enjoy
greater material wealth and a greater degree of personal
economic freedom. Market reform is the single most powerful
force for positive change in China this century, and possibly
in that country's long history. The recent economic progress,
which has significantly improved living conditions in China, is
a profound moral victory. Fostering further positive change is
a moral imperative as well.
As reported in the New York Times (March 4, 1997), Zhu
Wenjun, a Chinese women living outside Shanghai, has seen her
life improve dramatically due to economic reform. Ms. Zhu, 45,
quit a teaching job earning $25 a month and works for a company
that exports toys and garments and earns $360 a month. ``It
used to be that when you became a teacher, you were a teacher
for life,'' Ms. Zhu was quoted as saying. ``Now you can switch
jobs. Now I am talking with people overseas and thinking about
economic issues.''
Economic reform in China has helped to lift hundreds of
millions of hard working people from desperate poverty, giving
them choice and opportunities never available before. Hundreds
of millions of Chinese have access to information and contact
with Western values through technologies spreading across the
country, thanks to economic reform and the growth it created.
This is a tremendous victory for human freedom. Only 30 years
ago, the overriding concern of many Chinese mothers was to keep
their children from starving to death. Today, many are like Ms.
Zhu. Asked about the downside of her modern life, she
responded: ``My son is 18, and he is so spoiled. He only wants
to wear designer brands.''
Americans are justified in their outrage over the Chinese
Government's policy restricting families to just one child.
This has led many Chinese families to abort female babies in
hopes of having a son. Here again, moral outrage and economic
sanctions will not be enough to end this violation of basic
human rights.
The New York Times reported another encouraging story from
inside China that shows how economic reform undermines
repression, including China's one-child policy. Ye Xiuying is a
26-year old Chinese woman who runs a small clock shop in
Dongguan, a small town in Guangdong Province. Through her own
entrepreneurial spirit and energy, she rose from a $35 per
month factory job to running her own business and earning up to
$1,200 a month. Along with buying a home and looking forward to
traveling to the United States, Ms. Ye used $1,800 to pay the
one-time government fine so that she could have a second child.
``I wanted a girl,'' she said. ``I already had a boy.''
The hopeful stories of Ms. Zhu and Ms. Ye have been
repeated hundreds of millions of times across China over the
past 15 years. That is why Nicholas Kristoff, former New York
Times Beijing Bureau Chief, said, ``Talk to Chinese peasants,
workers and intellectuals and on one subject you get virtual
unanimity: Don't curb trade.''
The Chinese people are learning first-hand a great truth of
the late 20th Century: that market-oriented reforms promote
private enterprise, which encourages trade, which creates
wealth, which improves living standards, which undermines
political repression.
While full political freedom for the Chinese people may be
decades away, there are other hopeful signs of change. Today,
500 million Chinese peasant farmers experience local democracy,
voting in competitive village elections where of winners are
not communist candidates. The Chinese Government is also
recognizing that the rule of law is a necessary underpinning of
a true market economy. Furthermore, the Chinese media, while
strictly censored, is increasingly outside the control of the
party and the state. In particular, the spread of
communications technology throughout China, including
telephones, fax machines, computers, the Internet, satellites
and television, is weakening the state's grip on information.
The evidence that market reforms are the main engine
driving improved human rights in China is mirrored around the
globe. South Korea, Taiwan, Chile and Argentina all broke the
chains of authoritarian dictatorship and political repression
over the past 25 years primarily because their respective
governments adopted market-based economic reforms. As a result,
each country grew wealthier and more open, and each eventually
evolved into democracies.
The cause of human freedom advanced in those instances
where the United States did not employ economic sanctions
against dictatorships. In contrast, decades of American
economic sanctions against Iran, Iraq, Libya and Cuba, while
merited on national security grounds, have only led to greater
economic and political repression.
The real-world failure of economic sanctions to result in
human rights gains has left proponents of sanctions groping for
new arguments. The argument du jour is that China is our next
Cold War adversary, and since the United States used trade
sanctions against the Soviet Union in a successful Cold War
campaign, the same strategy should be applied to China.
This line of thinking is fundamentally flawed. A Cold War
with China is unthinkable absent the support of our
international allies, and the simple reality is that a Cold War
strategy would garner no support. During the Cold War with the
Soviet Union, the world's democracies by and large saw an
aggressive military opponent bent on undermining democracy
around the world. Today, China is not viewed as a similar
threat to democracy, nor to international peace and security.
China's neighbors, while concerned with that country's
evolution as a major economic and political power, do not
advocate Cold War style confrontation. Our closest allies in
Asia (Japan, Korea, Australia, Thailand) strongly oppose
economic warfare with China. They see economic reform as a
precondition to peace and security in the region.
The unwillingness of our allies to join us in a crusade
against China is based largely on the fact that China has not
earned international enmity. The Soviet Union conquered its
neighbors in Eastern Europe, imposing puppet regimes on
previously independent countries. They invaded Afghanistan and
instigated violent insurrections throughout Africa, Latin
America and Asia. The Soviet Union earned the Reagan label
``Evil Empire.'' Chinese foreign policy, even with its
distressing proliferation policies, is in a different league
altogether.
Imposing economic sanctions on China would throw away the
real progress of the past 15 years and send 1.2 billion people
to the darkest days of Maoism. When Ronald Reagan called on
Mikhail Gorbachev to ``tear down that wall,'' he demanded
freedom for Eastern E of trade sanctions against China, which
attempt to erect new walls around the Chinese people.
Economic sanctions, especially when imposed unilaterally,
are not an effective tool to promote human rights. Economic
sanctions against China would undermine the market reforms that
have been the single most powerful force for positive change in
that country. They could shatter the hopes and dreams of 20
percent of the human race seeking to rise above the poverty and
oppression that has been a staple of Chinese history.
Therefore, I look forward to the Ways & Means Committee again
rejecting proposals to use trade sanctions against China in the
name of human rights.
Chairman Crane. Thank you.
Now, Mr. Levin.
STATEMENT OF HON. SANDER M. LEVIN, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF MICHIGAN
Mr. Levin. Thank you. Glad to be with all my colleagues on
Ways and Means.
We have not had, in this country, coherent and consistent
policies toward China. We no longer have the luxury of not
having such policies, and my feeling is this: We don't need a
signal, we need a clear set of policies.
As we derive them, let me suggest the following: First,
don't varnish the truth. China's record on human rights is
appalling. Its economic policies are increasingly troublesome,
as are its military policies.
Second, don't assume that natural processes will cure
everything. True, in many cases free markets bring other
freedoms. But look at Singapore, for example: It has not
happened there or in Malaysia. Also, Hong Kong seems to be
moving in the opposite direction.
What we need is a clear set of policies which will
effectively apply external pressures to internal ones. I voted
for conditioning MFN in 1993 because I thought it might create
such pressures. But it turns out it was not an effective
policy. In the economic sphere, for example, when the United
States is the only nation confronting China economically,
entrepreneurs from other nations simply rush in to fill the
void. In contrast, the boycott of South Africa worked because
it was comprehensive. So what we need is a program--an
effective, operative set of policies.
With respect to human rights, there is going to be a
meeting of the G-7 in Denver this week. We should confront our
allies there to join in the effort to pressure China on human
rights.
I want to focus, if I might, on the economic sector. In the
decades before this one, competition was mainly between
industrialized nations, between the United States, the European
Community, and Japan. We had similar economic structures so the
emphasis was on cutting tariffs, and then on market access.
But in the last several years, increasingly the competition
has been between industrialized and industrializing nations.
And this has occurred at the same time that wage stagnation and
a striking growth in income inequality has occurred in this
country.
So, a basic economic question is this: What is the
connection between this changing context of international trade
and the economic challenges here at home? I suggest we need to
confront this, and generally we have failed to do this.
There are some glimmers of hope. Recently, for example, a
Harvard professor, unlike many of his colleagues, said this:
``A cornerstone of traditional trade theory is that trade with
labor-abundant countries reduces real wages in rich countries
or increases unemployment if wages are artificially fixed. So
if expanded trade has been a source of many of the good things
in advanced industrial economies in the past decades, one is
forced to presume that trade also has had many of the negative
consequences that its opponents have alleged.'' We need to face
this issue.
When I was with colleagues in Shanghai a few months ago, we
saw a new auto parts factory. For the first few years most of
the content is going to come from the United States, but 4 or 5
years from now, as China enforces its domestic content law and
its technology transfer, this is going to change.
These are not, colleagues, social issues as the Speaker
once said. These don't mainly involve labor rights, in the
sense that we are worried about the ability of people in other
countries to organize, as a matter of altruism. This is not a
question of imposing our notion of labor markets and related
issues on other countries. That is, after all, what the IMF,
International Monetary Fund, and the WTO, World Trade
Organization, are all about. So we need to face this issue.
To what extent is this changing pattern of international
trade a downward pressure on the American standard of living?
Most economists, up to now, have said this is mostly the result
of technological change or internal institutional factors. They
allocate only about one-fifth of the phenomenon to
international trade and very little, if any, to trade
agreements.
But I think that ducks the issue. It ducks the issue in
fast track, and it ducks the issue when it comes to China's
World Trade Organization, accession.
I sum it up this way, and I feel deeply about it: I am for
meeting these issues head on. We can only do that in the
context of fast track and WTO accession. We cannot do it
through a revocation of MFN. So, for this and other reasons
stated earlier, I will support MFN. But at the same time, I
will work with others to get the administration to confront
these key economic issues, the media to shine light on them,
and Congress to play a central role in addressing them as we
take up fast track and WTO accession.
The danger is that, after this next spasm of debate over
MFN, our Nation will fall back quickly into the polarization
that has marked trade issues for decades. Instead of real
debate, there would be an easy, reflexive choosing up of sides
on the issues of fast track and WTO accession. American
families, workers, and businesses deserve better than this from
their leaders.
[The prepared statement follows:]
Statement of Hon. Sander M. Levin, a Representative in Congress from
the State of Michigan
Thank you, Mr. Chairman and my colleagues, for giving me
this opportunity to testify about the renewal of Most Favored
Nation trade status for China.
China has emerged in the last decade with dramatically
increased economic strength, and its military and strategic
position has waxed while that of the former Soviet Union waned.
As a result, the relationship between the U.S. and China has
been marked by heightened significance, urgency and complexity.
It has happened so rapidly that it is somewhat
understandable that our nation has not had coherent, consistent
policies toward China.
Events now leave us with no choice but to develop such
policies.
As we do so, I urge that we avoid several dangerous
temptations.
1. Don't Varnish the Truth
The facts seem clear. China's human rights record is
appalling; it snuffs out all dissent and is moving to destroy
an entire culture in Tibet and curtail many religious
activities. Its economic policies have grown increasingly
troublesome; China's trade surplus with the U.S. has been
mushrooming, overtaking Japan's, as China persists like Japan
did 20 years ago in sometimes talking about the international
rules of the games but practicing under its own game rules. Its
military policies raise disquieting worries about the deepest
of concerns: nuclear proliferation.
2. Don't Expect Time or ``Natural'' Processes To Be the Cure-All, or
Even a Palliative
Some argue that as free markets spread in China, freedom
and democracy will surely follow. Yet that hasn't happened in
Singapore or Malaysia.
Progress requires external and internal pressure. The
question is what kind of external pressure we can provide, and
whether we can apply it effectively.
If I thought that revoking MFN would achieve overall
effective results in one or more of the critical areas, I would
vote to do so. In 1993, I voted to condition MFN in order to
move the Chinese in appropriate directions. It was worth a try,
but it became clear that this approach could not achieve
results on a sustained basis. One reason is that when the U.S.
is the only nation confronting China, entrepreneurs from other
nations simply rush in to fill the void. In contrast, the
boycott of South Africa worked because it was comprehensive
among nations.
3. Don't Just Talk
China is so huge and important that effective policies are
not easy to shape. But we have often retained ineffective
policies that divert us from the search for better ones. We
have been complacent, relying on the annual MFN debate to
merely talk once a year about U.S.-China policy, when what we
need is a sustained, vigorous analysis combined with concrete
actions.
I believe we must act in the following areas.
With respect to human rights, it is overdue for the U.S. to
challenge, indeed confront our allies to join in the effort to
help create pressure for change in China. The spasmodic annual
debate in Geneva over a resolution of censure or criticism of
China is no more effective than the annual Congressional debate
over MFN. With new governments in Great Britain and France, the
U.S. should take the opportunity of the G-7 summit this week in
Denver to put China, including its human rights practices, into
the center of the agenda of free nations.
On the economic front, the problems are so compelling that
we need to look for real opportunities. I believe there are
several, but we will not seize them until we thrash out answers
to the central questions which China raises in striking
fashion.
The questions are these: Does the changing nature of
international competition--from that between industrialized
nations to that between industrialized and industrializing
nations such as China--pose serious threats as well as
opportunities for the American economy, its businesses and
workers? And, if so, what are the roles of trade and trade
agreements in this transformation, and what, if anything,
should be our policy response?
When, in earlier decades, competition was primarily between
industrialized nations--principally the U.S., Canada, Europe
and Japan--which share common economic characteristics, the
primary focus was first on cutting tariffs and later, more
controversially, on market access.
Today, competition is increasingly between industrialized
and industrializing nations--Mexico, China, India, Indonesia
and the like--which have dramatically lower wage and salary
levels and often more centrally controlled economies
characterized by government intervention in labor markets to
artificially deprive workers of wage increases even as
productivity rises.
This change in the nature of international competition has
occurred during the same period that wage stagnation and
striking growth in income inequality have prevailed in the U.S.
This has clearly been felt by the families caught in the vice.
Former presidential Chief Economic Adviser Laura D'Andrea Tyson
recently wrote that growing income inequality has become ``the
major economic challenge facing the United States.''
In the United States, the silent majority is becoming
increasingly vocal in its belief that wage stagnation at home
is related to global competition with foreign workers making
$1.25 an hour. But the usually vocal minority--including
economists and most other opinionmakers--has been relatively
quiet on this issue.
This dynamic reminds me of the debate during the last
decade about Japan trade policy. Early on, an almost solid
phalanx of economists and opinionmakers tried at every turn to
downplay any economic significance for the U.S. of the efforts
by Japan and others to close their markets to our nation's
products. Eventually, some broke ranks when the problem proved
intractable. Similarly, there have appeared some recent
breaches in the ranks on this central issue of the importance
of trade policy to wage issues.
Fred Bergsten, head of the ``free trade'' Institute for
International Economics, recently testified that ``the main
problem facing the American economy is the very slow growth of
average living standards over the past generation.'' And
Harvard professor Dani Rodrik, in a book published by IIE,
candidly recognizes that ``a cornerstone of traditional trade
theory is that trade with labor-abundant countries reduces real
wages in rich countries--or increases unemployment if wages are
artificially fixed;'' thus, ``if expanded trade has been a
source of many of the good things that advanced industrial
economies have experienced in the last few decades, one is
forced to presume that trade also had many of the negative
consequences that its opponents have alleged.''
The issue was brought home to me recently when I visited
several Big 3 auto plants in Beijing and Shanghai, China.
Today, seventy-five percent of the parts used by these plants
bear made-in-America labels. But as Beijing enforces its
domestic content restrictions and squeezes technology transfers
out of foreign investors, those auto parts increasingly will
come from China, and the resulting cars will be exported
abroad, raising the specter of job losses and business closings
in the U.S.
It is time for Congress to seriously consider and debate
these issues. So far we have not done so, but instead have
focused on labels and slogans:
In a recent letter to the president, Speaker Newt
Gingrich characterized them as ``social issues.'' But they are
hard core, bread and butter economic issues.
Others dismiss them as concerning ``labor
rights.'' But what is involved here is not some altruistic
concern about the rights of fellow workers to organize in
Mexico or China or India. What is in question is our national
interest in securing a high and rising standard of living for
our workers or smaller businesses who don't have the option of
picking up and relocating to another nation.
Some argue that we cannot ``impose'' on other
nations U.S. views about the structure of labor markets. But
the very purpose of the World Trade Organization and the
International Monetary Fund is to ``impose'' important features
of our free market system, including capital and investment
structures, on developing nations. Why not other vital features
like free labor markets?
Most of the relatively few economists who have
worked on this subject attribute downward pressure on the
American standard of living, especially for lesser skilled
workers, to technological change or to internal institutional
factors such as decreasing unionization, rather than to
competition from workers earning $1 and engineers earning $5 an
hour in developing nations. While some would allocate one-fifth
or so to the impact of growing international trade with these
low wage/salary and usually tightly controlled labor markets
and other economic structures, they conclude, with little
analysis, that trade agreements themselves do not play any such
role in depressing the American standard of living.
But these are the very issues that are really bubbling
beneath the surface in the debate over Fast Track. There is no
way to finesse the issue by some choice of ambiguous language
or new euphemism. The issue is, if anything, even more salient
in the discussions about China's accession to the WTO. But thus
far the evidence is clear that there has not been a meaningful
confrontation of these issues in the deliberations over Chinese
accession to WTO.
I am for meeting these issues head-on. We can only do that
in the context of Fast Track and WTO accession. We cannot do it
through a revocation of MFN. So for this and other reasons
stated earlier, I will support MFN. But at the same time I will
work to get the Administration to confront these key economic
issues, the media to shine the light on them, and the Congress
to play a central role addressing them as we take up Fast Track
and WTO accession.
The danger is that, after the debate over MFN, our nation
will fall back quickly into the polarization that has marked
trade issues for decades. Instead of real debate, there will be
an easy, reflexive choosing up of sides. American families
deserve better than this from their leaders.
Mr. Thomas [presiding]. I thank the gentleman from
Michigan.
The gentleman from New Jersey, Mr. Smith.
STATEMENT OF HON. CHRISTOPHER H. SMITH, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF NEW JERSEY
Mr. Smith. Thank you very much, Mr. Chairman. And I thank
the Subcommittee for the opportunity to testify.
Mr. Chairman, in January 1994, I led the second of three
congressional human rights missions to China. During that trip,
I stressed the importance of President Clinton's 1993 Executive
order, which conditioned future trade relations on significant,
substantial progress in a number of human rights areas,
including the release of political prisoners and the
elimination of practices such as slave labor and the use of
torture.
In meeting after meeting, I told the Chinese officials that
they had better improve their dismal human rights record or
face the economic consequences. They told me rather derisively,
dismissively, and candidly that they were not worried at all.
The fix was in: Mr. Clinton was bluffing, and they were
supremely confident that Clinton would back down and MFN would
be renewed for another year.
As it turned out, I was wrong and the Communists were right
in their assessment of the administration. President Clinton's
notorious delinking of most-favored-nation status--after all
the fanfare of linking it to human rights in 1994--was, in my
view, the most egregious example of a broader policy in which
the U.S. Government has brought about an almost total delinking
of human rights from other foreign policy concerns. As a matter
of fact, Amnesty International testified before my Subcommittee
on International Operations and Human Rights and said that with
this administration, human rights is an island completely
adrift and separated from all other policies, like economic
policy.
Although the current administration began by justly
criticizing its predecessors for subordinating human rights to
other concerns in China and elsewhere--candidate Clinton called
it coddling dictators--the Clinton administration has ended up
coddling dictators as few have coddled before.
Apologists for Beijing claim that the policy that they call
strategic or constructive engagement will encourage the Chinese
Government to allow greater freedoms for its citizens and
protect U.S. interests in China. However, as my Subcommittee on
International Operations and Human Rights has heard time and
time again--we had six hearings on this subject in this last
Congress--the evidence is to the contrary. While increased
contact with the West has changed China's economic system to
some degree, it has not increased that regime's respect for
fundamental human rights.
Since the delinking of MFN from human rights, conditions
have significantly regressed. They have gotten worse in every
area, in every category. Today in China there are more
political prisoners; there are more summary executions; there
are more forced abortions and forced sterilizations; there are
more priests, pastors, and Buddhist monks in prison for their
faith; there is a more brutal regime in Tibet; there are
tighter controls on political and religious expression; and
there are more dissidents used as slave labor for export
production than back in 1994.
The State Department's human rights report for 1996
reflects the remarkable end result of a policy which fails to
seriously address human rights concerns. According to the State
Department, in the last year, ``All public dissent against the
party and government was effectively silenced by intimidation,
exile, the imposition of prison terms, administrative
detention, or house arrest. No dissidents were known to be
active at year's end.'' In other words, engagement has failed
beyond our wildest expectations; dissent has not just been
stifled, it has been silenced altogether.
Ironically, the engagement policy has not only aggravated
the human rights situation, it has also injured the very
strategic trade interests it was intended to advance. Beijing
now regards the U.S. Government as a paper tiger, not only on
human rights but on everything else. The Clinton administration
has endured one humiliation after another, backing down time
and again, not only on human rights but threatened sanctions on
nuclear proliferation and trade.
The most recent embarrassment came in December 1996 when
the Clinton administration hosted Chinese Defense Minister Chi
Haotian, the architect of the 1986 Tiananmen Square massacre.
General Chi was accorded full military honors at the Pentagon;
met with the President in the Oval Office; was given access to
the U.S. military installations, including the Sandia Nuclear
Research Facility; and addressed U.S. military officers at the
National Defense University. During that speech, General
Haotian revealed his true colors and made the most outrageous
assertion possible when he said no one died in Tiananmen
Square.
In fairness, not all of the blame for this sharp departure
away from human rights and toward an amoral foreign policy
falls on the Clinton administration. Our government has been
embroiled in a 25-year one-way love affair with the Communist
dictatorship in Beijing. The very forces that influenced the
Clinton administration to do the wrong thing--short-sighted
business executives who put short-term profits ahead of
enduring values and career diplomats who think their job is to
deal with tyrannical regimes on whatever terms possible--are
actively engaged in trying to influence the Congress on the
question of MFN.
Whenever those of us who work for human rights begin
talking about the need to impose sanctions to discourage
Chinese repression, those forces respond with a lecture on the
need for constructive engagement. But when their own interests
are threatened--for instance, by CD and software piracy--they
don't place their faith in the hope that continued openness and
exposure to American values will convince the Chinese
dictatorship to change their ways. Instead, they work for
serious, tangible economic sanctions against the Chinese
Government.
I happen to think that they are right. Whatever else the
Chinese and Beijing dictatorships may be, they are not stupid.
But if economic sanctions are a tool in the war against
software piracy, then why not in the war against torture? Why
not in the war against religious and political persecution,
against forced abortions, against slave labor to produce goods
for export?
To those interests that urge MFN status for the Chinese
regime, we must ask: Where do you draw the line? Are there any
human rights violations so loathsome, any pattern of violation
so clear and strong that you would stop doing business tomorrow
with a regime that perpetrated them? How many more forced
abortions? How many more dying rooms especially for baby girls
and the handicapped? How many more arrests and trials and
convictions of brave and innocent people like Wei Jingsheng and
Harry Wu? How much longer does Beijing have to continue its
brutal occupation of the nation of Tibet and its suppression of
Tibetan Buddhism, its persecution of evangelical Christians for
worshipping outside of the State church or Catholics for
believing that their church is headed by the Pope rather than a
group of Communists who are part of a bureaucracy? I have yet
to hear a good-faith answer to that question.
Let me conclude, Mr. Chairman, by saying that the
administration's current policy--which has been best described
as aggressive appeasement of Chinese dictators--suggests that
America's historic thirst for liberty and justice has been
replaced by a base hunger for cheap electronics and inexpensive
consumer goods. It is a humanitarian disaster that has resulted
in the imprisonment, torture, and death of thousands of
Chinese; the absence of political and religious liberties; and
the proliferation of nuclear materials and technologies to
rogue regimes. Meanwhile, our trade deficit with China will
soon exceed $50 billion.
The time has come for a new Chinese policy which includes a
credible threat of trade sanctions. MFN for Beijing is just too
expensive, not only for American interests but, above all, for
American values.
I thank the Chair, and yield back.
[The prepared statement follows:]
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Chairman Crane. Ms. Pelosi.
STATEMENT OF HON. NANCY PELOSI, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF CALIFORNIA
Ms. Pelosi. Thank you very much, Mr. Chairman. I, too,
thank you for accommodating to the schedules of Members so that
we could participate this morning and to Members of the
Subcommittee as well.
Mr. Chairman, this is a very important debate and a very
important relationship, the U.S.-China relationship. I agree
with my colleague, Mr. Levin, when he says the problem is that
we really do not have a policy, a U.S.-China policy that
matches the challenge that is there. And I look forward to
working with him on where we go from here after this vote takes
place. But I think it is very important that we have this
debate because it enables us to give lie to some of the
representations that are made about U.S.-China trade.
As you know, three of the pillars of our foreign policy are
to stop the proliferation of weapons of mass destruction, to
promote our economy through U.S. exports, and to promote
democratic freedoms. Indeed, these are three of the areas of
concern in the U.S.-China relationship because the U.S.-China
policy today does not further those goals, those pillars of our
foreign policy.
Certainly we must have engagement with China, but the so-
called constructive engagement of the Clinton administration is
neither constructive nor true engagement in a two-way exchange.
I, instead, call upon sustainable engagement, an engagement
that enables us to sustain our principles, sustain our economy,
and sustain the international security in the world.
My colleagues and, most recently, Mr. Smith have put on the
record some of the human rights concerns that we have. Mr.
Chairman, with your permission, I would like to submit for the
record a couple of statements: One from the China Strategic
Institute, one from the International Fellowship of Christians
and Jews, and one from the International Campaign for Tibet.
These describe the human rights situation and the repression
and religious persecution that exist in China today.
My colleague has already mentioned the State Department
country report which documents those abuses: That all public
dissent against the party and government has been effectively
silenced by intimidation, exile, and the imposition of prison
terms. I would like to place that in the record as well.
Chairman Crane. Without objection. So ordered.
Ms. Pelosi. Thank you, Mr. Chairman.
On the subject of proliferation, I will be brief because
the time is short. Mr. Solomon mentioned that there was a
report in the paper this morning, and here it is. Secretary
Cohen says that this month Iran successfully tested a new air-
launched antiship cruise missile obtained from China. I would
like to submit the Office of Naval Intelligence March 1997
statement for the record as well, which says discoveries after
the gulf war clearly indicate that Iraq maintained an
aggressive weapons-of-mass-destruction procurement program.
A similar situation exists today in Iran with a steady flow
of materials and technologies from China to Iran. This exchange
is one of the most active weapons-of-mass-destruction programs
in the Third World, and is taking place in a region of great
strategic interest to the United States.
You know of some of the other concerns we have--the
proliferation of weapons-of-mass-destruction technology to Iran
and the proliferation of missile technology to an unsafeguarded
country like Pakistan. This proliferation threatens our
national security, especially in the Middle East where we spend
billions of dollars on Mideast peace. We are sitting back and
watching China help arm Iran in a very dangerous way.
But since this is a Subcommittee about taxes, taxation, and
tariffs I want to spend most of my time on the issues of trade
and jobs.
You will hear that MFN is important for U.S. jobs and for
our economy. This argument is an out-and-out hoax in terms of
jobs in the United States, in terms of market access for U.S.
goods, and in terms of the long-term health of our economy.
Less than 2 percent of our exports are allowed into China,
while over a third of China's exports come to the United
States. For the last 10 years, proponents of the MFN will say,
China's exports grew--U.S. exports to China grew 3 times but
China's exports to the United States grew 13 times. U.S.
exports to China didn't even reach $12 billion last year--an
increase of only $200 million from the year before--where
China's exports to the United States will grow to over $50
billion, an increase of $6 billion.
This will be the year when the trade deficit will exceed
$50 billion with China--a country which refuses market access
to most products made in America, which continues to pirate our
intellectual property despite the agreement, which insists and
demands technology transfer in order for U.S. companies to
access the Chinese market. If a country of this size and an
economy of this size refuses to play by the rules, it can have
a very detrimental effect on the U.S. economy and,
unfortunately, will.
Proponents of MFN will say that 170,000 jobs depend on
U.S.-China trade; that is a significant number, but by no means
the appropriate number for a trade relationship that large. In
1995, it was 150,000; the year before it was 150,000. In 1993,
it was 150,000--this is out of a U.S. economy of almost 128
million jobs. So where are these jobs in the U.S.-China
relationship? Jobs supported by U.S.-China trade equal only
one-eighth of 1 percent, as indicated earlier, of all U.S.
jobs.
In the interest of time I am just going to, Mr. Chairman,
refer you to a couple of quotes of businesspeople who advocate
MFN for China. The manager of Hewlett Packard's Beijing-based
subsidiary said--this is in yesterday's Washington Post--``Over
time, the use of normal American suppliers will be turned
off.'' Mr. Levin referenced an article titled ``Made in China
Takes a Great Leap Forward as Experts Turn High-Tech'' when he
said that in the beginning some jobs are created, but as soon
as the technology is transferred and the production is
completely transferred, U.S. jobs will disappear. This should
be of concern, and I think it must be of concern to this
Subcommittee.
In terms of intellectual property, pirated CDs produced in
China have been seized in Asia, North and South America, the
Middle East, and Eastern and Western Europe. It is estimated
that 97 percent of the entertainment software available in
China is counterfeit. Again, my statement for the record will
go into that more fully.
It is said that it would cost the American consumer $590
million if MFN were revoked. That cost equals 0.9 percent, less
than 1 percent of the total U.S.-China trade relationship of
$63 billion for last year. It adds up to $2 per American per
year.
Just in closing, Mr. Chairman, I want to refer you to a
statement of the president of Boeing. In a promotional film
Boeing produced to sell planes to China called ``China and
Boeing Working Together,'' he said that many parts of Boeing
aircraft that fly around the world--not just for China--``bear
the stamp Made in China. Every Boeing airplane that travels to
China is simply coming home.''
Then, in terms of the administration's policy, just last
month Commerce's then-Under Secretary for Economic Affairs
Everett Ehrlich stated, ``China remains the only market in the
world where U.S. exports are not growing in the long-term.''
So when people say that we want to substitute human rights
for jobs, let's get the record straight on the jobs issue:
U.S.-China trade is a job-loser for most products made in
America. I come from an area built on trade. I have supported
GATT and NAFTA, and I even supported President Bush's veto of
the textile bill, and I believe that the new economy should be
about creating jobs, not protecting them.
But somebody has to draw the line in terms of the unfair
trade practices that China continues and insists on engaging
in. The administration is not getting the message that
promoting U.S. exports means promoting U.S. exports, not
promoting profits for some exporting elites at the expense of
most products made in America.
In closing, I would say that, yes, 170,000 jobs is an
important number of jobs but not enough in the relationship.
There are reasons why people will say that we should not
criticize China. Well, I think this is a very healthy debate,
and I would say that the mitigating arguments that people make
about China by no means offset the aggregating factors about
our not being able to live up to our principles.
Let's have sustainable engagement, sustain our principles
of democratic freedom, sustain our economy, sustain
international security. Let's have a policy that we judge as to
whether it makes the trade fairer, the people freer, and the
world safer.
And with that, Mr. Chairman, I thank you once again for
your hospitality this morning and submit the rest of my
statement for the record. Thank you.
[The prepared statement and attachments follow:]
Statement of Hon. Nancy Pelosi, a Representative in Congress from the
State of California
Mr. Chairman and Members of the Subcommittee, thank you for
the opportunity to testify on the President's request to grant
Most Favored Nation (MFN) status to China. As we are all
acutely aware, granting unconditional MFN to China is a
contentious decision. Indeed, by a margin of 67% to 27%, the
American people believe that China should improve human rights
or lose its current trade status (Wall Street Journal/NBC Hart
& Teeter poll, May 2, 1997). It is critical that the issues in
the U.S.-China relationship receive a full and open public
airing.
I will start by saying that we all agree that the U.S.-
China relationship is an important one and that we want a
brilliant future with China, diplomatically, politically,
economically and culturally. However, the Administration's
policy of so-called constructive engagement is neither
constructive nor true engagement.
President Clinton has said that promoting democratic
freedoms, stopping the proliferation of weapons of mass
destruction and promoting U.S. exports are pillars of our
foreign policy. Indeed, since the Tiananmen Square massacre of
1989, concern in Congress about the U.S.-China relationship has
focused on these three areas: China's violations of our trade
agreements, proliferation of weapons of mass destruction, and
human rights abuses. In each of these important areas the
Administration's policy of so-called ``constructive
engagement'' has not succeeded. In fact, there has been marked
deterioration, not improvement, under the Administration's
policy.
Since the main topic of this hearing is trade, I will focus
my remarks on trade, and will submit a longer statement for the
record.
Trade
The current trade relationship, characterized by barriers
to U.S. goods and services, piracy of U.S. intellectual
property, and China's demand for technology and production
transfer, is of grave concern and is unsustainable for our
economy. The U.S. deficit with China has steeply climbed from
$3 billion at the time of the Tiananmen Square massacre in 1989
to over $50 billion projected for 1997.
You will hear that MFN is important for U.S. jobs and for
our economy. This argument is an out and out hoax in terms of
jobs in the U.S., in terms of market access for U.S. goods and
services, and in terms of the long-term health of our economy.
Less than 2% of U.S. exports are allowed into China, while
over 33% of China's exports come to the United States. From
1985 to 1996, U.S. exports to China grew three times, while
imports from China grew 13 times. Last year, U.S. exports to
China totaled $11.9 billion, an increase of only $200 million
from the year before. At the same time, U.S. imports from China
totaled $51.4 billion, an increase of $6 billion over 1995. We
should be gravely concerned about the lopsided ratio of imports
to exports in the status quo. The ratio of U.S. imports to
exports with China is 4.3 to 1. With Japan, the country with
which we have the largest trade deficit, the ratio of imports
to exports is only 1.7 to 1.
China's high tariffs and non-tariff barriers continue to
limit access to the Chinese market for most U.S. goods and
services, despite the Chinese government's promise to open
markets under the 1992 Market Access Memorandum of
Understanding. Even the Administration acknowledges this
problem. Just last month, then-Undersecretary of Commerce
Everett Ehrlich stated, ``China remains the only market in the
world where U.S. exports are not growing in the long-term.''
You will hear that MFN is important for U.S. jobs. This
year, President Clinton stated that trade with China supports
170,000 U.S. jobs. That is the exact same number of jobs he
cited last year. In 1995, it was 150,000; in 1994, it was
150,000; in 1993, it was 150,000. This is out of an economy
with 127,850,000 employed Americans. Jobs supported by U.S.-
China trade equal only one-eighth of one percent (.13 percent)
of all U.S. jobs. In California alone, we need to create 40,000
new jobs a month to sustain our economy. Where is the job
growth from the status quo in U.S.-China trade?
U.S. jobs are being lost through the Chinese government's
practice of requiring technology and production transfer. The
Chinese government is carefully and calculatedly building its
own economic future by acquiring U.S. technological expertise.
It allows into China only the goods it wants, and then through
mandatory certification of the technology by Chinese research
and design institutes, the technology is disseminated to
Chinese domestic ventures. While this may benefit a handful of
U.S. companies in their efforts to enter the Chinese market, it
will not benefit the U.S. workers who are left behind as
companies lose their own market share by surrendering their own
technology.
As a condition of doing business in China, U.S. companies
are often required to agree to export 70-80% of what they
produce there. This, too, translates into lost jobs here in the
United States. You will hear that the Chinese are producing
only low-value, low technology products, so we shouldn't worry.
This, too, is not true. In the realm of intellectual property
piracy, for example, the Chinese are moving beyond music CDs
and into entertainment and business software, which is high-
value. The Chinese government is intentionally targeting high-
value, high technology products made in the U.S., appropriating
our technology, and producing for export. Sometimes, U.S.
companies are intentionally helping them, sometimes they have
no choice but to do so. No U.S. jobs are created in a trend
summed up by Ken Lodge, manager of Hewlett-Packard's Beijing-
based subsidiary, when he said, ``Over time, the (use of) North
American suppliers will be turned off.'' (Washington Post,
```Made in China' Takes Great Leap Forward as Exports Turn
High-Tech.,'' June 15, 1997).
Experts tell us that our intellectual property is our
competitive advantage in the global economy. Despite the 1995
and 1996 Intellectual Property Rights agreements, piracy of
U.S. software and CDs continues in China at an alarming level.
Pirated CDs produced in China have been seized in Asia, North
and South America, the Middle East, and Eastern and Western
Europe. It is estimated that 97% of the entertainment software
available in China is counterfeit. It is interesting that,
since the 1996 agreement, Chinese capacity to produce pirated
product has increased dramatically. In fact, in 1996, despite
the agreements, that piracy cost our economy over $2.3 billion.
I would also like to address the arguments of those who say
that revoking MFN would dramatically increase cost to U.S.
consumers. The proponents of this argument say that it will
cost consumers $590 million if MFN were revoked. This cost
estimate equals 0.93%--less than one percent--of the total
U.S.-China trade relationship of $63.5 billion. It adds up to
about $2 per American per year.
And, we are told in this debate, that jobs making products
now made in China would not be returned to the United States if
MFN were revoked--those jobs would simply move to other low-
cost countries. If that is the case, why do people argue that
the cost to the consumer would soar, since production would
likely to shift to countries like Cambodia and Vietnam, where
cost of production is even lower than in China?
It is time, I believe, to redefine the terms of our debate
and of our engagement. Rather than so-called ``constructive''
engagement, from which we have yet to see anything
constructive, I believe we should institute a policy of
``sustainable engagement.'' This shift is rooted in the
knowledge that we cannot as a nation sustain the status quo in
the U.S.-China relationship in terms of trade, principle, or
proliferation. Indeed the current policy is not serving U.S.
interests.
On the economic front, the status quo is clearly not
sustainable. Instead of continuing to tolerate the enormous
trade deficit which is projected to reach $50 billion in 1997,
we must use the tools at our disposal to insist on market
access.
Sustainability in the trade relationship is best achieved
by insisting that China's admission to the WTO be based on
commercial terms consistent with its impact as an economic
giant. Sustainable engagement does not include permanent MFN.
Why would the U.S. give China what it wants most--permanent
MFN--unless and until China complies with WTO obligations?
Sustainable engagement must include an end to the demands
by China for the surrender by U.S. companies of their
technology if U.S. companies wish to manufacture or market
their goods in China. That technology and other U.S.
intellectual property is our competitive advantage in the
global economy.
If China, with its rapid economic growth and its size, is
not willing to play by the rules and a sense of fairness in the
areas of market access, intellectual property and technology
transfer, then the U.S. economy will suffer enormously from the
relationship. American workers will pay a big price for our
appeasing China economically for a profit for a few companies,
many of whom do not even see themselves as American. I would
call your attention to the comments of Philip Condit, CEO of
Boeing in a March 12 interview with the Financial Times when he
said that he would be happy if in twenty years people did not
think of Boeing as an American company at all. And, in a
marketing tape called, ``China and Boeing Working Together, ``
Mr. Condit says, ``Many parts of Boeing aircraft that fly
around the world bear the stamp 'Made in China'...Every Boeing
airplane that travels to China is simply coming home.''
I come to this debate as a Representative of an area built
on trade. I have supported NAFTA and GATT, and voted to sustain
President Bush's veto of the textile bill. I subscribe to the
proposition that the new economy must create jobs, not protect
them. However, I believe that our economy is threatened by the
unfair trade practices of a giant trading partner whose
economic success depends on its access to our markets but which
refuses to play by the rules.
Proliferation
In the area of proliferation, too, the Administration's
policy of so-called constructive engagement is not sustainable.
China continues to transfer nuclear, advanced missile, chemical
and biological weapons technology to rogue nations like Iran
and non-safeguarded nations like Pakistan and the U.S.
continues to ignore these transfers.
Debate about the Chinese government's increased
militarization has focused primarily on regional security
concerns. While this question may have serious national
security implications for the future, China's transfer of
weapons and technology of mass destruction to rogue nations
like Iran or non-safeguarded countries like Pakistan has
immediate implications. These activities threaten to
destabilize other regions of the world. The US spends billions
of dollars a year to promote Middle East peace. Iran is a
threat to that peace and a threat to Israel. We cannot continue
to turn a blind eye to China's transfer of dangerous technology
into the region.
Human Rights
I urge your serious attention to the State Department's own
Country Reports on Human Rights for 1996, released in January
1997, which contains an excellent description of the current
state of human rights in China. I would draw your attention
particularly to the statements in that Report that,
``The (Chinese) Government continued to commit widespread
and well-documented human rights abuses, in violation of
internationally accepted norms, stemming from the authorities'
intolerance of dissent, fear of unrest, and the absence or
inadequacy of laws protecting basic freedoms.'' and ``Overall
in 1996, the authorities stepped up efforts to cut off
expressions of protest or criticism. All public dissent against
the party and government was effectively silenced by
intimidation, exile, the imposition of prison terms,
administrative detention, or house arrest. No dissidents were
known to be active at year's end. Even those released from
prison were kept under tight surveillance and often prevented
from taking employment or otherwise resuming a normal life.''
Since the State Department report was released in February,
additional information has been provided to Congress about the
Chinese government's repression of basic freedoms and human
rights, including: the increased persecution of evangelical
Protestants and Roman Catholics in China who choose to worship
independently of the government sanctioned and controlled
church; forcibly closing and sometimes destroying ``house
churches'' and harassing and imprisoning religious leaders; the
increased campaign of repression of the religion, people and
culture of Tibet; the threat to currently-existing democratic
freedoms in Hong Kong. The takeover of Hong Kong by China is
scheduled for July 1, 1997. Already, the Chinese government has
moved to disband Hong Kong's democratically elected legislature
and to repeal its bill of rights; and; the control of the free
flow of information, including restricting access to and use of
the Internet and restricting basic economic and business data.
Those who espouse the current policy of so-called
constructive engagement characterize those who disagree with
them as advocating containment. I take issue with that
characterization. I believe that the current U.S.-China policy
is a policy of containment. By following a policy which
bolsters the Chinese government, the United States is actually
supporting the containment of the Chinese people, their hopes
and aspirations. China's authoritarian rulers are engaged in
active containment of the thoughts, beliefs, and statements of
its population because full engagement by the Chinese people
with the outside world is a direct threat to their hold on
power.
The Administration's policy not only has not worked, but it
also cannot be sustained. Of course we need engagement, but the
engagement must be real and must allow us to sustain the
strength of both economies, to sustain the safety of the world
and to sustain our principles.
Because China's economic growth depends on its access to
our market, we have leverage with the MFN vote to send a
message to the Chinese regime and also to the Clinton
Administration that the status quo is not acceptable.
Our vote on this issue is an important one to make trade
fairer, people freer and the world safer. I urge my colleagues
to vote against MFN for China.
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Chairman Crane. Thank you, Ms. Pelosi.
Mr. Matsui.
Mr. Matsui. Thank you, Mr. Chairman.
I would only like to make an observation. I don't want to
question any of the four witnesses. And I appreciate their
points of view and the fact that they have all showed up to
testify today.
But I think our problem is--and Mr. Smith said it
correctly--that in 1993, when he went to China, the Chinese
didn't believe that there would be revocation of MFN status.
And I think almost every commentator in this country and
certainly almost everybody who followed this issue realized
that MFN would not be revoked. As a result of that, it lost its
leverage; there was really no leverage in that respect and that
has been the problem.
And the problem with this debate today is the fact that we
might all agree on the issues that you are raising--the human
rights issue, the forced abortions, the issue of Taiwan, the
issue of Tibet. We might agree on every one of those issues
but, unfortunately, because the debate is on MFN, it comes down
to an economic issue, and that is exactly the wrong issue we
should be talking with the Chinese about. We make it appear
that their market is too important for us to lose. It makes it
harder for the President and the U.S. Trade Representative,
USTR, and harder for the Secretary of State and others to then
argue and negotiate with the Chinese on issues of vital
importance.
Somehow we have to move this debate from a trade debate and
an MFN debate on human rights to a debate on those issues that
all of us, I think, are concerned with. Because the reality is
that, yes, we need to try, to the extent possible, to have the
Chinese move in the direction where the free world is and some
of the Latin American democracies are moving to. But this
debate is not a healthy debate at this particular time and the
tie-in particularly to MFN status, trade status.
Mr. Smith, you appeared to want to--and Mr. Dreier as
well--I didn't expect this, but that is fine.
Mr. Smith. I do. I thank you for yielding. The real reason
why, in 1993 and 1994, the Chinese Government didn't take the
threats seriously is that throughout that entire year, if you
will recall, the administration sent one mixed signal after
another. Various spokesmen and spokeswomen from the
administration said one thing while others said another. As a
matter of fact, Secretary Warren Christopher, in a rather
hurried way, was dispatched--as a matter of fact, he followed
my trip by weeks--to lay down the law to the Chinese
dictatorship that we meant business, that the President's word
was his bond.
The problem was Mr. Clinton's sincerity. And I say that
with all respect. When you say something, when you bluff--you
should never bluff but when you say, This is a condition--mean
it and the world is your oyster. Don't mean it, and these are
the repercussions that you will have to endure. So that was
first: We lost terribly, I believe, in the eyes of
dictatorships around the world--not just in Beijing--when Mr.
Clinton delinked human rights with trade.
Second, trade is a very useful way of promoting human
rights. If a country will not respect the rights of its own
citizenry, why would we believe them on contract law or on
intellectual property? And, as my good friend and colleague Ms.
Pelosi said a moment ago, they are violating those kinds of
contracts with impunity. When it serves them, they will destroy
some pirated disks and make a big show of trying to comply with
intellectual property rights. But the bottom line is that when
it doesn't serve them, when it means more profits, they do the
opposite.
Finally, on South Africa and some of the other places where
we have imposed sanctions, some say that they won't work if the
whole world community doesn't join in. I supported--throughout
the eighties, from day one when I stepped into the halls of
Congress in 1981--sanctions against South Africa and took a
view contrary to my own party on that. But let me say here, you
don't need the whole world to join in. China needs our markets
to dump their products. We have leverage; let's use it. Where
are you going to find a market to dump $60 billion worth of
goods? They do not find it in the European Community.
Mr. Matsui. Let me just say this, in terms of Secretary
Christopher: He truly believed and truly wanted to put pressure
on the Chinese. The problem was that we all knew the President
was not going to take away MFN status.
Mr. Smith. Then why say it?
Mr. Matsui. Well, we should not have said it. That was a
mistake. We shouldn't have said it. I think that destabilized,
frankly, the relationship. That created a great deal of
problems. I agree that it shouldn't have been said. And as a
result of that, it has been very difficult to try to get us
back to some kind of normalized situation. I agree with you on
that.
Let me just say something about the South Africa situation.
I was part of that. I supported the sanctions on South Africa;
I think over 320 Members did. The problem with South Africa was
that it is a very small nation. We had universal support on the
sanctions with respect to South Africa, and I remember--I
remember that debate very well. The big issue was whether or
not coin dealers were going to be hurt; that seemed to be the
biggest issue that came out of that. We were not talking about
a great economic loss to the United States if we imposed
sanctions on South Africa. If you go back and look at the
stories, it was about coins--South African coins that coin
dealers were not able to get.
Let me go back and talk about the trade deficit issue. What
we are finding is symmetry here: As China's trade deficit has
gone up, the Four Tigers' trade deficit has gone down. It is a
shift in jobs from Korea, from Taiwan, from Singapore, and from
Hong Kong. Essentially, you have seen a reduction in exports
from those countries into the United States and an increase
from China because there has been that kind of a shift in jobs.
These were not shifts in U.S. jobs.
Mr. Levin. Mr. Matsui--Mr. Chairman, if you would give me
30 seconds to respond.
Chairman Crane. Well, if you can keep it to 30 seconds.
Mr. Levin. I will. It is a mistake to take the economic
issues out of the equation. And it is not simply a shifting of
jobs from the four to China or whatever. We should not duck
those issues. MFN is the wrong forum to do it.
Mr. Matsui. We shouldn't duck those issues. You and I had
discussions on this, and I agree with you. We should look into
this issue; we should discuss this issue. But this issue--the
matter of the trade deficit with China--is primarily because
many of those textile products are being shipped from China to
the United States now, and there has been a reduction in those
textile----
Mr. Levin. In the long term, we need to confront this issue
of relations with industrializing nations, including the huge
economy of China. I think MFN is not the appropriate arena. We
have WTO and we have fast track. And on human rights, we need
to look for a policy that will work.
Mr. Matsui. Sandy, I am not disagreeing with you.
Mr. Levin. Right, I just wanted to shape the issue
correctly.
Mr. Matsui. Thank you.
Ms. Pelosi. Mr. Matsui, may I respond?
Chairman Crane. No. Mr. Thomas.
Mr. Thomas. Mr. Chairman, thank you.
Obviously, as Members discuss this with Members, we are
going to have an opportunity on the floor to do that. This is a
long hearing with a lot of folks in it and I don't want to take
a lot of time. I just want to ask two questions--one to each of
my colleagues--to indicate that perhaps it is a little more
complicated than the relatively simple black-and-white that it
is often painted in.
First, I would be asking for a relatively brief response
from my friend from New Jersey. It makes it more difficult for
me to get as worked up as some folks do about the wrongness of
this policy when you realize that it was first implemented in
1980 by a Democratic President, and between that Democratic
President and this Democratic President there were two
Republican Presidents; and unbroken in every year was the
granting of MFN to China. Most of us would think that 1997 is
not 1980 and that all the arguments that could be conjured up
for any given year probably tend to grow stronger as you go
back in years.
Does that temper the gentleman from New Jersey at all?
Mr. Smith. Well, I think we had a preoccupation with the
former Soviet Union, its proxy wars, the Contras--all of that
took eyes off of the egregious human rights abuses of the
Chinese. But it was Tiananmen Square that was the worldwide
wake-up call. And once everyone pierced that veil and began to
see what was really going on, I think we should not now look
askance and suggest that, well, maybe it is not as bad as we
thought. It is worse than what we thought.
Mr. Thomas. I thank the gentleman. And then my friend from
Michigan: I do agree with your testimony, that we need policies
and not necessarily slogans. One of the points you made was
that it is fairly obvious that within the next 5 years or so
the Chinese may begin imposing significant domestic content in
terms of the building of automobiles in China.
How significantly different is that than the domestic
content that we require in the United States for the building
of vehicles?
Mr. Levin. We don't have domestic content rules.
Mr. Thomas. I understand we deal with taxes in the way in
which domestic content is established.
Mr. Levin. We have the most open automotive market in the
world.
Mr. Thomas. There is no relationship or any aspect of our
government's tax structure dealing with the content of an
automobile, in terms of what percentage is built in the United
States? Or isn't that what the gentleman is saying?
Mr. Levin. Whatever the policy is, whether it is a luxury
tax or whatever, it is very, very small. And this is why I
think we need to look at industrializing nations like China----
Mr. Thomas. There was no battle with, for example, the
Honda Manufacturing Co. in terms of whether or not it had a
domestic content that reached a certain level based on the
subassembly of engine transmissions in vehicles in Canada or
the United States?
Mr. Levin. That was a rule that went back many, many years.
Mr. Thomas. I understand. We can get into a discussion of
United States-Mexico trade in terms of the argument that the
gentleman has made in the past about the content coming from
one country or another.
I guess the point I am trying to make briefly, because I
agree with most of the points that the gentleman made, was that
as we get into this debate and we attempt to paint very clear
lines in this debate, I hope at some point our colleagues begin
to realize that this is, in fact, very complex, very difficult,
historically complicated.
When you are dealing with all of the examples in terms of
the way in which the United States treats other countries, I
think you do have to focus on the world's most populated
country, the world's third largest economy, the country that
probably touches on more other countries than any other. None
of those should be sufficient to make a decision, but I think
all of them are necessary as we move forward.
The way in which China treats its own people is absolutely
important and significant. But as we carry out this debate, I
hope all of us listen to each other because, probably more so
than any debate I have heard, all of us are partially correct.
I have not heard any of us be totally correct. It is an
extremely complicated issue.
Thank you, Mr. Chairman.
Chairman Crane. Ms. Dunn.
Ms. Dunn. Thank you very much, Mr. Chairman. I realize that
we have other panels and I will be brief.
I would have, for example, liked to ask each Member who
believes that we do not have a defined and clear policy with
regard to China to explain how they would design their own. I
agree with you, and I would be truly interested. But I will not
ask that question at this time.
Ms. Pelosi, my friend Phil Condit would probably be
troubled but very surprised to hear his comments used in a
statement to discourage MFN. And I am sure that he will want to
respond to that.
Mr. Smith, I don't know if you know that one of my
constituents, Ned Graham, who is the son of Billy Graham, is
very much in favor of MFN because disallowing MFN would
disallow him the opportunity to distribute Bibles in China, and
I think that is an important point that we have got to think
about.
I would like to ask Mr. Dreier to expound on his thinking
on the trade deficit, or that thing that is called the trade
deficit, and also his thoughts on economic sanctions and how
effective they are.
Mr. Dreier. Let me be very brief and just respond to one of
the items that was raised here if I might, and I thank you very
much.
There is a lot of attention focused on the fact that today
is the 25th anniversary of the Watergate break-in, and this has
been widely carried in the news. But the fact of the matter is,
it has also been roughly a quarter of a century since this
policy that we now have with China began when Richard Nixon
opened up China.
And it strikes me that something that needs to be looked at
is how things have changed. Now my very good friend from New
Jersey just talked about the fact that we had been focused on
the Soviet Union and things had gotten worse. The fact is, if
you look at the 60 million Chinese who were starved during the
Great Leap Forward under Mao Zedong and the 1 million people
who were killed during the Cultural Revolution, as bad as
things are today--and as Chris Smith knows, I join him as a
very harsh critic of so many of these policies--I argue that
they have become significantly better because of that trade
opening which has taken place over the past quarter century.
The issue--Bob Matsui raised it and I raised it in my
testimony--that you have just addressed, we are all concerned
about this issue of trade deficits but, frankly, I think the
concern is exaggerated. I am one who prescribes to the term of
comparative advantage. I think we as a country are going to do
what we do best. And I think that we have tremendous
opportunities in China. But there is one telephone for every
1\1/2\ Americans and there is one telephone for roughly 175
Chinese. The opportunities that are there are tremendous. I
think it is going to ultimately take inclusion in WTO for us to
be able to have a real opportunity there.
But I am very, very encouraged, as we look at this global
economy, at the potential for U.S. industry in China and I see
it as getting better rather than worse. And again, the
statement I made is that if you look at the issue regionally,
the trade deficit has not gotten to the point that a lot of
people have raised.
Mr. Smith. Would my friend yield?
Ms. Dunn. Yes, I will.
Mr. Smith. Thank you.
Just very briefly, and for the record I will expound upon
it, but last week I offered the amendment that passed on the
House floor to boost funding from its current $20 million over
2 years for Radio Free Asia by $70 million--up to $90 million,
an additional $70 million. Mr. Dreier and many others joined me
in that. There are some things that we can come together on.
There is no doubt about that.
But the problem is that this is a dictatorship that takes
the measure of whether or not we are serious about human
rights, whether or not profits are preeminent or people are
preeminent. And I have met with Ned Graham and many others who
believe that they can work with this government, but what they
fail to see is that--while there may be some proliferation of
Bibles throughout China because of their work, and that is a
good thing--there are many people who are languishing in prison
or being tortured even as we meet here.
During one of my trips to China, I met with Bishop Su--a
real Catholic bishop, not paid for by the Government the way
the Catholic Patriotic Association is. He said mass for our
small delegation. He has already spent more than a dozen years
in prison. He was picked up in the next couple of days by the
secret police and now he is back in prison for meeting with our
delegation.
Wei Jingsheng met with me during the 1994 trip for 3 hours.
He was let out by the Chinese Government to hopefully get
Olympics 2000. He met with John Shattuck, the point person for
the Clinton administration for human rights and democracy. The
next day he was picked up by the Chinese dictatorship and he
got more than a 12-year prison sentence. If that is not putting
the finger in the eye of the dissidents and the human rights
activists, I don't know what is. The next day Wei Jingsheng was
picked up and he had his kangaroo trial and we all went on
record. I offered the resolution asking that he be released
and, of course, it didn't happen, and now he is sitting in
prison. That shows their contempt for human rights. And these
are not American human rights; these are universally recognized
human rights.
In the USSR and all these other places, there were also
people who, over the years, felt they could work with the
Government and get a semblance of religious freedom and had an
ability to work with them. Meanwhile, people will languish and
be tortured, like Father Calciu in Romania and a host of others
through the years who said, I am not going to go along with the
program, I am going to speak out on behalf of the gospel. And
they find themselves subjected to torture, sleep deprivation,
and other hideous things. That is the reality of what this
dictatorship is all about. That is why appeasement doesn't
work. We need to link arms with the people who are suffering in
prison and say, You can have your trade, just let these people
go.
Ms. Pelosi. Mr. Chairman, if I may just speak on the trade
that Representative Dunn and Mr. Matsui mentioned for 10
seconds. Mr. Matsui was saying this is part of the trade
deficit that has gone down from other places. The fact is that
the trade surplus that China enjoys creates jobs in China,
increases the hard currency for the regime, strengthens their
hold on power, and gives us leverage. It doesn't matter where
those jobs were before; they are in China now and that gives us
leverage. I appreciate you giving me that opening because I
didn't say in my statement that I urged the Subcommittee not to
approve MFN for China.
Chairman Crane. Mr. Houghton.
Mr. Houghton. Thank you, Mr. Chairman.
I would just like to ask two questions. If I understand
those of you who want to stop the most-favored-nation treatment
for China that means, in effect, that you go back to the old
Smoot-Hawley track tariffs--which are an average of 60 percent,
sometimes up to 100 percent--which, in effect, just cuts off
all trade. Is that correct?
Ms. Pelosi. If I may, Mr. Houghton, the fact is we are
trying to change U.S.-China policy. MFN is fundamental to that.
If it were to go to that, I think that the Chinese would not
give up their access to our market.
Mr. Houghton. That is an opinion. But if we cut off the
most-favored-nation treatment that, in effect, is what happens
statistically; we go back to the old Smoot-Hawley. That is what
you are willing to do; is that right?
Ms. Pelosi. That is what we are willing to do to get
leverage.
Mr. Smith. Yes.
Mr. Houghton. The second question is this: If I understand
the basis of the Jackson-Vanik waiver, it is if you have
freedom of emigration, then the Jackson-Vanik hurdle is no
longer there. So are you saying that if the People's Republic
of China is acknowledged to have adequate freedom of
emigration, then you would favor the most-favored-nation
status?
Mr. Smith. In the eighties, many of us began to look at
Jackson-Vanik and its very strict interpretation as not being a
very effective tool when it comes to human rights, and the test
case for expansion to human rights criteria was Romania. And,
as you might recall, Mr. Hall, Mr. Wolf, and I offered the
amendments when everybody seemed to be celebrating Nicolae
Ceausescu as a man who toed something different from the
Kremlin line. Now everybody would acknowledge he was a brutal
dictator.
The point is, we were able to successfully take religious
persecution and other issues related to human rights and say
that unless there is progress in these areas too, because we do
have that flexibility, most-favored-nation status will no
longer be afforded to you. We passed that in the House as well
as in the Senate.
Mr. Houghton. There are 1, 2, 3, 4, 5, 6, 7, 8 countries
which must obtain Jackson-Vanik waivers. The People's Republic
of China is one of those. So what you are saying is that even
though they pass that test, and there is a freedom of
emigration policy which is acceptable to the United States,
that still does not mean that you would accept the most-
favored-nation status?
Mr. Smith. The average person in China cannot get on a boat
tomorrow and find themselves at New York or anywhere else. They
don't have that capability, so there may be numbers that
suggest----
Mr. Houghton. Let me ask the question again. If the freedom
of emigration status were acceptable to you, would you then no
longer object to most-favored-nation?
Mr. Smith. I would still object, but let me say I don't
believe it is adequate, either. That is why you have the things
like the Golden Venture and other people who are desperately
seeking safe haven, who are willing to risk their lives like
the boat people who left Vietnam.
Mr. Houghton. So in effect--and I just want to understand
this, let me just finish this, Chris--in effect, what you are
doing is reading more into the requirements of the statute than
exists.
Mr. Smith. There is precedent for that and the answer is
yes, and the President himself did it when he issued his
Executive order of 1993 where he had clear criteria and
boilerplate language that said significant improvement in human
rights.
Mr. Levin. Mr. Houghton, can I comment very briefly? I
think in 1993 there was an experiment with using MFN on a
broader basis than the literal language in the statute. And I
would urge that we really need to focus not so much on the
literal language, but whether MFN is an effective tool to
achieve objectives. I think the evidence is, on balance, that
it is not in any of these areas. I think we should not downplay
the significance of these areas.
For example, on our economic relationship with China--the
deficit, the meaning of it--I think the minimalists are wrong.
I think they should not use that kind of bootstrap argument on
whether we should renew MFN or not. I think the reality is that
MFN itself is not going to be an effective tool on trade
issues, on human rights issues, or on nuclear proliferation
issues. And what we need is comprehensive policy.
Ms. Pelosi. Mr. Houghton, may I address your question?
Chairman Crane. Ask a question of Amo?
Ms. Pelosi. I just wanted to address his question briefly
and then I am going to have to excuse myself, Mr. Chairman,
because I have to follow Mr. Thomas to the Ethics Task Force.
Thank you again for your hospitality this morning.
Mr. Houghton, the issue of most-favored-nation status is as
much a goal for some as it is a tactic for some of us. Absent
the annual debate, we would not have the opportunity to bring
to the floor, in as focused a way, the concerns that we have
about trade, proliferation, and human rights. And I also want
to say that the expanded view of human rights, in terms of the
Jackson-Vanik, is one that we have accepted before.
But the real point that I want to make with you is that the
President, when he used the leverage--tried to use the
leverage--there was no view in the Chinese mind that this was
going to happen, so the leverage wasn't real. But you know
what? We had an opportunity. Our sources within the regime told
us that the moderates within the regime needed a signal that it
was important to free the prisoners and to liberalize the
political system. But they did not get that signal; instead
they got mixed messages. The Cabinet was going over there
saying, Don't worry about it, there is no way he is going to
revoke MFN.
So it is important for us to have this debate. And I urge
the Subcommittee to not even consider giving permanent MFN to
China because I believe MFN is the strongest leverage that our
Trade Representative has in the negotiations on WTO. And I
agree with Mr. Levin: It should be on commercial terms that
China comes into the World Trade Organization. But should they
get permanent MFN in advance of that, their motivation to
comply is greatly diminished and the leverage of our Trade
Representative is greatly diminished. So the idea that we have
to do this annually increases our leverage in many areas in the
negotiations, including the World Trade Organization.
Mr. Chairman, thank you once again. I am sorry that I have
to excuse myself.
Chairman Crane. You are more than welcome, and I thank all
of our colleagues for their participation. Oh, before you
leave, Nancy, Charlie has a question.
Mr. Rangel. Well, if you have to leave, I don't want to
make your life more difficult. Besides, I can hold Mr. Smith
hostage here.
I find it quite embarrassing for our country to be setting
moral standards for other countries. This is basically a
foreign policy question, and to some extent I think that those
that have responsibility for foreign policy should be given a
lot of leeway. And as it relates to trade, even though
technically we have jurisdiction, what the Congress does really
impacts not only the relationship that the United States has
with China but also with friends and trading partners
throughout the world, few who agree with us.
I guess I assumed and developed this attitude in working
against the embargo against Cuba. I, unlike most Members of
Congress, had an opportunity to talk about it more freely.
Ms. Pelosi. I think you bring up very important points.
Mr. Rangel. I have been shot by these Chinese Communists. I
hated them and they hated me, so I don't have any problem
saying I don't like them. I just didn't think cutting off food
and medicine to Cuba was the right thing for a great nation
like us to do.
Now we get to human rights in China, and I have been there
several times, and this is an 800-pound gorilla. These people
know we are in a catch-22. There are just too many of them to
tell them that the best way to handle their problem is the way
we do at home. For example, I would not know how to explain
slavery to them. I would not know how to explain lynching to
them. I would not know how to take them to our prisons around
the country and show them so many people of color who found
their way into these prisons or explain how drugs seem to be
concentrated in people of certain economic groups. Or how we
know as a fact that the CIA, in providing guns to the Contras,
hired people that were just bums and they dealt in drugs. We
know all of these things.
Even today, as we see the courts change their attitude
about bringing all Americans together without regard to color.
And I think it is safe to ask, what other country can we think
of where we can just look at a person and say, because of the
community that you live in, one out of every two kids are going
to end up in jail, which we can say about black males in
Baltimore--or one out of three from a particular area will go
to jail, statistically, which we can say about black males
throughout these United States?
And I don't believe that because we have done more and are
constantly trying to improve that we should accept conduct that
is below a moral standard. But it seems to me when people ask
me questions about my life in these United States--and, of
course, I have escaped the lynchings and a lot of problems that
my people faced--that I cannot in good conscience tell 1.2
billion people what the best way is for them to improve their
economic situation. How do you handle that if they ask?
Ms. Pelosi. Mr. Rangel, what I hear you saying is that the
United States does not have the moral authority to be a leader,
to promote democratic freedoms in the world. That may be the
case, but I reject that proposition.
I think that the moral leadership that this country took in
terms of South Africa was very significant. Indeed it was a
formal policy issue and indeed it was about internal matters in
a country. And indeed it was difficult, as you know, from the
start. It started with some people resisting, even revoking,
MFN for South Africa until the momentum built and the
leadership spread throughout the world.
Mr. Rangel. I don't think you can compare the two.
Ms. Pelosi. You said, how does a country like ours tell
another country. I think a country like ours--with the freest
constitution in the world, the greatest democracy in history--
has had its problems, there is no question, and continues to do
so.
And I agree with you on Cuba. I think that the embargo,
especially in terms of food and medicine, is immoral; and we
are not talking about an embargo on China. We are saying, with
reference to China, let's be willing to do for intellectuals
and other people the same as we were willing to do for
intellectual property--threaten the increase in tariffs. That
is exactly the same thing that we are trying to do.
But if we decide that, because of our internal problems, we
should not be promoting democratic freedoms throughout the
world--universally-accepted standards of human rights, even as
the Chinese Constitution guarantees some of them--then we
should not say that it is a pillar of our foreign policy. But
we cannot have it both ways.
Mr. Smith. Will the gentleman yield? I think it is
unfortunate that you believe that it is ``embarrassing,'' to
use your word, that we should speak out for human rights. The
very same argument has been used by every dictatorship that I
have ever encountered. Whether it was in Central Europe or the
USSR, somehow their boundaries seemed to give them immunity
from any kind of criticism. And here we are talking about U.S.
policy on trade: We are talking about our importing policy. So
it is not just their foreign policy and their ``internal
affairs.'' We are talking about our policies as well.
I would ask the gentleman whether or not he supported
sanctions on South Africa?
Mr. Rangel. I don't even compare the two. That was a small
country that was dominated by Europeans and a policy supported
by the United States where a handful of Europeans controlled
the destiny of a majority of people.
Now, I fail to see any comparison between Cuba or South
Africa with the People's Republic of China. But I always say--
when people say, how could you advocate the same thing against
Haiti--that we had all the friends in the world with us in
South Africa. South Africa should never be used as an example
because we were the last ones to get on the boat. Most of the
world agreed that it was immoral, what was going on. And I
don't think most of the world shares your opinion on China.
Mr. Smith. I think most of the world shares the opinion but
they are unwilling, because of profits, to put it into
practice.
The common thread with South Africa, China, and other
dictatorships are victims--people who are tortured, people who
in the middle of the night have the secret police come in and
haul them away for long periods of detention and torture in
order to extract phony confessions. That is the similarity with
South Africa and China as it exists today--victims.
Mr. Rangel. Well, I have had the opportunity to review the
Congressional Record during the period of time when American
citizens of color were pulled out of their houses, burned, and
lynched; and that outrage didn't appear to exist in the
Congress. And you may not be embarrassed when these questions
are asked of you, in terms of what happens internally. But I
am, because I am not in a position ever to be critical of this
great republic once I leave it. But when I am here, and when I
am in the Congress, I can give vent to my feelings, and even
today see the injustices that are occurring.
But it is embarrassing when I cannot answer those questions
that are asked of me overseas. And I will never, never forget
that during the winter that I spent in Korea fighting
Communists, they would have a plane from the People's Republic
of China that would drop pamphlets on us saying, while you are
over here fighting, people back home are going to country clubs
that you cannot even attend. Why are you getting involved in
this civil war? And I guess I said, because President Truman
said that we knew better than you do.
So, anyway, I really support your beliefs in human rights.
I believe in everything that you do. It is with some
satisfaction that I turn this problem over to the President of
the United States and that I support our State Department,
because I think in this case, no matter what decision we make,
it is a very difficult decision.
Mr. Dreier. Mr. Rangel, could I comment very briefly on
your statements to say that I agree in part with the argument
that you have made. But I disagree slightly in that I am
convinced, having just gone through this analysis of the
positive changes over the last quarter of a century, that as
horrible as things are today--Chris Smith, Jerry Solomon, and I
and several of our colleagues are working on ways in which we
can use nontrade-related areas to promote the National
Endowment for Democracy, Radio Free Asia, and things like that
to try and address this question--the single most powerful
force for positive change has been this policy of economic
reform in China. That has been key to improving the area of
human rights, toward lifting the standard of living of 1.2
billion people, toward even undermining the one-child policy
there because people are now better equipped to pay the one-
time $1,800 fine so that they can have a second child.
So I guess the point that I am making is that our belief in
capitalism is so great that it is, in fact, having a positive
impact on those concerns which my colleagues here have raised.
It is not the panacea. But I think that it would be absolutely
ridiculous for us, and a real crime for those 1.2 billion
people, if we were to pull away the one very good thing that
has happened.
Mr. Rangel. You just used my time to give an eloquent
speech.
Mr. Dreier. I am always glad to do it, Charlie.
Mr. Levin. Mr. Rangel, I think the Chairman wants to wrap
this up.
Mr. Rangel. You can speak on my time. Let me thank you, Mr.
Chairman. Because this is out of hand, really.
Mr. Dreier. It wasn't until you took over, Charlie.
Mr. Rangel. Those principles which you think can improve
the lives and the conditions of the people in China--you should
remember and your leadership should know that the same concerns
exist in every poor community we have in the United States.
Education, training, jobs, and productivity--if we concentrated
on those the same way that you appear to be concentrating in
China, I think it would bring us closer together.
Chairman Crane. All right. We will conclude this panel then
with that agreement, and thank you for your participation,
colleagues.
Now we shall proceed with Ambassador Barshefsky, the U.S.
Trade Representative, and I welcome you back to the Ways and
Means Committee and I look forward to hearing your comments on
U.S. trade relations with China. Welcome back before the
Subcommittee, Charlene, and we are looking forward to hearing
your input on U.S. economic relations with China.
STATEMENT OF HON. CHARLENE BARSHEFSKY, U.S. TRADE
REPRESENTATIVE, OFFICE OF THE U.S. TRADE REPRESENTATIVE
Ms. Barshefsky. Thank you, Mr. Chairman and Members of the
Subcommittee. It is, of course, a pleasure to be here today to
discuss the administration's policy toward China and in
particular the trade aspects of that policy. Ambassador
Eizenstat is here from the State Department and he will round
out the discussion.
Our bilateral relationship with China is complex and
multifaceted, including political, strategic, human rights, and
trade elements. President Clinton has implemented a
comprehensive policy with China, one which is based on a
continued engagement on the full range of issues. The reason
for that policy is clear: U.S. interests are best served by a
secure, stable, and open China.
How China evolves over the next decades will be of profound
importance to the American people. The manner in which we
engage China will help determine if it abides by international
norms and becomes integrated into the international community
or whether it becomes an unpredictable and destabilizing
presence in the world.
We will not achieve China's full integration into the
international community by building walls that divide us. The
most repressive periods in modern Chinese history did not occur
in times of open exchange; they occurred in times of isolation.
China's adherence to international norms is fundamental to
advancing the entire range of issues between our two countries,
not merely trade. Through dialog we have built a record of
cooperation on agreements to ban nuclear testing, outlaw
chemical weapons, and enhance nuclear safeguards. China is a
contributor to maintaining stability on the Korean Peninsula
and bringing North Korea into peace talks. We have a strong
bilateral program to combat alien smuggling, narcotics
trafficking, and terrorism. To protect the global environment
our two governments have worked together to establish the U.S.-
China Environment and Development Fund to discuss collaboration
on energy policy and sustainable development. And on human
rights, while China's official practices still fall far short
of internationally accepted standards, China has made some
progress.
Ambassador Eizenstat will discuss this range of issues, but
China's adherence to international norms and its inclusion in
the world community as a responsible player are the hallmarks
of the President's vision with respect to China.
While the Clinton administration policy toward China is
thus one of engagement, let me be clear what we mean by
engagement. Engagement with China does not mean ignoring our
differences. It means actively engaging China to resolve our
differences and it means protecting our interests when
consultations do not produce results.
The vote on MFN is a vote on how best to protect our
interests. It is not an endorsement of China's policies. It
poses, though, a choice between engaging China and making
progress on issues that Americans care about or isolating
ourselves from China by severing our economic and, in turn, our
political relationship. That is, after all, what MFN revocation
would do. It would sever the economic and then the political
relationship. Our friends and allies, the global community
will, of course, continue to conduct normal relations with
China, displacing U.S. interests and diluting U.S. influence.
Let me turn to the trade aspects of the administration's
policy of engagement and why continuing normal trade relations
is in the national economic interest of the United States.
I use the term ``normal'' trade relations because that is
precisely what we are talking about; MFN status is a misnomer.
MFN tariff treatment is the standard tariff treatment we accord
virtually all governments. It is the normal treatment that the
President's waiver seeks.
Trade has played an increasingly central role in our very
complex relationship with China. Just as we should not make
apologies for China, we should not apologize for our economic
interest in China. We cannot ignore the fact that the United
States has a significant commercial stake. China is the fastest
growing major economy in the world, with growth rates averaging
more than 10 percent in recent years. Already possessing the
world's largest population, by the next century China will have
the world's largest economy.
China is the world's 10th largest trading nation already
and the United States' 5th largest trading partner. Our exports
to China have quadrupled over the past decade and 170,000
American jobs are related to our trade with China.
The administration's trade policy goals are clear and
neither would be furthered by MFN revocation. First, we
continue to actively pursue market opening initiatives on a
broad scale for U.S. goods, services, and agriculture. U.S.
business should have access and the necessary protection for
their properties in China's market equivalent to that which
China receives here. Especially in light of our trade deficit
with China which is due, in part, to multiple overlapping
barriers to trade, we must see greater balance in our overall
trade relationship, with high growth in our exports to China
where U.S. companies maintain comparative advantage.
Second, a fundamental principle of our policy has been
working to ensure that China accepts the rule of law as it
applies to trade. That is, ensuring that China's trade and
economic policies are consistent with international trade
practices and norms.
Mr. Chairman and Members of the Subcommittee, neither of
these goals will be achieved if MFN is revoked. Rather,
bilateral negotiations and the use of targeted trade sanctions
where necessary have resulted in landmark bilateral textiles
agreements; the intellectual property rights, IPR, agreements;
and, of course, the market access agreement with China in 1992.
Each of these agreements is based on international norms.
Under the textiles agreements, China's shipments to the
United States have been reduced, illegal transshipment punished
and, for the first time, market access for U.S. textiles and
apparel will be possible.
Under the IPR agreements, China has revamped its entire
administrative enforcement regimes for intellectual property
protection at both essential and provincial levels. China has
imposed harsh penalties and provided market access to our sound
recording and motion picture industries. While serious problems
remain, particularly in computer software, important progress
has been made. And under the 1992 market access memorandum of
understanding, MOU, China has eliminated over 1,000 nontariff
barriers, made its trade regime more transparent, and lowered
tariffs.
While we have made some limited progress on market access
for agriculture, the use of unscientific sanitary and
phytosanitary barriers to our agricultural trade remains a
persistent thorn. This must be rectified, but MFN revocation
would only set us back.
Maximizing market access and accelerating the development
of the rule of law in China are also at the heart of our
accession negotiations into China's entry into the WTO. At this
juncture, while China has shown far greater seriousness in the
accession talks, China has yet to put forward acceptable market
access offers for goods, services, and agriculture. We will
continue to work with China on a commercially meaningful
protocol of accession--negotiations we should foster rather
than jeopardize, were MFN to be revoked.
The effects of MFN revocation go beyond our current
bilateral and multilateral initiatives. MFN revocation would
cut U.S. exports to China, increase prices for U.S. consumers,
and cost jobs in this country. And an added factor this year is
the destabilizing effect MFN revocation would have on Hong
Kong. We estimate that revocation of MFN would increase tariffs
on imports from China to a trade weighted average of about 44
percent from the current level of about 6 percent. Even
accounting for changing trade flows, revocation would result in
U.S. consumers paying about $590 million more each year for
goods such as low-end shoes, clothing, and small appliances.
For manufacturers, the cost of goods made with Chinese
components would increase, thereby reducing our competitiveness
with our exports. If MFN treatment is revoked, China is likely
to retaliate against U.S. exports by increasing tariffs on our
products and perhaps taking other measures, exacerbating an
already difficult situation.
Our exports to China have nearly quadrupled over the past
decade. Those exports support more than 170,000 jobs here. Jobs
based on goods exports pay about 13 to 16 percent more on
average than nonexport-related jobs. Revoking MFN would
jeopardize our exports and our jobs, transferring these
opportunities and jobs to Japan, Europe, and other countries.
The situation in Hong Kong this year provides another
compelling reason for continuing normal trade relations with
China. MFN revocation would deal Hong Kong a devastating blow
and would have a destabilizing impact.
Trade is a particularly important part of the economic life
of Hong Kong. Somewhere between 50 and 70 percent of U.S.-China
trade is handled through Hong Kong, thus making it very
dependent on continued normal trade relations between the
United States and China. Hong Kong authorities estimate that
MFN revocation would slash Hong Kong's trade volume by $20 to
$30 billion, resulting in the loss of as many as 85,000 jobs.
Hong Kong's economic strength is one of its chief assets in
ensuring its autonomy and viability. Hong Kong leaders--
including Democratic Party leader Martin Lee, British Governor
Patten, and Anson Chan--have spoken out strongly in favor of
renewal of MFN, and their message is the same: Bilateral trade
between the United States and China encouraged by MFN provides
needed stability for Hong Kong at a time of dramatic change.
Mr. Chairman, as I mentioned earlier, providing MFN tariff
treatment is the norm in U.S. trade, not the exception. In
every year since 1980, every U.S. President has supported
extension of MFN treatment to China. Granting that treatment
means that China will receive the same tariff treatment as
nearly every other U.S. trading partner. The United States has
a long history of providing the same level of tariff treatment
to other countries and maintaining normal trade relations with
the global community.
Congress has enacted into our law a presumption that normal
trade relations will exist between us and these other
countries. Maintaining those relations is vital to a broad
array of U.S. interests. Maintaining normal trade relations
with China is no less vital.
Thank you.
[The prepared statement follows:]
Statement of Hon. Charlene Barshefsky, U.S. Trade Representative,
Office of the U.S. Trade Representative
Mr. Chairman, distinguished Members of the Committee, I
appreciate this opportunity to discuss the Administration's
policy toward China, in particular, the trade aspects of that
policy. On May 29, President Clinton sent to Congress the
formal waiver recommending extension of MFN treatment to China
for another year. The President's decision to renew normal
trading relations with China, MFN status, is based upon his
judgment about what is in the national interest of the United
States.
President Clinton has repeatedly emphasized that America is
and will remain an Asian-Pacific power. In a region where we
have fought three wars in the last half-century, our role
continues to be vital--from the stabilizing effects of our
diplomatic and military presence, to the galvanizing impact of
our commercial ties. As the Administration has said, our
commitment to engagement with China is solid because it is
solidly based on American interests.
The Administration has implemented a comprehensive policy
with China, one which is based on continued engagement on the
full range of issues. The reason for that policy is clear: U.S.
interests are best served by a secure, stable and open China.
How China evolves over the next decades will be of profound
importance to the American people. China's emergence as a
modern power is a major historical event. Indeed, no nation
will play a larger role in shaping the course of 21st-century
Asia. Already, China affects America's vital interests across
the board. The manner in which we engage China will help
determine whether it abides by international norms, and becomes
integrated into the international community, or whether it
becomes an unpredictable and destabilizing presence in the
world. That is why we have pursued a policy with China of
engagement. It is the President's judgment that engagement with
China, rather than isolation from it, is in the best interest
of the American people. Mr. Chairman, we will not achieve
China's full integration into the international community by
building walls that divide us. The most repressive periods in
modern Chinese history did not occur in times of open
exchange--they occurred in times of isolation.
While the Clinton Administration policy toward China is one
of engagement, let me be clear about what we mean by
``engagement.'' Engagement with China does not mean ignoring
our differences. It means actively engaging China to resolve
our differences and it means protecting our interests when
consultations do not produce results.
The vote on MFN is thus a vote on how best to protect U.S.
interests, not an endorsement of China's policies. Engagement
is not an end unto itself. Engagement is a means by which we
can expand the areas of cooperation with China and deal face-
to-face with the Chinese on areas of difference.
China's adherence to international norms is fundamental to
advancing the entire range of issues between our two
countries.Through dialogue, we have built a record of
cooperation on agreements to ban nuclear testings, outlaw
chemical arms, and enhance nuclear safeguards. China is a
contributor to maintaining stability on the Korean peninsula
and bringing North Korea into peace talks. We have a strong
bilateral program to combat alien smuggling, narcotics
trafficking and terrorism. To protect the global environment,
our two governments have worked together to establish the U.S.-
China Environment and Development Forum to discuss
collaboration on topics including energy policy and sustainable
development. And, on human rights, while China's official
practices still fall far short of internationally accepted
standards in areas ranging from the treatment of political
dissidents to the continuing problem of prison labor exports,
some progress has been made. China has said that it will sign
the International Covenant on Economic and Social Rights. It
has invited the International Red Cross to China to discuss
prisoner issues. Most recently, Chinese courts overturned the
conviction of four dissidents. Much more remains to be done,
however. The State Department will discuss these and other
related areas of engagement in a moment.
The issue before Congress today concerns a choice--between
continuing to engage China and making progress on issues that
Americans care about--or isolating ourselves from China by
severing our economic and, in turn, our political relationship.
Our friends and allies--the global community--will continue to
conduct normal relations with China, displacing U.S. interests
and diluting U.S. influence.
Let me turn to the trade aspects of the Administration's
policy of engagement and why continuing normal trade relations
is in the trade and economic interests of the United States. I
use the term ``normal trade relations'' because that is
precisely what we are talking about. Most-favored-nation or MFN
status is a misnomer. MFN tariff treatment is the standard
tariff treatment we accord virtually all governments. This
``normal treatment,'' however, is a critical element of our
relationship with China. We cannot determine China's direction,
but we can help to influence its direction if we remain fully
engaged with China.
Maintaining Normal Trade Relations
As I noted, the U.S.-China relationship is complex and
multifaceted. America has a range of issues with China that go
far beyond trade. We have a deep and abiding interest in human
rights, and are critical when basic international norms are not
met. We have continuing concerns in areas ranging from non-
proliferation to environmental protection. Trade, however, has
played an increasingly central role in our relationship. Just
as we should not make apologies for China, we should not
apologize for our economic interest in China.
We cannot ignore the fact that the United States has a
significant commercial stake in China. It is the fastest
growing major economy in the world, with growth rates averaging
more than 10 percent in recent years. Already possessing the
world's largest population, by early in the next century, China
may have the world's largest economy.
Today, China is the world's tenth largest trading nation
and the United States' fifth largest trading partner. U.S.
exports to China have quadrupled over the past decade. At least
170,000 Americans owe their jobs to U.S. exports to China.
The Administration has clear goals that it wants to achieve
in its trade policy with China. First and foremost, we continue
to pursue actively market opening initiatives on a broad scale
for U.S. goods, services and agricultural products. U.S.
businesses should have access--and the necessary protection for
their properties--in China's market, equivalent to that which
China receives in the United States. Especially in light of our
trade deficit with China, we must see greater balance in our
trade relationship--with high growth in our exports to China in
areas where U.S. companies maintain a comparative advantage.
Second, a fundamental principle of our policy has been working
to ensure that China accepts the rule of law as it applies to
trade--that is, ensuring that China's trade and economic
policies are consistent with international trade practices and
norms.
The Trade Relationship
The United States is China's largest export market. U.S.
imports from China were nearly $51.5 billion in 1996 (or nearly
25 percent of China's exports to the world). By contrast, U.S.
exports of goods to China last year stood at only $12 billion.
While the large trade deficit with China is the result of many
factors, China's multiple, overlapping barriers to trade and
investments are clearly of serious concern.
Despite China's movement away from a centrally planned
economy toward a quasi-market economy in recent years, China
still maintains one of the most protectionist trade regimes in
the world. China appears to be following in the footsteps of
other major trading nations in East Asia--maintaining export-
led growth while protecting its domestic markets. China's
failure to meet fundamental international norms--such as
national treatment, transparency, or the right to import or
export freely--holds back the U.S. side of the bilateral trade
equation and hurts U.S. businesses and workers.
During the past several years, as a result of our bilateral
initiatives, China has liberalized its markets for many U.S.
products. While U.S. access to China's market is far greater
now than it was, U.S. access falls far short of what it should
be. As we continue to press China on market access issues, we
also intend to work with the Chinese Government in support of
its economic reform program.
As I noted, a fundamental principle of our policy has been
working to ensure that China accepts the rule of law as it
applies to trade--that is, ensuring that China's trade and
economic policies are consistent with international trade
practices and norms, such as those of the World Trade
Organization (WTO). Bilaterally our market access, intellectual
property rights and textiles agreements have all been throughly
grounded in the GATT and now the WTO. Clearly, the ongoing
negotiations over China's accession to the WTO are part of our
overall approach of creating an effective framework for our
trade relationship.
In this respect, trade cannot be separated from the broader
considerations of creating a more open, rules-based society in
China. Reforms of China's legal system, institution of new laws
and regulations, and notions of due process and transparency
all build a better trade relationship and, in part, will spring
from that relationship. In the WTO accession negotiations, as
in the case of our negotiations on IPR enforcement and other
bilateral agreements, we will work together with China's
negotiators to create a regime that strengthens the legal
system and the rule of law in general.
The United States has pursued an aggressive, but balanced,
trade policy toward China. To achieve our goals, we have put
together a strong, complementary policy that combines
bilateral, regional (APEC) and multilateral initiatives. Rather
than severing the economic relationship through revocation of
MFN, the Administration has sought, and has achieved, tangible
results on market access, intellectual property rights (IPRs)
and textiles. We have carefully used targeted trade sanctions
as an effective tool to achieve U.S. trade objectives when
other reasonable means have been exhausted.
Bilateral Initiatives
IPR Enforcement
In 1995, the United States reached an historic agreement
with China on the enforcement of IPRs, particularly copyrights
and trademarks, and improved market access for U.S. firms in
the computer software, motion picture, publishing and sound
recording industries. In the 1995 Agreement, China committed to
put a basic structure in place for enforcement of IPRs at the
central and provincial level and in the major cities. China
also undertook improved Customs enforcement of IPRs at the
border and to strengthen the protection for well-known
trademarks. We reached this agreement after threatening to
impose nearly $2 billion in trade sanctions on China's exports.
Over the next year, we carefully monitored China's
implementation of the 1995 Agreement. China created enforcement
task forces and embarked on some enforcement efforts. However,
overall piracy rates remained extremely high and U.S. companies
were frustrated in their efforts to achieve market access. That
is why, in May 1996, the Clinton Administration threatened to
take action against China for failure to implement
satisfactorily China's commitments from the 1995 Agreement.
In June 1996, after substantial verification activities on
the part of the U.S. government and U.S. industry, we
determined that a critical mass of enforcement actions in
connection with the 1995 Agreement had been taken by the
Chinese, and sanctions were averted. Among the steps confirmed
at that time was the closure of 15 factories engaged in piracy,
stepped up police activity, arrests and the imposition of fines
for piracy, as well as issuance of regulations to crack down on
underground factories and the import of CD presses.
Since June, we have seen continued progress. IPR
enforcement is now part of China's nationwide anti-crime
campaign. Police are now involved in investigating IPR piracy
on a regular basis. A nationwide campaign against pornographic
and illegal publications has targeted copyright infringements.
Pirates are being arrested and the courts are imposing fines
and jail terms on people running ``underground,,'' i.e.,
unlicensed, CD factories.
In late 1996, Guangdong Province (a region near Hong Kong
that has been a center of pirating activity) launched a major
crackdown on underground CD factories. The campaign began with
an announcement of a reward of 300,000 RMB (US $37,000) for
information leading to the closure of underground plants.
According to State Council officials, so far Guangdong has paid
out more than 1.2 million RMB. The reward system has met with
such a success that it has been extended to include six
southern and coastal provinces.
Overall, 39 production facilities not approved by the
central government have had their licenses confiscated or have
been closed since June. According to U.S. industry sources, the
22 legitimate factories, i.e., those that have been throughly
investigated and registered by central government authorities,
have turned their attention to domestic production while piracy
of foreign sound recordings has dropped dramatically. In all,
more than 10 million pirated CDs have been destroyed by Chinese
government authorities.
Although we have seen significant improvements in
enforcement, serious problems remain. Piracy of computer
software continues at high levels. While market access for
copyrighted products has improved, particularly with respect to
sound recordings, we need to see further substantial
improvement so that legitimate products are available to meet
market demand. The problem of pirate CD factories also affects
Hong Kong. Hong Kong is often used as a point for export of
pirated product and importation of CD production line
equipment. We have been working with the authorities there to
address these problems and expect further progress.
Textiles
In 1994 and in February of this year, the Administration
concluded bilateral agreements to achieve fair trade in textile
products. The February agreement builds on and improves the
1994 Textiles Agreement with China. For the first time, our
bilateral agreement provides for market access for U.S.
textiles and apparel into China's market. China has also agreed
to ensure that non-tariff barriers do not impede the
achievement of real and effective market access for U.S.
textile and apparel exports. Following on cutbacks in China's
textile shipments achieved under the 1994 Agreement, the 1997
Agreement further reduced the overall quota to address
enforcement issues.
China has agreed to bind its tariffs at its applied rates,
thereby assuring security and certainty for U.S. exporters. In
addition, China will lower tariff rates over the 4-year term of
the Agreement. For certain high priority products, China has
agreed to accelerate tariff reductions so that they are
completed within two years.
The issue of illegal transshipments of textiles from China
has been a significant concern in the past and the
Administration has demonstrated its resolve to act against such
imports. In 1994 and 1995, the Administration found and charged
transshipped products against China's quotas. In 1996, we
triple-charged China's quotas. In the February 1997 agreement,
we reduced China's quotas in fourteen apparel and fabric
product categories where there had been agreement on violations
through transshipment or over shipment. The Agreement also
includes procedural measures to improve the bilateral
consultation process, including arrangements to implement an
``electronic visa'' information system to more effectively
track textile and apparel shipments. Moreover, a special
textiles import safeguard mechanism will remain in effect until
four years after the WTO Agreement on Textiles and Clothing has
terminated.
Market Access Agreement
Obtaining effective implementation of the October 1992
market access agreement is another example of the
Administration's continuing pursuit of market opening. In that
Agreement, China committed to make sweeping changes in its
import regime: China committed to eliminate import substitution
policies, publish its trade laws in an official journal, apply
the same testing and standards requirements to domestic
products and imports, decrease tariffs on certain products,
apply sanitary and phytosanitary measures only on the basis of
sound science and eliminate licensing and quota requirements on
more than 1,200 products over a 5-year period.
China has taken some significant steps in implementing the
1992 Agreement. China's trade regime is more transparent than
previously; China has lowered tariffs on many products and has
eliminated well over a thousand non-tariff barriers. While
China has removed a substantial number of these barriers, we
are concerned with China's tendency to give with one hand and
take with the other. In some instances, for example in the
medical equipment sector, China has replaced a quota with a
tendering and registration requirement, thus impeding market
access.
A number of other market access problems remain, in
particular for U.S. agricultural products. In the 1992
Agreement, China committed to eliminate unscientific sanitary
and phyto-sanitary restrictions used as barriers to market
access. China's implementation of this commitment remains
incomplete. Over the last four years, we have reached agreement
on measures that permit the importation of live horses; apples
from the states of Washington, Oregon, and Idaho; cattle,
swine, bovine embryos, and cherries. Just last month, our
negotiators completed a bilateral protocol and work plan that
will permit exports of U.S. grapes to China. This new market
for U.S. grape producers could reach more than $45 million in
the next two to three years. China remains a major purchaser of
U.S. wheat, corn, cotton, course grains and other bulk
products.
Restrictions affecting such U.S. exports as pacific-
northwest wheat, stone fruit, citrus, poultry and pork products
are not based on sound science and remain in place. This is a
particular source of concern. We are engaged in an active work
program to resolve these sanitary and phytosanitary
restrictions on our exports. I have created the new position of
Senior Advisor and Negotiator for Agriculture at USTR, with
responsibility for leading our bilateral efforts to improve
market access for this important sector of the U.S. economy.
WTO Accession
The process of negotiating the terms of China's accession
to the WTO Agreement is a major focus of our efforts. It is a
means not only to expand market access for U.S. exports, tut
also to bring China into the international rules-based trading
system.
President Clinton has repeatedly affirmed U.S. support for
China's accession to the WTO, but only on the basis of
commercially meaningful commitments that provide greatly
expanded market access and ensure compliance with WTO
obligations. At this juncture, while China has evidenced a new
seriousness about the negotiations, it has yet to put forward
acceptable offers on market access for industrial goods,
services and agricultural products. In addition, significant
reforms will be needed to bring China's practices into
conformity with WTO rules. The timing of China's accession is
in China's hands. We are prepared to move as quickly as China,
based on serious offers that provide genuine market opening and
a means to achieve the balance that is lacking in our trade
relationship.
Successful WTO accession would also achieve important
broader objectives. Upon accession, China would be required to
conform its current trade laws and practices to
internationally-agreed rules and base any future laws on the
same international norms that apply to the United States and
other WTO members. Basic WTO principles, such as publication of
all laws and regulations, the right to appeal administrative
decisions, application of all of its trade laws uniformly
throughout the country, and equal treatment for domestic and
imported goods, all fosters the rule of law. Moreover, China's
implementation of these basic principles would be subject to
dispute settlement based on the same rules that apply to all
WTO Members. The United States has used the WTO dispute
settlement system successfully against major trading partners,
such as Europe, Japan and Canada, as well as against countries
such as Korea and Pakistan.
WTO accession would also accelerate economic reforms,
moving China toward a more market-oriented economy. WTO
accession would require elimination of measures that protect
state monopolies, take government out of commercial
transactions through limiting the use of price controls and
eliminate trade distorting subsidies, quotas and export
performance requirements. In short, China would be required to
open its market to a broad range of goods and services in areas
in which U.S. companies are internationally competitive. We are
now engaged in comprehensive negotiations to accomplish this
objective. A commercially meaningful accession package would
result in tangible gains for U.S. companies and workers.
Effects of MFN Revocation
Revocation of MFN tariff treatment jeopardizes our current
and future bilateral and multilateral trade initiatives. MFN
revocation would cut U.S. exports to China, increase prices for
U.S. consumers and cost jobs in this country. An added factor
this year, is the destabilizing affect that MFN revocation
would have on Hong Kong.
We estimate that revocation of MFN would increase tariffs
on imports from China to a trade-weighted average of about 44
percent, from their current level of about 6 percent. Even
accounting for changes in trade flows, revocation would result
in U.S. consumers paying approximately $590 million more each
year for goods such as shoes, clothing, and small appliances.
For manufacturers, the cost of goods made with Chinese
components would increase, reducing the competitiveness of
their finished goods in domestic and international markets.
If MFN tariff treatment is revoked, China is likely to
retaliate against U.S. exports by increasing tariffs on these
products and other measures. China has threatened such actions
in the past in response to our use of trade sanctions.
U.S. exports to China have nearly quadrupled over the past
decade. Those exports support more than 170,000 jobs in the
United States. Jobs based on goods exports, on average, pay 13
to 16 percent more than non-export related jobs. Revoking MFN
would jeopardize U.S. exports and U.S. jobs, thus transferring
those export opportunities and those jobs to Japan, Europe and
other competitors.
Revocation of MFN would also derail current bilateral and
multilateral negotiations. Instead of engagement, China may,
for example, cease bilateral negotiations on sanitary and
phytosanitary restrictions on agricultural products and would
likely decrease efforts to enforce our bilateral IPR
agreements. Moreover, negotiation on WTO accession would stop,
creating uncertainty over how China's markets will evolve. In
short, we would lose the opportunity to shape the evolution of
China's trading system in a manner compatible with
international norms and U.S. expectations.
The situation in Hong Kong this year provides another
compelling reason for continuing normal trade relations with
China. MFN revocation would deal Hong Kong a devastating
economic blow and would have a destabilizing effect. Trade is a
particularly important part of the economic life of Hong Kong.
More than 50 percent of U.S.-China trade is handled through
Hong Kong, thus making it highly dependent on continued normal
trade relations between China and the United States.
Hong Kong authorities estimate that MFN revocation would
slash its trade volume by $20 to $30 billion, resulting in the
loss of between 60,000 and 85,000 jobs. Hong Kong's economic
strength is one of its chief assets in ensuring its autonomy
and viability. Hong Kong leaders, including Democratic Party
leader Martin Lee, British Governor Patten, and Anson Chan have
spoken out strongly in favor of renewal of MFN. The implication
is clear: bilateral trade between the U.S. and China,
encouraged by MFN tariff treatment, provides needed stability
at a time of dramatic change.
Revoking MFN would not only damage our important and
evolving commercial relationship; it would also deny us the
benefits of our strategic dialogue. And because China's
politics are in flux, especially during the run-up to this
fall's Party Congress, the withdrawal of MFN would almost
surely strengthen the hand of those in China who have been
seeking to fill the country's ideological void with a
belligerent nationalism.
Mr. Chairman, as I mentioned earlier, providing MFN tariff
treatment is the norm in U.S. trade, not the exception. In
every year since 1980, every U.S. President has supported
extension of MFN tariff treatment to China. Granting MFN
treatment means that China will receive the same tariff
treatment as nearly every other U.S. trading partner.
The United States has a long history of providing the same
basic level of tariff treatment to other countries and
maintaining normal trade relations with the global community.
Because MFN is a powerful symbol of America's global commitment
to open markets, Congress has enacted into our law a
presumption that normal trade relations will exist between us
and other countries. Maintaining such relations is vital to a
broad array of U.S. interests; maintaining normal trade
relations with China is no less vital.
Conclusion
Congress is again faced with a decision whether to pursue a
positive agenda for trade and our overall relations with China
or to sever our economic relations with that country and
isolate ourselves from it. While achieving our objectives
through positive engagement and the use of targeted measures is
a slow and difficult process, it yields results. MFN treatment
should be renewed.
Chairman Crane. Now I welcome Mr. Eizenstat before the
Subcommittee in his new position as Under Secretary of State
for Economic, Business and Agricultural Affairs at the
Department of State, and I hope you and Bill Daley parted on
good terms.
Mr. Eizenstat. The best.
Chairman Crane. The reason I say that is Bill Daley,
Charlene, and I have something in common: We all grew up in
Chicago.
Mr. Eizenstat. I have something in common with you as well:
I was born in Chicago.
Chairman Crane. Oh, very good. OK. Proceed.
STATEMENT OF HON. STUART EIZENSTAT, UNDER SECRETARY FOR
ECONOMIC AFFAIRS, U.S. DEPARTMENT OF STATE
Mr. Eizenstat. Mr. Chairman, Members of the Subcommittee, I
welcome the opportunity to testify along with Ambassador
Barshefsky on the renewal of normal trading status for China.
As Secretary Albright has said, there is no greater opportunity
or challenge in American foreign policy than to encourage
China's integration into the international system as a fully
responsible member.
The world's most populous nation--with more than one out of
every five people on the face of the Earth--is still not a full
member of this system. The People's Republic of China, PRC, is
of course already a key regional power in Asia, and its high
rate of economic growth means we must assume it will become
still more important. But with power must come responsibility--
responsibility for acting according to international norms in
human rights, proliferation, trade and commerce, and in the
resolution of political disputes. And on human rights
specifically, the PRC's leadership well knows that we feel very
strongly that our bilateral relationship cannot reach full
fruition without progress in this area. Bringing China more
fully into the international economic system, including its
rules, standards, and institutions, benefits us as a nation and
average Americans as workers, consumers, and citizens.
The manner in which we engage China will have an important
bearing on whether it becomes integrated into international
norms and institutions, or whether it instead becomes an
isolated, unpredictable, and disruptive force in the world. Few
developments will have a greater effect, for better or worse,
on the kind of world we live in during the next century. We
must avoid taking actions that will have the effect of
isolating China. For all the very real problems we have with
her and the firmness we must display, China is not our enemy,
and we must not act as if she is.
The question that concerns us today--whether to revoke
China's MFN status--will have a crucial effect on how we
conduct our entire foreign policy toward China. Is there any
reason to believe that China's conduct on the issues that
concern all of us will improve if we deny her at this time the
normal trade benefits virtually every country on the Earth
receives? To ask the question is to answer it: Such a negative
policy assumes that we are fated to confront China in the
future and that American diplomacy and other tools are helpless
to prevent this.
We do not have the luxury to take such a stance. We cannot
walk away from engaging China. America's interests would be
seriously damaged if we were to do so.
This administration is committed to a strategy of
comprehensive engagement in order to achieve our goal of
incorporating China into the international system. America's
foreign policy has consistently focused on this goal for 25
years, a period embracing the terms of six Presidents of both
parties. Our policy is designed to pursue cooperation where
possible while clearly and directly opposing those Chinese
actions with which we disagree, and it is beginning to work.
The PRC cooperates with us on an important range of issues,
from alien smuggling and drugs to Cambodia and our cooperative
efforts to enhance security on the Korean peninsula.
Pluralism is increasing in China, and our close economic
engagement with Chinese society is a major engine driving this
process. Every year, thousands of Chinese visit our country on
business and while here they receive a firsthand dose of the
American way of life: our politics, our economy, and our
American freedoms. Thousands more Chinese, employees of
American firms who do not visit, are nevertheless supervised by
American managers, and correspond via e-mail on a daily basis
with their American counterparts.
In 1990, Mr. Chairman and Members of the Subcommittee, a
little over 600,000 Chinese workers were employed by foreign
invested firms. In 1995, that number leapt to over 5 million,
and is undoubtedly higher today. We would do ourselves and the
people of China a great disservice by unilaterally reducing
this influence.
Where we have differences we have worked to change Chinese
policies, ranging from human rights to proliferation of weapons
of mass destruction, using the full range of tools at our
disposal: public and private diplomacy; bilateral and
multilateral discussions; and, yes, targeted sanctions where
appropriate. In this regard, we continue to maintain sanctions
that were put in place after the suppression of the
prodemocracy demonstrations in Tiananmen Square in 1989. During
the March 1996 tension in the Taiwan Strait, we dispatched two
aircraft carrier battle groups to avoid any miscalculation.
Ambassador Barshefsky's own sterling leadership and our
willingness to impose sanctions resulted in favorable
conclusions to discussions on textile shipments and
intellectual property.
Unlike these carefully targeted sanctions, revocation of
MFN is a blunt instrument, far too blunt to achieve our goals.
Far from advancing our interests, the consequences of
revocation would adversely affect our capacity, across the
board, to influence Chinese behavior.
Indeed, MFN is central to our strategy of engagement.
Access to the American market is one of the most tangible
evidences of the benefits of joining the international system.
MFN does not, of course, in any way suggest that we are
bestowing favors on China. It is simply, as the Ambassador has
suggested, ordinary tariff treatment that we extend to
virtually every other country in the world.
Renewal must be based on a clear-eyed calculation of
American interests: what is best for American workers, American
business, American consumers, and American foreign policy in
Asia and around the world. And on all of these counts, it is in
our interest to have a normal trading relationship with China.
Termination of normal trade status would damage our foreign
policy with China across the board and be counterproductive in
the areas of trade, in ways that the Ambassador has already
suggested.
In 2 weeks, Secretary Albright, together with many of you,
will travel to Hong Kong for the historic occasion of the
reversion of that colony to Chinese sovereignty. Her visit will
emphasize our strong support for the maintenance of the rule of
law in Hong Kong and its protection of civil liberties and
basic freedoms for its people. Far from supporting Hong Kong,
the revocation of China's MFN status would undermine the basis
of the island's prosperity.
Hong Kong's economic strength is one of its chief assets in
ensuring autonomy from Beijing. And as Ambassador Barshefsky
has pointed out, every significant leader--Governor Patten,
Martin Lee, Anson Chan--have all urged renewal. Failing to
renew MFN for China would hurt Hong Kong just when it needs our
support most. Our other friends in Asia would also suffer,
notably Taiwan, which has a significant stake in trade and
investment relations with the PRC.
In conclusion, let me be very clear about this vote. It is
most assuredly not a vote endorsing China's policies. Every one
of us opposes many of the practices and policies of the PRC. It
is, rather, about America's own national and foreign policy
interests. It is about the kind of international environment we
are conducting for the 21st century. It is about advancing our
concerns for human rights. It is about working together to
protect the environment we all share. It is about good jobs for
American workers, lower prices for consumers, and a huge market
for American business. It is, Mr. Chairman and Members of the
Subcommittee, about continuing to conduct a firm, forceful,
patient, and diligent diplomacy that advances our National
interests, rather than throwing up our hands and turning away,
heedless of the consequences.
Thank you very much.
[The prepared statement follows:]
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Chairman Crane. Thank you.
Mr. Matsui.
Mr. Matsui. Thank you, Mr. Chairman. I would like to thank
Ambassador Barshefsky and Secretary Eizenstat for being here
today. I would like to ask Ambassador Barshefsky one question
and, of course, Secretary Eizenstat as well.
Ambassador, the trade deficit issue has been coming up and
I would imagine the opponents of MFN will use that issue
probably most prominently over the next week or so. Could you
talk about the trade deficit and its impact, and what this
really, in fact, means?
Ms. Barshefsky. I think the trade deficit is a matter of
concern to the extent that a portion of it is a product of what
we have described previously as significant overlapping
barriers to trade which, despite China's economic opening,
still characterizes large portions of the Chinese economy.
The concern that we have is not the level of China's
exports to the United States, 70 percent of which tend to be
concentrated in very low-end consumer goods. We think that is a
net benefit to the United States. The concern we have is with
respect to our export performance to China, and the concern
manifests itself in a couple of ways. After very, very strong
export growth, particularly from 1992 to 1995, we saw export
growth that was dampened very significantly. Our exports to
China grew only 1.9 percent in 1996, in the face of European
and Japanese exports which grew by double digits. Part of the
reason is that our exports are concentrated in part in
agricultural goods and China had a bumper crop, but we are in
the process of looking into the range of causes for that rather
diminished export performance.
As we look now, in 1997 we see a further dampening of our
exports to China. We also, though, see a similar pattern with
respect to Japan's exports to China and the European Union, we
believe, in favor of China importing from other countries in
Asia and, to some extent, Latin America. For whatever cause,
obviously our export performance to China is critical. We must
have access to that market on fair and open terms. We must
expect, over time, to achieve a much more reciprocal trade
arrangement. The focus of our efforts will intensify. Part of
that is China's WTO accession talks, where issues of access are
obviously front burner. But the concern about the deficit is
not the number per se, it is the question about our own export
performance to China.
Mr. Matsui. Thank you.
Secretary Eizenstat, you talked about the impact of losing
MFN status in terms of China's U.S. relations. If we did not
have MFN, if we cut off MFN, what would the reaction of the
Chinese be, in your opinion, and how would that affect some of
the other Asian countries?
Mr. Eizenstat. With respect to the trade aspects,
Ambassador Barshefsky is obviously the most competent to----
Mr. Matsui. I meant more the diplomatic aspects.
Mr. Eizenstat. There would be retaliation and we would have
even more difficulty obtaining the kind of market access that
Ambassador Barshefsky has been trying to obtain in the WTO
talks and bilaterally as well.
But in terms of the foreign policy impacts, it would make
it much harder to engage China on the whole range of issues
that we are engaging in here: everything from proliferation to
security issues in Asia like Cambodia, work on the U.N.
Security Council where we do have a good working relationship.
Our work on alien smuggling, our work on drug interdiction--all
of these would be much more complicated because we would have
demonstrated, in a very profound way, that we didn't want to
engage with China.
You simply cannot isolate, Congressman Matsui, the trade
issue and say we are not going to do any trade business with
you, but we want you to cooperate with us in the foreign policy
realm. All of our allies in Asia, without exception, want MFN
extended because they know that the security and stability of
Asia depends heavily on an understanding between the United
States and China in that area. That understanding would be
severely imperiled if MFN status were revoked.
Mr. Matsui. I would like to thank both of you for your
being here today and your testimony.
Chairman Crane. Mr. Houghton.
Mr. Houghton. Thank you, Mr. Chairman.
Ambassador, Mr. Secretary, good to have you here. You know
I agree with the argument as far as foreign policy and the
economics are concerned; that it is absolutely right on, that
we have to continue our MFN status with China. However, let me
ask you a question, sort of looking over the next hill. Because
I think that this is a progressive type of thing, that there
are certain things that bother us and we are saying--because of
what we were doing on an economic and on sort of a bilateral
diplomatic relation basis--that they are going to be all right.
But let's look out 10 years. Let's assume that the deficit
quadruples the way it has in the last 10 years, so now instead
of $30, it is $120 billion. And let's assume that the pirating
still exists and let's assume that some of what we hope for as
far as nonproliferation and things like that haven't been
solved. Are there things that we should be doing to signal to
the Chinese that we are not going to rescind the MFN, but that
there are things that we must do together as mature nations?
Ms. Barshefsky. Let me take a crack at your question. I
think Ambassador Eizenstat may want to add.
Your question points out the need to have a consensus
policy in this country with respect to China. One of the pros
of the annual MFN debate is that it exposes differences among
us with respect to our concerns on China and the way in which
we might handle them. One of the cons is that it induces a kind
of paralysis in policymaking on a bipartisan basis and in a
consensual manner.
In China, like other foreign countries, seeing that
grinding away internally in the United States may not move us
in the direction we want as quickly or as effectively as if we
had articulated a unified policy with respect to China.
Your question to me points up the need to try and get
beyond this annual debate and this annual hand wringing, to
move toward the development of a long-term policy with respect
to China.
It seems to me that the strategic vision is not
particularly hard to articulate or hard to envision. And that
is, we seek China's integration into the global community. We
seek China's adherence to international norms, all bound by the
rule of law. We seek to help China, if we can, define its own
greatness in terms of constructive behavior rather than
destructive or destabilizing behavior.
These things, it seems to me, this vision is one that we
could all embrace. It is commonsensical and necessary: China as
a full global partner, not in renegade status.
The question then is how to move toward the development, on
a bipartisan basis, of a policy to help us help China move in
that direction, to the maximum extent that we might be able to
influence that movement.
Mr. Eizenstat. If I might just supplement that on the
foreign policy side, it is very important I think for the
Congress not to feel that by voting in favor of MFN either the
administration or the Congress is somehow abandoning the
ability to influence Chinese behavior in accordance with
international norms. And if I may just give you some examples
of ways, apart from MFN, that we are attempting--and
successfully--to do so.
Radio Free Asia is a good example: We are trying to
increase our Chinese language broadcasting there so that we
pump in information to the Chinese people. The rule of law,
which Ambassador Barshefsky mentioned: We have a special rule-
of-law initiative that will establish in the commercial area
the whole concept of an independent judiciary and also the
sanctity of contracts, and ultimately we believe that will
overflow into the political area. We are encouraging model
business practices for our companies investing there. And as my
last official act with Bill Daley, I gave an award to a company
out of San Francisco that has done sterling work in encouraging
human rights and a respect for labor practices in China.
We work in Geneva in the U.N. Human Rights Commission to
introduce resolutions which condemn religious persecution and
other human rights problems. Our Customs officials are working
on prison labor issues, and we have a whole host of issues
where we have actually invoked sanctions, for example, on
Chinese entities for missile technology transfers to Pakistan.
Only a few weeks ago sanctions were invoked on seven Chinese
entities and individuals for their assistance in Iran's
chemical weapons production. So we are not helpless in any way,
shape, or form. We are actively involved in a whole range of
areas. But MFN is the wrong manner--Congressman Levin put it
very well--it is the wrong forum in which to engage on these
issues. We have other, more targeted and effective mechanisms
to influence Chinese behavior.
Mr. Houghton. Thank you.
Chairman Crane. Ms. Dunn.
Ms. Dunn. Thank you very much, Mr. Chairman.
I appreciate, Ambassador, your good work on behalf of the
MFN. You have been clear, you have been concise, you have been
candid with us over the many months that we have worked
together, and I think it is very useful to have you come to
this Subcommittee and express your point of view. And I would
like to reiterate that the most important point I have taken
out of all of this, and the most important lesson that I think
can be extended is that the vote on MFN is an indicator not
that we support some of the egregious things that are going on
in China, but rather that we have selected this way to best
protect the United States own interests in China. And, Mr.
Chairman, I think I will leave it at that and leave time for
others to question.
Chairman Crane. Mr. Rangel.
Mr. Rangel. Thank you.
As always, good to see you--I enjoy working with you. I
think it is an ideal combination to see our trade policy and
our foreign policy working together. And, of course, Ambassador
Eizenstat, I think you bring credit to public service by having
served so well with the Carter administration, and by your
willingness to forfeit financial goals to return to the
government of your country at a time when so many people look
at it in a negative way.
And I appreciate your remarks relating to the only way to
influence people--in terms of their antihuman rights activity
and changing their position and helping them understand
democracy better--is to have communication and ties and trade.
And for the life of me, I don't see why that philosophy doesn't
apply to Cuba, as we find it so easy to apply to China.
But passing on with that, I personally think that China is
so different because she is so big and has the potential to be
so powerful. Sometimes the rhetoric which we use as to what she
has to do before she gets into the WTO is exaggerated. Clearly,
China must agree to a level playingfield and be prepared to
drop subsidies and go into the free market. We discussed this
at that enjoyable conference of the WTO in Singapore, after
which, as you know, the delegation went to China. In talking
with their officials, they noted they have hundreds of millions
of people that are in government-subsidized workplaces, and are
so proud of the fact that they do not have welfare or a safety
net because everybody works. I just don't know--I know the word
``transition'' is used a lot, Ambassador Barshefsky, but it
seems that--can transition take 25 years or 50 years? They are
not thinking about turning all of those people loose on the
streets against them.
And with the problems they have with the military, it seems
as though they are listening and they are anxious to get into
WTO, but would it be safe just to feel comfortable that, as it
relates to China, our rules are going to be much more flexible
than with other countries in terms of their work force?
Ms. Barshefsky. Let me first say that WTO admission is not
designed to destabilize countries or to destabilize economies.
The point of the WTO exercise is twofold. One is that acceding
countries, of which there are 124 in the WTO, across the board
must undertake market opening commitments. Second, those
countries must adhere to a set of international rules with
respect to trade fundamentals like nondiscrimination or
national treatment, transparency in a trade regime, notions of
judicial review, and so forth.
There is no question that many of these concepts are rather
alien in China, in part because of the absence of a rule of
law, in part because of an entirely different government and
administrative structure from the typical market economy, and,
of course, in part because different policies have been
pursued.
Nonetheless, we do believe that over time China can be
moved far closer to market economics than it is now, not
because we seek a sameness with the United States--there will
never be a sameness between China and the United States--but
because we believe China also wants greater compatibility with
the international system and, over time, greater compatibility
with the United States.
Mr. Rangel. What does transition mean? How much time will
they be given to be on par with the rest of the democracies?
Ms. Barshefsky. In some instances there will be no
transitions allowed: notions of nondiscrimination and
transparency.
Mr. Rangel. I am talking about these factories with
hundreds of millions of people working.
Ms. Barshefsky. With respect to state-owned enterprises,
which is really what you are talking about, those enterprises
need not close, but they must operate under a set of rules that
provides commercial behavior within those state enterprises.
Mr. Rangel. Would those same rules apply to our welfare-to-
work laws or our prison workfare?
Ms. Barshefsky. No, we are talking about commercial
enterprises largely. In the WTO we are not really talking about
the social safety net or things of that sort. We are talking
about enterprises in China which are import monopolies and
export monopolies, essentially. Those enterprises will, over
time--and I cannot tell you how long; that is obviously a
matter for discussion with China--they will, over time, have to
move toward commercial practices with respect to their
importations and with respect to their exports.
Mr. Rangel. Thank you.
Chairman Crane. Mr. Herger.
Mr. Herger. Thank you, Mr. Chairman.
Thank you, Madam Ambassador and Mr. Secretary. Madam
Ambassador, China administers many unreasonable quarantine
measures which restrict access for U.S. agricultural products
such as wheat, cattle, and several kinds of fruit.
Is China moving to eliminate these nontariff barriers, and
is China willing to adopt sanitary and phytosanitary measures
consistent with the Uruguay round agreement?
Ms. Barshefsky. You have put your finger on a very
difficult problem that we have had with China for some time. We
have had some successes.
China has moved to ease restrictions on poultry. We have
just gotten an agreement with China for the admission of grapes
for the first time. We have made progress on apples, cherries,
and some animal products, although notably not pork. But there
are a number of instances in which China uses unscientific
sanitary and phytosanitary barriers to keep our agricultural
products out: Pacific Northwest wheat is one example, another
is stone fruits; citrus remains a continuing problem.
We have two tracks that we are pursuing with China. One is,
with respect to the WTO accession talks, we have made it clear
to China that a deal that is not good for American agriculture
is not good, and that there is no way to trade that for
something else. They understand this fully.
The second track is a bilateral track. We and the USDA are
coordinating much more closely than in the past and, just as
with grapes, we have pursued and now have achieved some market
opening. We will handle the other issues one at a time.
Mr. Herger. Thank you. Certainly keeping agriculture
foremost and not trading it off is very important to this
Subcommittee and a number of our Members, as you well know.
Another question: In your view, why does the United States
have such a large trade deficit with China, larger than either
the Europeans or the Japanese have in their trade relations
with China?
Ms. Barshefsky. Well, first of all, Europe and Japan do
have significant trade deficits with China. Europe's last year
was on the order of $15 or $16 billion; Japan's is upward near
$20 billion now. Ours, of course, is more; it is $39 billion
which is, as I indicated, somewhat troubling. One reason for
the size of the deficit is the point I was making earlier to
Mr. Matsui: Our export performance has been lagging.
Another reason for the size of the deficit has to do with
something Mr. Matsui was talking about earlier, that is, a
shift of productive capacity from the Asian Tigers to China and
then the export of those goods from China. And I will give you
a couple of examples.
If you look at footwear, where China is a major world
producer and a major world exporter, China's share of U.S.
exports moved from 9 percent to 50 percent over the last 5
years or so. The rest of Asia's share went from 51 percent to 5
percent. So you had movement between Korea, Singapore, Hong
Kong, Taiwan--a movement of that capacity on footwear to
China--and then the ensuing exports from China rather than from
the other Asian countries.
It's a very similar pattern with respect to sporting goods
and toys, where China basically picked up the market share that
had been held by other countries. And with some of those other
countries we now have a trade surplus rather than a trade
deficit.
The second reason for this deficit is a shift in capacity.
The third has to do with the way in which export values are
counted, and this is a particular concern that the Chinese have
expressed repeatedly. Somewhere between 50 and 70 percent of
China's exports come through Hong Kong. Hong Kong marks up the
value of those exports quite substantially. But when the
exports come here, the full value is treated as an export from
China, even though a substantial portion of that revenue
resides in Hong Kong which, of course, even after reversion
will maintain separate autonomous economic status. So this is
yet a third reason why the numbers look as skewed as they do.
Mr. Herger. Thank you.
Chairman Crane. Mr. Jefferson.
Mr. Jefferson. Thank you, Mr. Chairman.
Ambassador, you mentioned in your testimony that the United
States had reached agreements with China in the intellectual
property area, market access, and textiles.
Ms. Barshefsky. Yes.
Mr. Jefferson. How are the Chinese enforcing these
agreements and, in areas where they are not enforcing them as
you wish, what steps are being taken to make sure that
enforcement is realized?
Ms. Barshefsky. Each of the agreements is a little bit
different and I will take you through each briefly.
In textiles, in 1994, we negotiated an agreement with China
which sharply curtailed their export growth to the United
States. But there has been a persistent problem with China of
fraudulent transshipment of textiles and apparel to the United
States. Under the 1994 agreement, we imposed triple charges
against China, meaning that we cut their quota down to triple
the value of what was fraudulently transshipped. In the current
agreement that we have with China, we have further cut their
quotas because of the persistence of the transshipment problem
as well as imposed additional monitoring and other restrictions
on China.
We achieved a breakthrough agreement about 2\1/2\ years ago
for the protection of intellectual property in China under
which China revamped its entire administrative structure, and
made judicial law changes at the central and provincial levels
in order to attack the piracy problem. But we found that, about
a year after the agreement was implemented, piracy rates had
not declined. We went back again, threatening trade sanctions
and demanding at that time the closure of 13 factories. China
closed 15, not only the 13 we had demanded, and made additional
changes. Now, a year later, China has closed about 40
factories, confiscated and destroyed about 10 million pirated
CDs and CD-ROMs, has imposed very substantial fines as well as
very hefty prison sentences on piraters, making 250 arrests
within the last 12 months. And China instituted a reward
system: US$37,000 for information leading to the closure of
pirating factories. So we do now see more significant
compliance by China with its agreements.
In the case of market access, the most persistent problem
has been the problem that Congressman Herger referred to: that
is, the regular problem as to which I don't think our solution
is entirely satisfactory.
Mr. Jefferson. May I ask another unrelated question? The
jurisdiction of your office ought to be coterminous with that
of this Subcommittee with respect to trade inasmuch as your
office is the creature of the Ways and Means Committee's
jurisdiction. Your jurisdiction does not involve issues like
nonproliferation of nuclear weapons, nor does the jurisdiction
of this Subcommittee.
The other issues you have been called upon to deal with in
the context of MFN--the environmental issues for instance, and
even the human rights questions--those issues don't come
properly under the jurisdiction of this Subcommittee. It seems,
then, something of an imposition; your office is supposed to be
carrying out responsibilities coterminous with this
Subcommittee's jurisdictional responsibility in these areas.
Does this seem that way to you? Is it kind of out of bounds
with what you would expect to have to undertake, given that
this Subcommittee doesn't have jurisdiction in these areas?
Ms. Barshefsky. I don't think, Mr. Jefferson, that it is
out of bounds. I do think, though, that your question points to
a very important fact: that is, that there are limits to what
trade policy alone can accomplish. That is to say, trade policy
can be an important vehicle with respect to economic growth as
well as with respect to the transmission of American values in
a variety of areas. Because trade policy and trade is, in and
of itself, a form of engagement it is, to that extent, a useful
vehicle.
But there are limitations to what can be accomplished with
respect to trade policy as distinct from the full range of
policies and interests that the United States wishes to pursue.
And in that regard, obviously I am grateful that we have people
like Ambassador Eizenstat and Secretary Albright at the State
Department as well as my Cabinet colleagues around the
government.
Chairman Crane. Mr. Ramstad.
Mr. Ramstad. Thank you, Mr. Chairman. Madam Ambassador, Mr.
Secretary, thank you for your testimony. I certainly agree that
both of you are consummate professionals. And I appreciate
particularly the bipartisan, pragmatic spirit that you bring to
this issue. The work that you have done, Madam Ambassador, to
open new markets and create new jobs, has truly been
outstanding and it has been a pleasure to work with you.
Recently, I chaired a trade conference in Minnesota, as you
know. About 14 Fortune 500 corporations which have a presence
in my district were represented, as well as a multitude of
small- and medium-sized businesses. The redundant theme from
the 500 or so participants at that conference was, why not
permanent MFN for China? Why do we engage in the exercise of
almost self-flagellation annually? Why not permanent MFN
status? I listened as I walked in to your colloquy with Mr.
Houghton. Is the administration contemplating permanent MFN for
China?
Ms. Barshefsky. Congressman, certainly this year the focus
is a 1-year waiver with respect to MFN. I think we would want
to work with the Subcommittee and with you to discuss the
policy options as we look ahead. But we believe that the focus
this year, with respect to the President's determination, is
the proper scope for the issue at this juncture.
Mr. Ramstad. But, certainly that is an option for
subsequent consideration.
Ms. Barshefsky. It certainly is.
Mr. Ramstad. Yes. And by the way, Madam Ambassador, let me
take this opportunity to express my thanks for sending Don
Phillips.
Ms. Barshefsky. Yes.
Mr. Ramstad. Your deputy for Asia Pacific, who did a truly
remarkable job as our keynoter--he was very, very impressive
and, of course, second only to you. It would have been nice to
have you, but I understand your schedule is hectic.
Let me also ask you, Madam Ambassador, what impact you
think a revocation of MFN would have on China's WTO accession
negotiations?
Ms. Barshefsky. I think the negotiations would stop, which
is moving in precisely the wrong direction. If we want to move
China toward international norms, toward its share of
international responsibility, toward being a constructive force
in Asia and globally, we should not jeopardize a critical
series of negotiations which are designed, in part, to
accomplish those aims, at least with respect to trade.
Mr. Ramstad. Finally, if I may, Mr. Secretary, I would like
to ask you a question. We continue to talk about economic
engagement with China and how it contributes to opening and
reforming China's economy. Do you have a sense of the coherency
of China's internal economic reforms, the status of those
reforms at this time in history?
Mr. Eizenstat. I was in China in March to try to get a
firsthand picture of that. In some respects, it is reflected in
the negotiations which Ambassador Barshefsky is leading,
because the offers that they are putting down in the WTO
discussions are a reflection of the degree to which they have
made a commitment to, for example, free trading rights to
accept intellectual property norms and the like.
I found that perhaps the biggest concern that they had, in
terms of economic restructuring, is what to do with the state-
run enterprises. They comprise some two-thirds of the urban
work force, and they represent essentially the entire social
safety net.
This is not a traditional Communist system where the
government supplies cradle-to-grave benefits. They are
significantly provided by the state-run enterprises, 50 percent
of which lost money last year. They know that they have to do
something about it. They know they have to restructure and
streamline them. They are trying to encourage mergers between
the healthy ones and unhealthy ones. But they really have not
yet come to terms with how to streamline these, to make them
work, as Ambassador Barshefsky was saying, in accordance with
the WTO rules and still avoid social destabilization and
massive unemployment. And this, I think, is their biggest
problem.
Having said that, there is no question that the economy is
significantly more open than it was 5 or 10 years ago: the
foreign investment to coventures, the Internet, and e-mail--
workers can work and live where they want with much greater
freedom than they could before. So it is a much more open
system. But still, there are many, many restrictions reflected
in the WTO negotiations which one can also see to both
investment and free trade. They have come a long way. They have
a long way to go.
Mr. Ramstad. Well, thank you both again. Thank you, Mr.
Chairman.
Chairman Crane. Mr. Thomas.
Mr. Thomas. Thank you, Mr. Chairman. I apologize for not
being here. We had to do other things. But I am not going to
take a long time; I have talked to both of these individuals
privately enough. I only want to react to one thing. I would
tell Ambassador Barshefsky that to me this focus on MFN sends
the wrong message as to whether we renew or whether we deny. I
am concerned about the emphasis placed on most favored nation.
It is the only game in town, so that is what people do.
As you well know, my concern is the underlying progress we
are making in getting China to understand fully what accession
to WTO means: that in every port, every piece of paper means
exactly the same thing at different times.
Mr. Eizenstat full well understands the next point I am
making in terms of his European Union experience as former
ambassador: that scientific standards are scientific standards,
that they aren't pseudo, that they aren't disguised nontariff
barriers, that ``phytosanitary'' means phytosanitary and not
political.
These are measurements that I think reflect the
understanding of China on what it means to be a full trading
partner and not to receive something like MFN with the United
States on a yearly renewed basis. How are we doing on educating
and growing China to understand what her obligations would be
if she were a full member?
The dialog with the gentleman from Louisiana and others
gave me a little bit of flavor. Personally, I believe we have a
long way to go, but I also believe we have come a long way. I
think your statement about canceling MFN was made in that
context and not in terms of the very narrow ball game of this
year.
Ms. Barshefsky. No. You know, for a long time China quite
obviously had the view that its WTO accession would be on
political grounds, not commercial or economic grounds. And so
early attempts to educate China as to the rigors of the GATT
system at that time--this is pre-WTO--fell largely on deaf
ears. There was very little interest in appreciating the range
of commitments, what those commitments would mean, and what it
would entail with respect to altering China's trade regime. And
there was little interest, because if you are--if you think you
are going to get in on a free basis, why pay any attention at
all?
In 1994, China set a deadline and said, If we are not in by
the end of the year, then all of this will have been for
naught. Well, China didn't get in at the end of 1994 and none
of its major trading partners supported its admission. And at
that juncture, I think China went through a bit of an
awakening. First, that the accession would not be on political
terms. Second, that its level of knowledge, with respect to the
now-WTO, was terribly limited and not well-understood within
the Chinese ministry system or the Chinese leadership. And that
is really the most critical point: that the Chinese leadership
did not have an appreciation for the rigors of accession.
What we have seen since, that December 1994 incident to the
present, has been a China much more attuned to and growing
increasingly accustomed to what the rules are and what they
mean in practice, looking at different countries to see the
ways in which the rules operate. We see a Chinese bureaucracy
finally being organized around the notion of making concessions
across the government in order to achieve a particular outcome,
with respect to the WTO talks, on a given range of issues.
We see them coming forward with offers that are not
adequate, but that evidence a degree of understanding we had
not seen before. And we see a seriousness in their demeanor
that certainly before 1994 was rather lacking.
So all of that, I think, points to the good. That doesn't
suggest whether we have a short way to go or a long way to go.
I am merely commenting on the gestalt of the talks.
With respect to progress made, we have made some important
progress on rules adherence, though there are a number of
areas, with respect to rules like sanitary and phytosanitary
issues, where we have not made the kind of progress we want to
see. We have made little progress at this juncture on market
access, but we expect China to come forward in Geneva at the
end of July with revised market access offers with respect to
good services and agriculture. I can't tell you now if they
will be any good or not. They will certainly be better than
what we have seen, but whether they will be sufficient in any
respect we will have to determine.
Mr. Eizenstat. I would like to say, Congressman Thomas,
only half jokingly, that having spent 2\1/2\ years dealing with
the European Union in Brussels, I wouldn't overestimate the
degree to which they understand phyto and phytosanitary
standards when one has to push, as we did then and with
Ambassador Barshefsky's help, to get them to round up soybeans
and other products in when false scientific or inadequate
scientific and sanitary and phytosanitary is used. It is a
problem that is not exclusive to China.
Mr. Thomas. Thank you very much.
Mr. Chairman, thank you. Oftentimes, we forget that real
life is running against other examples and not against the
clock or some projected desired goal. There's nothing wrong
with projecting desired goals, but in the human condition, you
have to look on a comparative basis as well. Thank you, Mr.
Chairman.
Chairman Crane. Mr. Levin.
Mr. Levin. Mr. Chairman, I know you have to--some of you
have to go to the White House, so I will be very brief. This
has been, I think, an exceptionally useful hearing, and welcome
to Mr. Eizenstat as well as the Ambassador.
In the last few minutes, we have turned our emphasis to WTO
accession, and I think that is where much of the battle needs
to be undertaken. I think perhaps MFN is not a source of
paralysis, but it has been a preoccupation.
I just want to say one word, though. If WTO is going to be
a major arena as we have discussed it, as important as market
access is--and I kind of chuckle because 10 years ago, a lot of
people sitting in your chairs minimized the importance of
market access--as important as market access is, as I have
discussed, even more important in terms of a long-term strategy
with China probably is the nature of their market. And we are
going to press you and others and ourselves to face up to those
issues.
Mr. Eizenstat, in your elaboration on page 6, for example,
of issues relating to WTO accession: There is a lot of emphasis
on market access, but relatively little reference to the impact
of state-owned industries, their control of their economy,
their control of wage structures. I think the notion that China
is going to simply continue to produce low-end goods is a
mistake in terms of a long-term strategy.
They are going to move more and more into the high-tech
areas, into industrialization, with a low-wage structure that
is controlled by the State, and which also controls a good
portion of these enterprises in terms of subsidization.
And so if they are not faced in WTO, those issues are going
to rob us of a chance at a long-term strategy vis-a-vis China,
which is just one of the industrializing nations in this
situation.
So I think Mr. Thomas' reference to WTO is highly useful.
And I hope this hearing can further boost our focusing on these
basic long-term issues.
Thank you, Mr. Chairman.
Chairman Crane. Thank you. And I want to express
appreciation to you, Madam Ambassador, and to you, Mr.
Secretary. Congratulations on your new slot. And we look
forward to working with you both in an ongoing basis, not just
on MFN for China. And with that, the Subcommittee stands in
recess until 2 o'clock.
[Whereupon, at 12:35 p.m., the Subcommittee recessed, to
reconvene at 2:04 p.m., the same day.]
Mr. Ramstad [presiding]. Welcome back to the Subcommittee
on Trade. We will continue with testimony from our next panel,
a panel of our distinguished colleagues. We will begin with
Congressman Porter from Illinois. John, you will be followed by
Congressman Frank Wolf from Virginia, Congressman Kolbe from
Arizona, Congressman Ewing from Illinois, Congressman
Blumenauer from Oregon, and finally on this panel Congressman
Matt Salmon from Arizona.
I would like to remind the panel to try to keep your
comments to 5 minutes, and, of course, as always, written
statements will be inserted for the record.
Please proceed with your testimony, Mr. Porter.
STATEMENT OF HON. JOHN EDWARD PORTER, A REPRESENTATIVE IN
CONGRESS FROM THE STATE OF ILLINOIS
Mr. Porter. Thank you, Mr. Chairman. I appreciate the
opportunity to testify this afternoon. I have not testified
before your Subcommittee before, but, Mr. Chairman, you look
wonderful up there in the chair.
I come to this point having spent the last 16 years working
on human rights issues all across the world as founder and
cochairman of the Congressional Human Rights Caucus. More
recently, I've worked the last 12 years or so on the issues
involving the transference of Hong Kong to Chinese sovereignty
as cochairman of the Hong Kong Caucus. I also worked very
closely with Doug Bereuter on the Hong Kong Relations Act and
Hong Kong Reversion Act, and sponsored legislation to protect
Hong Kong journalists.
So, Mr. Chairman, I care very, very deeply about the people
of China and about the people of Hong Kong, and there is no
question in my mind that--I know that Frank Wolf and others
will state this even more forcefully--but there is no question
in my mind that China is one of the world's most egregious
human rights abusers. And since Tiananmen Square, there has not
been an improvement of the human rights situation in China;
quite the reverse. People who believe in democracy have been
hunted down or rounded up and, almost to the person, put into
jail and held as political prisoners.
I have voted repeatedly over these years to cut off most-
favored-nation trading status for China. That resolution has
allowed us to vent our anger at the leaders in Beijing. It has
sent very strongly a message of American concern and anger with
what has happened within China regarding human rights. But, Mr.
Chairman, very frankly nothing has ever changed.
President Bush and--although he ran in quite a different
direction during the campaign of 1992--President Clinton both
have said and shown that they will not cut off MFN for China,
even if Congress votes to do so. President Bush at one time did
veto and President Clinton would veto such legislation. The
Senate often has not gone along.
It is clear that MFN is not going to be cut off. There
isn't any doubt about that process. And what we end up doing is
sending wonderful messages, but we have no policy to really
impact China and to make changes that will bring about more
quickly the values that we believe in deeply as a people:
democracy, human rights, and the rule of law.
I also have come to believe that if MFN were cut off, there
would be retaliation by the Chinese. American business would be
invited to leave, or at least curtailed greatly. Our friends in
Hong Kong, which is one of the great shipping points from China
currently and certainly will be in the future, would be more
hurt than any. And the engagement that we have had in creating
greater free enterprise in China would simply be set back. And
I believe very strongly--very, very strongly, Mr. Chairman--
that if you establish economic freedom, then inevitably
political freedom will follow. And we have to look only as far
as South Korea and Taiwan to see the proof of that.
And I believe that for China as well eventually political
freedom will follow the economic freedom that they have now
created in their society. And it is in the interest of the
United States to push for greater and greater economic freedom
in China with the understanding that that will occur.
I also believe that MFN is really not a very good lever.
You can only use it once. What do you do if you cut it off
after that, especially if there is retaliation? So, Mr.
Chairman, I believe we need a whole new policy regarding China.
I believe the Clinton administration doesn't have one, except
to say that we shouldn't cut off MFN and we should be engaged.
I think that is fine as far as it goes, but, very frankly, I
think we need a whole new policy in China, and we need
something that the Congress can focus on to provide that
policy.
Most recently, a number of us have gotten together to sit
down and propose not an alternative to MFN--some people may see
it that way--but a set of policies that we can adopt into law
and have the administration follow that have a real chance of
moving Chinese society toward those values that we believe in
deeply.
The two center points of this resolution will be a much
stronger commitment by the United States to VOA, Voice of
America, and RFA, Radio Free Asia, broadcasts to China. We
believe that if we can increase the authorization and
appropriation by about $40 million, that we can have 24-hour-a-
day broadcasts by both radios into China in the three major
languages plus Tibetan. It would involve a greater commitment
to the National Endowment of Democracy working through
nongovernmental organizations, NGO's, to impact Chinese
society, and it would contain, Mr. Chairman, a number of other
initiatives involving a voluntary code of conduct for American
businesses doing business in China, exchanges of legislators,
exchanges of students, expanded human rights reporting, a
registry to identify people who are political prisoners, the
denial of visas to known human rights abusers and many, many
other initiatives. I believe these are things that can really
help to change Chinese society.
And so, Mr. Chairman, I simply wanted to come here today to
say that I believe that MFN is really a dead end for the United
States. It is a wonderful device for us to send messages, but
it really does nothing further than that. We need a whole new
policy toward China to really change that society, to ensure
that Hong Kong becomes the pill that is difficult to swallow.
Because I believe that Hong Kong's reversion to Chinese
sovereignty will ultimately have a greater impact on China than
China will have on Hong Kong, and that the basic freedoms--the
basic human rights, the hoped-for democracy, and the rule of
law that we believe in so deeply--will ultimately become part
of Chinese society and be available to every Chinese citizen,
just like they are to every American. I thank for you the
opportunity to testify.
[The prepared statement follows:]
Statement of Hon. John Edward Porter, a Representative in Congress from
the State of Illinois
Mr. Chairman, I appreciate the opportunity to come before
the committee today to express my views on the subject of Most
Favored Nation (MFN) trading status for the People's Republic
of China.
I have long been an outspoken critic of the Chinese
Government--its deplorable human rights record defies
description in the brief time I have today, and the Committee
will no doubt hear extensive testimony from others on this
subject. Over the years, I have voted to disapprove MFN for
China, not because this was the best course of action available
to us, but out of a deep and growing frustration with both
China's human rights situation and our inability to bring about
positive change in this area. My frustration has intensified in
recent years, in the face of chaotic and poorly managed policy
shifts by the Clinton Administration.
As Members of Congress, we have extremely limited tools
with which we can impact our nation's foreign policy. Because
Congress does have jurisdiction over trade, Members who share
my frustrations have naturally turned to the annual MFN renewal
process to push for more attention from U.S. and Chinese
leaders to our legitimate and deeply-felt concerns. This plan
of action had mixed results prior to 1994, but there were some
successes--prisoners were released and the Chinese Government
would otherwise make a show of attention to our complaints. The
1994 policy reversal, however, destroyed any leverage the U.S.
may have had with the MFN process and proved to the Chinese
that the MFN threat was an empty one.
Since that time, Congress and the human rights community
have struggled to return human rights concerns to prominence in
U.S.-China relations. As I said, I have voted against MFN for
China, but I have done so with an eye towards more effective
means of moving our policy forward in areas other than trade. I
supported past efforts, by my colleague Congressman Doug
Bereuter and others, to advance pro-active China policy
legislation. I led the fight to establish and provide funding
for Radio Free Asia, which began broadcasting into China last
year. And I have been a leading proponent of strong and
separate U.S. ties with Hong Kong, both before and after the
reversion to Chinese control later this month. I am not alone
in this search for a smarter, more productive and more nuanced
Congressional debate on China, but for the past few years such
efforts have lacked support from those in a position to make
changes happen.
This year there may be a shift in fortunes, however, and I
hope those of us who care about the people of China and their
future can take advantage of this opportunity to move U.S.-
China policy beyond the high-volume MFN debate toward something
more productive for all concerned. For this reason, Congressman
David Dreier and I brought together a group of colleagues who
share a strong commitment to human rights, but have divergent
views on MFN. We asked this informal group of Members to come
up with positive and forward-looking proposals which could form
the basis of a legislative effort to define America's policy
towards China. What we got back was interesting--creative and
hopeful ideas on moving China towards democracy and accepted
standards of behavior, mixed with caution about the dangerous
potential of a China which is acting out at home and abroad--
and I believe that this exchange captures the paradox of our
dealings with China. At its essence, it is the old Reagan
doctrine with a new twist--``Engage, but verify.''
From the ideas that Members gave us, we have attempted to
craft legislation which will make Congress a forceful player in
the U.S.-China policy debate and encourage the Administration
to integrate concerns about human rights and democratic
development into all our dealings with China. We will be
introducing this legislation with the hope that it can be
considered during this year's MFN debate, but if it is not, we
will move it through the regular committee process. The goal of
this legislation is to imbue our policy towards China with the
values which we represent as a nation. This legislation will
provide increased funding for broadcasting by Radio Free Asia
and Voice of America, with a goal of 24-hour broadcasts into
China in multiple languages, and increased funding for
democracy building activities in China. In addition, reporting
on human rights and other areas of concern would be expanded--
including publication of a list of companies doing business in
the United States which are affiliated with the People's
Liberation Army--and both public and private exchanges between
the U.S. and China would be increased. Visas for travel to the
United States will not be available to those who have committed
human rights violations or are involved in proliferation of
weapons or other sensitive technologies. U.S.-based businesses
will be encouraged to adopt a voluntary code of conduct which
would ensure that they are good corporate citizens in China.
U.S. policy on the extension of concessional and other loans
for projects in China, through both international institutions
and our bi-lateral ones, will be strengthened.
Human rights, freedom, democracy, free-market economics and
the rule of law are values which define America. These ideals
should be reflected in our foreign policy and drive the
decisions we make as a nation. Under our current policy, some
of these ideals are sacrificed for the alleged benefit of
others. Such a policy is doomed to failure, for all of these
ideals must work together to create free, prosperous and stable
societies. If it is the intention of the United States to bring
China into the community of nations as such a society, we
cannot promote these ideals selectively. MFN for China should
be one part of a larger, multi-faceted policy which brings us
closer to this goal. I will support MFN for China this year,
and I will continue to fight for a broad-based policy which has
as its goal the improvement of U.S.-China relations and
improvement in the lives of the Chinese people--economically
and politically. I hope that I can count on the support of my
colleagues--regardless of their personal views on MFN renewal--
in this endeavor.
I again thank Chairman Crane and the members of the
Committee for the opportunity to testify today and I wish the
Committee good luck as we move forward with this process.
Mr. Ramstad. Thank you very much for your testimony.
The gentleman from Virginia, Mr. Wolf.
STATEMENT OF HON. FRANK R. WOLF, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF VIRGINIA
Mr. Wolf. I thank you, Mr. Ramstad. At the outset, let me
just stipulate there are good people on both sides of this
issue, and I want to stipulate that out front. Second, I want
to stipulate that I cannot tell you how strongly I feel about
this issue. This is a moral issue. This is a religious freedom
issue. This is a national security issue. This is a slave labor
issue. And this is a trade issue.
The conditions in China are not getting better; they are
not, they have not, and, if left alone, they will not. They
have arrested and imprisoned Catholic priests and bishops, and
fundamentally nothing has been done by this Congress or this
administration to get them out of jail. There are Catholic
pastors, Catholic priests that are in jail; many have been in
jail for a number of years. There are Protestant pastors that
are in jail and house churches that are raided on a weekly
basis, and this Congress does nothing and this administration
does nothing with regard to this issue.
This administration--these Beijing people are persecuting
Moslems, and who speaks out for the Moslems? There are actually
more Moslems than there are Christians in China. And nobody
speaks out for the Moslems. They cracked down on Tibet. They
have expelled the Dalai Lama. They have kidnapped the Panchen
Lama. And they have done brutal things, which we wouldn't even
want to put in the record, to Buddhist monks and Buddhist nuns.
They have cracked down on all the dissidents; there are no
dissidents outside there now. There are forced policies of
abortion. This is a prolife issue. Whether you want to say it
is or is not, it is. They have forced sterilization. And in
particular the way they treat young women is a disgrace. They
have human-organ donor programs where they shoot people and as
they drop, they take their kidneys and then transplant them
within 3 hours.
There are more gulags in China than there were in the
Soviet Union when Solzhenitsyn wrote the profound book ``Gulag
Archipelago.'' There are more there than there were in the
Soviet Union.
They sold chemical weapons to Iran and wanted to
destabilize the Middle East. China sold missile-related
components to Syria. They sold weapons to Saddam Hussein that
were then used to kill American servicemen in Desert Storm.
China has sold over 1.2 billion in arms. Their military rule is
in Burma, which seems to be following a low road in their own
human rights policies. And the Burmese opium begins to flow out
through China and in through the veins of American children.
China continues its military buildup, according to the
latest intelligence. They are developing an ICBM missile
capable of hitting the west coast, hitting our west coast. They
tried to sell AK-47 assault weapons and shoulder missiles that
could have taken planes out of the sky to street gangs in
California.
The Chinese People's Liberation Army raises millions of
dollars in U.S. securities and markets through elusive systems.
The trade deficit is $40 billion and growing. And don't forget
that the Chinese Government tried to influence our political
process, with thugs attending coffees at the White House. And
where is Charlie Trie today? Charlie Trie is in Beijing. Where
is John Huang with regard to testifying? Where is the Riady
family? They are not here.
How should we react? What shall we do? I think some have
called for a constructive engagement, but nobody has engaged.
The Congress hasn't engaged; they all go down to the floor and
give speeches for constructive engagement, and then the bill
passes, the Chinese get MFN, and the engagement goes away.
Sometimes the engagements are trips to China, paid for by
people who are connected with the Chinese Government. But they
never visit the priest in jail; they never ask to see the
bishops. They never try to go to the house churches. And the
engagement pretty much ends.
Some argue that taking away MFN would set us back, would
create a more hostile environment. Perhaps. Maybe it would, but
maybe it wouldn't.
In 1987, Congressman Smith, Tony Hall, and myself offered
the proposal to take away MFN from the Ceausescu
administration. The same arguments used against us then are
being used now.
Let me quote the former Chairman of this Subcommittee,
Danny Rostenkowski. He said, ``I believe the authors of this
amendment to take away MFN for Romania are well-intentioned.
The proposed remedy is the wrong one. I, too, am concerned
about the people of Romania, that they be able to pray freely,
immigrate freely, and enjoy basic human rights.'' Mr.
Rostenkowski went on to say, ``Where we differ is the means to
achieve improvements in this area. The amendment sponsors would
cut off our most important ties to Romania''--slip the word
China in there, too--``in an effort to enforce the Romanian
Government to bend to our will.''
``However,'' Rostenkowski said, ``I firmly believe that the
effect of cutting off or suspending MFN trading status would be
just the opposite of what they seek; namely, a backlash by the
Romanian Government against its people.'' Not so.
When I used to visit Romania during the Communist days, the
people would tell me that they heard on Radio Free Europe that
the U.S. Congress voted to deny MFN. That was an encouragement
to them and let them know that someone cared. Sam Gibbons made
the same argument, which I will offer for the record. Bill
Frenzel made the same oral argument.
But the House did vote, in one of its finest hours, to
suspend MFN for Romania and it rocked the entire system. People
in Romania heard on Radio Free Europe that the United States
stood with them, and it gave them hope. It cut the dictators
down to size. It sent a message that the United States stood
with those who were being persecuted. And less than 2 years
later, Ceausescu fell. Perhaps there was no link, but many in
Romania believe there was a link, and I believe there was a
link, too.
We denied all these benefits for South Africa, and it made
a tremendous difference. One of the worst votes I ever cast in
this Congress was my first vote against sanctions. I publicly
apologized for that vote because it was the wrong vote.
Sanctions brought South Africa down and changed the apartheid
government; the same with regard to Chile. And why doesn't this
Congress then pull back with regard to Cuba? We have an
inconsistent policy with regard to Cuba and Burma, and I know
why. We must also remember there have been positive aspects
when we have done these things.
Voting to revoke MFN in the House would send the same
messages of hope and encouragement to the many Chinese in
prison who are suffering for their faith. According to the Wall
Street Journal, 67 percent of the Americans surveyed already
believe that the United States should demand that China improve
its human rights.
And people in this Congress say that the gender gap with
regard to women is 70 percent. Voting to revoke MFN would put
the House on the side of the American people and, I believe,
would also put us on the side of history. When Clinton
delinked, the problems got worse.
In closing, Mr. Chairman--I know I have gone over my time--
imagine for just a moment that you are a Catholic priest who
was sent to prison for saying mass or administering the
sacraments--the bread and the wine--which we know has happened.
You have been beaten, you have been tortured, and you have been
denied food or been forced to endure back-breaking labor. Just
imagine that, after China had done all this--plus tried to buy
our government through the coffees and all the other activities
we think took place through the Riady family--just imagine you
heard that the U.S. Congress had voted to give China MFN. Just
imagine how demoralized you would feel.
But now imagine that you heard from someone--perhaps your
mother, your father, a friend, or a brother who heard through
the Internet, fax, telephone, Radio Free Asia, or some way--
that the U.S. Congress had voted to take away MFN. Wouldn't you
feel a sense of hope and encouragement, a sense that someone
cared and that someone was speaking out for you?
Chris Smith and I visited Perm Camp 35; we interviewed
Sharansky's cellmate--we have all of this on film. This man in
Perm Camp 35--in the darkness of the Ural Mountains, under
communism--told Chris and me that they knew of the Reagan
administration's policy of standing firm with regard to human
rights. They knew that 250,000 people had rallied on the Mall
on behalf of dissidents in the Soviet Union; they knew it. How
did they know it? There were no fax machines; there were no
telephones. There was nothing. The KGB ran the whole place. I
don't know how they knew it, but they knew it. And I will tell
you: the bishops, the priests, the ministers, the Moslems, the
Buddhists, and the people of no faith will all know whether or
not we speak out, one way or the other.
I believe, frankly, that we are not going to take away MFN.
We don't have the votes in the other body to do it, and if we
did it the President would override the veto. But I would tell
you to send a message: Send a message to that priest or that
minister or the dissidents would do more than we can do in any
other way. So I strongly urge this Subcommittee to vote in
support of the Salmon resolution to deny MFN.
[The prepared statement follows:]
Statement of Hon. Frank R. Wolf, a Representative in Congress from the
State of Virginia
Mr. Chairman and members of the Subcommittee. Thank you for
the opportunity to share my thoughts on why the House of
Representatives must vote to revoke Most-Favored-Nation (MFN)
trade status for China. This is the year the United States must
take decisive action on this issue.
There are good people and there are compelling arguments on
both sides of this debate. But, it is my view that revoking MFN
is the right thing to do.
At its heart, this issue is a moral issue; it's a religious
freedom issue; it's a national security issue; it's a slave
labor issue; and it's a trade issue. But, the debate on MFN is
not only about trade, it's about our values as a nation. A
recent traveler to China told me that the only issue related to
the United States being reported in the Chinese press is MFN.
No matter what we like to think or try to do, the annual debate
on MFN is and will always be about more than trade.
Virtually nobody can argue that human rights are getting
better in China. They are not. They have not. And, if left
alone, they will not.
The Chinese government continues to arrest
Catholic bishops and priests and Protestant pastors for
practicing their faith or worshiping outside government
control. They are beaten and tortured.
The Chinese government has also intensified its
crackdown on the people of Tibet--stealing the very soul and
culture of Tibet. Monks and nuns continue to be beaten,
imprisoned and, sometimes, killed. The Dalai Lama has been
exiled for years and his successor, the Panchen Lama, has been
stolen away, jailed with his family and replaced by a puppet of
the People's Republic of China.
The Chinese government also continues to persecute
the Muslims in Western Xinjiang Province. Nobody speaks out for
the Muslims.
The Chinese government has cracked down on
dissident activity--locking up all well known dissidents.
China has outrageous, brutal and inhumane policies
on abortion and forced sterilization. Their treatment of many
orphaned infants, particularly girls, is unspeakable.
The Chinese government has a thriving business of
harvesting and selling for transplant, human organs from
executed prisoners.
China maintains a system of gulags--slave labor
camps--as large as existed in the Soviet Union. They are still
used for brainwashing and ``reeducation through labor.''
China sold missiles and chemical weapons
technology to Iran.
China sold missile-related components to Syria and
advanced missile and nuclear weapons technology to Pakistan.
China sold weapons to Saddam Hussein that were
used against American troops during Desert Storm.
China has sold over $1.2 billion in arms to
military rulers in Burma who seem to be following the low road
with their own human rights and Burmese opium makes its way
through China into the veins of American teenagers.
China continues its military buildup--the latest
intelligence reports indicate that Beijing is building ICBM
missiles capable of hitting the Western United States, U.S.
allies in Southeast Asia or U.S. military installations in the
Pacific. Beijing's purchase of 46 American-made supercomputers,
which can be used to design lighter warheads to put on the
missiles.
Chinese government officials sold AK-47 assault
weapons and offered to sell shoulder-fired missiles to American
street gangs.
China's People's Liberation Army (PLA) raises
millions of dollars in the United States securities' markets
and through a series of elusive front companies which export
goods to the United States.
The U.S. trade deficit with China continues to
skyrocket--approaching $40 billion--while we struggle with
their disregard for copyright laws, intellectual property laws
and anti-slave labor agreements. Pirated Windows 95 was on sale
in the streets of Beijing before we could buy the real thing in
Washington, D.C.
China restricts access to its markets for American
goods, charging an average 35 percent tariff on American goods
compared to the 2 percent tariff charged on Chinese exports to
the U.S. If we took away MFN from China, the tariffs on Chinese
goods coming into the U.S. would be roughly the same as the
tariffs charged on American goods exported to China.
And don't forget that Chinese officials tried to influence
our elections and buy their way into the American political
process.
How should the United States react to these facts? What
should we do?
Some, the President and his administration included, call
for constructive engagement and dialogue--teaching by example.
But nobody has engaged. Not the Congress, not the
Administration, not American business engaged in China trade.
There has been no engagement; no dialogue; no constructive
progress. Those who have called for engagement have not
engaged.
Some argue that taking away MFN would set us back--would
create a more hostile environment for Christians and other
religious believers, would result in more persecution and would
cause China to ally itself with our adversaries.
Perhaps. None of us really knows for sure. But, my whole
life experience tells me it would have the opposite effect. I
think it's useful to remember history.
In 1987, the House of Representatives debated a bill I
sponsored that would have suspended MFN status for Romania for
six months. At the time, Nicolae Ceausescu was ruling Romania
with an iron fist, bulldozing churches and synagogues, killing
and imprisoning Catholic and Protestant clergy, stealing
sensitive Western technology and supplying aid to terrorist
regimes. Romania maintained a $588 million trade surplus with
the U.S--a 3.4 to 1 ratio--at the time the highest trade
imbalance we had with any country in the world. We heard the
same arguments against cutting off MFN then.
Let me just quote from the floor debate from April 6, 1987.
Congressman Dan Rostenkowski, then chairman of the Ways and
Means Committee, said:
``I believe the author of the amendment is well-
intentioned, the proposed remedy is the wrong one. I, too, am
concerned about the people of Romania--that they be able to
pray freely, emigrate freely, and enjoy basic human rights.
Where we differ is the means to achieve improvements in these
areas. The amendment's sponsors would cut off our most
important ties with Romania in an effort to force the Romanian
government to bend to our will. However, I firmly believe that
the effect of cutting off or suspending MFN trading status
would be just the opposite of what they seek--namely, a
backlash by the Romanian government against its people.''
Congressman Sam Gibbons, also a distinguished member of
this committee, argued against suspending MFN by asserting that
nobody in the government supported revoking MFN, that there
were no religious prisoners in jail, that Romanians were
printing their own Protestant Bible and that Ceausescu was an
independent thinker who had separated himself from the Warsaw
Pact. He said, ``I am not here apologizing for Romania or
trying to convince anybody it is a Garden of Eden. But
everybody knows that the best way to deal with Romanians is to
use the leverage that we now have and to continue getting
concessions out of them.''
Congressman Bill Frenzel argued that revoking MFN would
``entirely eliminate our ability to influence--now and in the
future--the treatment of those who are suffering there....
While temporarily eliminating our own anger, adoption of the
Wolf amendment would leave us empty-handed and powerless to
continue achieving successes we have had increasing our
emigration levels....The Wolf amendment may make us feel good,
but we ought to think about the people we want to help. We
should not give up on the only way we have to help them.''
But the House did vote to suspend MFN to Romania for six
months and it rocked the entire system. People in Romania heard
on Voice of America that the United States had stood with them
and it gave them hope. It cut the ten-foot-tall dictators down
to size and sent a message that the United States stands with
the little guy--the victims of totalitarian regimes.
Less than two years later, Ceausescu had been deposed and
Romania was on its path to democracy. Perhaps there is no link,
but I believe there was.
We must also remember the positive effect sanctions had on
the situation in South Africa--they made all the difference.
Voting to revoke MFN in the House of Representatives would
send the same message of hope and encouragement to the many
Chinese who desire democracy and religious freedom.
According to a recent Wall Street Journal poll, 67 percent
of Americans surveyed already believe that the United States
should demand that China improve its human rights policies or
lose MFN. Voting to revoke MFN would put the House of
Representatives on the side of the American people and on the
side of history.
We know that it has been three years since President
Clinton de-linked trade from human rights in 1994 and there has
been no progress. No progress on human rights. Things have
gotten worse. No progress on proliferation. China continues its
unsavory activity. And very little, if any, progress on China's
willingness to open its markets to U.S. goods. We know our
current policy is not working. It's pretty clear.
Just imagine if you were a Catholic priest in prison for
saying Mass or administering the sacraments. You had been
beaten or tortured or denied food or forced to endure back-
breaking labor. Just imagine if you heard that the U.S.
Congress voted to give China MFN. Just imagine how demoralized
you would feel. But imagine you heard from someone--perhaps
your mother, brother or friend--who heard on Voice of America
that the U.S. Congress voted to take away MFN. Wouldn't you
feel a sense of hope and encouragement? A sense that someone
cared and was speaking up for you.
I would and that's why I support revoking MFN. I hope you
will too.
Mr. Ramstad. Thank you very much for your testimony, Mr.
Wolf.
The gentleman from Illinois, Mr. Ewing.
STATEMENT OF HON. THOMAS W. EWING, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF ILLINOIS
Mr. Ewing. Thank you, Mr. Chairman. It is difficult to
follow my colleague, Mr. Wolf, and also Mr. Porter; but I want
to thank you and express my appreciation for the opportunity to
speak before this Subcommittee on this important issue.
I will summarize my prepared statement in the interest of
time and would like to request that my full testimony be
entered in the record.
I am a strong supporter of most-favored-nation status for
China. In fact, I was first elected to Congress in a special
election in 1991 and, after hearing the testimony of this small
group of Members, you can imagine what it was like on the floor
that day--my first day in Congress--having the opportunity to
vote on this very controversial issue.
I was in favor of most-favored-nation status for China
then. I am even more convinced now that it is the right policy
for advancing American interests.
Since we began granting most-favored-nation status to China
17 years ago we have witnessed, I believe, a tremendous gain in
the standard of living, freedom to work, and have witnessed the
creation of a middle class that is emerging as a powerful force
for change within China.
As we all know, there is a lot of room--a lot of room--for
improvement in these areas in China. No one that I know of
disagrees with that. However, there is significant recent
historical evidence to support the argument that economic
freedom gives birth to political freedom. Take Korea or Taiwan,
for example: They have made major strides in the last 2
decades.
The point that I want to make is that the Chinese people,
like their neighbors in South Korea and Taiwan, will gain more
and more power over their government and become less and less
tolerant of unjust governmental practices as the Chinese people
increasingly become the source of their own wealth and power.
In other words, as the economic liberalization and expansion of
the middle class continues, the Chinese Government will become
increasingly reliant on the Chinese people, not the other way
around as is currently the case.
I would like to turn my focus to another subject close to
my heart, and that is agriculture. Agriculture has a unique
role among American exports. While the total U.S. trade
position has been in a deficit since 1971, U.S. agricultural
exports have consistently been in the surplus.
The United States has an enormous comparative and
competitive advantage in agriculture: We have the combination
of the best farmland, quality infrastructure, and high
technology. The result is our continued global dominance in
exporting agricultural goods.
However, with dominance comes the reliance on foreign
markets. No one else in the U.S. economy has as much to lose by
restrictive trade practices as the American farmer. Revoking
MFN would undoubtedly freeze U.S. farmers out of the Chinese
market, only to benefit their foreign competitors. Producers in
Latin America, Australia, and Europe, while less efficient than
U.S. farmers, will certainly leap for the opportunity to gain
market share in China.
Finally, I would like to mention the bill introduced by
Representative Doug Bereuter and myself. The China Market
Access and Export Opportunity Act represents a long-term policy
alternative, and one that is far superior to our current
practice of annual renewal.
This bill would authorize the President to snap back
tariffs to December 1994 levels if he certified that China is
not making a serious effort to gain entry into the WTO. Upon
gaining membership into the WTO, this bill would grant China
permanent MFN.
Getting China into the World Trade Organization is of
paramount importance. We must take this opportunity to lock in
market reforms in China. American companies and workers deserve
the right to compete for markets and customers throughout the
world. They deserve our best efforts to pry open foreign
markets; buffeting and posturing during our annual debate does
nothing to help that.
Thank you, Mr. Chairman. I would be glad to answer your
questions.
Mr. Ramstad. I thank my friend for your testimony and
assure you that your full statement will be included in the
record with the statements of all the other witnesses.
[The prepared statement follows:]
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Mr. Ramstad. Thank you very much.
The next witness, the gentleman from Oregon, Mr.
Blumenauer.
STATEMENT OF HON. EARL BLUMENAUER, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF OREGON
Mr. Blumenauer. Thank you, Mr. Chairman.
There is little debate or disagreement on the objectives of
American foreign policy regarding China. Most of us agree on
the need to encourage the Chinese to improve their record on
human rights. We also agree on the need to enlist the Chinese
in the effort to achieve world peace and greater equity in
trade. After all, China is the world's most populous country,
and has the most rapidly growing economy of the nineties.
However, the different approaches to achieving these goals
could not be more stark. The evidence suggests cutting
ourselves off from China will be counterproductive and will
continue the sad saga of the United States misjudging and
mishandling its Chinese relationship.
During the last century, a sledgehammer approach to force
Chinese compliance with our foreign policy objectives has
consistently failed. As a result, the Chinese, with arguably
the oldest culture in the world, view us with suspicion and, in
some instances, hostility.
During extraordinary circumstances in World War II, while
more than a million Japanese troops were on Chinese soil and we
were giving billions of dollars in aid, the Chinese showed
virtually no willingness to follow our direction.
During the Korean war, the China lobby's unrealistic and
misguided activities encouraged Gen. Douglas MacArthur's tragic
misreading of China and its intentions, leading to the death of
tens of thousands of American soldiers, the waste of billions
of dollars, and ultimately to his dismissal by President
Truman. MacArthur's actions have ramifications to this very
day, as the Korean peninsula is still the most likely spot on
Earth to engage American troops in hostile action.
Others have and will continue to speak to the economic
folly of abandoning a huge and rapidly growing market for U.S.
goods. Others have and will make clear to this panel that the
potential for huge future markets is important to agricultural
areas like the Midwest, the Northwest, and California. Others
will also make clear that our increasingly high-tech oriented
economy has nothing to fear from China's increase in low-tech
product manufacturing. These are all fine arguments, but they
miss an important point.
I believe Congress has a responsibility to act as a partner
with the administration in supporting and contributing to the
formulation of U.S. foreign policy. I strongly identify with
the approach embraced by Mr. Porter in terms of dealing with
specifics. We accomplish these objectives with sound
legislation and by having the wisdom and restraint to play our
appropriate role, even though it may not be the most popular
position at the time.
The U.S. Government has achieved some significant recent
foreign policy success with the Chinese, notably on the Korean
peninsula where the Chinese are a stabilizing influence--
perhaps the only stabilizing influence.
We have made progress protecting American intellectual
property and textiles with various trade agreements over the
years. If we abandon these efforts and cut off the Chinese, I
believe we will at best befuddle them, at worst enrage them. If
we deliberately isolate ourselves from China, I believe we make
it much harder to negotiate with the Chinese: for they will
shift their markets to Europe, to other Asian countries, and to
our agricultural competitors around the world.
There is no evidence that any other countries have the
slightest intention of supporting the United States in a policy
out of step with the rest of the world, unlike what happened in
South Africa, when the entire world was on our side.
The most telling example for me is to be found in the
apprehension surrounding transfering of the government of Hong
Kong back to mainland China.
Opponents of our continuing relationship with China cite
concern for the future of Hong Kong as justification against
for their position. Yet across the spectrum of opinion and
political philosophy in Hong Kong--including Christopher
Patten, the current and last Governor General of Hong Kong--
there is unwavering support for us to stay the course and not
disrupt the Chinese relationship with MFN revocation.
The advancement of economic and political freedom for the
Chinese and the protection and promotion of world peace will be
far better served if the United States does not isolate
ourselves. We should refrain from playing politics at home with
a failed strategy from the past, and instead we should become a
leader in the family of nations with sane policies for the next
century.
I appreciate your courtesy in allowing me to enter my
feelings and thoughts in the record.
[The prepared statement follows:]
Statement of Hon. Earl Blumenauer, a Representative in Congress from
the State of Oregon
There is little debate or disagreement on the objectives of
American foreign policy regarding China.
Most of us agree on the need to encourage the Chinese to
improve their record on human rights. We also agree on the need
to enlist the Chinese in the effort to achieve world peace and
greater equity in trade. After all, China is the world's most
populous country and has the most rapidly growing economy of
this decade. However, the different approaches to achieving
those goals could not be more stark.
The evidence suggests cutting ourselves off from China will
be counter-productive and will continue the sad saga of the
United States misjudging and mishandling its Chinese
relationship.
During the last century, the sledgehammer attempt to force
Chinese compliance with our foreign policy objectives has
consistently failed. As a result, the Chinese--with arguably
the oldest culture in the world--view us with suspicion and in
some instances hostility.
During extraordinary circumstances in World War II, when
there were more than a million Japanese troops in mainland
China, when we were giving billions of dollars in aid to the
Chinese, their government showed virtually no willingness to
follow our direction.
During the Korean War, the China lobby's unrealistic and
misguided activities encouraged General Douglas MacArthur's
tragic misreading of China and its intentions, leading to the
death of tens of thousand of American soldiers, the waste of
billions of dollars, and ultimately to his dismissal by
President Truman. MacArthur's actions have ramifications to
this very day as the Korean peninsula is still the most likely
spot on earth to engage American troops in hostile action.
Others have and will continue to speak to the economic
folly of abandoning a huge and rapidly growing market for
United States goods. Others have and will make clear to this
panel why the potential for huge future markets is important to
agricultural areas like the Northwest, California and the
Midwest. Others will also make clear that our increasingly hi-
tech oriented economy has nothing to fear from China's increase
in low-tech product manufacturing. These are all fine
arguments, but they miss an important point.
I believe Congress has a responsibility to act as a partner
with the Administration in supporting and contributing to the
formulation of U.S. foreign policy. We accomplish these
objectives with sound legislation and by having the wisdom and
restraint to play our appropriate role even though it may not
be the most popular position at the time.
The United States government has achieved some recent
foreign policy success with the Chinese, notably in the Korean
peninsula where the Chinese are a stabilizing influence, maybe
the only stabilizing influence. We have also made progress in
protecting American intellectual property and textiles with
various trade agreements over the years.
If we abandon these efforts and cut off the Chinese, I
believe we will at best befuddle them, at worst enrage them. If
we deliberately isolate ourselves from China, I believe we make
it much harder to negotiate with the Chinese, for they will
shift their markets to Europe, to other Asian countries and to
our agricultural competitors around the world.
If we impose sanctions out of a belief China will bend to
our wishes automatically, I say witness Cuba, which is still
operating under a repressive regime after four decades despite
our constant huffing and puffing.
And to those who point to South Africa as an example of
sanctions having an eventual positive effect, I say that was a
case where the entire world was on our side. If we revoke MFN
with China, we will most certainly be alone. For there is no
evidence that other countries have the slightest intention of
following in supporting an isolationist policy toward China.
The most telling example for me is to be found in the
apprehension surrounding the transfer of Hong Kong back to
mainland China. Opponents of continuing our present
relationship with the Chinese cite concerns for the future of
Hong Kong as justification for their position. Yet across the
spectrum of opinion and political philosophy in Hong Kong,
including Christopher Patten, the current and last Governor
General of Hong Kong, there is unwavering support for us to
stay the course and not disrupt the Chinese relationship with
MFN revocation.
The advancement of economic and political freedom for the
Chinese and the protection and promotion of world peace will be
better served by the U.S. not isolating ourselves. We should
refrain from playing politics at home with a failed strategy
from the past, and instead we should become a leader in the
family of nations with sane policies for the next century.
Mr. Ramstad. Thank you very much for your testimony.
Finally on this panel, the gentleman from Arizona, Mr.
Salmon.
STATEMENT OF HON. MATT SALMON, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF ARIZONA
Mr. Salmon. Thank you, Mr. Chairman. I appreciate the
opportunity to come and speak before the Subcommittee.
Frankly, from my vantage point, it would be a lot easier to
stand up and say what rotten guys they are in China, because
they are. The leaders in China--I think some of them truly have
no good use for the people they govern. Frankly, it would be a
lot easier for me to go back home to my district and thump my
chest and say I poked those bad guys in the nose for you by
revoking MFN. That would be the end of my explanation, and I
could go on my merry way and campaign on a different issue.
I am not going to try to convince anybody here that all is
well in China. The fact is, things are bad. They are really
bad. Religious persecution is real. The human rights situation
is dismal, and there are legitimate concerns about how China
will handle the return of Hong Kong.
But as a former Christian missionary to the region, I
believe that if we close the door to trade relations, we close
the door to all relations.
If I thought for 1 second that revoking most-favored-nation
trading status for China would improve the human rights
situation in China, I would vote for revoking it in a New York
minute.
Human rights are more important than trade, and that is an
unequivocal position that I think we all agree on. But the fact
is, in my heart, I don't believe that revocation will improve
conditions in the PRC. In fact, I believe it will only serve to
make matters worse.
For 2 years in the late seventies, I served in Taiwan as a
missionary for the Church of Jesus Christ of Latter-day Saints.
At that time, Taiwan was under martial law and the government
was autocratic, as it is in China today. Speaking out against
the government in any way simply was not tolerated; if you did,
you disappeared.
But that was also the time when things began to open up
economically in Taiwan. Ultimately, economic reforms spurred
political reforms, and in 1996 the world witnessed the
inauguration of the first directly elected president of Taiwan.
Real reform: That hasn't happened in that region of the world
in 5,000 years.
The Chinese approach conflict differently than we do in the
West. We tend to be very arrogant, think that we have all the
answers and that since we think a certain way, everybody else
must think the same way we do. But we have got to understand
that the leaders in Beijing are far more fearful of losing face
internationally and at home than they are of losing MFN. They
do not want the United States meddling in what they consider to
be their internal affairs. As the only world superpower left
and, hopefully, the moral compass for this plan, we believe
that we have to say something about human rights, and we are
right to do so.
But what do we think would be the ultimate outcome of
revoking MFN? Once we revoke MFN, then what? I believe that the
United States and China would ultimately end up in a period of
cold war, as we did with the Soviet Union. MFN is our trump
card; if we play it, how can we hope to influence China from
the outside?
In addition, if the United States were no longer at the
table, which nations would express our values and concerns
about issues such as human rights? Is France going to stand up
and decry human rights violations or religious persecution?
Maybe Japan? Or one of the other countries like Germany? Well,
they haven't yet.
While we must never let China's leaders forget that the
world is watching and that all will not be right until they
demonstrate acceptance of the most basic human rights, we also
should not walk away from the table. If we turn our back on
China by denying her MFN, we lose our ability to influence
China's development.
Just ask yourself this question: What relationship have you
ever had that you have been able to improve upon by walking
away, by not talking and not engaging?
Change will come to China, as it has to other oppressive
nations. Our presence there is, in fact, already providing
opportunities to the Chinese people that would have been
unimaginable just a few years ago.
It is time that we in Congress come up with innovative
approaches to deal with the many problems presented by China.
And it is time for President Bill Clinton to get serious about
our relationship with the country that most likely will be the
world's next great superpower.
There are ways the United States can exert pressure and
influence on China that would not bring an end to our
relationship. For example, I have advocated the establishment
of a Commission on Security and Cooperation in Asia, which
would be modeled on the Helsinki Commission that has had great
success in Europe.
The United States could develop a prisoner information
registry in order to ascertain the dissident population
currently in prison during meetings with Chinese officials.
In addition, it is vital that we expand engagement between
the U.S. Congress and the People's Congress through an
interparliamentary exchange. Such meetings would increase
understanding between two very different cultures as well as to
provide access to our legislative process and legal system at a
time when rule of law appears to be gaining greater importance
in China.
My dad taught me an important lesson when I was young. When
I was playing baseball he said, Always keep your eye on the
ball. When it comes to our policies with China, Congress needs
to heed that advice.
We often confuse tactics with objectives. We need to keep
our eye on the true objectives: improving human rights
conditions, curtailing sales of dangerous weapons to countries
like Iran and Pakistan, enhancing national security for the
United States in Asia, protecting intellectual property, a
smooth merging of the free and democratic government of Hong
Kong with the PRC, and improving relations between Taiwan and
the mainland.
The objective is not--I repeat, is not--revocation of MFN,
which is merely the same trading status that we maintain with
almost every other country in the world.
As the writer Victor Hugo said, ``There is one thing
stronger than all armies in the world, and that is an idea
whose time has come.'' That is particularly apt when thinking
of China. Believe me, the will of her people is far stronger
than any browbeating or bullying that we can do from outside
China, and it is going to happen.
It is clear that our western ideals are making their way
into this vast nation. As we see changes in an outmoded and
oppressive system, we have got to be a little more patient
while also being vigilant in our demands for improvement.
Freedom and democracy has come to Taiwan. I believe that 1 day
it will come to China, too.
Thank you.
[The prepared statement follows:]
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Mr. Ramstad. I thank the gentleman for his testimony.
The final witness on this panel is the other gentleman from
Arizona, Mr. Kolbe.
STATEMENT OF HON. JIM KOLBE, A REPRESENTATIVE IN CONGRESS FROM
THE STATE OF ARIZONA
Mr. Kolbe. Thank you very much, Mr. Chairman.
I apologize for being late to this; we were trying to
prepare for the markup on my appropriations bill tomorrow. But
I very much appreciate the opportunity to testify with my
colleagues, who, as you have obviously heard, are standing on
both sides of this issue.
I have long had an interest in this, but I have a
particular interest this year. In January I led a delegation of
representatives on a fact-finding mission to Hong Kong and
China to see firsthand the impact that the U.S. policy of
engagement is having on the Chinese economy and the Chinese
people. After visiting there, I remain more committed than ever
to our policy of economic and political engagement, the
cornerstone of which is the renewal of MFN status and the
maintanence of normal trading relations with China.
Over the last several years, economic liberalization has
generated powerful currents of democracy and freedom that have
rippled throughout Asia. Certainly that has been the case in
China. These changes did not occur overnight. They have been
part of a long-term evolutionary process of economic growth and
ever-expanding liberties.
As in other Asian nations, we should not expect China to
change quickly into a flourishing, free-market democracy. But I
am convinced that, if we remain steadfast in our concept of
engagement, freedom and democracy will prevail over the tyranny
of oppression and the stagnation of state-run economies. We
will ultimately see the same economic and political
transformations in China that we have seen in countries such as
Japan, Korea, and Taiwan.
There is evidence of change in China today. Two decades
ago, Mr. Chairman, virtually every aspect of Chinese society
was under state control. Today, well over half of the Chinese
gross domestic product, GDP, is generated by private enterprise
and 85 percent of the people in China now work in nonstate
industries. The development of a strong, vibrant private
sector, particularly in southern China, continues to weaken
government control. And I think this is the best hope that we
have for future political freedom.
Economic liberalization and growth in trade and economic
links with the United States over the past decades have
promoted freedom for the Chinese people. I think that statement
is undeniable. I don't think there is anybody in the room who
can deny there has been an expansion of civil liberties or
personal space over the past two decades resulting from
economic improvements. In my view, the policy of trying to
expand political reforms in China would surely come to a dead
end if we were to shrink trade and economic exchange between
our countries. For that reason alone I think support of renewal
of MFN status is justified. But there are a couple of other
reasons I want to mention here.
In just a couple of weeks we are going to see a massive
change as Hong Kong undergoes the peaceful transfer of
sovereignty from Britain to China. If we in the House of
Representatives were to pass a resolution of disapproval on the
eve of transfer, what message would we send to the world and,
most specifically, to the people of Hong Kong? That America
wants to turn its back on them, break economic and political
ties with that region, and abandon its citizens at the precise
hour of their greatest need? I don't think that is the message
we should be sending.
I also fear that passing a resolution of disapproval would
result in a backlash against American goods and American
values. It would be nothing less than a unilateral declaration
of political and economic war, providing just cause to hardline
elements in the Chinese Government who advocate more state
control and less foreign influence.
The result would be that groups associated with the United
States that promote Western values, like the International
Republican Institute, which works to develop the rule of law
and strengthen the growing village democracy movement in China,
would be exiled. Missionary organizations like the Evangelical
Fellowship would no longer be welcome. We would be
extinguishing some of the brightest rays of hope for the
Chinese people and ultimately hurt the very ones we are trying
to help.
Maintaining normal trade relations with China does not mean
that we do not speak frankly and firmly to the Chinese
Government about issues that are important to us. There are
opportunities for us to let them know our concerns about human
rights. But if we disengage, if we pull back our most potent
resources, how can we ever continue to carry this message
forward?
One thing is very clear, Mr. Chairman: The United States
has to remain a major influence in Asia. We must strengthen
relations with our allies and maintain a strong military
presence in that region. We must be clear and consistent in our
message to the Chinese Government. This annual debate over
whether we will continue political and economic relations with
China is destructive. It hampers our ability to formulate a
comprehensive and effective policy toward the region, and I
think it is time for it to end.
Mr. Chairman, I will close by saying that I urge renewal of
the MFN status. History has shown economic growth to be an
effective catalyst of political change. The principles of
freedom and individual liberty embodied in economic
liberalization will prevail, but only if we have the political
courage to make the right choices, to renew MFN status and to
let that economic liberalization flourish in the future.
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of Hon. Jim Kolbe, a Representative in Congress from the
State of Arizona
Thank you for the opportunity to testify today. Mr.
Chairman, in January I led a delegation of representatives on a
fact-finding mission to Hong Kong and China to see first-hand
the impact the U.S. policy of engagement is having on the
Chinese economy and the Chinese people. After visiting there, I
remain more committed than ever to our policy of economic and
political engagement--the cornerstone of which is renewal of
MFN status and maintaining normal trading relations with China.
The changes we witnessed in China reflect many of the
changes we have seen grip other Asian nations. Over the past
decade, economic liberalization has generated powerful currents
of democracy and freedom that have rippled throughout Asia.
These currents have reshaped the socioeconomic landscape of the
region.
Economic growth, driven by U.S. policies of the free
markets, free trade and peaceful dialogue among nations, has
allowed countries like Japan, Korea, and Taiwan to emerge as
prosperous industrialized nations. As their economies grew, so
did the demand for individual freedom and liberty. Today, these
countries have developed into true democracies characterized by
political pluralism, functioning independent parties, and
greater respect for the rights of the individual.
Now these changes did not occur overnight. They were part
of a long-term, evolutionary process of economic growth and
ever expanding individual liberties. I think we are seeing the
same forces of change at work in China. But, just as in other
Asian nations, we cannot, and should not, expect a nation like
China to fundamentally change into a flourishing free-market
democracy overnight.
But I am convinced that if we remain steadfast in our
policy of engagement, with confidence that American values of
freedom and democracy will ultimately prevail over the tyranny
of repression and the economic stagnation that accompany state
controlled economies, we will ultimately see the same economic
and political transformation in China that we have seen in
nations such as Japan, Korea and Taiwan.
Even now there is evidence of change. Two decades ago,
virtually every aspect of Chinese society was under state
control. Today, over half of China's output is generated by
private enterprise. The development of a strong, vibrant,
private sector--particularly in Southern China--continues to
weaken centralized control. This, I think, continues to
represent the best hope for political freedom to spring full-
blown in China.
Economic liberalization and growth of trade and economic
links with the United States over the past two decades have
promoted freedom for the Chinese people. That statement is
undeniable. By having employment opportunities in non-state
enterprises, millions of Chinese have obtained the basic
freedom to select their own employment and to change jobs when
they are dissatisfied with working conditions or wages. This
environment is the direct result of our policy engagement.
I do not think anyone in this room can deny that there has
been an expansion of civil liberties or ``personal space'' over
the past two decades resulting from economic improvements. In
my view, a policy of trying to expand political reforms in
China would surely be a dead end if we were to shrink trade and
economic exchange between our two countries. For that reason
alone, I support renewal of MFN status.
But there are other reasons. In just a few weeks the world
will watch as Hong Kong undergoes the peaceful transfer of
sovereignty from Britain to China. If we pass the resolution of
disapproval in the House of Representatives on the very eve of
the transfer, what message will this send to the world and the
people of Hong Kong? That America wants to turn its back on
them, break economic and political ties with that region, and
abandon its citizens at the precise hour of their greatest
need. I do not think that this is what the United States stands
for.
I also fear that passing the resolution of disapproval in
the House will result in a backlash against American goods and
American values. It would be nothing less than a unilateral
declaration of political and economic war, providing just cause
to hard-line elements in the Chinese Government who advocates
more state control and less foreign influence.
I fear the result will be groups associated with the United
States who promote western values like the International
Republican Institute, which work to develop the rule of law in
China and strengthen the nascent village democracy movement,
would be exiled. Missionary organizations, like the Evangelical
Fellowship, would no longer be welcome. We would be
extinguishing some of the brightest rays of hope to the Chinese
people, ultimately hurting the very ones we are trying to help.
Now maintaining normal trade relations with China does not
mean that we don't speak frankly and firmly to the Chinese
Government about issues and values important to us. There are
opportunities where we can and should let our concerns about
human rights, trade, and nuclear proliferation be known. But if
we disengage, if we pull back our most potent resources, how
can we ever continue to carry this message forward?
I certainly think that there is more that we can do. For
example, I favor bringing China into the World Trade
Organization on commercially viable terms. I think doing so
would force difficult domestic economic reform on Chinese
leaders while providing the United States with a strong
multilateral vehicle for dealing with issues such as market
access in China.
I also favor accelerating and funding efforts to work with
the Chinese on a number of issues, ranging from the promotion
of the rule of law to encouraging and supporting the village
election process. In fact, I am currently working with
Representatives Porter and Dreier to examine just such an
approach.
But one thing is clear. The United States must remain a
major influence in Asia. We must strengthen our relations with
our allies and maintain a strong military presence in the
region. And we must be clear and consistent in our message to
the Chinese Government. This annual debate over whether we will
continue our political and economic relations with China is
nothing but destructive. It hampers our ability to formulate a
comprehensive and effective policy toward the region. And I
think it is time for it to end.
Mr. Chairman, I urge renewal of MFN status. History has
shown economic growth to be an effective catalyst of political
change. The principles of freedom and individual liberty
embodied in economic liberalization will prevail--but only if
we have the political courage to make the right choices, renew
MFN status, and let them flourish.
Thank you.
Mr. Ramstad [presiding]. I thank the gentleman for his
testimony and for his leadership on this and other trade issues
as well as his outstanding service on the Speaker's task force
on China.
Additionally, I thank all the members of this panel for
their very thoughtful, very articulate, very compelling
testimony. You all did an excellent job, and I only wish more
of our colleagues on the Subcommittee could have been here
today. But I can assure you that all the statements will be
entered into the record and--well, I can't assure you that they
will all be read, but your points were well made.
Next panel, please. The next panel will consist of Gary
Bauer, president of the Family Research Council; John Carr,
director of the social development and world peace department
for the United States Catholic Conference; Rev. Daniel Su,
assistant to the president of Chinese Outreach Ministries; and
Dr. Edvard Torjesen, director of the Evergreen Family
Friendship Service.
Reverend Su and Dr. Torjesen will be formally introduced by
Representative Pitts of Pennsylvania, who will be joining the
panel for this part of the hearing. Also on this panel is Joy
Hilley, executive director for Children of the World, an agency
which provides American families the opportunity to adopt
children from China.
I appreciate all of you being here today and would now like
to call upon Mr. Bauer, president of the Family Research
Council, for your testimony.
STATEMENT OF GARY L. BAUER, PRESIDENT, FAMILY RESEARCH COUNCIL
Mr. Bauer. Thank you, Mr. Chairman. With your permission, I
would like to submit my statement for the record and make some
summary remarks.
Mr. Chairman, over the last few months, I have taken a hard
look at the MFN issue, as many have. And I must say that I
don't see how a reasonable man using common sense can come up
with any argument in favor of continuing the policy of the last
17 years.
If we again take a look at the issue of religious
persecution, I think the evidence is overwhelming that
persecution of believers in China has become much worse in
recent years, particularly since President Clinton delinked
human rights from our trade policy a few years ago.
Just in recent weeks, we have met a number of people who
have returned from China and who have told us stories about
priests and evangelical pastors being beaten, tortured, and
imprisoned--all for preaching the gospel. By some estimates, as
many as 100,000 Chinese citizens are subjected to torture each
year.
If you go beyond religious liberty and just look at human
rights in general, in its latest report our own State
Department said that there was not a dissident in China--a
single active dissident in China--who had not been imprisoned,
killed, or exiled. An extraordinary statement.
By the way, I saw just this morning or yesterday that the
latest State Department report on China has been conveniently
delayed until you and your colleagues have a chance to vote on
the issue. I suspect that that delay is an indication that the
next report from our State Department will be as scathing as
the last one was in its indictment of China.
I listened with interest a few moments ago to a panel of
your colleagues, Mr. Chairman, who on balance gave many reasons
in favor of MFN. I was shocked not to hear any of them raise
the issue of the national security interests of the United
States. Indeed, it is hard for a day to go by, if you read our
major newspapers, without reading a story about what has
happened as a result of trade with China. A recent front-page
New York Times story indicated that Silicon Graphics, a
computer company, had sold something like 49 supercomputers to
the Chinese and, lo and behold, in spite of denials by both the
Clinton administration and the Chinese Government, the evidence
is now building that these computers are being used by the
Chinese military to make their missiles lighter, and make it
easier to target the west coast of the United States.
I also listened with interest as a number of your
colleagues suggested that they were politically courageous. And
I suspect they were making that argument because they have
looked at research data, as we all have, showing that 67
percent of the American people believe that human rights ought
to be at the center of our policy with China. Not trade or some
vague promises of what trade will bring, but human rights ought
to be at the center of our China policy. The American people
were right a number of years ago when it came to South Africa.
They are right today in believing that American values ought to
be at the center of what America does in foreign policy.
Finally, Mr. Chairman, I believe it was 8 years ago that we
all sat in our homes and watched on television as Chinese
students bravely stood in front of tanks. I know that I will
not forget that; I hope the Members of this Congress will not
forget it. I will never forget the fact that those students,
while they marched in Tiananmen Square, waved copies of our
Declaration of Independence, built papier mache models of our
Statue of Liberty. It was American values that they were
standing up for. It seems something has gone terribly wrong in
America when, in 1997, Chinese students have more courage than
the foreign policy leaders of Washington, DC, to defend
American values.
Thank you, Mr. Chairman.
[The prepared statement follows:]
Statement of Gary L. Bauer, President, Family Research Council
Mr. Chairman, members of the subcommittee, ladies and
gentlemen: my name is Gary L. Bauer. I am the President of
Family Research Council, a private education organization
serving more than 300,000 families. I served as President
Reagan's Domestic Policy Adviser and as Undersecretary of
Education in the Reagan administration.
I appear before your subcommittee today to testify against
extending ``Most Favored Nation'' trade status to the People's
Republic of China. I believe this course is consistent with
America's honor and America's interest. I also believe that
denial of MFN status to China's rulers will ultimately bring
improvement in the deplorable conditions suffered by the people
of China.
Let me be clear. I do not advocate an end to trade or
diplomatic relations with China, nor do I suggest that we
impose an economic embargo on China. By revoking MFN, we will
merely be telling the Chinese rulers that they stand to face
tariffs which are comparable to those that Americans currently
face in seeking to enter China's markets.
China's markets have been largely closed to American goods.
Despite the furious lobbying of Congress by various business
interests, the highly touted Chinese market has proved to be a
mirage--steadily receding toward the horizon of a promise never
quite fulfilled.
As a result, China buys from us barely two percent of all
our exports--two percent! America sells more to Belgium than to
China.
There is the most obvious point of all staring out from
these figures: If China is exporting to America four times more
than it imports from America, it wields in effect one-quarter
of the retaliatory power we possess. Depending on the American
market for a large portion of its total exports, China has far
more to fear from a suspension of MFN than America has--as
indeed China's own frenzied public relations campaign in
Washington today attests.
Even back in 1990 and 1991, faced with a loss of MFN after
the massacre of 700 or more students at Tiananmen Square,
Beijing was clearly afraid and responded accordingly: China
released some 800 political prisoners (most only to be promptly
re-arrested after MFN was assured), announced a large contract
with Boeing, and promised to ban exports of goods produced by
slave labor, end illegal textile shipments, accelerate U.S.
imports, close down all illegal factories dealing in copyright
and software theft, and open a nuclear reactor that it was
building in Algeria to international inspection.
All this occurred only when, briefly in the summers of 1990
and 1991, it looked as if Congress might really act. China was
faced not just with condemnation or bluster from Washington,
but with a real prospect of losing its cherished MFN privileges
with its greatest export market.
America, in other words, stands before China in the summer
of 1997 for the most part as customer. In most free economic
relationships, it is the customer who has the power.
Our dealings with China have been highly one-sided. I
believe they have been a bad deal for Americans, especially
American workers and taxpayers. But I readily admit that I
would not be appearing before this subcommittee today if this
were only a matter of a disadvantageous trade relationship.
I have not testified against Japan's trade status, despite
the unfair trading practices I believe the Japanese pursue
against American exports. The conduct of China's rulers calls
upon all Americans to judge communist China differently from
the way in which we judge democratic and even many other
authoritarian countries.
China's human rights violations shock--or at least should
shock--the conscience of the world. Our State Department
reported last January that harassment, imprisonment, torture
and even execution are the common lot of dissidents in China.
The report stated that government repression has been so fierce
that all dissidents have been jailed, exiled or killed. All
dissidents. The report is filled with words like ``cattle
prods,'' ``thumb cuffs,'' ``shackles,'' and ``electrodes.''
China's religious believers fare little better. Some 50
million Christians--both Catholic and Protestant--live in fear
of government persecution. Many independent observers--like
human rights lawyer Nina Shea and Canadian scholar Paul
Marshall--report that China's religious persecution has been
intensifying since President Clinton delinked trade and human
rights in 1994. Christian prayer services are routinely
disrupted by the Chinese Public Security Bureau's baton-
wielding police. Pastors and priests are imprisoned. Some
clergy have not been heard from for months.
The Beijing regime clearly views Christians as the enemy of
totalitarian communism. Its leadership, determined not to
repeat the ``mistakes'' of the Soviet empire, speaks
disparagingly of the ``Polish disease.'' The religious
resistance to communism galvanized by Pope John Paul II is much
on the mind of China's leaders. Paul Marshall, in Their Blood
Cries Out, quotes China's state controlled press warning that,
if China does not want to experience the same fate as the
Soviet empire, it must ``strangle the baby in the manger.'' In
other words, they view Jesus Christ and, by extension,
Christianity as the greatest threat to their continued control
over the Chinese people.
Christians are not the only ones persecuted in China.
Buddhists, particularly those in Tibet, and Muslims in the
Northwest are experiencing a Chinese version of ``ethnic
cleansing.''
China's ruthless one-child policy has resulted in forced
abortions and compulsory sterilizations on a horrific scale. A
wide range of religious and political leaders has called this
abortion policy ``abhorrent.'' The policy has also led to
female infanticide. The BBC recently documented the deliberate
starvation of orphaned girl babies in a film called The Dying
Rooms.
China's rulers do not threaten or bully their own people
alone. When Denmark raised the issue of human rights before a
UN conference in Geneva, China's rulers raged against that
valiant little country. Denmark, Beijing snarled, would have
its neck broken ``like a small bird.''
In 1996, when the people of Taiwan dared hold the first
free elections in 5,000 years of Chinese history, China fired
missiles over their heads. The freely elected legislature of
Hong Kong will be ousted by a puppet parliament hand-picked by
Beijing when that colony is handed over at midnight on July
1st.
Chinese rulers have treated pariah states like Iran and
Iraq as their most favored nation trading partners. Their trade
with these terrorist regimes has been in weapons of mass
destruction, including poison gas and offensive missiles.
Americans have been killed by these weapons. Last week, China's
missile trade with Belarus--a trade clearly violating
international arms control agreements--was disclosed.
The New York Times reported on June 10 that China may be
using 46 supercomputers purchased from America to build nuclear
missiles capable of striking our shores. U.S. Marines, like my
own father, who served in the South Pacific in World War II,
all heard the bitter complaint of America's warriors: ``We sold
the Japanese New York City's Fifth Avenue `el' and now they're
shooting it back at us.'' The steel we blithely sold to Japan
in the 1930s ultimately cost American lives. Must not we ask
whether history may be repeating itself in the sale of high-
tech weapon systems to China today?
U.S. high-tech trade with China is being conducted with a
short-sightedness that exceeds an similar error we've made in
the past. China is unquestionably engaging in the largest scale
military buildup of any great power. Beijing uses the more than
$40 billion in hard currency it nets from trade with the United
States to finance its military buildup. Many of China's
``businesses'' are in fact wholly-owned subsidiaries of the
People's Liberation Army.
Chinese rulers routinely demand--before they will do
business with our corporations--that U.S. manufacturers give
them high-technology transfers, some of which are known to be
diverted to weapons development. A recent deal by McDonnell-
Douglas for machine tools, which the Chinese diverted to
missile manufacturing, is a case in point.
Against whom will all these weapons be used? Official
Chinese journals, according to our own Defense Week, anticipate
what they call ``a small war'' with America by the year 2010
over the issue of Taiwan. A Chinese official has issued a
veiled threat to the effect that the United States would not
come to the aid of Taiwan if it meant the destruction of Los
Angeles.
The students in Tiananmen Square did not make papier-mache
models of Chairman Mao but of our Statue of Liberty. They
didn't quote Marx but Jefferson. Our Declaration of
Independence speaks to a universal longing in the human soul
for freedom and dignity. The United States of America should
always ensure that the tyrants of this world will sleep
uneasily in the knowledge that their people know the words of
our Declaration of Independence and that they, and we, still
believe them.
Mr. Chairman, members of the subcommittee, I urge you to
revoke China's MFN trade privileges. I do not believe we are
the ``moneybag democracy'' Beijing has contemptuously called
us. I believe we can act to defend our people, our honor, and
our interests. I believe that the 67 percent of Americans who
place a higher priority on human rights in China than on
extending trade benefits (according to a recent poll conducted
for The Wall Street Journal and NBC) want us to uphold a firmly
rooted foreign policy. Ronald Reagan advocated a foreign policy
``based upon our deep belief in the rights of man, the rule of
law and guidance by the hand of God.''
The Chinese people, like freedom-loving people everywhere,
are looking to America for signs of hope. Let us send a clear
message that we stand with those people and not their
oppressors, that we support democracy in the world and will not
underwrite tyranny. Far from ending all future dealings with
China, the withdrawal of MFN could be one of the best
investments America ever makes in China--an investment in
freedom.
Thank you.
Chairman Crane [presiding]. Thank you.
Mr. Carr, please.
STATEMENT OF JOHN L. CARR, DIRECTOR, DEPARTMENT OF SOCIAL
DEVELOPMENT AND WORLD PEACE, U.S. CATHOLIC CONFERENCE
Mr. Carr. My name is John Carr. I serve the U.S. Catholic
bishops as director of their department of social development
and world peace. I appreciate the opportunity to testify today
on their behalf.
I come before this Subcommittee to urge a strong House vote
against renewing MFN to China as the best available means to
send a clear message to the Clinton administration and the
Chinese Government that the United States will neither reward
nor ignore pervasive violations of human rights, religious
liberty, and workers' rights.
The bishops are not newcomers to the MFN debate. They lead
a community of faith, not of political or economic growth. We
join with others from across the political spectrum to insist
that the United States' China policy must more clearly reflect
fundamental moral values.
The Catholic bishops believe that the House vote on MFN for
China is not really about China's trade status; it is a test of
American principles and priorities. We believe the ties of
common humanity are deeper and stronger than those of trade and
commerce. By voting not to renew MFN for China, the House can
stand in solidarity with those persecuted for their faith or
political courage, affirm the rights of workers, and defend
married couples from the inhumanity of coercive abortion
policies.
Hard experience has shown that a free society cannot exist
without freedom of conscience. Freedom for markets without
freedom of worship is not really freedom at all.
Religious persecution in China is serious and growing. As a
result of recent laws, regulations, and practices, many
believers in China--underground Catholics, Tibetan Buddhists,
Protestant ``house churches,'' and others--are denied the right
to practice their faith without governmental interference,
harassment, or persecution.
The bishops I represent know that if they served in China,
they could face harassment and possible imprisonment simply for
teaching Catholic doctrine and voicing their fidelity to the
Pope.
Our church supports reconciliation and dialog between the
United States and China and among the Chinese people and
Catholics, but these must reflect a fundamental respect for
human life, dignity, and rights.
America must recover its voice and its principles on
fundamental human rights. The United States must reorder its
priorities in China, insisting that protecting the rights of
believers, workers, and dissidents is at least as important as
combating the piracy of CDs and videos.
Our conference is sometimes dubious about trade sanctions,
but to punish Burma, Cuba, and Iraq at a time when we are
seeking to reward China is an exercise in hypocrisy and an
indication that the U.S. policy targets weak countries and
ignores the abuses of more powerful nations.
The Chinese have apparently concluded that there is no
significant price for political and religious repression. As
business has flourished, the repression of believers and
democratic reformers has grown even more bold. We must be clear
that violations of fundamental human rights have a price.
When the USCC's position on this issue was recently
reported, I received a call from a representative of a major
corporation with trade ties to China who suggested that MFN and
a policy of engagement was the best path to protect human
rights and religious liberty. I asked him to share any
evidence--one letter, one speech, one communication of any
kind--which would demonstrate that their company had used its
remarkable access to China to encourage greater respect for
human rights or religious liberty in any way. I was not asking
for some grand gesture, just some evidence that they had ever
raised with the Chinese their feeling that putting people in
jail for their religion or political convictions was wrong, or
at least counterproductive to ties to the United States. There
was a long pause and then he said, ``I cannot respond to your
question but I will try to find someone who can.'' I am still
waiting.
If the House votes to deny MFN renewal for China, one of
the best outcomes would be that many of those currently trying
to defend China's record on human rights and religious liberty
would spend less time lobbying Congress to protect their
economic interests and more time explaining to the Chinese that
U.S. concerns about human rights and religious liberty will
simply not go away.
Current policies have failed to bring the progress their
advocates promise. Using this admittedly imperfect vehicle, the
House can and should send a strong message to the Clinton
administration, the Chinese authorities, and to those
imprisoned in China for their faith or politics that the United
States will no longer ignore religious persecution, violations
of human and workers' rights, and coercive abortion policies.
We urge you to send that message.
The earlier panel agreed on very little, other than we need
a new policy toward China. But the road to a new policy also
rejects business as usual and looking the other way. That is
what the House vote on MFN is all about.
Thank you.
[The prepared statement and attachment follow:]
Statement of John L. Carr, Director, Department of Social Development
and World Peace, U.S. Catholic Conference
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Mr. Ramstad [presiding]. I thank the gentleman for his
testimony, and I would like to assure all the witnesses that
your full statements will be entered into the record.
I would now like to call on a colleague from Pennsylvania
who in his brief career here thus far has already shown a deep
knowledge of this subject and a real commitment to the issue.
Mr. Pitts.
STATEMENT OF HON. JOSEPH R. PITTS, A REPRESENTATIVE IN CONGRESS
FROM THE STATE OF PENNSYLVANIA
Mr. Pitts. Thank you, Mr. Chairman.
Good afternoon. It is an honor for me to be with you today
as you consider this very important issue of renewing MFN trade
for China. Back in January, after I was sworn into my first
term of office, I contacted several individuals I knew who had
a lifetime commitment to China, who understood China and the
Chinese culture and mentality, and who had years of service and
experience in China to back their opinion on renewing MFN for
China.
I am pleased that two of these gentlemen can be with you
this afternoon. Rev. Daniel Su was formerly a member of a house
church in China. He has spent the last several years
ministering to the Chinese, speaking at workshops, and writing
articles on the Chinese and Christianity. He currently serves
as assistant to the president of China Outreach Ministries, an
independent evangelical Christian ministry which focuses on
reaching out to mainland Chinese students and their families in
the United States.
Dr. Edvard Torjesen was born to missionary parents of
Norwegian descent in Shanxi province in north central China,
graduated from the Chefoo Schools on China's north coast in
1941, and personally witnessed the Japanese invasion and
aggression against China. Sadly, Dr. Torjesen's father was
killed on December 14, 1939, by a Japanese bomb attack on the
small town of Hequ.
Burdened with the memory of his father's death, Dr.
Torjesen returned to north China in 1948 to continue mission
service. He has 40 years of missionary service with TEAM, The
Evangelical Alliance Mission; 4 years service with the
Norwegian Government foreign service; and 5 years as executive
director of a mission organization. He started Evergreen Family
Friendship Service in China.
I am sure you will appreciate the wisdom of these gentlemen
as they discuss their views on MFN for China.
Reverend Su will speak first, then Dr. Torjesen.
STATEMENT OF REV. DANIEL B. SU, ASSISTANT TO THE PRESIDENT,
CHINA OUTREACH MINISTRIES, INC., BOWLING GREEN, OHIO
Reverend Su. Mr. Chairman, as a mainland Chinese currently
living in America, I greatly appreciate the opportunity to
testify here regarding China's MFN trade status. Based on my
understanding of China, its culture and people, I believe that
revoking China's MFN would backfire. It would be a step
backward for the cause of human rights in China and religious
freedom in particular. My reasons are as follows.
First and foremost, if the MFN were revoked, China's
President Jiang Zemin, for his own political survival, will
have little choice but to act tough in response to what would
be perceived as a serious provocation from the United States,
threatening China's national interests. This would then trigger
rounds of retaliations and counter-retaliations between the two
countries, leading to a serious deterioration in the whole
Sino-U.S. relationship and creating isolation of China. This
would have grave consequences difficult to reverse.
People suffer when China becomes isolated and hostile. I am
a witness to that. As a child, I didn't have enough to eat or
warm clothes to wear in winter. I can still recall the days
when my parents had no money to buy me shoes, and many times I
had to walk to school barefoot. Later when I became a
Christian, I couldn't find a Bible and I had to literally copy
one of the gospel books by hand. So engaging China through
trade has helped relieve the suffering of the ordinary Chinese
people.
Second, if China's MFN were revoked, Beijing's direct and
indirect retaliation would endanger the international community
and bring greater persecution of political dissidents and
Christians. Forced into a corner, Beijing would be even more
tempted to seek revenge by selling its nuclear technology and
chemical weapons to countries hostile to the United States. If
this were followed by other confrontations, there would be
social unrest in China, resulting in Chinese refugees flooding
to surrounding countries. We are talking about a lot of human
suffering here.
Third, revoking MFN will primarily hurt the Chinese people.
Ironically, the hardest hit will be those who have left China's
socialist economy, hoping to thrive in the Western-style free
market. If MFN is denied China, such hard-working Chinese would
be hurt the most. They would then have to go back to the
Beijing Government for their daily bread.
Finally, if MFN is revoked, China's loss of trade with the
United States would eventually be made up by increased trade
with Europe, Japan, and other countries. In the end, the United
States would be isolated due to using sanctions against China.
It would then also lose what leverage it currently has to
address any human rights concerns. That would be a lot of bad
news for all of us who are concerned about China's human rights
situation.
We have all seen positive changes from engaging China
through trade. At the same time, we also deplore many cases of
human rights violations. But to revoke China's MFN status as a
way to improve its human rights is simply counterproductive. It
is like setting your car on fire when it stalls.
I have good personal friends on both sides of the debate,
and I highly commend the many human rights groups and people in
the Congress who speak up for the persecuted in China. However,
with complicated issues like MFN, good intentions are usually
not good enough. There are many better ideas out there. And
here I would just like to add one suggestion.
I believe the U.S. Government should work with American
companies to promote human rights awareness and practice. They
can start with their own companies and factories in China by
promoting employee rights and company policies that forbid any
discrimination for political, religious, or gender reasons.
The company should provide educational seminars for their
employees. If adopted, I believe this approach would spread
human rights values at a grassroots level and surely would have
a far-reaching effect in China than many other means.
It took the courage and vision of President Nixon to break
China's isolation. I hope that this Congress will continue to
engage China through trade and other channels. Renewing China's
MFN will contribute to a much more conducive environment for
the progress of freedom and human rights. Renewing MFN is good
news for the Chinese people.
Thank you for this opportunity to testify.
[The prepared statement follows. A response to ``Open
Letter on China's Persecution of Christians'' signed by Gary
Bauer, et al. as part of the MFN debate is being retained in
the Committee files.]
Statement of Rev. Daniel B. Su, Assistant to the President, China
Outreach Ministries, Inc., Bowling Green, Ohio
Mr. Chairman and Members of the Sub-Committee: As a
Mainland Chinese currently living in America, I greatly
appreciate this opportunity to testify here regarding China's
MFN trade status.
Based on my understanding of China and its culture and
people, I believe that revoking China's MFN will backfire; it
will be a step backward for the cause of human rights in China
and for religious freedom in particular. The reasons are as
follows:
First and foremost, if the MFN were revoked, China's
President Jiang Zemin--for his own political survival--would
have little choice but act tough as commander-in-chief to what
will be perceived as a serious provocation from the United
States threatening China's national interests. This would then
trigger rounds of retaliation and counter-retaliation between
the two countries, leading to a serious deterioration in the
whole Sino-US relationship and likely the isolation of China.
This would have grave consequences difficult to reverse.
People suffer when China becomes isolated and hostile. I'm
a witness to that. As a child, I didn't have enough to eat or
warm clothes to wear. I can still recall the days when my
parents had no money to buy me new shoes, and many times I had
to walk to school barefoot. When later I became a Christian, I
couldn't find a Bible and had to hand copy one of the Gospel
books. Engaging China through trade has helped relieve the
suffering of the ordinary people.
Second, if China's MFN were revoked, Beijing's direct and
indirect retaliation would mean danger for the international
community and greater persecution of political dissidents and
Christians. Forced into a corner, Beijing would be even more
tempted to seek revenge by selling its nuclear technology and
chemical weapons to countries hostile to the US. If followed by
other confrontations, there would be social unrest in China,
resulting in Chinese refugees flooding to surrounding
countries.
Third, revoking MFN would primarily hurt the Chinese
people. Ironically, the hardest hit would be those who have
left China's socialist economy, hoping to thrive in the Western
style free market. If the MFN were denied China, such hard
working Chinese would be hurt the most; they would have to go
back to the Beijing government for their daily bread.
Finally, if the MFN is revoked, China's loss of trade with
the US would eventually be made up by its increased trade with
Europe, Japan, and other countries. In the end, the US would be
isolated in using sanctions against China. It would then also
lose the leverage it currently has to address any human rights
concerns. all of us who are concerned about China's human
rights situation.
We have seen positive changes due to engaging China through
trade. At the same time, we also deplore many cases of human
rights violations. But to revoke China's MFN status as a way to
improve its human rights is counter-productive; it's like
setting your car on fire when it stalls.
Concerning complicated issues like MFN, good intentions are
not good enough. There are many better ideas out there.
Here I just want to offer one suggestion: American
companies should and are able to promote human rights awareness
and practice in China. They can start with their own companies
in China in the form of employee rights and company policy to
forbid any forms of discrimination for political, religious,
gender reasons. The companies should provide such educational
seminars for their employees. If adopted, I believe this
approach would spread human rights values at the grassroots
level and would surely have a far reaching effect.
It took the vision and courage of President Nixon to break
China's isolation. I hope this Congress will continue to engage
China through trade and other channels. Renewing China's MFN
will contribute to creating a much more conducive environment
for the progress of freedom and human rights. That is good news
for Chinese people.
Chairman Crane [presiding]. Dr. Torjesen, have you
testified yet?
STATEMENT OF EDVARD P. TORJESEN, PH.D., EXECUTIVE DIRECTOR,
EVERGREEN FAMILY FRIENDSHIP SERVICE, COLORADO SPRINGS, COLORADO
Mr. Torjesen. Thank you. I thank you for the opportunity to
be here, and also for the kind introduction by Congressman
Pitts. First, I want to point out that it is possible for a
public benefit organization incorporated in the United States
and serving in the public sphere in China to become
incorporated as a wholly-owned foreign enterprise in China. And
I will go on now to give you a little bit of our own
understanding of the situation in China.
China is changing, yet unchanged. China has gone through
some staggering changes over the last 50 years. I think, for
instance, of the Cultural Revolution which Mao Zedong
engineered. His ship of state ended up on the rocks; however,
the peasants of yesterday's China were transformed into the
farmers of today's China.
I think also of the Four Modernizations first set forth by
Zhou Enlai and now in full bloom through the late Deng
Xiaoping's paramount leadership. Yes, China has changed; it is
still changing every day. And China is also unchanged, still
building on unique cultural dynamics rooted in its 6,000-year
history.
If we want to communicate with the Chinese people today, we
need to do so with an understanding and recognition of how
their culture works. My son and Evergreen's China
administrator, Finn Torjesen, recently wrote the following
concerning what he called the China factors:
``That a country of this size and history has changed so
drastically in the last 20 years is phenomenal. Many factors in
Chinese culture account for this phenomenon. Any understanding
of China today must include this Chinese factor. Key elements
in the Chinese factors are: Unity, face and creativity. . . .
``The leadership and society consider conformity to be
fundamental to unity. . . . If there is a public fight or
disgruntled people begin to gather around a speaker, this would
get quick attention from the security bureau. The name security
bureau in Chinese is actually translated `Public Peace Bureau.'
They definitely deal with criminal activity, but their focus is
to stop anything that would disrupt the unity of the nation.
``In public, China stands as one. Where China has
conflicts, it deals with them privately until it can present a
public unity. . . . All this negotiating is done behind the
scenes until the strongest stands up and is supported by all.''
But in addition to that unity factor, there are other
cultural factors which we need to be aware of. John King
Fairbank has pointed out many such cultural factors deeply
rooted in the Chinese history, but still pertinent to the
introduction and assimilation of new movements and concepts in
China today. Here are two comments on these factors from my own
1993 ``China Dynamics'' paper.
1. China and its people have been conditioned by factors
significantly impinging them from antiquity to the present. . .
. Despite the diversity and span of this development . . . the
Chinese people are still responding to and they continue yet
today to refine and develop these dynamics that have so
distinctively molded their culture since antiquity. Their
society possesses a `unified yet self-regulating character.'
2. The Chinese society is and has always been a strong
autocracy. Yet, this autocracy has traditionally distinguished
itself by certain significant `pockets of autonomy' on its
flanks, which--whether they are openly acknowledged or not--
have always given China a certain distinctive diversity. These
pockets of autonomy have included the Inner Asian people
groups, the Maritime Chinese, and the several religious
communities in the buildup during the Imperial Period, and
later, the treaty port communities, the Overseas Chinese, and
also the various independent thinkers associated with these two
communities. All these communities have served as bridge
communities through which new dynamics have been discreetly
absorbed into the Chinese society. The Four Modernizations
program is also a vehicle for such an opportunity today.
We need to enhance the opportunities for appropriate cross-
cultural undertakings in China today. It would be unfortunate
if Congress now modified our country's normal trade relations
with China in any way that discouraged such legal and
appropriate cross-cultural undertakings in China today.
I urge you to continue our country's normal trade relations
with China. May God bless our own America. May God also bless
China, and I thank you.
[The prepared statement follows:]
Statement of Edvard Torjesen, Ph.D., Executive Director, Evergreen
Family Friendship Service, Colorado Springs, Colorado
I. My China Background (for Committee Information)
I was born in Shanxi province, North Central China, in
1924, graduated from the Chefoo Schools on China's north coast
in 1941, and since then I have had a pretty steady focus on
China and the Chinese people.
When I was eight, I was sent home to Norway to begin my
formal education in 2nd grade. However, when my parents
returned four years later for home assignment, they soon agreed
that China would be better for me, and in 1937 I returned with
them to China. En route we learned of the Japanese invasion and
aggression against China, which--as I myself was to witness
with my own eyes--devastated China over the next four years,
and after that all through World War II.
However, after our arrival in China, my father was able to
arrange for Mother and us four children to be relocated with
another Norwegian mission in South Central China. He was then
able through careful and patient negotiation to secure safe
conduct passes from both Nationalist commanders and the Eighth
Route Army, gradually getting back up to his station at Hequ, a
small town in northwestern Shanxi province at the intersection
of the Yellow River and the Great Wall. Here he soon was busy
helping with the security of the local people during the many
military actions in the area. Then as the Japanese agression
continued to the south of the Yangze, my mother in 1939 found
an opportunity to get us children relocated--by way of Hong
Kong--to the Chefoo Schools up on China's Yellow Sea. That
summer Father also got out to visit us, and then afterwards he
and Mother together returned to their station at Hequ in Shanxi
province.
Their bliss, however, at being able once again to work
together was short lived. On December 14 Father was killed in
another Japanese dive bombing attack on that small town of
Hequ. For me the news seemed to bring the world to an end, but
soon God was burdening me with the same vision through which he
had burdened my father--with the result that in the fall of
1948 my wife and I with our first son were able to return to
North China.
VE day and VJ day were already then three years past.
However, as all of you know, Mao Zedong's peasant revolution
had not yet come to its climax. Consequently, on the advice of
our Chinese friends we left the China Mainland in the summer of
1949. That departure, however, was not easy; for earlier that
spring our second son, born in Lanzhou and only three months
old, had gotten sick and died within a day. Therefore, we left
China now with a double grief, for our son and also for my
father--both buried in China's soil!
But I am glad I can now take you to a new step in our
personal involvement with China. Through a remarkable set of
circumstances in 1988 the doors were opened for my sister and
brother each to visit our ``home town'' of Hequ. They were both
informed that our father's name (``Ye Yongqing'' in Chinese,
meaning Leaf Eternally Green) was on Hequ County's list of
``martyrs for the people.'' His grave had long since been
leveled; however, the town leaders assured them, ``You come
back, and we will set up a memorial for your father.'' Then in
1990 during a formal meeting in the provincial governor's
reception hall we were invited to come back to Shanxi, live
there on a long term basis, and help with the province's needed
social and economic development.
On the basis of that invitation the Evergreen Family
Friendship Service was incorporated in California in 1992 as a
non-profit public benefit organization. In 1993 our
``registered office'' was opened in Taiyuan, Shanxi's capital;
and last year, in 1996, we were granted incorporation in the
province as a wholly owned foreign enterprise under the name
``Shanxi Evergreen Service.'' Stranger than ficttion? Yes,
maybe; but these developments happened under God's grace--and
in accordance with the applicable laws of both Shanxi and
California!
Today Evergreen is involved in various programs, including
the Cobbler Program for rural health care training in Shanxi
province, teaching English to various professional groups,
consultation on a variety of projects--such as the Yellow River
water project, rural health care briefings for the Ministry of
Health, lay leadership training for local churches under
spiritual renewal, and the ``Bob Vernon Seminars'' for the
Minstry of Public Security.
II. China Changing, Yet Unchanged! (My Oral Testimony)
China has gone through some staggering changes over the
last fifty years. I think, for instance, of the Agricultural
Revolution which Mao Zedong engineered. His ship of state may
have gone on the rocks; however, the peasants of yesterday's
China did get transformed into the farmers of today's China! I
think also of the Four Modernizations first set forth by Zhou
Enlai--now in full bloom through the late Deng Xiaoping's
paramount leadership.
Yes, China has changed. It is still changing--every day!
And yet, China is also unchanged--still building uniquely on
cultural dynamics developed through and rooted in its 6,000-
year history!
If we want to communicate with the Chinese people today, we
need to do so with an understanding and recognition of how
their culture works.
Finn Torjesen (my son), Evergreen's China Administratror,
recently wrote the following concerning what he called the
Chinese factor:
``That a country of this size and history has changed so
drastically in the last 20 years is phenominal. Many factors in
Chinese culture account for this phenomenon. Any understanding
of China today must include this Chinese factor. Key elements
in the Chinese factor are: unity, face and creativity. . . .
``The leadership and society consider conformity to be
fundamental to unity. . . . If there is a public fight or
disgruntled people begin to gather around a speaker this would
get quick attention from the security bureau. The name security
bureau in Chinese is actually translated `Public Peace Bureau.'
They definitely deal with criminal activity but their focus is
to stop anything that would disrupt the unity of the nation.
``In public China stands as one. Where China has conflicts,
it deals with them privately until it can present a public
unity. . . . All this negotiating is done behind the scenes
until the strongest stands up and is supported by all.''
But in addition to that unity factor, there are other
cultural factors as well which we need to be aware of. John
King Fairbank has pointed out many such cultural factors deeply
rooted in the Chinese history, but still pertinent to the
introduction and assimilation of new movements and concepts in
the China of today. Here are two comments on these factors from
my 1993 ``China Dynamics'' paper (attached hereto):
1. China and its people have been conditoned by factors
significantly impinging them from antiquity to the present. . .
. Despite the diversity and span of this development . . . the
Chinese people are still responding to and they continue yet
today to refine and develop these dynamics that have so
distinctively molded their culture since antiquity. Their
society possesses a ``unified yet self-regulating character.''
(Fairbank)--p. 1
2. The Chinese society is and has always been a strong
autocracy. Yet, this autocracy has traditionally distinguished
itself by certain significant ``pockets of autonomy'' on its
flanks, which--whether they are openly acknowledged or not--
have always given China a certain distinctive diversity. These
pockets of autonomy have included the Inner Asian people
groups, the Maritime Chinese, and the several religious
communities in the buildup during the Imperial Period, and
later, the treaty port communities, the Overseas Chinese, and
also the various independent thinkers associated with these two
communities. All these groups have served as bridge communities
through which new dynamics have been discreetly absorbed into
the Chinese society. The Four Modernizations program is also a
vehicle for such an opporunity today.--p. 20
We need to enhance the continued availability of such
culturally appropriate opportunities for cross-cultural
undertakings in China today. It would be unfortunate if
Congress should now modify our country's normal trade relations
with China in any way that would discourage such legal and
appropriate cross-cultural undertakings in today's China. I
urge you to continue our country's normal trade relations with
China. May God bless America! May God also bless China! And I
thank you!
Chairman Crane. Thank you, Dr. Torjesen.
And now Ms. Hilley.
STATEMENT OF JOY HILLEY, EXECUTIVE DIRECTOR, CHILDREN OF THE
WORLD, FAIRHOPE, ALABAMA
Ms. Hilley. Mr. Chairman and Members of the Subcommittee,
thank you for this opportunity to speak with you today. It is a
rare privilege and a genuine honor. I am executive director of
Children of the World, a nonprofit international adoption
agency and relief agency in Fairhope, AL. Equally important, I
am the mother of a 2-year-old little girl who was born in the
Hunan province of China.
At Children of the World, we support most-favored-nation
status for China because the environment created by a
cooperative trade relationship allows us access to China and
the opportunity to improve the quality of life for hundreds of
thousands of Chinese children.
We recognize that the United States will have a
relationship with China. The question is whether that
relationship will be one that is cooperative or one that is
antagonistic.
International adoption is relatively new in China; yet,
already we have seen firsthand tremendous progress and positive
growth. When our representative traveled to China for the first
time, she was told about orphanages in which the children had
insufficient food and medicine and orphanages which were filled
to capacity and unheated. Those conditions were a function of
economic reality, not a function of economic policy.
Today, those conditions have been greatly improved. Most
orphanages have adequate food, clothing, and medicine for the
children. Many of the facilities have been renovated and a
foster care plan that actually works has been implemented in
many provinces.
In 1989, only 11 Chinese babies were adopted into American
homes. Last year--less than a decade later--more than 3,300
Chinese children were adopted by Americans. Those 3,300
families paid more than $10 million directly to Chinese
orphanages. Those fees and the thousands of dollars in aid to
hospitals and orphanages donated by our agency, and those like
ours, have significantly benefited children throughout China.
The positive climate created by MFN is one of the factors
which helped make China more open to adoption and to American
families traveling to China to adopt. If adoption agencies in
the United States did not have access to China, the conditions
described earlier would be a thing of the present rather than
the past.
We are concerned on several levels about the current fervor
over human rights abuses in China and the linking of those
alleged abuses to trade issues. The first concern is that the
clamor seems come from individuals and groups who have no
firsthand experience in China; they often have little
understanding of the historic context in which China currently
exists.
Second, human rights organizations often use outdated
materials and isolated events as evidence of widespread abuse
or of policy formulated by the Central Committee of the
Communist party. Biased and outdated reports have obvious
inflammatory results, but they also have subtle devastating
results. Innocent children bear the consequence as adoptions
and relief efforts are delayed or discontinued.
Our third concern is that those who cite human rights
abuses as the reason for denying MFN status rarely do anything
to relieve those situations, nor do they offer reasonable
solutions. Especially troubling is that they fail to realize
that linking human rights abuses with trade status is a Western
perspective and approach. This approach completely disregards
Chinese history and thought, and it deeply offends the Chinese
people because they do not understand it. In our experience,
the two most effective methods of addressing the human rights
issues of China are honest exposure and example.
We have not seen evidence that the incidence of human
rights abuse has increased since the granting of MFN status to
China. We suggest instead that the political environment
created by increased trade has resulted in mutual trust and a
more open exchange of information.
We join with others in challenging American companies which
conduct business in China to bear the responsibility of
bringing tangible examples of moral and ethical conduct. We
have taken that responsibility seriously while developing our
own policies and relationships in China. We use the freedom to
work in China resulting from MFN status as an opportunity to
lead by example.
Linking human rights violations to trade issues creates an
environment of hostility and misunderstanding. But engagement
based on cooperation and mutual trust creates the opportunity
for us to work in an environment that produces growth and
change. If MFN status for China is not renewed, American
companies will bear the economic consequences and the U.S.
Government will encounter resistance from China on other
issues.
If MFN status for China is not renewed we will experience
undue hardship in carrying out our mission. Our concern for
continued access is based on our belief that our presence has
not only enriched the lives of the children and the American
families into which they have been adopted, but has actually
helped save the lives of those who remain in the Chinese
orphanages. We rejoice in the progress that has been made and
pledge to continue our efforts in the People's Republic of
China.
Thank you.
[The prepared statement follows:]
Statement of Joy Hilley, Executive Director, Children of the World,
Fairhope, Alabama
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Chairman Crane. I have a question for you, Gary, about that
one-child policy, and maybe anybody on the panel who
understands this can explain it to me. Because I was told that
it is not the official Government policy of China to force
abortion beyond one child but, rather, that if you have more
than one child, you can lose your welfare benefits.
Mr. Bauer. Mr. Chairman, all I can tell you is that we have
talked to people who have been victims of that policy. We have
talked to people who have literally had to pay the Government a
certain amount of money to buy themselves out of the policy.
I noted with interest a few weeks ago the announcement by
some U.N. body that China has the highest female suicide rate
of any nation in the world. In fact, it is the only nation in
the world that has a higher female than male suicide rate. I
think the evidence is fairly strong that, at least in part,
that is due to both the forced sterilization policy and the
one-child policy, which I think is reprehensible.
Chairman Crane. Well, my point--is that forced by the
national government, that sterilization? I heard, for example,
that parents would consider aborting a female child in hopes of
getting a male child, if they could only have one, so they
could have a potential breadwinner in their twilight years. And
that maybe there were excesses at the local level, too, that
people at the local government level actually were mandating
it.
Mr. Bauer. Right. Up until now, I have not had anybody
question it. In fact, even the First Lady, who is known for her
support of so-called abortion rights, condemned China's policy
on her trip there some months ago, I believe. So from
everything I have seen, it is a policy that is in operation in
a good part of the country, particularly in the rural areas.
Ms. Hilley. Mr. Chairman, if I may speak to that issue--my
understanding is that the policy of China is that there should
be one child per family and that policy has been relaxed in
some of the rural areas where it is necessary to have more than
one child to continue the farming activities.
We, of course, do not condone in any way that policy or the
means by which the policy has been achieved. It is our
understanding that there is some means by which families can,
if they have an additional child, pay a one-time fine and then
not bear any further consequences from having an additional
child.
And the decision to abort female fetuses is one that we
consider reprehensible because we are a prolife organization.
But it is not a policy decision; that is a decision made by
parents, rooted in 5,000 years of traditionally favoring boys
over girls.
Chairman Crane. Well, that was my understanding. There was
also a case recently--in the Wall Street Journal, I think--
about a young lady working down in southern China, I think, in
one of the big towns down there. She was making $36 a month,
and then she went into business for herself and she got up to
about $1,200 a month. By making a one-time payment of $1,500,
my recollection is--and I will stand corrected--she was out
from the one-child burden, and was able to have a second child.
Mr. Bauer. Mr. Chairman, while one can celebrate the one
lady referenced in the Wall Street Journal, a country that
tries to regulate by force the number of children its people
have; a country that, according to the BBC documentary I am
sure we have all watched, starves female orphans--whether out
of tradition or not matters very little--is a country
demonstrating a degree of evil that a country like ours, based
on the ideal that all men are created equal, certainly ought to
take note of and, I would suggest, ought to alter its trade
policy on the basis of it.
Ms. Hilley. Mr. Chairman, if I may continue the dialog, the
report that you refer to, ``The Dying Rooms,'' was not actually
produced by the BBC but by an independent organization. It was
shown on Channel 4 in England and then later shown by CBS here
in this country, and there is no denying that it probably
happened in that particular instance. The unfortunate thing,
though, is that it has been shown and portrayed as being
overarching policy of the Central Committee of the Communist
Party.
The same week that it first aired here in the United States
about 2 years ago, another network displayed abuses that were
happening in a particular mental institution here in the United
States. And we here in the United States, even if we don't have
firsthand experience with a mental institution, at least know
the name of our State institution. So it is not difficult for
us to reason that it is an isolated incident, an isolated
event. Yet when we have a media portrayal of an isolated
incident in China, the assumption is that it is an overarching
policy----
Mr. Bauer. Which is it? Do they routinely kill their female
unborn babies or is it an isolated incident?
Ms. Hilley. The particular report that you are talking
about, ``The Dying Rooms''----
Mr. Bauer. Let's talk about the bigger question. You said
earlier that it was ``tradition'' in China to routinely favor
unborn boys over girls. Now you are suggesting that their
hostility to women is an isolated question.
Do they routinely deny women in China the same treatment as
they give to men? Are female babies and female orphans more at
risk in China than boys are?
Ms. Hilley. Mr. Chairman, female babies may be more at risk
in China. But, again, I don't believe you can say it is a
function of political decisions made on the part of the
Communist Party.
Mr. Bauer. To the dead girl, it is of little consequence
whether it was an official decision made by somebody in the
Communist Party.
Chairman Crane. Can I ask one more final question, before I
defer to Charlie, to Reverend Su or Dr. Torjesen. Could you
describe how the Chinese Government currently regulates the
practice of religion in the mainland? How does that
registration process work?
Reverend Su. You mean registration of the independent
unregistered religious groups?
Chairman Crane. Right.
Reverend Su. Basically, right now, as in the past, the
Beijing Government has tried to get all the religious groups
registered with an officially-recognized group called the Free
Self-Patriotic Movement, which is basically under the
government's supervision. And basically, the government would
like all the religious groups to get with the service so that
they know exactly what is going on.
And there has been a lot of debate. A lot of Christians
have chosen not to register because they feel that, once
registered with the government, they will lose control of their
churches; they will be totally under the influence of the
government.
Chairman Crane. Let me ask you a question in that context.
I don't know whether this was distributed, but it is a letter
from Billy Graham's son describing religious activities on
mainland China. One thing he refers to repeatedly is ``house
worship,'' I think was the term he used--I gather that people
go to practice their religion in someone's house. And he has
been aggressively involved in this and Bible distribution. Yet
I thought that if you were not registered, that is when they
came in and stepped on you.
Reverend Su. That is something interesting and very unique
about China, I think. The laws in China are not exactly like
the laws in the United States: they differ from place to place
and from time to time, depending on the political priorities of
the government. So a single place of worship could be
persecuted today and go on freely other times of the year. It
is hard to say.
Policy, in general, is that the unregistered groups are
considered illegal. But to what degree that policy is enforced
is still questionable because we see persecutions come and go.
Sometimes there are more persecutions and sometimes there are
more relaxed periods for the church. You also have to deal with
the overall involvement of China's political priorities and
also the international situation. So all of these factors tend
to play together. And I think one of the strengths of the
structure of the Chinese Government is that they do not do
things in isolation; they look at the whole thing and look at
the total net impact. And so I think that when we try to
understand China's religious policy, we need to look at it in
light of the whole context, both domestic and international.
Mr. Carr. Just a comment on that from our perspective: It
seems the fundamental problem in China is that religion is seen
as something under the control of the government rather than
the church. If you wish to form a church, you register and
affiliate with the Patriotic Church, whose loyalty is to the
government. Failure to affiliate with, for example, with the
Patriotic Catholic Church, is a crime in China and there are
people in jail because of their refusal to do so.
Catholics are not permitted to profess their loyalty to the
Holy Father, the Pope. You cannot publish the catechism of the
Catholic Church because it is inconsistent with the policies of
the Chinese Government. That has left us with a complicated
situation in China where you really have two faces of the
Catholic Church--the government-approved church and the
underground church.
For us, we seek the unity of the church and reconciliation.
The Pope has spoken of his desire for the Holy See to have
strong relationships with China and to have Catholics work
together. But the government's insistence on controlling
religion, on appointing bishops, on denying the ties of the
church to the rest of the world is a terrible obstacle in this
regard.
There was a hope, frankly, that this was getting better,
that the economic engagement and other sources of dialog were
leading to improvements in this area. And there were some signs
of that; sadly, over the last several years the law--the
regulation and practice--have gotten worse. The week before
Holy Week, police came into the home of the bishop of Shanghai,
ransacked the place, and took all the worship materials for
Easter. Sadly, religious persecution is growing, not
diminishing, in China.
Mr. Torjesen. Mr. Chairman, could I say something?
Chairman Crane. Certainly.
Mr. Torjesen. There are two factors that we need to
consider in this area. The persecution is often concentrated in
the rural areas away from the big cities. One reason is that,
in the rural areas, farmers still live under the old Communist
dream of having an atheistic society and want the county to be
recorded as an atheistic society. And the moment they have to
register a religious person--which the government now says must
be done--they fear they are going to lose their status. So
there is a certain cooperative effort between many churches,
especially those that have evangelical pastors, to help these
churches in the country to get registration and fight
opposition to it.
And we ourselves have been involved in that. In the cities
there is very little persecution, but we need to be aware of
the fact that the Free-Self movement today is not what it used
to be. Under the free enterprise situation, they have got to
have their own budget, and their budget doesn't permit them to
function that way.
But in communities where they have evangelical pastors,
most of the pastors--men and women who were released from
prison--have come in and developed a tremendous evangelical
movement in the Chinese churches. In these churches, they reach
out and help the rural churches all they can. We need to press
for that evangelical movement in China, rather than the
bureaucratic movement which the Free-Self church developed. And
if we understand that dynamic, we can see how the Chinese are
able to deal with their own situation in their own way. It is
crucial that the church functions legally rather than
illegally, just like in our own country here.
Chairman Crane. Thank you. Mr. Rangel.
Mr. Rangel. Thank you, Mr. Chairman.
I wish I could hear discussions about human rights here in
the United States with the same concern as we have--and should
have--wherever violations occur throughout the world, China
being no exception. But, as I said this morning, I find it very
difficult to set moral standards through our foreign policy and
our trade policy when I have a lot of problems with the
political situation that exists in this country as it relates
to human rights.
And Mr. Bauer, it is fascinating; I have seen how you so
many times eloquently talk about the Christian way that our
country should behave. And I find it difficult telling somebody
else the standard of behavior that I expect as an American of
them, if they are going to do business with us, given our
history of slavery and torture and assassinations and people
being burned in churches and homes, and the President being
insulted because he wanted to apologize for the way the country
historically treated African-Americans.
And something that is difficult to talk about, but I
mentioned it--all the statistics show that in this country, one
out of three black kids, male kids, are going to end up in
jail. And in Baltimore one out of two. Now, I know that is not
political, but I can see how some unfriendly person could look
at our country and say this is how we treat these people: they
go to jail. And then when you look and see who really comprises
this 1.6 million people who are in jail, more often than not
they are poor people and they are minority people. How would
you explain it if someone were to challenge your right as an
American to set the moral standards for another country,
knowing the history of our great republic?
Mr. Bauer. Well, Mr. Rangel, the last time I looked, MFN
was our trade policy, not China's trade policy. I am suggesting
that we set American trade policy to reflect certain American
values. That is what is at issue here. China can listen to you
or listen to me; maybe they will, maybe they won't. But we are
making American trade policy, and I believe that American trade
policy ought to be built on American values.
I must say, Congressman Rangel, that over the years you
have been eloquent talking about human rights. You did not
hesitate, nor should you have hesitated--and I agreed with you
at the time--when the issue was human rights in South Africa.
The Declaration says, as you know and have quoted eloquently,
all men are created equal. It doesn't say all Americans. It
doesn't say all white men, all black men, or all Chinese. It
says all men; it was a universal vision. And the fear of it
still keeps tyrants from sleeping well at night.
Mr. Rangel. I don't think I made my question clear, because
you and I are in accord. And whether you are Christian or
Jewish or Gentile, common decency would dictate that you
respect the rights of human beings and try the best you can to
protect them. So I don't think I have any problem with you
there. But I think trade policy is national policy, and I think
it is the President that sets it. And if he sets the standard
by saying that American trade policy is doing business with
China and wants to not do business with Cuba--which to me is
inconsistent--then that is the American trade policy, after
people like you and me have had input into the making of the
policy.
My question was whether it is the human right of a Chinese
lady or the human right of an African couple not to have the
heavy burden that is this child that is born a male, the third
one or the second one. That to me is a very political question.
And I asked if you would have any difficulty, if it were asked
of you, in saying to country x, we will not do business with
you because you don't respect human rights. I could answer that
very easily. However, what I am asking is how do you explain
our standard in the United States where no one challenges the
fact that one out of three black kids end up in jail?
Mr. Bauer. But Congressman Rangel, these issues are talked
about and debated in the United States all the time. We could
spend all afternoon debating it here.
Mr. Rangel. You see, when I leave the United States, there
is nothing I can think of that is wrong with my country. It is
the land of opportunity and the best country that mankind ever
conceived. But when I am back home with your high standard and,
I hope, mine of protecting human rights--I am not talking about
debating it. If a Chinese Communist was to tell me--we debate
this every day--what we should do with women and children. I
don't want to hear about debate; we are talking about a
national policy that has been established in every city, in
every State. The main growth industry is prisons and the main
occupants are minorities. And I am saying, this is not a
debate. This is a fact. How do you explain it?
Mr. Bauer. Are you suggesting that it is a national policy
of the United States to throw a third of young black men into
jail because they are young black men?
Mr. Rangel. Let me rephrase the question: It is the
national policy of this country not to do anything about it.
Mr. Bauer. Sir, I hope you are playing devil's advocate;
people of good will attempt to do things about it all the time.
I, for example, have advocated--even though I believe you
disagree--that one thing happening to young black men is that
they are trapped in schools that do not work. And my solution
is to provide educational vouchers so that those inner-city
youth can go to schools that do work. That is an attempt to do
something about the problem.
Mr. Rangel. I am not challenging what you are saying. All I
am saying is that if any Communist tried to explain what they
are debating in China, I hope you would not accept it. Because
I would not accept it. If they are trying to tell me that
different groups of Chinese are trying to reform the system and
one day they hope to have a higher standard, but because there
are a billion and two you lose some, you gain some, I won't
accept it. I won't tolerate it.
But I hope that you will not accept as an American the fact
that we are wrestling with the problem and the problem
continues. This problem, one way or the other, we have wrestled
with since slavery. And I am saying that worse than slavery, in
my opinion, is the fact that one out of three of anybody--
Chinese, American, Catholic, or Protestant--you don't say, I'm
trying to do something about it. It is the policy to prefer
incarceration over education: that is the policy. That is the
budget; that is the State policy.
Mr. Bauer. Congressman Rangel----
Mr. Rangel. Would you feel uncomfortable, as I do, in
saying, We have got a lousy policy in our country too, but we
are trying to overcome it?
Mr. Bauer. Congressman Rangel, I continue to disagree with
you that it is the policy of America to throw its minority
youth in jail. We have worked together many times over the
years, and you and I agree on some occasions and on many
occasions we don't. But I don't seriously think either one of
us would grow silent in the face of a Chinese Government
official who would suggest that what is going on in China is in
any way, shape, or form comparable to the struggles we face in
the United States.
The Chinese leadership, by definition, do not see all
people as created equal and endowed with rights. They see them
as the exact opposite, and they say this is a desperate threat
to their ability to maintain the power they want to keep.
Mr. Rangel. Well, I am not a psychiatrist so I don't know
what these Chinese Communists think. Whatever they think, they
shot me in the behind in Korea so I don't like them, period.
Mr. Bauer. Read what they say.
Mr. Rangel. You do not have to convince me that they are
not nice people. I just wish I could see more compassion for
the families of the kids that are going to jail, dying every
day, being shot down in the street. I don't hear the debate; we
ought to have a most-favored-nation debate for our inner cities
and the poor and impoverished.
I am just saying that I myself have not really been able to
say that our country has reached that moral level where we have
proven to the world that all men are created equal. Maybe you
and I ought to get together not to lower the standard in China,
and not to make the belief that we are trying to do something
about it more prevalent, but between your people and what is
left of mine we can do something about it.
Mr. Bauer. Congressman Rangel, that might be a really good
thing to come out of this hearing. I understand there has been
a lot of horse-trading going on behind closed doors the last
couple of weeks over the MFN issue as the corporate lobbyists
have spread out over Capitol Hill. But I am certainly willing
to pledge on behalf of our 350,000 members that I will sit down
with you and look for ways that we can more effectively raise
human rights issues in the United States. But in exchange I
would like your pledge and your vote against MFN.
Mr. Rangel. You see, what I am trying to do for human
rights is create jobs for Americans. I truly believe that you
don't need a lot of human rights once you get access to
education and training, and acquire self-esteem and the ability
to make it in this world. And I don't care whether you are
white or black. Immigrants came here and, having access, they
were able to be anything they wanted to be. They had
opportunity.
I believe that trade is the only area for economic growth
in our country. I truly believe that if we ignore China, we
won't have dialog. Just like you and I: We don't ignore each
other; we think differently about a lot of things. But what you
are promising and I have accepted is that we are going to talk
and see how we can make things better.
Mr. Bauer. But if, Congressman----
Mr. Rangel. If jobs can be created through trade, I want to
be playing that game. If the President of the United States and
his Trade Representative say, this looks like the best game
plan for your country, then I don't want to get involved in the
religion thing. I think religion is how God is treating you and
how much hope you have that you are going to be treated better.
Mr. Bauer. But, Congressman, you certainly concede that
this is a different approach than you took on South Africa. You
never said that the trade issue was more important than what
was happening to the people of South Africa.
Mr. Rangel. I will share with you--that is constantly
brought up to me, and I don't see a conflict in my thinking.
When the whole world sees a handful of people governing the
lives of all of the people, the majority of people in Africa,
and these countries say that they have got to come in and
embargo--and that embargo was effective because this
Subcommittee cut off the tax privileges that certain American
firms have there. But this unilateral embargo, whether it is
Cuba or whether it is stop talking to China, is dumb----
Mr. Bauer. Well----
Mr. Rangel. When everybody else is participating and
training and doing what they want.
Now, we can take the moral high ground, but you are losing
jobs for me. And you are on television, and everyone is
eloquent, and this is--articles are written, and we now have
kids thinking there are not going to be any jobs for them.
So I am taking a gamble with God that he would prefer that
I do it this way, so that we can have job opportunities for
kids. And so I am saving the lives of people here, and bless
and pray for those people that are trying to save lives in
China.
Mr. Bauer. Congressman, the reason that we weren't alone on
issues like this in the past is that the President I worked for
for 8 years made sure that our allies knew that it was in
America's interest, and that we expected them, as our allies,
to stand with us when we didn't give MFN to the Soviet Union,
for example.
You have got much more influence with the current President
than I do. I would urge you to urge him to make sure the United
States would not stand alone if it revoked MFN. Quite frankly,
free people all over the world ought to be concerned by a
Chinese foreign policy that trades with Iraq and Iran, fires
missiles in order to intimidate Taiwan, and all the other
things we see consistently and regularly happening.
Mr. Rangel. Well, if you think my President has a great
influence in countries like France that are just waiting for us
not to be involved in trade--it is that thought that controls
what they do, and they just fill the gap. I am trying to tell
my President to get out of the arms business, but he shows me
how many other countries are going to make money there.
So we have to pray together for all Presidents, Democrats
and Republicans.
Mr. Bauer. You are right, Congressman Rangel, and the
President is wrong. We should be getting out of the arms
business, particularly selling arms to people who are likely to
shoot at America's sons and daughters.
Mr. Rangel. Exactly. We will be meeting.
Reverend Su. May I have a comment on the abortion issue in
China?
Mr. Rangel. I am not talking abortion. I have enough
problems with my Pope.
Mr. Houghton [presiding]. I think we had better move on to
the next panel. I really appreciate everyone--oh, wait a
minute. Just a minute, Mr. Matsui has a question.
Mr. Matsui. I just have--if you all can forgive me, I was
in a meeting in the back there, so I was not able to hear any
of the testimony from the six of you. But perhaps I can ask
you, Mr. Bauer, because you are an opponent; I guess you and
Mr. Carr are the two opponents on this panel of six.
Mr. Bauer. Yes.
Mr. Matsui. And you may have already responded to this, so
I may be repetitive. But cutting off most-favored-nation status
with China at this time: How might that accomplish the result
you are seeking which, I believe, is to move China toward a
democracy, with freedom, due process, civil liberties, and all
that is attendant to a democracy?
Mr. Bauer. Right. Well, Congressman, the whole thrust of my
statement was that it is not moving very effectively toward
these things. In fact, in contrast to some of the assertions
made by others, I think there is evidence that Beijing responds
more when the United States repairs back to its founding
values.
For example, after the Tiananmen Square massacre, when the
Chinese Government faced the real possibility of MFN being
voted down in the U.S. Congress, they immediately began to
clean up their act: They released over 800 prisoners, they
awarded contracts to several American companies, and they did
other things to signal that they understood the outrage of the
United States.
And then, of course, when we did not vote down MFN or were
unable to vote it over a Presidential veto, they went right
back to their previous policies.
I believe we are in the driver's seat.
Mr. Matsui. We have--I think there may be some revision of
history, or maybe we perceive history differently. Right after
Tiananmen, Mr. Eagleburger, Mr. McFarlane, and, I believe, Mr.
Scowcroft--the three of them went to Beijing. In fact, there
was an infamous photo in the New York Times and every
publication in the world----
Mr. Bauer. Right.
Mr. Matsui. In which our top three leading foreign policy
people in the Reagan-Bush administrations were toasting the
Chinese leaders, if you recall. I talked to Mr. Eagleburger
about this later, and he said, They sandbagged us--which,
obviously, they did. He didn't realize his photo was going to
be sent all over the world to every publication that----
Mr. Bauer. It must have been done by the same folks that
got that picture of Vice President Gore.
Mr. Matsui. What I am saying--I am not criticizing any of
the subjects being partisan. What I am saying is that the
Chinese knew that President Bush was going to veto any
resolution or disapproval. In fact, they also knew that in the
Senate there would be enough votes to override, to sustain. So
the whole issue of MFN was never threatened under President
Bush. And so it was never leveraged, in any event.
Mr. Bauer. Congressman, the Chinese----
Mr. Matsui. And the reason that he allowed and made some of
these decisions that you refer to as liberalization of
contracts is because they wanted to reward, or at least
normalize, a relationship and show President Bush that this was
resulting in a positive response. It wasn't that they felt
threatened by the loss of most-favored-nation status.
Mr. Bauer. Well, I certainly would be willing to submit to
the record my version of history, which you apparently disagree
with.
But let me say that I think the Chinese were not focused
on the U.S. Senate or on President Bush. I believe they were
focused on the people's House, of which you are a Member and
that, in fact, does speak for the American people; thus, its
name.
In the years since, their attitude toward the people's
House has changed. The Chinese Government now refers routinely
to the ``moneybags'' Congress and refers to America as a
``moneybags'' democracy. They have concluded that our highest
values are trade and money and that other things, including our
founding values, are mere trappings and declarations that we
don't really care about. I would like to disabuse them of that
notion.
Mr. Matsui. Let me just conclude by making this
observation. One of the real problems I see with this entire
debate is that it is happening on most-favored-nation status
with China. And that is why the whole issue of economics comes
into play when we really should be discussing the issue of
human rights. We should be discussing the issue of Tibet. We
should be discussing the issue of Hong Kong and its succession
into China, and Taiwan. But, instead, we are always caught--
every 12 months--with the issue of economics, and that is the
problem with discussing China in the context of most favored
nation.
I think it would be wonderful if we could get off most
favored nation and start talking about China in the context of
these issues that I think you are concerned about--every one of
the four others and Mr. Carr, every panel we have had,
including every Member, whether they are for or against MFN.
That is why this is such a difficult issue to deal with.
Mr. Bauer. Of course it is. But you do know, of course,
that the same interests in the United States that go ballistic
every time the MFN vote comes up also come to the Congress
every week against doing anything on the human rights issue.
The story that Mr. Carr told about the corporate executive
that was unable to cite one thing that his corporation had done
in order to promote human rights in China is not an odd story.
In fact, the evidence is overwhelming that American companies
operating in China constantly cooperate with the oppression of
the Chinese Government, even allowing Chinese police to come
into the company and check the menstrual cycles of their female
employees to make sure they are not pregnant.
We just heard of a story recently where Chrysler fired an
employee in China; he missed a week's work because he had been
arrested for praying. American corporations show absolutely no
interest, by and large, in doing anything about human rights in
China.
Mr. Matsui. Mr. Bauer, you know what is interesting? I
think your opposition to MFN and your presence in this debate
will help make the business community begin to realize----
Mr. Bauer. Thank you.
Mr. Matsui [continuing]. They have to begin the process of
thinking through some of these issues a little better. I find
that, since you have been in this debate--and the Christian
Coalition and some of the other groups--now some business
leaders are, in fact, saying that we must do more. And so, you
know, I welcome you----
Mr. Bauer. I appreciate that.
Mr. Matsui [continuing]. Participating in this----
Mr. Bauer. Thank you.
Mr. Matsui [continuing]. Because I think you have moved
this debate in areas that have improved the discussion.
Mr. Bauer. Thank you.
Mr. Houghton. Dr. Su, I am terribly sorry; there isn't
enough time. Maybe you can write us a note about some of your
feelings.
Reverend Su. That is fine. Thank you.
Mr. Houghton. Thank you very much, ladies and gentlemen,
for being here.
Now, I would like to welcome the next panel of witnesses,
the first being Cal Cohen, president of the Emergency Committee
for American Trade, ECAT. Next is John Howard, director of
policy and programs for the international division of the U.S.
Chamber of Commerce; Jim Williams, general manager and
controller of Ohsman & Sons in Cedar Rapids, IA; and Bob Kapp,
president of the U.S.-China Business Council.
I would remind you and other members of the panel to please
keep your oral statements to 5 minutes or less. I look forward
to your testimony, and thank you very much.
All right. Well, gentlemen, good to have you here. Thanks
very much.
Mr. Cohen, would you like to begin the panel?
STATEMENT OF CALMAN J. COHEN, PRESIDENT, EMERGENCY COMMITTEE
FOR AMERICAN TRADE
Mr. Cohen. Thank you. My name is Calman Cohen. I am
president of the Emergency Committee for American Trade, ECAT,
and I am pleased to appear before the Subcommittee today to
present ECAT's views on the importance of renewing China's MFN
treatment.
Our written testimony details the ways in which the
continuation of China's normal trade status is vital to our
National economic and strategic interests, and to our ability
to support the internal forces which are pressing for greater
economic reforms, personal freedoms, and respect for the rule
of law within China.
To highlight the fact that MFN treatment merely provides
reciprocal, nondiscriminatory treatment and is given to all our
major trading partners, we use the term ``normal trade status''
instead of ``MFN'' in our testimony. In my oral remarks, I
would like to respond to some of the arguments that continue to
affect the debate over renewing China's normal trade status.
The first argument is that extension of MFN treatment to
China means that we are giving China special treatment. In
reality, the term simply means that an importing country will
not discriminate against another country's goods in favor of a
third country. The United States grants such treatment to
virtually all of its major trading partners. We do not give
this treatment to China or any other trading partner for free;
in order to receive it, China must give us reciprocal
treatment.
The second argument is that termination of normal trade
status will be of no cost to the United States; the reality is
that termination would have a tremendous cost to us. Because
the status is granted on a reciprocal basis, when we withdraw
it, we will also lose the status that China has granted to U.S.
production. Consequently, our exports will become subject to
higher, non-MFN Chinese tariffs.
Also, the withdrawal will cause great disruption and
uncertainty in our bilateral commercial relations with China,
which will jeopardize U.S. exports and investments. Our written
testimony provides the examples of a number of ECAT members,
including Otis Elevator of Bloomington, IN, which, since the
early nineties, has revived its Bloomington factory based on
increased sales to China.
Withdrawal will also have a cost to U.S. political
leadership. Rather than following the U.S. lead, our trading
partners will gladly take advantage of the competitive
opportunities that we will lose.
The third major argument is that closing the U.S. market to
China will help eliminate barriers to U.S. goods and services
in the China market. There is no question that there are major
barriers to U.S. goods and services in the China market, but
removing normal trade status would not remove market barriers
and would, indeed, create additional barriers.
The most effective means of dealing with the significant
barriers that remain to market access is for China to become
subject to the rules of the multilateral trading system: To
become a WTO member, China must subject itself to WTO rules.
As part of the accession process, each WTO member has the
opportunity for bilateral negotiations with China. The United
States has engaged in such negotiations, and they offer the
best opportunity to deal with the barriers.
The fourth argument is that the United States must choose
between promoting U.S. commercial interests and advancing
America's interests in individual rights. The reality is that
the United States does not have to make this choice because
these interests are mutually reinforcing. Our policy of
commercial engagement supports the strengthening of the Chinese
economy and the growth of China's middle class and other groups
that encourage increased personal freedoms and increased
respect for the rule of law.
The fifth major argument is that direct investment in China
and elsewhere is done at the expense of America's domestic
economy. The reality is that, instead of hurting the U.S.
economy, foreign trade and investment have contributed to the
health of the U.S. economy. Our 1993 ECAT study, entitled
``Mainstay,'' demonstrated that the U.S. industries with the
highest levels of foreign investment also have the highest rate
of exports.
The sixth argument is that the United States determines the
nature and pace of change in China. In reality, the pressure
for positive change and reform in China is the result of
internal forces. Our policy of commercial engagement has only
promoted prosperity and the forces for greater reform.
The seventh major argument is that renewal is only in
China's interest. The reality is renewal is in our Nation's
economic and strategic interest and also furthers the U.S. goal
of promoting greater respect for human rights. Our exports to
China total over $14 billion.
The eighth argument is that any benefits to the United
States of China's normal trade status are isolated and not
widespread. The reality is the benefits of extending normal
trade status cut across our industrial, agricultural, and
service sectors, affecting small-, medium-, and large-sized
companies. Indeed, in the agriculture sector alone, China is
the sixth largest export market for the United States. U.S.
consumers would experience an increase of between $30 and $32
billion in costs if China's normal trade status were
terminated.
Mr. Chairman, the success of ECAT and others in
accelerating internal momentum for economic and social reform
in China is the best refutation of the arguments against
renewal of China's normal trade status. U.S. companies have an
exemplary record of setting high standards and promoting
American values in China, and should be encouraged to continue
and expand their efforts in China by your renewing of China's
normal trade status. Thank you.
[The prepared statement follows:]
Statement of Calman J. Cohen, President, The Emergency Committee for
American Trade (ECAT)
I. Introduction
I am Calman J. Cohen, President of the Emergency Committee
for American Trade (ECAT) and am pleased to appear before the
Trade Subcommittee to present ECAT's testimony on renewal of
China's most-favored-nation (MFN) status. ECAT represents the
heads of major U.S. international business enterprises
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 4 million persons.
The maintenance of stable bilateral commercial relations
with China is a priority for ECAT member companies. As
President Clinton emphasized in announcing his intention to
renew China's MFN treatment, ``We believe it's the best way to
integrate China further into the family of nations and to
secure our interests and our ideals.''
Expanding China trade, in terms of greater access to
China's market and as a gateway to the burgeoning markets of
the Asia-Pacific region, is vital to ensuring the continued
growth of the American economy through the next decade.
Maintaining strong economic ties with China also furthers our
political and strategic objectives in Asia, particularly with
regard to Hong Kong and Taiwan. It is also an effective way to
promote greater personal and economic freedoms in China.
The term most-favored-nation, despite its well-established
meaning, has been interpreted by some as implying that China is
being given special treatment; however, the term most-favored-
nation simply means that an importing country will not
discriminate against another country's goods in favor of a
third. The MFN principle has long been embodied in
international commercial law under treaties of friendship,
commerce, and navigation and is a core principle of the
original GATT rules. The United States grants MFN treatment to
virtually all countries, excepting only Afghanistan, Cuba,
Kampuchea, Laos, North Korea, Serbia, and Vietnam. Therefore,
in extending MFN treatment to China, we are only conferring
what is normal trade status for the majority of U.S. trading
partners. Furthermore, we are not providing this normal trade
status for free. In order to receive it, China must give us
reciprocal MFN treatment.
In light of the misunderstanding of the term MFN, we will
refer to it as normal trade status throughout our testimony.
While the renewal of China's normal trade status is our
immediate objective, ECAT believes that it is important not to
lose site of the need to continue efforts to restructure our
relations with China based on: (1) China's joining the World
Trade Organization (WTO) based on a commercially acceptable
protocol of accession which provides meaningful market access
to U.S. goods and services; (2) the U.S. extension of permanent
normal trade status which will allow us to enjoy the benefits
of China's WTO membership; and (3) the elimination of U.S.
unilateral sanctions which unnecessarily restrict U.S. commerce
with China.
II. China's Normal Trade Status Supports Our National Economic Interest
The renewal of normal trade status for China is essential
to the continued expansion of U.S.-China trade. The expansion
of U.S.-China trade is vitally important to ensuring the future
growth of U.S. exports and related American jobs.
A. Importance of China Market
China remains the largest emerging market in the world and
the gateway to other countries in the Asia-Pacific region.
Between 1990 and 1996, U.S. exports of goods and services to
China almost tripled, increasing from roughly $5 billion in
1990 to over $14 billion in 1996. These exports are an
important source of U.S. employment as they support over
200,000 U.S. jobs. The Chinese market is of critical importance
to U.S. industrial sectors such as aircraft, power generation,
computers, telecommunications, and autos.
China is also a significant market for U.S. agricultural
exports, since China is the sixth largest market for U.S. farm
exports. U.S. agricultural exports to China totaled $2 billion
last year. The majority of the recent growth in U.S.
agricultural exports to China has been in bulk goods, such as
wheat, cotton, and soybeans.
There is a vast potential for further expansion of U.S.
sales of prorvices in China. Over the last ten years, China has
had an average annual growth rate of 10 percent in GDP, which
is a faster rate than that of any other major economy. In
addition, China will spend over $750 billion in new
infrastructure projects over the next decade in areas such as
aviation, power generation, telecommunications, and computers.
A U.S. foothold in the Chinese market is also key to
gaining greater access to other Asia-Pacific markets which hold
great potential for U.S. export growth. U.S. trade with the
Asia-Pacific region is already 50 percent greater than U.S.
trade with Europe, supports 3.l million U.S. jobs, and is
growing at a faster rate than U.S. trade with Europe or Latin
America.
B. Examples of ECAT Member Company Trade and Investment in
China
The renewal of China's normal trade status is a priority
for ECAT member companies. The Chinese market is very important
to the future growth of many of our member companies and to
their ability to expand their access in the Asia-Pacific
region.
The withdrawal of China's normal trade status would
jeopardize our member companies' existing investments in and
trade with China. For example, in the industrial sector, United
Technologies Corporation (UTC) is one of the most active
companies in China, with 16 joint ventures and an investment of
$189 million. UTC's businesses exported $411 million in
products to China last year, which supported over 8,000 U.S.
jobs located in Connecticut, New York, Indiana, Tennessee,
Georgia, Maine, Mississippi, Ohio, Florida, and elsewhere in
the United States. Some specific examples of the importance of
U.S.-China trade to UTC companies include:
1. Otis Elevator Company, which is owned by United
Technologies, has been able to increase its exports to China
from $7 million in 1993 to $78 million in 1996, and sales
revenue is expected to continue to increase dramatically, as
roughly 200,000 elevators are expected to be purchased in China
over the next five years. Otis sales to China and other parts
of the Asia-Pacific region have helped to revive its
Bloomington, Indiana, factory where falling U.S. demand had
resulted in major layoffs in the early 1990s. The flood of
orders that has been received from China and other Asia-Pacific
countries since 1993 has revived the plant's operations and
holds the promise for expanded sales.
2. The experience of another UTC company, Carrier,
parallels the story of the Otis Elevator factory in Indiana.
The China market is very important to Carrier's success. While,
as part of gaining a greater foothold in the Chinese market,
Carrier has added manufacturing capability in China, the number
of large commercial air-conditioning units built for export by
the 600 employees at its Syracuse, New York, plant has grown
steadily. Half of the Syracuse plant's production was for
export last year, and half of those units were shipped to
China.
Another one of our member companies, Texas Instruments, has
been in China since the early 980s. It is currently engaged in
a joint venture operation in Jiangsu Province, producing
electrical control products. In addition, it has expanded its
presence in Beijing and opened a new office in Shanghai to
provide greater customer support. Texas Instrument's strong and
growing presence reflects the increasing importance of China's
market to the world's electronics industry. Asia is expected to
account for 30 percent of the estimated $1.2 trillion worldwide
electronics market in the year 2000, with China accounting for
$84 billion of that total. Keeping a foothold in the China
market and the Asia-Pacific region is essential to maintaining
Texas Instruments' global competitiveness.
In the agricultural sector, Cargill, another ECAT member
company, is successfully expanding its business in China, which
is one of Cargill's largest markets for grain, proteins,
fertilizers, and other commodities. Some examples of the
inroads Cargill has made in the China market include:
the purchase of a grain-drying plant in Changchun,
located in the middle of China's corn belt;
the establishment of a joint venture in Tianjin to
set up a bulk-blending fertilizer plant. Cargill's joint
venture has been able to sell fertilizer directly to farmers
and local farm stores rather than to the Chinese government to
distribute;
the establishment of a soybean processing plant in
Jinan, processing 5,000 metric tons of soybeans a month; and
construction of what will be Cargill's largest
feed mill in the world, with the capacity to product 250,000
metric tons a year.
These facilities are improving the lives of the Chinese
citizens who work in them, live near them, and buy their
output. These facilities in China, as well as Cargill's other
activities in China and the Asia-Pacific region, are important
for Cargill's competitiveness.
The success of UTC, Texas Instruments, Cargill, and other
American companies in penetrating the Chinese market would be
jeopardized if China's normal trade status were withdrawn.
Furthermore, in the 1980s, U.S. business was criticized for not
doing enough to remain competitive in global markets. Since
then, U.S. firms such as UTC, Texas Instruments, Cargill, and
other U.S. firms have made great strides in improving their
competitiveness in China and other global markets. Failing to
renew China's normal trading status would be a major setback to
the gains that these firms have made in improving their global
competitiveness in China and the Asia-Pacific region.
III. China's Normal Trade Status Promotes Greater Strategic Cooperation
Between the United States and China and Furthers Individual Freedoms in
China
The expansion of U.S. commerce with China, which has
occurred since our 1980 extension of normal trade status to
China, has been built on a policy which aims to promote
strategic cooperation and a broader economic relationship. This
policy of engagement has encouraged China's cooperation in U.S.
efforts to promote global and regional security. It has helped
the United States to gain China's adherence to key multilateral
nuclear and weapons proliferation regimes, including the
Nuclear Non-Proliferation Treaty and the treaty banning nuclear
testing. Our engagement policy has also helped the United
States to gain China's help in preventing instability on the
Korean peninsula and in supporting peacekeeping operations in
Cambodia. Removal of China's normal trade status would
undermine the important progress that has been achieved in
gaining greater Chinese cooperation in these areas.
Withdrawal of China's normal trade status would also reduce
America's contribution to China's market-oriented economic
reforms, as well as to the freedoms of individual Chinese
citizens. In the last decade, China's market-oriented economic
reforms, which American trade and investment help to support,
have accelerated sweeping changes in Chinese society. The
Chinese people have experienced dramatic improvements in living
standards, expanded economic freedom, and increased access to
outside information and ideas. American companies support
positive change by providing alternatives to jobs in state-
owned enterprises, paying higher wages, maintaining superior
working conditions, and honoring the principles of good
corporate citizenship. Withdrawal of China's normal trade
status would greatly reduce, if not eliminate, the positive
force of U.S. trade and investment in Chinese society.
IV. China's Normal Trade Status Advances the Stability and Economic
Vitality of Hong Kong and Taiwan
Continuation of China's normal trade status is essential to
ensuring the preservation of Hong Kong's economic prosperity
and the personal freedoms of Hong Kong's citizens after Hong
Kong is transferred to Chinese sovereignty in July of this
year. The extension of China's normal trade status is also
crucial to maintaining Taiwan's prosperity.
A. China's Normal Trade Status and the Future of Hong Kong
Hong Kong's economic success has been based on its role as
a gateway to China trade. Therefore, efforts to build a more
stable commercial relationship with China are essential to
ensure Hong Kong's continued prosperity. The maintenance of
China's normal trade status is key to this prosperity because
if China's normal trade status were removed, Hong Kong's trade
would drop by up to $30 billion, its production could decline
by as much as $4.4 billion, and it could lose as many as 90,000
jobs.
The withdrawal of normal trade status from China, or any
other action placing Hong Kong's economy in jeopardy, would
undermine Hong Kong's ability to exercise its influence on
mainland China. In preserving Hong Kong's economic strength and
vibrant society, the chances are greater that Hong Kong will be
able to continue to have a positive influence on the
development of mainland China long after July 1 of this year.
ECAT believes that the soundness of Hong Kong's economy
must be maintained by continuing China's normal trade status
and improving U.S.-China bilateral relations. At the same time,
ECAT believes that Hong Kong's vibrant capitalist system
supports the personal freedoms of its residents and helps to
ensure that Hong Kong can continue to provide impetus for
economic reform and increased freedoms in China.
B. China's Normal Trade Status and the Prosperity of Taiwan
Since the early 1970s, the United States has adhered to a
``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 and cultural relations with Taiwan. This policy has
enabled the United States over the last two decades to make
progress in developing its political and economic relationship
with China while maintaining commercial relations with both
China and Taiwan, which are major U.S. export markets. The
``One-China'' policy has supported Taiwan's evolution into a
leading industrialized economy and growing democracy.
The ``One-China'' policy has also promoted increased
bilateral exchanges and mutual cooperation between China and
Taiwan on a wide variety of strategic, sectoral, and cultural
issues. China and Taiwan also have close trade and investment
ties, with trade flows between the two countries now exceeding
$17 billion annually and Taiwanese companies having investments
of over $25 billion in China. Links between China and Taiwan
are also reinforced by the millions of Taiwanese who visit
China each year for personal and business reasons.
ECAT believes that the ``One-China'' policy has been
preserving our economic relations with Taiwan in a way which
allows its economy to prosper while permitting the United
States to pursue a strengthened relationship with China. ECAT
believes that the ``One-China'' policy should be maintained and
that we should encourage the continuation of a bilateral
dialogue between China and Taiwan.
V. Expanding U.S. Trade With China by Continuing Its Normal Trade
Status Will Not Harm the U.S. Economy
Some have argued that China's normal trade status should
not be extended because of the alleged threat that China's
trade deficit poses to the U.S. economy and its workers.
Clearly, we must make every effort to remove existing Chinese
market access barriers to U.S. goods and services. We believe,
however, that the claim that U.S. trade and investment in China
is hurting U.S. interests reflects a lack of understanding of
the benefits of U.S. trade and foreign direct investment to the
U.S. economy. The current strength of the U.S. economy and our
low unemployment rate also indicate that imports are not
undermining our economy. Finally, it is important to take into
account a number of factors influencing our bilateral trade
deficit with China, including the degree to which the recent
increase in our trade deficit with China represents a shift in
production to China from other Asian countries and not the
United States.
A. Benefits of U.S. Foreign Trade and Investment to the U.S.
Economy
Rather than hurting the U.S. economy, U.S. trade and
foreign direct investment have contributed to the health of
U.S. companies and to the overall strength of the U.S. economy.
In particular, U.S. foreign direct investment has led to
increased U.S. exports which now account for 30 percent of our
gross domestic product and support over 11 million jobs.
Moreover, the significant increase in U.S. exports has occurred
in high technology, high-wage manufacturing sectors. As a
result, the U.S. jobs being supported by U.S. exports are
better, higher-paying jobs which provide compensation 10 to 15
percent above the national average wage for manufacturing jobs.
ECAT's 1993 study, Mainstay, specifically analyzed the
impact of foreign direct investment on the U.S. economy. The
key findings of that report were that:
industries with the highest levels of foreign
investment have the highest rate of exports;
the higher the share of U.S. direct investment in
a foreign country, the more likely the United States is to have
a merchandise trade surplus with that country; and
a very small percentage of the shipments of U.S.
foreign subsidiaries are to the United States.
We are now in the process of updating and expanding
Mainstay to cover the services and agricultural sectors, as
well as manufacturing. The updated study which is being
prepared by Dr. Matthew Slaughter, a distinguished economist at
Dartmouth College, is examining the ways in which U.S. foreign
direct investment affects U.S. productivity and living
standards. Assistant Professor Slaughter will be presenting
some important new findings on the benefits of U.S. foreign
direct investment to key determinants of U.S. productivity,
such as U.S. research and development. The ECAT study will also
present important new information on how U.S. foreign direct
investment complements rather than replaces domestic activity.
We plan to release the new updated Mainstay study later this
year.
B. The Best Way To Deal With Our Trade Deficit With China Is To
Expand U.S Exports of Goods and Services
There is no question that the U.S. needs to continue its
effort to remove Chinese market access barriers to U.S. goods
and services. Withdrawing normal trade status to end the
deficit would be, however, a cure worse than the disease, as it
would disrupt and not increase U.S. exports. Instead, we should
secure China's accession to the WTO on the basis of a
commercially acceptable protocol of accession which provides
meaningful market access to U.S. goods and services. Until that
goal is achieved, we should ensure that China abides by all its
existing market access commitments.
It also should be noted that the U.S. trade deficit with
China is due to a number of factors which should be put in
perspective. First, due to flaws in U.S. Commerce Department
methodology used to compile export and import statistics,
China's deficit with the United States is most probably
overstated by about one-third. This would mean that China's
actual deficit with the United States in 1996 was approximately
$24 billion.
Another factor affecting China's trade deficit is the
degree to which it is open to foreign investment. In the recent
past, China has attracted roughly 40 percent of all foreign
direct investment in emerging markets. This investment is
primarily from Hong Kong, Taiwan, and South Korea. Labor
intensive industries such as footwear, clothing, toys, and
sporting goods located in these countries have moved their
production facilities to China to take advantage of lower labor
costs. This production shift to China in these labor intensive
industries now accounts for a large portion of U.S. imports
from China. While this production has increased China's deficit
with the United States, it has resulted in declining U.S.
deficits with Hong Kong, Taiwan, and Korea. As a result, the
increase in Chinese imports has not caused a significant loss
of U.S. jobs and, instead, represents merely a shift in the
location of low-wage assembly operations from traditional Asian
suppliers to China.
In addition, U.S. unilateral sanctions imposed against
China, such as the prohibition on the export of high-speed
computers, commercial satellites, and peaceful nuclear
technology, have restricted U.S. exports and put the United
States at a competitive disadvantage. Such U.S. sanctions have
also contributed to our bilateral deficit with China.
Finally, it is important to note that while the U.S.
deficit with China has increased, so have U.S. exports to
China. The rate of increase in U.S. exports to China since 1990
exceeds the rate of increase in U.S. exports to any other major
market.
VI. Need To Move Beyond Uncertainty of Jackson-Vanik Annual Renewal of
Normal Trade Status
The uncertain framework of our current bilateral commercial
relationship with China stands in the way of achieving greater
access for U.S. trade and investment in China and the Asia-
Pacific region. That framework is based on a bilateral trade
agreement extending normal trading status and the highly
disruptive annual review of whether to continue to extend
normal trade status to China under the Jackson-Vanik provisions
of the Trade Act of 1974. For more than 15 years, as U.S.
business has tried to expand its trade and investment ties to
China, it has had to live with the knowledge that its exports
and investments were in perpetual jeopardy due to the annual
Jackson-Vanik review.
ECAT member companies believe that it is time to build the
foundation to restructure our commercial relations with China.
The first step in this process is renewal of normal trade
status this year. The ultimate goal should be a stable U.S.-
China commercial framework based on: (1) China's accession to
the World Trade Organization under a commercially acceptable
protocol that advances U.S. access to the China market; (2) the
extension of permanent normal trade status to China so that the
United States can fully benefit from China's accession; and (3)
termination of U.S. unilateral sanctions against China that
unnecessarily hamper U.S. exports to China. No gift to China
should be entailed in a restructured U.S.-China relationship.
The attainment of U.S. objectives should require China to make
substantial commitments to liberalize its trade and investment
regime and make other market reforms.
A. WTO Accession
China's accession to the WTO offers a unique opportunity to
restructure U.S.-China trade in a direction that leads to a
more stable and prosperous commercial relationship. It offers a
means for the United States to move from having to enforce a
series of bilateral agreements to a comprehensive approach to
U.S. market access objectives for goods, services and
investment. WTO rules and dispute settlement procedures would
also provide a more effective means to enforce China's market
access commitments and adherence to WTO obligations. China's
accession to the WTO must be based, however, on a commercially
acceptable protocol that improves U.S. market access and
implements WTO rules and obligations.
While it seems unlikely that China's WTO accession can be
finalized this year, every effort should be made to lay the
groundwork for a final agreement on accession ECAT supports
U.S. efforts to negotiate a strong protocol of accession. In
particular, ECAT believes that a commercially acceptable
protocol of accession should include commitments to provide the
following:
a substantial reduction and binding of tariffs on
2,300 priority items identified by the United States and a
commitment to phase out residual quotas and import licensing
restrictions;
national treatment with respect to the treatment
of foreign goods services, and investment. In this regard, a
commitment should be obtained to phase out substitution and
local content requirements and eliminate discriminatory taxes
and restrictions on trading rights that violate the national
treatment provisions of GATT Article III and GATS Article III.
With regard to trading rights the United States should refuse
to accept an extended phase-out period;
the full implementation of the U.S.-China
bilateral intellectual property rights agreements of 1992 and
1995;
the elimination of restrictions on investment such
as the imposition of requirements regarding export performance,
import substitution, foreign exchange balancing, and technology
transfer;
the provision of non-discriminatory market access
and the liberalization of existing geographic and licensing
limitations to U.S. service providers, including financial
services and telecommunications;
the modification of industrial policies which are
inconsistent with the WTO; and
the elimination of barriers to U.S. agricultural
exports which are inconsistent with the WTO, including sanitary
and phytosanitary measures, that operate as disguised
restrictions on trade.
Of these elements, ECAT member companies have been
particularly concerned with gaining significant commitments on
market access, trading rights, services, and investment.
To date, there has been some progress in accession
negotiations. The Chinese are reported to have agreed in
principle to make reforms in their economic regime and bring it
into conformity with WTO standards.
In moving forward with China's WTO negotiations, the
Administration should continue to consult with Congress on the
progress and substance of the negotiations. ECAT believes,
however, that any legislation requiring specific congressional
approval for China's WTO accession could prove to be counter-
productive. Such a requirement could further entangle trade and
non-trade related issues concerning China. It would effectively
tie the President's hands, with respect to securing China's
accession, as well as set a burdensome precedent for requiring
congressional approval of the accession of 27 other countries,
including Russia, Vietnam, and Saudi Arabia, that have applied
for WTO membership.
B. Need To Consider Moving Beyond Annual Normal Trade Status
Renewal
The challenge this year is the preservation of China's
normal trade status. In order to move toward a restructured
relationship with China, however, it is time to consider moving
beyond the divisive, annual debate over normal trade status
renewal. Since the early 1980s when the United States extended
normal trade status to China, our bilateral relationship has
been held captive by the highly disruptive annual debate, which
has undermined our commercial and strategic interests. Although
the Jackson-Vanik statute is directed at freedom of emigration
issues, the annual debate over China's trade status extends far
beyond the scope of the statute to broad human rights concerns,
proliferation, and a host of other issues which have no
relation to emigration policy. As a result, Jackson-Vanik has
become the vehicle for an annual referendum on U.S. China
policy, which puts U.S. commercial interests at great risk,
undermines U.S. reliability as a supplier, and gives European,
Japanese, Canadian, and other foreign suppliers a competitive
edge.
The United States is the only nation that provides
conditional normal trade treatment to China. All our major
trading partners provide permanent normal trade status to
China. As a result, U.S. competitors in Europe, Japan, Canada,
and Australia are increasingly viewed as more reliable, stable
suppliers than the United States.
In addition to undermining U.S. commercial interests, the
disruptive annual reviews under Jackson-Vanik have also impeded
our efforts to build a stronger political relationship with
China and achieve greater progress on a range of non-trade
issues.
ECAT believes that it is clearly in our national interest
to move beyond the annual renewal of normal trade status for
China and to find a way out of the yearly debate. If the
transfer of Hong Kong to Chinese sovereignty proceeds well and
China is forthcoming in providing commercially satisfactory
market access commitments in the WTO accession discussions,
there may be a foundation for moving beyond the annual renewal
process to permanent normal trade status for China. At a
minimum, this year the Congress should not disapprove the
continuation of China's normal trade status.
I appreciate the opportunity to present our testimony to
the Committee.
Mr. Houghton. Thank you very much, Mr. Cohen.
Mr. Howard.
STATEMENT OF JOHN HOWARD, DIRECTOR, INTERNATIONAL POLICY AND
PROGRAMS, U.S. CHAMBER OF COMMERCE
Mr. Howard. Thank you, Mr. Chairman.
The U.S. Chamber of Commerce believes that the national
interest requires renewal of China's MFN status. In 1996 alone,
U.S. companies exported nearly $12 billion in merchandise to
that country. Every single State of the Union benefits to some
extent from trade with that country; last week, we provided
each congressional office with details on your State's exports
to China.
Not only do total U.S. exports to China generate--or
support, rather--over 170,000 high-wage jobs in a variety of
high-value-added sectors, but many thousands of additional jobs
in both the import and export sectors depend on retail,
transportation, shipping, and other services related to China
trade. All of these jobs would be at substantial risk if
China's MFN status was ended.
I will get more into what MFN really means shortly, but
first I want to make the point that China-U.S. commerce is not
just the exclusive concern of big business in America,
important though that is. As you know, small- and medium-sized
businesses represent the bedrock of U.S. Chamber membership and
they, too, have a significant stake in China-U.S. commerce.
As part of its continuing efforts to strengthen U.S.-China
commerce, in February the U.S. Chamber launched a nationwide
survey of small- and medium-sized companies that export to and
invest in China. The primary objectives were to determine the
types of small- and medium-sized companies that do business in
China, the factors contributing to the growing importance of
the Chinese market, the constraints that may decrease business
opportunities, and the impact of U.S. Government assistance and
policies on business.
Over 200 companies responded to our survey, and 57
organizations, including many State and local Chambers, helped
facilitate the survey's distribution. The results of the survey
were released at a press conference at the U.S. Chamber
headquarters this morning, and I would like to take this
opportunity to share with you some of the findings of this
project.
[The information is being retained in the Committee files.]
First of all, as I said a minute ago, the survey verified
that U.S.-China trade is not the exclusive province of large
multinationals. Small business and medium-sized business also
has a big stake in that country.
All of the companies whose responses were included employ
2,500 or fewer employees. Indeed, nearly half of the responding
companies employed fewer than 50 people; and all responses from
companies with 2,500 or fewer employees were included in our
results.
These companies are not newcomers to the Chinese market
either. Half of the respondents had been involved in China one
way or the other for 5 years or more and, indeed, 28 percent
had been there for over 10 years.
Second, our survey revealed that small business has a long-
term and optimistic view of the Chinese market. As I just said,
50 percent of the responding companies had more than 5 years of
experience in the Chinese market, and over two-thirds of them
characterize their experience in China as successful or very
successful.
Third, small businesses are driven to the Chinese market by
many of the same considerations that drive those big
multinationals. The size of the market, its potential for
growth, its openness, the relative predictability of government
decisionmaking, the level of political risk or lack thereof,
and the strength of local and foreign competition: these are
major factors that determine or drive the decision by small
business to go into that market. In particular, the size and
the huge growth potential of the Chinese market was cited as a
very important factor in doing business there.
But it is also important to note that the state of U.S.-
China relations was also cited as a key factor in the
confidence of companies to do business in that market. Small-
and medium-sized businesses are clearly adversely affected by
the annual debates that we have on whether or not to renew
China's MFN status.
In addition to the market potential, the survey did reveal
a number of challenges that small businesses face. And many of
these observations confirm that small business has a clear
stake in the process involving China's accession to the WTO.
Many companies reported having difficulties with
inconsistent rules, regulations, transparency, and difficulties
in enforcing contracts. Other problems they identified include
the privileged position of Chinese companies that have special
relationships to powerful government entities, deficiencies in
the legal structure, difficulties in importing and exporting,
and high tariffs. Import restrictions and licensing
requirements are also seen as problems, as is intellectual
property.
All of these challenges require continuous attention by
U.S. officials as they negotiate with China on our behalf,
either bilaterally or in the context of WTO accession. The
solutions are indicative of the kind of commitment China must
demonstrate before the Chamber can support its accession to the
WTO.
Continued MFN status not only provides the critical
underpinning between our two countries; it is also critical to
sustain U.S. influence, our ability to obtain solutions to
these problems as well as to advance the cause of economic,
political, and religious freedom in China. And it is the
underlying foundation upon which additional progress on WTO and
other obligations can be achieved.
Let's be clear what MFN is and is not. ``MFN'' is a
misnomer because there is nothing ``most favored'' about it. As
has been said repeatedly, and as is increasingly understood,
MFN is the normal tariff treatment the United States provides
to all but a handful of its trading partners. As such, it is a
fundamental and necessary component of commerce within the
global economy.
Neither the United States nor any other nation can afford
to reject this reality as it relates to the world's largest
nation. No other nation is contemplating such rejection. As I
said earlier, billions in trade and thousands of jobs depend on
commerce with China.
But support for China's MFN status does not suggest
uncritical approval of China's policies or practices. Various
U.S. trade laws, and continued engagement with the leadership
there, provide ample opportunities to challenge those policies
and practices we don't like. However, to terminate a
fundamental commercial relationship recognized worldwide as
normal is to cast doubt on the reliability of the United
States, to harm the progress we profess to support, and,
ultimately, to hinder U.S. objectives across the board.
Thank you, Mr. Chairman, for hearing our views.
[The prepared statement follows:]
Statement of John Howard, Director, International Policy and Programs,
U.S. Chamber of Commerce
Mr. Chairman, I am John Howard, Director of International
Policy and Programs at the U.S. Chamber of Commerce. I
appreciate this opportunity to present the U.S. Chamber's views
on U.S. trade relations with China and the renewal of China's
most-favored nation status.
At the outset, Mr. Chairman, let me state that U.S. Chamber
members are very interested in China's market. China's economy
has experienced explosive growth in recent years, and the
future potential is staggering. The estimates of China's
infrastructure requirements and the potential of a huge market
helped to make China the top international priority for many
U.S. companies during the 1980s and early 1990s. Companies fear
that they will miss the train if they fail to establish some
sort of presence in the Chinese market, particularly given
similar efforts by our European and other Asian competitors.
The U.S. Chamber has encouraged U.S. efforts to secure a
fair share of that market through bilateral initiatives to
improve market access. We have worked to facilitate business
development at the business-to-business level. We have worked
to increase public understanding of the commercial
opportunities in China. In January 1997, the U.S. Chamber
launched a multi-year education campaign to build domestic
support for international trade. Armed with its extensive
grassroots network, the Chamber is drawing on its state and
local chamber of commerce affiliates as well as its small and
medium-sized businesses to advocate such policy issues. This
year, our focus has been on the U.S.-China commercial
relationship.
The U.S. Chamber supports:
permanent and unconditional extension of Most
Favored Nation (MFN) trading status for China;
China's entry into the World Trade Organization
(WTO) on commercially viable terms; and
removal of unilateral economic sanctions against
China.
U.S. Chamber Survey: Small Business Speaks Out on Investment and Trade
Opportunities in the People's Republic of China
Small and medium-sized businesses represent the bedrock of
U.S. Chamber membership. As part of its continuing efforts to
strengthen China, the U.S. Chamber conducted a nationwide
survey of small and medium-sized companies that export to or
invest in China. The primary objective was to determine the
types of small and medium-sized companies that do business in
China, the factors contributing to the growing importance of
the Chinese market, the constraints that may decrease their
business opportunities, and the impact of U.S. Government
assistance and policies on their business.
Over 200 companies responded to our survey and 57
organizations, including many state and local chambers, helped
facilitate the survey distribution. The results of the survey
were released at a press conference this morning and are
attached to my testimony, I would like to take this opportunity
to share with you some of the findings of this project.
First of all, the survey verified that U.S.-China trade is
not the exclusive province of large multi-national companies;
small business has a big stake in China. Indeed, nearly fifty
percent of the responding companies had fewer than 50
employees. Secondly, our survey revealed that small business
has a long-term and optimistic view of the China market. Fifty
percent of the responding companies have more than five years
of experience in the Chinese market and over two-thirds of the
companies characterized their experience in China as successful
or very successful. Third, small businesses are driven to the
Chinese market by considerations similar to those of multi-
nationals. The size and huge potential for growth of the
Chinese market was cited as a very important factor in deciding
to do business in China.
But it is worth noting that the state of U.S.-China
relations was cited as a key factor in the confidence of
companies to do business in China. Small businesses are
adversely affected by the annual debates on whether to renew
China's MFN trade status. In addition, despite the market
potential, China remains a challenging place for small
business; the survey confirms small business has a stake in
China's WTO accession. Many companies reported having
difficulties with inconsistent rules, regulations,
transparency, and difficulties in enforcing contracts. Other
problems identified include the privileged position of Chinese
companies having special relationships to powerful government
entities; deficiencies in the legal structure; difficulties in
importing and exporting goods from China; and high tariffs.
Import restrictions and licensing requirements are also seen as
significant barriers for small businesses. Finally, protection
of intellectual property remains a problem.
For these reasons, the U.S. Chamber actively supports
efforts to create and sustain a stable commercial environment
in China that will make it possible for U.S. firms of all sizes
to compete and prosper. This is a big challenge that requires
action on every possible level. At the multilateral level, U.S.
Chamber members have strongly supported the Administration's
firm and judicious position on the terms of China's accession
to the World Trade Organization (WTO). Those negotiations
represent our most important opportunity to secure strong
multilateral discipline in one of the world's fastest-growing
trading nations.
At the bilateral level, we continue to support the efforts
of our government to improve transparency, rule of law,
intellectual property rights protection, and market access in
China. U.S. business leaders seek opportunities for dialogue
directly with policy makers in China, through organizations
such as the American Chambers of Commerce in Beijing, Shanghai,
Hong Kong, and in fora such as our meeting today with Vice-
Minister Long Yongtu of China's Ministry of Foreign Trade and
Economic Cooperation (MOFTEC), China's Chief Negotiator on the
WTO. Business-to-business conferences can also be of great
importance in opening up market opportunities in China.
U.S. policy on China should be based on a clear-headed
awareness of China's future role in global markets. Recent
growth has been fueled by an explosive surge in exports,
especially to the U.S. market. Our bilateral trade deficit has
grown steadily in 1990's, to a total over $35 billion in 1996.
Nevertheless, despite the overall deficit, American policy
toward China must continue to rest on a clear view of our long-
term interests. We should recognize that expansion of our
commercial ties with China is vital to America's future.
Renewal of China's Most Favored Nation Status
On May 29, 1997 President Clinton decided to request a
renewal of China's MFN status. In taking this action, the
President appropriately recognized that the United States
should pursue a policy of ``engagement'' with China that
advances long-term U.S. commercial, strategic, and national
security interests.
The U.S. Chamber strongly supports permanent and
unconditional extension of China's MFN status. MFN is the
routine, nondiscriminatory tariff treatment enjoyed by over 100
countries, including many countries with whom we have major
trade or foreign policy differences comparable to those we have
with China. Only a few nations have ever been denied MFN
status. Instead of using China's MFN status as a means to
``send a message,'' the United States should continue the
policy of comprehensive engagement with China which recognizes
our vital interest in maintaining regional stability,
preventing weapons proliferation, fostering democratic ideas
and working towards fair and free trade.
Expanding U.S.-China trade is in America's national
interest. Last year, the United States exported approximately
$12 billion in goods and services to China. These exports
supported approximately 170,000 high-wage American jobs. U.S.-
China trade also supports tens of thousands of jobs at ports,
retail establishments, and consumer good companies. China is a
crucial market for American farmers. In 1996, China bought over
$1.9 billion in U.S. agricultural products, making China the
sixth largest export market in the world for American farmers.
Moreover, according to World Bank estimates China must invest
over $745 billion in infrastructure development over the next
decade. As China embarks on its massive infrastructure program,
it will spend billions of dollars in sectors in which U.S.
firms are very competitive. Over the next decade, China will be
an important market for U.S. Chamber members that export high
technology equipment, aerospace, telecommunications, petroleum
technology, agricultural products and consumer goods.
American consumers and small shop owners also benefit from
trade with China. Without MFN, tariffs on about 95 percent of
U.S. imports from China would dramatically increase by 30-50%
or higher. Revoking MFN status would have a disastrous impact
on small and medium-size American companies who sell consumer
goods in such areas as men's trousers, sweaters, silk blouses
or tops, footwear, radio/tape players, toys, and electric hair
dryers.
Withdrawing MFN would put American trade and jobs at risk.
If China were to lose MFN status, China would certainly
retaliate against U.S. exports, putting at risk billions of
dollars of U.S. sales and thousands of American jobs. Even
limited sanctions linked to Hong Kong or improvement on human
rights would endanger economic ties between the two countries.
This would place U.S. companies at a competitive disadvantage,
since none of China's other major trading partners imposes such
conditions on trade.
Clearly, our growing economic cooperation with China has
fostered dramatic economic reforms, and strengthened voices in
China calling for political reforms. U.S. Chamber members help
to promote fundamental rights wherever they operate by
establishing benchmarks for corporate practice in such critical
areas as personnel management, corporate citizenship, fairness
and equal opportunity. U.S. Chamber members have been, and will
continue to be, forces for positive change in China.
Some critics argue that by renewing China's MFN status, the
United States ignores China's human rights record. The U.S.
Chamber supports the fundamental principles of human rights in
China and throughout the rest of the world. Removing MFN,
however, will not lead to progress on human rights. It would
erode our economic relationship, harm those forces in China
which are most sympathetic to political reform, and isolate
pro-American Chinese officials, and put more power into the
hands of hard-liners who favor stronger government control. The
best way for the United States to see a prosperous, free China
is for U.S. companies to stay commercially engaged.
Moreover, despite problems, particularly with the
imprisonment of political dissidents and suppression of
religious freedoms, China is a lot better off than 20 years
ago. The Chinese people have experienced vast and on-going
improvements in economic freedom, living standards, access to
information, and political expression since relations were
normalized. Individual Chinese are now free to choose their
place of work, seek out new entrepreneurial opportunities,
watch foreign television programs, and read Western magazines
and newspapers.
Broadening and expanding U.S.-China commercial ties is also
the best way to secure Hong Kong's future. The U.S. Chamber of
Commerce believes that the transfer of power in Hong Kong to
China on July 1, 1997, would be best served if Hong Kong
remains a market environment characterized by open competition.
It is of vital importance to the U.S. business community that
Hong Kong's position as a center for international business and
finance be maintained. The U.S. Chamber supports adherence to
the Sino-British Joint Declaration and Basic Law, which in 1984
spelled out the terms in which governance of Hong Kong would be
transferred from Great Britain to China. We believe that
faithful implementation of the Joint Declaration's formula of
``one country, two systems'' will not only strengthen U.S.
business confidence in Hong Kong and China but will likely
strengthen U.S.-China relations.
Furthermore, linking China's MFN status to Hong Kong's
future will hurt not help the people of Hong Kong. Hong Kong's
prosperity is built on trade with China, and its role as an
Asian commercial and financial center is linked to China. As
Governor Patten has pointed out, ``imposing conditions or time-
limits on the renewal of China's MFN trading status,
particularly conditions which were either directly or
implicitly linked to developments in Hong Kong, would
jeopardize rather than reinforce Hong Kong's way of life.''
Revoking China's MFN status would also hurt Taiwan, another
important ally in Asia. Taiwan's economy and security would be
damaged by any U.S.-China commercial conflict. Taiwanese
companies have invested over $25 billion in China. Conflict
between the United States and China could destabilize the
Taiwan Straits, and threaten Asian regional security.
China's Accession to the World Trade Organization
Let me now turn my attention to China's efforts to join the
World Trade Organization (WTO) and, in so doing, obtain access
to its dispute resolution procedures and other benefits.
China's bid to join the WTO represents an important opportunity
to secure strong multilateral discipline on one of the world's
fastest growing trading nations. The commitments made by China
in the WTO accession negotiations will demonstrate how far
China is willing to go to open its markets to foreign goods and
services. If China makes good on commitments to build a modern
trade regime that would qualify it for WTO membership, it will
gain the respect of the international business community.
Mr. Chairman, we also believe that the integrity of the WTO
system is also at stake in China's WTO negotiations. Final
accession terms will doubtless be used as a benchmark for
accession negotiations for Russia, Vietnam and other economies
that are still in the early stages of a difficult transition
from a centrally planned to a market economy. Each of these
countries, including China, will be tempted to reverse market
reforms in the face of political or economic uncertainties that
are virtually certain to occur in the process of market
transition. As a consequence, we believe that the terms of WTO
accession should be defined carefully to ensure that reforms in
international trade policies are secure from threats to the
reform process.
The U.S. Chamber understands that one of China's top trade
priorities is to become a member of the WTO. The U.S. Chamber
fully supports China's accession to the WTO but only under a
protocol consistent with its status as a major trading power
and adherence to the market principles assumed of all WTO
signatories.
China's huge trade surplus with the U.S. is second only to
that of Japan and is growing at a faster rate. As mentioned
above, U.S. products face formidable market barriers in China.
The present commercial environment in China makes it difficult
for U.S. companies to compete and prosper. China must take
concrete measures to open its markets to foreign goods and
services. At the same time, China needs to make additional
progress on providing intellectual property protection and
trading rights for American goods and services. China must also
demonstrate that it will not use the WTO to reverse market
reforms.
The U.S. Chamber is encouraged by China's offer on trading
rights and efforts to improve intellectual property rights in
China. But these efforts alone will not make it possible for
U.S. companies to compete and prosper. In our view, there
remain a number of critically important commitments China must
make before the U.S. Chamber can support China's accession into
the WTO. These include China's commitment to:
bring its trade regime into conformance with WTO
Agreements and Disciplines;
extend national treatment on all goods and
services to foreign companies that want to invest in China;
extend MFN trade status to all WTO signatories who
extend such treatment to China;
sign the WTO Government Procurement Code;
provide market access for textiles and
agricultural products (where China uses standards and
certification requirements as barriers to trade);
reduce export subsidies;
ensure protection and market access for U.S.
intellectual property goods and services;
liberalize access to its foreign exchange system
for foreign exporters and investors;
apply the provisions of the WTO uniformly
throughout China; and
eliminate all restrictions on who may import or
export products or services from China.
We recognize that one of the principal issues between China
and the United States, in terms of WTO membership, is over
whether China should be admitted as a developing or developed
nation. In some areas, China may deserve some latitude in
making the transition to a market economy. However, the United
States must insist that China adhere to basic WTO obligations,
take ``significant'' steps forward on market access for goods,
services, and agriculture, and agree to apply international
trade rules and disciplines. And we are concerned that China
has shown a reluctance to engage in serious negotiations on
fundamental issues such as transparency of its regime, uniform
application of trade rules and trading rights. We strongly
believe that until the Chinese make concrete commitments, the
U.S. Chamber cannot support China's membership in the WTO.
Conclusion
The U.S. Chamber strongly supports permanent extension of
MFN status to China. Extending permanent MFN status to China
would strengthen U.S.-China commercial ties to the benefit of
American business and workers. It would also provide a positive
basis for U.S.-China dialogue on human rights, weapons
proliferation and security matters, and strengthen cross-
cultural ties and awareness of American cultural and political
values.
The U.S. Chamber also believes that a great deal hangs on
the multilateral negotiations with China. China is the largest
country in the world and the terms of China's accession must
expand market access for U.S. companies; strengthen China's
commitment to the rule of law; strengthen protection of
intellectual property rights; and reflect a commitment to apply
market rules and fair competition in accordance with the WTO
and its economic stature.
Mr. Chairman, this concludes my formal presentation. I
would be happy to respond to any questions you might have.
Mr. Houghton. Thank you very much, Mr. Howard.
Mr. Williams.
STATEMENT OF JIM WILLIAMS, GENERAL MANAGER AND CONTROLLER,
OHSMAN & SONS CO., CEDAR RAPIDS, IOWA
Mr. Williams. I was going to say ``good afternoon,'' but it
is almost evening, Mr. Chairman. My name is Jim Williams, and I
am the general manager----
Mr. Houghton. You can say ``good evening,'' also, if you
would like.
Mr. Williams. Good evening and good afternoon.
When we came back from the break, I was also going to give
my condolences to the Representative from Minnesota, my
neighboring State. I thought he pulled a short straw and was
stuck with the end of this, but I guess you did.
To continue, as I said, I am general manager and controller
of----
Mr. Houghton. Let me just interrupt a minute.
You know, I don't know about you. But I was in business for
35 years, and my life has not been the same since I came down
here to Congress. Democracy is not business; it is a sloppy,
messy process. But that is the way we get through things. And I
am terribly sorry that we had to leave to go to the White House
and then come back. I really appreciate your patience.
Mr. Williams. It has been very educational, my day down
here, I must say.
As general manager and controller of Ohsman & Sons, I am a
member of the local Chamber of Commerce in Cedar Rapids, Iowa,
although I don't represent them here today. And it is just an
honor for me to be here and address you.
In order for you to get a little better understanding of my
comments, I would like to give you a little background on the
company and myself.
Ohsman & Sons Co. buys and sells cattle hides, cow hides,
wool, and furs. Mike Ohsman, our current president, is the
fifth generation of the family to head the company. We will buy
from an individual farmer who slaughters his own animal. We
will buy that skin as well as from trappers--whether they be
young kids or professional-type trappers--and also large
corporations that you are aware of like IBP, National Beef, and
Excel.
We sell to American companies that are making leather, and
we also export these American products to countries all over
the world. And our exports have changed, as someone else
mentioned. As the markets change and move from one country to
another, we follow with American products.
I believe it was the Trade Representative who said that the
shoe industry, shoe manufacturing, has moved from Korea and
Taiwan to China. So we follow it into China. And to be very
honest, we don't like some of the barriers that our government
puts up, such as this debate about MFN.
We do practice good American business: In 1991 our company
received the President's E Award for Experience; I thought you
just had to sell a lot to receive it. I didn't realize that we
had to be investigated by the FBI, the Department of Commerce,
and everybody else to make sure we were a good representative
over there.
Personally--I am originally from Chicago. You can pass that
on to your Chairman, that I am a fellow Chicagoan. Maybe that
is why I am speaking the way I am.
I have served as chairman of the International Trade Bureau
in Cedar Rapids, which is comprised of everything from one-man
companies trying to do business internationally to companies
like Rockwell International which are selling the avionics that
are going into the Boeing aircraft being sold in China.
I have traveled around the world extensively in the Far
East, in Europe, and South America including several visits to
mainland China. Primarily all these trips were for the purpose
of doing business--for profit--which I don't think a lot of
people wanted to hear today.
I made my first trip to China right after the Tiananmen
Square incident, and now we have sales of about $2 million a
year, plus or minus, depending on what their requirements are.
I see an enormous potential in China for American products--not
only the agricultural products but all of the products in
there.
There are basically two issues that I would like to address
here. One is this most-favored-nation status.
First, I want to strongly suggest that we not put us--the
American people and the Chinese people--through the torture and
agony of debating on an annual basis whether to grant this
most-favored-nation status with China. I suggest we grant them
a permanent and unconditional extension of this MFN status. I
think this is in all of our best interests.
On the subject of accession to the World Trade
Organization, I think we have to take a little different stance
and say, OK, we recommend this but they have to play by the
rules.
You can look through my written paper here and get some
definite verbiage, but I want to make a few comments from it in
the time allotted here.
If we do not grant this MFN status and we have these
debates every year, it costs American companies and,
ultimately, the American public money. Because what happens is
that those of us engaged in international trade delay doing
things, so we delay placing orders for Chinese goods. The
Chinese delay placing orders for our goods. And, all of a
sudden, we have a bottleneck with the shipping in there.
Freight rates go up, because the freight rates on the steamship
lines go up. Prices then go up, to the detriment of both the
American consumer and the Chinese consumer.
Other people ask me, Well, how does what is happening in
Washington, DC, affect you when you go to China? Well, what
happens is, you sit down with someone you are going to do
business with. After the first few lines of conversation,
someone on their side will be a little bit aggressive and say,
Why is your government doing this to us? Why does your
government not want us to have MFN status when you give it to
other countries? Why do you treat us like an enemy? Year after
year after year you put us through this.
An analogy that one of my customers gave me was that if you
have a good business relationship, you don't constantly ask for
credit reports on that customer; you go on with the business. I
think extending the MFN status would be a win/win situation for
the greater benefit of American business, its workers, and the
consumer public.
This MFN status does support many American jobs. And don't
ask me how many jobs; I am a controller of a company. We
balance our books and we pay our taxes. I heard more different
numbers here today about the number of jobs involved, the
number of this, and number of that. As you said, Congressman, I
guess this isn't business where you get accurate numbers from
all quarters.
Having spoken a little bit about this annual debate on most
favored nation, I would like to talk about accession to the
World Trade Organization. This is a little different ball game,
as I said. In this case, I strongly suggest that, yes, we
support China in the World Trade Organization, provided that
China plays the game by the rules--and not only plays the game
by the rules, but has some referees to enforce the rules in
their country.
People talk about China being an underdeveloped country. I
don't think it is. It is a major trading country. I think we
have to do all we can to establish good trading relationships.
I want to close with a comment that I wrote on the written
statement that I would hope the Congressmen who aren't here
might read when they have time: Let's not close the door to
China that President Nixon opened up 20 years ago, a door that
I think President Clinton wants to keep open. But, rather,
let's lubricate the hinges on this door by granting permanent
MFN status to China. In this way, American business can march
through the door and then, once comfortably inside, move on to
the task of doing other things that will profit both the United
States and China.
While I sat here, since before 10 this morning, I made a
few notes that I would like to relate, as these were not in the
official statement that I submitted.
The question was raised about whether trade was important.
Somebody talked about the balance of trade payments. Well, in
our business we say that if we buy first from a prospective
customer, then that customer should have made a profit, and
they will then be able to buy our products.
Our company has specifically bought products from Romania
in hopes that the Romanians would have money to buy some
American products, and, in fact, they did buy some.
One of your cohorts, a congresswoman, said there were not
enough jobs created in the United States for the size of the
China market. Well, it is kind of difficult for us to increase
the employment in the United States with jobs that are based on
business with China when we constantly have roadblocks thrown
up to increasing this business.
And since this is a political thing, I had another thought.
People need money to support good politicians so that good
politicians will pass these laws that I have heard many of the
panels talk about for human rights and these types of things.
And the way that people get more money to contribute to good
politicians is through trade and business. I guarantee you that
if we improve the economic status of the Chinese, they will
take some of that money and use it to change their political
situation.
Another comment I have is----
Mr. Houghton. If you could really do this pretty fast, the
reason being that we have got a series of votes. I know we have
held you and I know it is inconvenient, but we have got a
series of votes starting at 5. I would like to have another
panel come up. So just as fast as you could wind up, I would
appreciate it.
Mr. Williams. OK. I will close with this: I was very
surprised to hear in this session that MFN was a device to send
messages about various issues--religion, pro-life, school
vouchers, and that. I would suggest strongly that we
concentrate on the idea that this is a business forum, not a
forum to try and solve all the problems of the world.
Thank you, sir.
[The prepared statement follows:]
Statement of Jim Williams, General Manager and Controller, Ohsman &
Sons Co., Cedar Rapids, Iowa
Good afternoon, Mr. Chairman. My name is Jim Williams and I
am general manager and controller of Ohsman & Sons Company in
Cedar Rapids, Iowa. I am also a member of the U.S. Chamber of
Commerce. It is an honor and privilege for me to be able to
visit with your subcommittee today.
In order for you to have a little better understanding of
the basis for my comments on why small business people like me
have a stake in healthy commercial relations with China, I
would like to give you a bit of background on my company and
myself.
Ohsman and Sons Company buys and sells cattlehides, wool,
and furs. Mike Ohsman, our president, is the fifth generation
of the Ohsman family to head the company since 1891. We buy
from individual farmers, trappers, and also from large
corporations like IBP, National Beef. We sell to American
companies and also export American products to tanneries all
over the world. In 1991, we received the President's ``E''
Award for excellence in exporting.
I am originally from Chicago, have served as Chairman of
the International Trade Bureau of the Cedar Rapids Area Chamber
of Commerce, and in connection with my job at Ohsman's, have
traveled extensively throughout Europe, the Americas, and the
Far East, including several visits to Mainland China.
I made my first business trip to China for Ohsman and Sons
Company back in 1989, and we now have annual export sales to
China in excess of $2,000,000. As a small businessman engaged
in trade in agricultural products, I can see the enormous
potential of the China market for U.S. agricultural goods. In
1996, U.S. agricultural exports to China totalled $1.9 billion.
Small businesses like Ohsman and Sons Company have much to gain
from greater access and increased exports to the Chinese
market.
There are two basic issues that I would like to take up
with this distinguished group on behalf of the American small
business community. First is that we strongly suggest that you
not put us, the American business people, and the Chinese
people through the torture and agony of debating on an annual
basis whether to grant Most Favored Nation (MFN) trading status
to the People's Republic of China. We should grant permanent
and unconditional extension of MFN status to China. This is in
our national interest and in the interest of small businesses
like mine. Second, I have a few opinions on the subject of
China's accession to the World Trade Organization on commercial
terms that will make it easier for businesses like mine to
export to China.
As for my suggestion that the United States grant permanent
and unconditional MFN status to China I want to make the
following points:
MFN does not give China any special status. All of our
major business partners like Canada, Japan, Mexico, and
virtually all of the countries of the world enjoy MFN status.
More importantly, the annual China MFN debate costs
Americans companies and ultimately the American public real
dollars. When China's MFN status is unclear, U.S. companies
hesitate to order needed and wanted goods from China. U.S.
companies delay the orders, the steamship lines suffer for lack
of cargo during the time of the debates, and then, when MFN
status is granted, there is a great demand for space on the
ships, not only from China but from all ports in Asia and
Southeast Asia. Freight rates go up, consumer prices are
raised, there are delays in moving cargo and virtually
everybody loses.
This annual debate also hinders small businesses like ours
that are trying to establish good relations with our trading
partners. How do we answer the questions like ``Why is your
government doing this to us? Why does your government want to
do something like this when MFN status is good for both of us
and moreover for the individual citizens of both countries? Why
is your government treating us like an enemy? Why do we get
this poor treatment year after year?'' Yes, they do take it
personally! Countries and individuals that have good trading
and business relationships are friends, not enemies.
Extending permanent MFN status to China will be a win-win
situation for the greater benefit of American business, its
workers, and the consumer public, as well as for the quicker
improvement of conditions in China for all of its people. How
can we expect China to evolve into a more free, open market
economy if we constantly, year after year, threaten them with
removal of MFN and the availability of the United States as a
good trading partner?
China's MFN status supports the hundreds of thousands of
American workers and entrepreneurs who are exporting American
goods and services to China. MFN status will help China become
a free market economy for the benefit of the 1.2 billion people
in China in every walk of life. The United States can show the
world that we believe in free enterprise for all countries, and
that when business is good between countries, it creates a
positive climate for dialogue on the full range of bilateral
issues between them.
Having explained why I think permanent MFN status for China
is in America's interest, I would like to briefly address
China's accession to the World Trade Organization (WTO).
While Most Favored Nation status basically means that the
United States will treat all trading nations equally in the
matter of tariffs, accession to the World Trade Organization
involves much more--namely, agreeing to play the game of
international commerce by well-established, defined, and
enforced rules.
China, in my opinion, is not in any way a 'developing'
nation, but rather one of the world's greatest countries in
terms of the size of its economy. China is a huge industrial
nation, one that has done an admirable job of providing not
only the basics of food, clothing, and shelter to its citizens.
China has developed enough infrastructure to now be in a
position where it has a huge trade surplus not only with the
United States, but also with many other countries.
China is a major trading power in the world today, but it
is not behaving as a good major trading power should. China
must do much more to open its markets to American goods and
services, and must agree to not only play by the established
international rules but also enforce them within China. Some of
these international rules apply to such things as agricultural
products, financial services, intellectual property rights, and
non-tariff barriers to trade.
I am confident that all of you have been bombarded with
information regarding the specific commitments, such as
bringing its trade regime into conformance with all WTO
Agreements and Disciplines, applying WTO provisions uniformly
throughout all areas of China, etc., that American business
strongly believes are necessary in China's bid to become a
founding member of the World Trade Organization. I want you to
be aware that small businesses like mine have a huge stake in
the terms of China's WTO accession.
In summing up, I would like to relate a few things that I
consider important to keep in mind as you deliberate the two
topics I have briefly discussed.
I'll start with China's MFN status. It's important to our
company so as to alleviate the shipping problems we incur; it's
important to my City of Cedar Rapids, where we have many
companies doing business with China, both in agricultural food
products and sophisticated manufactured products; and it's
important for the State of Iowa, which exported over $24
million dollars of goods to China in 1996. It's also important
to all of the free world that we help China become a
responsible world citizen by establishing good trade relations.
By taking this first step, granting permanent MFN status to
China, we will be setting the stage for further improvement in
China's behavior in other areas of concern to various segments
of our population.
We should strive to establish a good trading relationship
with China by ensuring stability in U.S.-China relations. This
means securing permanent MFN status for China, if not this
year, then as soon as possible. And, it means dealing with the
challenge of getting China to open up its markets and abide by
the international rules of conduct incorporated in the World
Trade Organization. This will enable U.S. companies of every
size and from every state to profit from good trading
relationships with the world's largest emerging market.
If we don't follow this two-step course of action I have
suggested, I'm afraid that U.S. small businesses like ours will
be losing important opportunities. It will also jeopardize the
jobs of hundreds of thousands of American workers who are in
export-related jobs and hundreds of thousands of American
farmers who have provided billions of dollars of American farm
products to China. In short, we will be abandoning this vast
China market to other countries like Japan, the European
Community nations, and the competitive industrial nations in
Latin America.
Let's not close the door to China that President Nixon
opened over 20 years ago, a door that I think President Clinton
wants to keep open, but rather let's lubricate the hinges by
granting permanent MFN status to China. In this way, American
business can march through the door, and then, once comfortably
inside, move on to tackle the task of making a profit in China.
Thank you for your attention, and if you have any questions
or want to discuss any of my experiences in China, I will be
pleased to respond.
Mr. Houghton. OK. Thank you very much, Mr. Williams.
Mr. Kapp.
STATEMENT OF ROBERT A. KAPP, PRESIDENT, UNITED STATES-CHINA
BUSINESS COUNCIL
Mr. Kapp. Thank you, Chairman Houghton. I am delighted to
be back before you this year on behalf of the United States-
China Business Council, which, as you know, is the principal
organization of American companies engaged in trade and
investment with the PRC.
I feel your pain as we go through this long day, and I will
keep my remarks brief. Indeed, when the light turns red, I will
give the next panel a chance to go forward.
I am also going to be rather blunt, because so many people
have already said things that I would otherwise have said
earlier in the day.
On the matter of sending messages, sir, I think that we
need to recognize that the whole concept of sending messages is
a kind of a beltway phenomenon, the best we can do when we
cannot show that our actions are directly linked to
consequences. So we say, Let's send Bill Clinton a message!
Let's send the Chinese a message! Let's send people in the
other part of our party a message!
My feeling is that the whole business of taking the China
MFN issue and turning it into an endless series of sending
messages, from one sender to one receiver, all around the
American political system, is an exercise--a futile and
bankrupt exercise.
In a much more inflammatory paper that I wrote for a
Pacific Northwest newspaper op-ed column that I would never
submit to the Congress, I put it this way:
``The annual dogfight over normal tariffs on Chinese
imports is an exercise in American narcissism, histrionics and
self-deception. When the United States finally comes to its
senses on this and puts the annual MFN review out of its
misery, we will wake up to discover that we are in a far better
position to engage China seriously over areas of significant
disagreement than we were with the yearly mudfest perpetually
pending.''
I frankly think that the whole notion of using this as a
way of ``sending messages'' is simply inadmissible. The message
that the Chinese are getting is that we go through the exercise
every year and nothing happens. What kind of message is that?
Now let me move on in an equally friendly vein. I think the
notion of turning the MFN vote into a litmus test of the moral
integrity of individual Members of Congress is absolutely
astounding. To say to a Member of Congress--as many Members
have told me they have themselves been told--that their vote on
a tariff measure on Chinese imports is a measure of their
commitment to their most fundamental moral beliefs is an
extraordinary, heavy, and unacceptable burden to place on
individual Members of Congress, whose integrity is not in
doubt.
On the matter of the ``exporting elite,'' Mr. Howard and
the Chamber have spoken well. I have sat down over the last few
months at the Internet and have pulled hundreds of examples of
little American companies that no one has ever heard of, in
towns that no one has ever heard of, that are doing business
with China and have put the good news out over the Internet.
This is simply not a creditable charge. In this particular
year, the American business community, more than ever before,
has been subjected to a variety of charges. The ``exporting
elite'' argument that China trade all belongs to big
multinational corporations is unsupportable.
At bottom, what we have here, as we had even in the
fifties, is the attempt to transform an issue of China policy
into an issue of good and evil within the American domestic
political system. I will read a little bit from another piece:
``Because this humble tariff measure is a no-brainer, those
with other agendas have loaded it down with simply unbearable
burdens of ideological freight. The beauty of this is that the
longer the message goes unreceived or unanswered--that is, the
longer the message generates fewer or no identifiable positive
results--the more loudly one can claim that the message needs
to be sent again and again and again.''
Let me move a little further in this. The second point I
made on this other paper is that China does not belong to the
United States.
``Some may wonder why it is that 9 years after the tragedy
of Tiananmen all the fury and posturing and litmus testing and
apocalyptic rhetoric of the annual MFN fiasco have done so
little to make China behave the way we want it to on the things
that inflame many Americans about the People's Republic.
``The reason is that China is China. It is gigantic. It is
heavy. It is unwieldy. It is hard to govern, hard to modernize,
hard to hold together. It has five times the U.S. population on
about the same amount of space and much, much less food-
producing land. It has a 5,000 year history, the last 200 of
which have seen nearly continuous institutional collapse,
political chaos, famine, epidemic, foreign invasion, civil war
and Maoist tyranny.
``About the inner workings of this distant, culturally
distinct problem and tumultuous society, Americans have never
known very much. It is its own. However imperfectly by Chinese
or our standards, it governs itself and guards its sovereignty
to an extreme degree. It is not ours to govern.
``When the MFN ritual begins each spring, partisans to the
struggle don't waste time discussing where China has been and
how far it has come. Forget about the massive economic
improvements since reforms began in 1978. Forget about the
beginnings of electoral choice in China's million-odd rural
villages for the first time in history. Forget about the
banishment of mass state-inspired political violence since
1979, the vicious class struggle violence that was a staple of
the Maoist regime for 3 decades after the People's Republic was
created in 1949.
``Forget about China's remarkably constructive
participation in a range of global and multilateral bodies to
which it was utterly foreign before the late seventies. Forget
about the ins and outs of China's murky leadership politics. In
other words, forget about anything in China that requires
serious analysis. Forget about it all. It doesn't matter.
``MFN is, after all, an American issue, debated among
Americans. The best way to debate it is to focus on U.S. good
guys and bad guys. Make the tariff decision on Chinese imports
a litmus test of the ownership of America's soul.''
Mr. Chairman, until we get beyond this annual MFN debate--
and as it is Congress' problem, and it is Congress' problem to
resolve--we will be stuck in this cycle that I have tried to
describe here.
It does us no good. It certainly does the people of China
no good, as my written testimony attempts to show by quoting
from utterly impeccable religious and educational sources who
call for MFN to be maintained because of the damage it would do
for us to cancel it. Until we get out of the annual MFN
imbroglio, we are going to be stuck in this cycle, focused on
our own good guys and bad guys, our own heroes and villains, to
no particular result.
I urge very strongly that you and this Subcommittee take
the lead in moving the congressional discussion beyond annual
MFN as rapidly as possible. Thank you.
[The prepared statement follows:]
Statement of Robert A. Kapp, President, United States-China Business
Council
I. Introduction
Thank you for providing me the opportunity to testify
before you this year on the question of continued normal trade
relations between the United States and our fourth-ranked trade
partner, the People's Republic of China. I am Robert A. Kapp,
president of the United States-China Business Council. Founded
in 1973, the Council is the principal organization of American
companies engaged in trade and investment with China. We are a
private, nonpartisan and nongovernmental association, supported
by three hundred member corporations of all sizes representing
a broad spectrum of U.S. economic interests and geographic
regions. Prior to serving the US-China Business Council, I
earned a Ph.D. degree in the history of Modern China, and
taught modern Chinese studies at Rice University in Houston and
the University of Washington in Seattle.
This is the fourth consecutive year that I have appeared
before this Subcommittee on behalf of my Council's members,
having joined the Council in the spring of 1994. In each of the
preceding years, I offered to the Subcommittee comments focused
on U.S. business activities with China, U.S.-China trade facts,
the Chinese economic and business climate, and above all the
historical and cultural realities that inform Chinese conduct
today. I am happy to try to respond to all questions regarding
U.S.-China trade and economic relations in the question period.
This year, however, as you know, the public and
Congressional debate over maintenance of ordinary trade
relations with China has taken a somewhat different turn, both
substantively and politically. Since the House voted
overwhelmingly in favor of continued normal economic
intercourse between the U.S. and China last June, a cascade of
new demands for destruction of the economic foundations of
U.S.-China relations has emerged. From late February, when a
flotilla of political attack magazines at both ends of the
Washington political spectrum opened fire with their heavy guns
on both MFN and their chosen U.S. political targets, using the
China issue as their platform, the assault on normal economic
relations with China has continued without letup.
Increasingly, demands for the dismemberment of U.S.-China
reciprocal trade ties worth sixty billion dollars have asserted
that Congress must raise import taxes on Chinese products to
market-closing levels in order to demonstrate the ethical and
religious integrity of its Members. MFN, in other words, has
been declared a litmus test of Congress's moral fibre.
Thus, business has been told on MFN this year, Congress
isn't interested in business. It isn't interested in trade. It
isn't interested in economics. It doesn't want to hear tired
old facts and figures about import-and export-related jobs for
Americans, affordable consumer goods for low income Americans,
massive market opportunities for U.S. producers, the danger of
delivering American economic opportunities to foreign
competitors, and so forth. It doesn't wish to spend its energy,
we are told, on Asia-Pacific regional security issues where
U.S.-China cooperation is vital, or China's growing
significance in international organizations. This year, we are
warned, business must reach out to Congress and speak to the
MFN question in terms of values.
At the same time, those who slander business as ``Beijing's
best lobbyists'' happily seek to disqualify those of us in the
business community who have worked for ten, twenty, and thirty
years in the Chinese environment in pursuit of economic and
commercial progress from having any opinions on the MFN
question, on the grounds that we lack standing in non-trade
areas and are so obsessed with profit that we can have no
credibility even in the trade sphere. ``Profits vs. Morality''
is the convenient catch-phrase wheeled out to declare the field
of ethical concern off limits to those of us who believe in
continued economic relations with China.
Mr. Chairman, American firms operating in China have
compiled a more than creditable record of ethically responsible
corporate behavior--within their workplaces, and within the
Chinese society which has made their presence possible. We have
argued for years that the presence of American firms on the
ground in China is deeply compatible with widely-held American
ethical convictions. I am happy to discuss this further with
Members during question and answer.
Of course American private enterprises seek to profit in
the China business field. They are businesses. They are not
government agencies. They are not academic institutions. They
are not churches. They are private enterprises, large and
small. I have counseled my own business friends many times that
it would be unwise for us to pretend to be what we are not, and
that we should not portray ourselves first and foremost as the
moral or religious or political transformers that few companies
try to be.
Nevertheless, at today's hearing, in light of this year's
unique concerns, let me focus on the moral, ethical, and even
religious implications of the issue before Congress this
spring.
II. The Moral Implications of MFN's Preservation
The theme of my testimony today is that maintenance of
normal trade with China--and thus of the lowest common
denominator of civil U.S.-China relations across the full range
of global and regional issues our two nations must manage
together--is not only consistent with American national
interests but is actively consistent with fundamental American
shared values.
The destruction of that economic foundation, even if
proclaimed to be a moral act, would in fact be ethically
counterproductive.
For a morally-defined policy to be morally defensible, its
advocates must consider the most likely real-world consequences
of its implementation. Proclaiming a vote to be a moral act is
not a moral act. The morality of one's legislative actions
depends on the real-world results of their implementation:
moral wrongs must, in fact, be righted.
There is simply no credible evidence to support claims that
MFN cancellation will force the elimination of the human rights
abuses or other aspects of PRC domestic conduct that have led
some Americans to demand its destruction. Both the historical
record and elementary common sense suggest something far, far
different. What elimination of MFN and closure of U.S. markets
to Chinese products would surely cause is a tit-for-tat closing
of China's markets to American products and investments, with a
resulting loss of thousands of American jobs and painful price
increases to American consumers. Beyond that, the broad
degradation of U.S.-China relations that would in all
likelihood follow the breakdown of U.S.-China trade is utterly
unlikely to have any positive effect on human rights and
religious injustices within China; on the contrary, it is far
more likely to compound them.
Instead of trade facts and figures, I urge Members to join
in listening to the voices of a growing array of non-business
people, not traditionally heard from in the annual MFN debate,
who have responded this year to the attempt to turn this
decision on tariffs into a moral litmus test.
I offer to you a brief compilation of excerpts from
statements by people outside of the business world--
evangelicals, scholars, Americans engaged in orphanage and
adoption service work, distinguished Chinese political
dissenters. These voices do not control media networks. I
suspect that few among them know the term ``blast fax,'' the
electronic messaging system that keeps Congressional fax
machines running day and night with thousands of identical
messages. The people behind these voices are traditionally, and
properly diffident about stepping into the maelstrom of highly
politicized policy debate. Their views are utterly their own,
and they should be heard.
III. Voices of Conscience
1. Hear first from Joy and Joe Hilley of Fairhope, Alabama.
Joy is Executive Director of Children of the World, a non-
profit international adoption and relief agency. Joe and Joy
volunteered to come to Washington, with their two year-old
adopted Chinese daughter, to offer personal witness to the
ideas contained in Children of the World's June 9 press
release. The full statement is attached to my testimony. Let me
read from it:
``Children of the World announces today its support for the
renewal of China's Most Favored Nation trade status. That
status helps create a cooperative political environment between
the United States and the People's Republic of China which, in
turn, helps facilitate the adoption process. While no one can
deny Chinese law does not guarantee rights accepted in Western
countries as basic, a policy of positive cooperation yields an
environment more conducive to change. Linking human rights with
MFN, however well intentioned, yields the opposite result.
``China is a nation facing issues which are rooted in
thousands of years of history and tradition. Many of its
problems may never be adequately addressed. However, the
Chinese government has recently made a great effort to address
the problems relating to children living in orphanages. It has
permitted the introduction of relief efforts directed toward
specific orphanages and has approved a growing number of
international adoptions.
``Children of the World and organizations like it have the
opportunity to work with the Chinese government on an ongoing
basis. This relationship provides a forum for frank discussion
of the issues relating to the well-being of children. We work
each day to ensure that all children, those placed for adoption
and those remaining in orphanages, have the best life possible.
Maintaining a positive relationship with China, one that
creates an environment of cooperation and mutual trust, makes
it possible for us to work with China in a manner that produces
growth and change....
``If MFN status for China is not renewed, American
companies will bear economic consequences. As a non-trade and
non-profit business, our concern for continued access to China
is not based on economics. If MFN status for China is not
renewed, the United States government will experience
resistance on other issues from China. As a non-government
business, our concern for continued access to China is not
based on foreign policy debates. If MFN status for China is not
renewed, non-profit relief organizations will experience undue
hardships in carrying out their missions. As a non-profit
adoption and relief organization, our concern for continued
access to China is based on our belief that our presence in
China has not only enriched the lives of the children who have
been adopted and the American families into which they were
adopted, but has actually helped save the lives of those who
remain in the orphanages. We rejoice in the progress that has
been made and pledge to continue our adoption and relief
efforts in the People's Republic of China.''
2. Here is part of ``An Appeal to our Brothers and Sisters
who are Concerned About China,'' dated May 20 and signed by
nearly thirty representatives of China-focused Christian
mission and educational bodies:
``MFN is not a single isolated issue. It is the core of
America's engagement policy toward China. Taking it away will
hurt the Chinese people, particularly those who are persecuted
because of their religious faith. Hostilities will escalate
between the United States and China: America-bashing is already
in full bloom in China; American sanctions will make the U.S.
the number one enemy in the minds of the Chinese people....When
U.S.-China relationships deteriorate, Christians in China will
be blamed, and penalized. The very activities which assist the
church in China, and help bring about a more open China, will
likely come to an end....The well-intentioned but misguided
efforts by some Christian groups to call for an end to China's
MFN status will strengthen the hands of hard-line leaders in
China. It is time we learn from history, and pray that
opportunities to serve the church in China, and to enhance a
more open pluralistic society would be preserved and
enhanced.''
3. Next, hear the words of the eminent scholar of religion
and Chinese society Richard Madsen, of the University of
California at San Diego, author of the brilliant book China and
The American Dream: A Moral Inquiry, whose forthcoming study of
the Catholic Church in China promises to be the authoritative
work on the subject. Writing in the April 25, 1997 edition of
the Catholic magazine Commonweal, Professor Madsen says:
``As a sociologist, I would not have anticipated the
vigorous revival of Catholicism that has emerged in the period
of `reform and opening' begun by Deng Xiaoping in 1979....The
three million Catholics of 1949 have now grown to about ten
million....Since the end of the Maoist era, a partial lessening
of religious repression has brought division and confusion
[within Chinese Catholicism]....the divisions are also
exacerbated by the mixed messages Chinese Catholics sometimes
receive from abroad....These differences often reflect
theological arguments within the American church about the
nature of paper authority and political controversies within
the American public about how China should be engaged or
contained. The problem for the church in China is that these
foreign differences become exacerbated when they come into
contact with the Chinese political climate....If we want to
help China's Catholics, we should be willing to accept their
gifts of devotion and courage practiced in an environment far
more hostile than most of us have ever experienced, and learn
from their creativity in the face of moral dilemmas far more
complicated than most of us can imagine.''
4. Here is The Rev. Robert A. Sirico, a Paulist priest and
president of The Acton Institute for The Study of Religion and
Liberty in Grand Rapids, Michigan, who has courageously
distanced himself publicly, in the June 11 Wall Street Journal,
from a highly publicized letter to the Vice President of the
United States that he himself had earlier signed. He writes:
``The letter said nothing about a broader trade
agenda....When I signed the letter on China, I did not know
that it was a prologue to a full-blown political campaign that
would seek to curtail commercial ties between China and the
rest of the world. [The position of the creator of that letter]
has emerged from a strong moral stand in favor of religious
freedom to waging total trade war....[T]rade sanctions would be
counterproductive. Sanctions won't bring freedom for religious
expression in China. They won't end China's cruel policies
limiting family size. They won't stop the horrific policy of
forced abortions. They won't bring democracy. They can only
further isolate China and close off avenues of greater Western
influence....Just as religious freedom offers the best hope for
Christian social influence, economic freedom is the best hope
for spreading that influence around the world.''
5. Listen to The Rev. Ned Graham of East Gates Ministries
International, of whose ministry his father, The Rev. Billy
Graham and Mrs. Ruth Graham have written, ``We believe God is
using East Gates Ministries International in one of the most
strategic outreaches of our time.'' In introducing East Gates,
the Ministry informs us:
``In September 1992, East Gates signed a historic contract
with the China Christian Council to print and distribute over 1
million Bibles from the Amity Printing Press to House Church
believers over a five year period. Because the demand was so
high, this allotment was fully distributed by mid-1995, two
years ahead of schedule....East Gates received a new contract
to print and distribute up to one million Bibles a year over
the next five years. Through this God-given opportunity Bibles
are now being distributed legally in every province of China,
including Tibet--the first time Bibles have been legally
distributed strictly to China's House Church Christians. In
addition to Bibles, East Gates has been able to print and
distribute other Christian literature in China, such as
hymnals, concordances, and devotionals like Streams in the
Desert. Although limited in scope so far, this new work holds
great promise for the future as permission is granted for
further titles and expanded printings of commentaries, Bible
references, and books like Ned's father's best-selling book
Peace with God.''
The Reverend Ned Graham himself, in a ``Dear Friend''
letter issued recently, tells us:
``One of East Gates primary goals is to help China's
leaders better understand Christianity. Traditionally
Christianity in China has been viewed as western,
imperialistic, and a threat to China's sovereignty. We have
sought to help them understand that Christians are, perhaps,
the best, most productive members of their society, and that
Christianity is neither political, western and imperialistic,
nor a threat to the leadership of the PRC. We have been having
a degree of success in this area! That is why it is so
unfortunate that some evangelical leaders publicly speak out
against the PRC. In fact, some of their newsletters have
carried extremely strong political overtones by calling for
their readers to pressure Congress not to renew China's most
favored nation (MFN) status. East Gates is neither for nor
against MFN and we believe that taking a political stand on an
issue such as this only undermines our Christian witness and
only serves to reinforce China's belief that Christianity is to
be mistrusted. This has the effect of bringing more persecution
to bear upon our brothers and sisters in China, thus causing
the very thing these well-meaning Christian leaders seek to
end. We are frequently asked, `Why does East Gates have these
opportunities while other organizations are reporting renewed
persecution and limitations?' The answer is quite simple. Like
my father, Billy Graham, in Eastern Europe, we have always
worked openly transparently and legally in China. We have
focused on the positive possibilities rather than on negative
limitations, and have stayed out of politics. Like the Billy
Graham Evangelistic Association, East Gates is proof, that if
you take a positive approach to working in any country--
especially China, great things can be accomplished.''
6. Finally, Mr. Chairman, hear a powerful voice from the
wide-ranging community of Chinese political dissenters who have
found sanctuary in the United States since the tragedy of
Tiananmen.
As the Washington Post noted last November 17, ``Just over
a month ago, one of China's most celebrated human rights
activists evaded his secret police minders in the southern city
of Canton and took a trip into the countryside. Frightened that
he would be arrested as part of a new crackdown on dissent,
Wang Xizhe sought the help of friends, who provided him with a
boat to escape to Hong Kong. Wang's dramatic escape from China
infuriated the communist authorities in Beijing and lifted the
spirits of his fellow dissidents....''
Wang Xizhe, from the time of his first pro-democracy
manifesto in 1974, has served more than 14 years in prison on
charges of ``counterrevolution.'' No one in Congress should
doubt Wang Xizhe's courage or his commitment to the achievement
of a more enlightened political order in China.
Here is a short excerpt from Wang Xizhe's ``Opinion
Concerning MFN for China,'' published in the Christian Science
Monitor on June 16, 1997. In Wang's opinion, the separation of
MFN from human rights in 1994 was indeed a setback to human
rights activists in China. However, he continues:
``In spite of this, I do not advocate the cancellation of
MFN for China. For whether we view this from the standpoint of
broad international trends or from the standpoint of the long-
term interests of the U.S. and China, this action is unwise. It
is also impossible, in a practical sense. Since it is both
unwise and impossible, we should be seeking a better way of
influencing China's progress. I agree with President Clinton's
view: the goal of exerting effective, long-term influence over
China can only be achieved by maintaining the broadest possible
contacts with China, on the foundation of MFN, thus causing
China to enter further into the global family and to accept
globally-practiced standards of behavior. The Chinese
government has made clear more than once that they are willing
to conduct a dialogue with the international community on human
rights questions, on the condition that the discussion not be
carried out in a confrontational way. There is an element of
deceptiveness in this, to be sure. But there is also a positive
dimension. I would recommend that the American government,
taking the elimination of the annual MFN debate as a condition,
seek to establish with the Chinese communist government a
system of regularized dialogue on human rights issues.''
IV. Conclusion
Mr. Chairman, I could go on in this vein at greater length.
Each of the statements I have referred to in my testimony comes
from a source outside the business community, and each source
is of unimpeachable integrity. I have chosen to speak before
you in this manner today to make the point: preserving the
lowest-common-denominator basis of the massive relationship
between the United States and China is not only the earnest
hope of the American business community, including companies
both large and small, for convincing economic and commercial
reasons; it is the right course of action for morally alert
American legislators.
The attempt to paint the vote of Members of the House on
MFN as a single-issue litmus test of each Member's ethical and
spiritual integrity is extremely regrettable, however
politically astute it might appear. As the above statements
suggest, the crude portrayal of the MFN issue as a question of
``Profits vs. Conscience'' is, to put the matter charitably,
not fully informed.
It is the other side in this debate that has chosen to turn
a trade and tax issue--tariffs, after all, are indeed taxes,
ultimately paid by the American people--into a conflict of Good
and Evil within American society, populated by domestic heroes
and villains.
I have tried, therefore, to address issues of values before
you today, not by citing the words of American business people
but by calling on the views of deeply committed individuals
with no commercial axe to grind. I urge the Members of this
Trade Subcommittee to work untiringly with their colleagues
throughout the House to ensure that the observations and
appeals of these dedicated and experienced American and Chinese
figures be heard and heeded. I urge Members of this
Subcommittee to do all that you can to secure a resounding
affirmation of the fundamental framework of U.S.-China economic
relations, and to lead the way in the immediate future toward
an end to this wasteful and misdirected annual exercise in
futility.
As I indicated at the outset, I am happy to discuss as best
I can specific commercial and economic questions that members
of this Trade Subcommittee might wish to raise, in the upcoming
question and answer period. I have appended a few short items
for your review. Thank you very much.
Mr. Houghton. All right. Well, thank you very much.
Well, a lot has been said here; and I don't want to
pontificate either. But the question really is not how you
feel, but how you can explain. That is what happens down here.
As you know, democracy is not a totalitarian, I-have-made-
a-decision type of business; and it is a messy process. The
whole MFN argument really is leverage. I mean, you may want to
lever it to decrease the economic deficit. Somebody might want
to lever because of abortion. Somebody might want to lever
because of selling military equipment to others. I mean, that
is what it is.
So whether I agree with you or not--and I do--the issue
really is how to present this in a way that strips away the
peripheral issues and gets to the core economic one. That is
not easy down here.
Mr. Williams, one of the things I have learned since I have
been here is that, contrasted to business, a number is not a
number. A number is something to be wrapped by a lot of words
and a lot of moralizing, and that is different. You wouldn't
stand it being a controller of your company; that happens down
here.
Of course, one of the things which I have always felt is
that more people like yourself should run for office--rather
than sitting on the sidelines and coming down here. Because
there are so darn few of us that feel exactly the way you feel.
So the question is, how do you explain it to those people
who feel that this is a lever? And it is very, very difficult.
It is not, You should do this, you ought to do that, you could
do that. We owe it to ourselves. How do you get through to
those people?
Now, you know, in certain cases you can only argue somebody
out of something they haven't already been argued into, and so
it is unarguable. But there are people who are really willing
to listen. And that is the area we are trying to concentrate on
down here now.
So sending messages--to many it is wrong. In business, you
must first of all think not about your financial condition, not
about your research, not about your position, not about your
five-generation companies. You must think, first of all, of
your customer. And when thinking about your customer, you must
understand how the customer reacts to certain things.
Obviously, this is the problem we have here: that there are not
enough people who really have been there and seen what happens
and understand the evolutionary process we are going through.
Let me just ask a couple of specific questions.
Mr. Cohen, you know, you talked about expanding U.S. trade
and then you talked about the WTO. I think one of the worries
here is that this is an uncontrollable giant. The economy
really isn't very big in China right now. I mean, it is about
the size of the Benelux countries, but it is booming toward
something huge.
So the question really is, do you--by your present
policies, forgetting about MFN for the moment--look down the
road another 10 years to see the deficit quadrupling, as it has
in the last 10 years, or going to, let's say about $250 billion
on an annual basis? And in 20 years? That is a real economic
worry.
So when you ask somebody to join the WTO, you ask them to
be fair, not only in terms of the infrastructure, pirating,
technical rights, and intellectual property, but also fair. We
want to export, but we also want to have the imports on a more
balanced basis. That is a real problem here. Maybe you would
like to address that for a moment.
Mr. Cohen. It is a very important question. The point made
earlier that I would reiterate is perhaps the biggest challenge
to our international economic system: how to integrate China.
And, as you suggest very accurately, they have to be integrated
in a way that will increase access to their market by the
United States and other countries.
For China to accede to the WTO in a way that will increase
access to their market, two things have to occur. Often, the
emphasis is just on the one. Let me mention the two.
The first is that, if China is to be a member of the
system, it has to commit to living up to the obligations of WTO
membership, which means it has to play by the rules of the game
with regard to applying the principles of nondiscrimination and
national treatment. This is expected of them.
Second, if China is to become a member of the World Trade
Organization, it also has to engage in bilateral discussions
with each of the principal countries in the WTO with regard to
market access.
Let's look at the United States. If China comes into the
WTO, the Chinese would have to commit to dismantling or
reducing a whole range of market-access barriers to ensure that
when they are in the WTO there is not an asymmetry where they
have access to our market but we don't have access to theirs.
Addressing your point, not only does China have to agree to
abide by the principles of the international system, but it
must open up its system to U.S. exports, to U.S. investment,
and to U.S. services. China must do so by establishing a
schedule of commitments to bring down and eliminate their
barriers. They must do this, for example, with the United
States. They would also have to do it with the European Union.
That is how we are going to ensure that we have access to the
China market.
ECAT and other American companies are confident that if
such changes are made in the Chinese system that our sales will
dramatically increase to China. We do not believe that we would
lose out by China's accession to the WTO on commercially
acceptable terms.
Mr. Houghton. Well, I hope you are right. I am a little bit
from Missouri on this. Because there are other countries that
have nontariff barriers which you can't see--just in terms of
distribution systems, for example; you can't get your products
out. And there is a natural bias in China against buying
products from the United States in equal proportion, or almost
equal proportion, to the stuff that they export to us. There
are other countries, too.
It is going to be a constant battle for us. It is never
going to be even, but it is going to be a terrible battle.
Somehow all our relations in that part of the world have got to
crispen up a little bit.
Because we have been taken advantage of. We have lost our
consumer electronics industry. And, you know, we have had a
variety of other industries really go out the window because we
were unwilling to protect and say, Listen, if you sell to us,
we want to be able to sell to you. It is a very, very difficult
issue.
Now, let me ask you a little bit about the World Trade
Organization. I am not sure that is the panacea to everything.
Because it doesn't say that you must import, it says you must
abide by the rules. Tell me a little bit about that; any of you
gentlemen, please chime in here.
Mr. Cohen. Well, nondiscrimination is one of the tenets of
the World Trade Organization. By the Chinese agreeing to open
their market to all equally, so to speak, I think gives us the
opportunity to sell in their market.
You know, in the eighties, many Members of Congress
criticized the American business community for not being
aggressive in world markets and, in a sense, they were right.
We were allowing Japanese and European companies to out-compete
us in pursuing overseas market opportunities.
What has truly happened--and this is why the four of us and
others have come before you today--what has happened in the
last decade is a revolution in U.S. industry. The productivity
of American industries and companies is at its highest level in
history, and our products are truly world beaters.
Our government has encouraged us to be in overseas markets,
but we are living in fear, as one of my colleagues just said,
that the rug is going to be pulled out from under us. After we
were criticized for not being sufficiently aggressive in
overseas markets, we went into these markets, including the
China market. Now what we are hearing from some--not yourself,
Mr. Chairman--Members of Congress is basically, Well, that is
great; you are in China; but we are not sure we want you in
China.
Mr. Houghton. Well, there are an awful lot of people who
never had to meet a payroll or meet a deadline or mortgage
their homes or do anything in terms of trying to create jobs.
So you are going to have that.
But I really think--if I could just make a general, overall
comment--it behooves not only myself, but also people like
yourselves to start right now. I mean, if there ever is going
to be permanent acceptance--which it doesn't look like there is
going to be at the moment--of MFN for China, somehow this
educational process has got to spread way beyond what it has
done before.
Mr. Kapp, have you got a comment?
Mr. Kapp. Mr. Chairman, I think it should be said, at least
for the record, that the American business community is really
in some ways driving the tough positions that the U.S. Trade
Representative, USTR, takes with China. That is, at the end of
the day, the USTR, who has done a very valiant job and fought
very hard and is making progress----
Mr. Houghton. Right.
Mr. Kapp [continuing]. Is doing so because the American
business community is saying, Don't settle for less than a
legitimate deal.
Mr. Houghton. Right. Right.
Mr. Kapp. In that sense, I think the distribution issue is
primary for American companies--on national treatment, trading
rights, and so forth. We are pushing hard.
I might say, in that regard, that one of our concerns is
that, just when there are signs that real progress is being
made and that, for a number of reasons, we may actually find
ourselves approaching--although we are not there yet--the edge
of a real deal, a really commercially legitimate deal, the
furor within the American domestic dialog over China could
actually put us in a situation where it is politically
infeasible for the Americans to sign off on the very deal
achieved through bitter negotiation. And that would be an
enormous, historically significant tragedy if that were to
occur.
I did not sense, from Mrs. Barshefsky's comments this
morning, that the negotiations are yet clearly feeling the
chill wind of the American crisis stemming from the political
issues that have come up in the last 6 months over China. But,
were that to happen--were the Chinese to conclude that the
United States would never sign off on a good WTO deal anyway,
so why should their negotiators commit political suicide by
laying their best cards on the table--and were the Chinese,
under those circumstances, to begin to tread water because they
don't want to be told by the United States, Thanks but no
thanks, we would have lost a tremendous opportunity.
Mr. Houghton. I understand that because, as you know, in
business, timing is everything. We just can't sit around and
think that we're an island unto ourselves, that we could do
whatever we want when we want.
The perfect example is in South America with Mercosur. We
are fiddling around with this trade agreement on fast track
with Chile. And if we are not careful, we are going to be
frozen out of that market, so it's the same thing over there.
The good thing we do have, though, is that we are a big
market. That is our most precious asset. We have got to play
that again.
Well, listen, gentlemen, I appreciate you very much being
here. Yes?
Mr. Williams. I just want to make two little comments.
You talked about what it takes to be in business. Our
company's motto--and it is written on this pen that I will
leave here for someone--is, Take good care of your customers
and do what is right.
I want to thank the group here for giving me some answers
to the questions that I am being asked overseas: Why is your
government doing this? Why? I have got the perfect answer now,
having spent the day here. I am going to say that it is nothing
but politics.
Let's you and I do business. Get on with our business.
Because business makes a profit, and a profit means that things
get better. And that individual who has the profit--either from
starting a small business or wages from the business--gets a
better lifestyle. That would solve a lot of the problems they
talked about today.
Thank you for indulging me, sir.
Mr. Houghton. Well, I am not sure about answering that way.
I mean, you have got to answer it any way you want. But when
you say politics, you talk about consensus; and when you talk
about consensus, you talk about issues other than the ones that
you in particular are personally interested in.
So we have got to be very careful, and you have got to be
very careful to understand that you are part of this country
and that I am part of this country. Although I may want
something, there are other considerations that people who have
equal power want just as strongly. So let's make sure we are
part of a unified country.
Thank you very much, gentlemen. I certainly appreciate it.
Mr. Cohen. Thank you, sir.
Mr. Williams. Thank you, sir.
Mr. Houghton. Can I introduce the final panel?
We are going to begin with Robert Hall, vice president and
international trade counsel for the National Retail Federation;
Carlos Moore, executive vice president, American Textile
Manufacturers Institute; Barbara Shailor, director of the
international affairs department, AFL-CIO; and Robert O'Quinn,
policy analyst for international economics and trade of the
Asian Studies Center for the Heritage Foundation.
Thank you very much, lady, gentlemen, for coming here. We
appreciate it.
Maybe Mr. Hall would begin.
STATEMENT OF ROBERT HALL, VICE PRESIDENT AND INTERNATIONAL
TRADE COUNSEL, NATIONAL RETAIL FEDERATION
Mr. Hall. Good evening, Mr. Chairman.
I am Robert Hall, vice president and international trade
counsel at the National Retail Federation, the Nation's largest
trade group speaking for the retail industry. We represent the
entire spectrum of retailing, which includes several dozen
national retail associations and all 50 State retail
associations.
Our membership represents an industry that encompasses over
one and a half million retail establishments, employs 20
million Americans--one in five Americans--and last year
registered sales in excess of $2.5 trillion.
The Federation strongly supports renewal of China's most-
favored-nation status for several reasons. First, MFN for China
helps American families make ends meet. Second, MFN for China
creates high-paying jobs relating to both exports to and
imports from China. Third, MFN for China promotes change within
China. Four, failure to renew China's MFN trading status would
deal a severe blow to Hong Kong. And, fifth, no one understands
better than retailers the importance that MFN for China plays
in helping families purchase well-made, value-priced goods.
Every day the Federation's members shop the United States
and the world in search of consumer goods that meet American
families' demands for quality at competitive prices. China
offers us an opportunity to provide the goods these consumers
demand at prices that fit their increasingly tight budgets.
For many products such as toys and consumer electronics, to
name just two, China is a low-cost alternative to other foreign
producers. In other cases, such as the high-quality silk
apparel sold by high-end department stores and also by mass
retailers, China is the only source for a given product at
affordable prices. In the case of silk apparel, even U.S.
producers are not alternative suppliers.
Failure to renew MFN for China would trigger an avalanche
of price increases across the United States without
consideration for the tight budgets of American families. For
example, the Trade Partnership has concluded that failure to
renew China's MFN tariff status would increase the price of
many toys by 66 percent, perhaps wiping out several
particularly popular stuffed toys off the list of possible
presents for children.
I have today an example of this--a teddy bear which our
study has concluded would go up in price by 65 percent if you
revoke MFN for China. Similar toys would increase by up to 90
percent. Similarly, the range of available low-priced bicycles
for children would also be cut dramatically. Very inexpensive
personal tape players would likely disappear. Low-cost footwear
would no longer be low cost. Silk apparel prices would leap out
of the range of most budget consumers.
Imports of these products from China are significant, and
failure to renew MFN would have broad effects on American
families.
Overall, the International Business and Economic Research
Corp. estimates the failure to renew MFN for China would force
the average American family to pay an extra $300 a year in
higher prices. Clearly, this non-MFN status would take a
particularly heavy toll on low-income families who depend on
low-cost goods.
MFN for China creates high-paying jobs for the United
States--as you heard from many of the export companies here
today, over 170,000 jobs. These include high-paying jobs in
growing industries such as telecommunications, information
technology, aviation, and power generation. These jobs would be
jeopardized by failure to renew MFN for China, and China would,
in turn, retaliate and shift its purchases to companies in
Europe, Japan, Canada, and elsewhere. In addition, U.S. jobs or
related U.S. investment in China would also suffer if China
retaliated in even subtle ways against those investments as a
consequence of U.S. denial of MFN.
What is not widely known is that U.S. imports from China,
which are more directly affected by MFN tariff treatment,
support an even larger number of high-paying U.S. jobs than
U.S. exports to China. The Trade Partnership estimates that
U.S. exports of consumer goods from China in 1996 alone
supported 2.4 million jobs in high-paying sectors such as
manufacturing. Those are the jobs related to cash registers and
the trucks that transport goods to stores, for example, finance
and insurance, transportation, wholesaling, and, of course,
retailing. Failure to renew MFN for China would force many
companies in these sectors to lay off workers, because the
reduction in demand for imports would no longer justify their
jobs.
For my final two points, I will refer to you my formal
submission.
I would conclude by saying there is much at stake in the
decision to renew MFN tariff status. Much of what is at stake
lies within America's borders. Misguided efforts to promote
human rights and democracy in China and even Hong Kong would
likely have the opposite of the effect intended. Added to that
would be the enormously heavy burden on American families.
Mr. Chairman, with your permission, I submit for the record
a copy of a letter we sent today and hand-delivered to all
Members of the Ways and Means Committee. It is signed by a
number of leading retail chief executive officers in this
country, and they are asking that this Subcommittee report
unfavorably the disapproval resolution offered by Mr. Solomon.
[The letter follows:]
[GRAPHIC] [TIFF OMITTED] T1705.011
[GRAPHIC] [TIFF OMITTED] T1705.012
Mr. Hall. Mr. Chairman, the American retail industry urges
you and this Subcommittee to recommend a continuation of MFN
status for China.
[The prepared statement follows:]
Statement of Robert Hall, Vice President and International Trade
Counsel, National Retail Federation
I. Introduction
The National Retail Federation (``the Federation'') is the
nation's largest trade group which speaks for the retail
industry. It represents the entire spectrum of retailing,
including several dozen national retail associations and all 50
state retail associations. The Federation's membership
represents an industry that encompasses over 1.5 million retail
establishments, employs more than 20 million people, one in
five Americans, and registered sales in excess of $2.5 trillion
in 1996.
The Federation strongly supports the renewal of China's
most favored nation (MFN) trading status for several reasons:
MFN for China helps American families make ends
meet;
MFN for China creates high-paying jobs related to
both exports to China and imports from China;
MFN for China promotes change within China; and,
Failure to renew China's MFN trading status would
deal a severe blow to Hong Kong.
II. MFN for China Helps American Families
Perhaps no one understands better than retailers the
importance MFN for China plays in helping American families
purchase well-made, value-priced goods. Every day, the
Federation's members shop the United States and the world in
search of consumer goods that meet American families' demands
for quality at competitive prices.
China offers us an opportunity to provide the goods these
consumers demand at prices that fit their increasingly tight
budgets. For many products, such as toys and consumer
electronics, to name just two, China is a low-cost alternative
to other foreign producers. In other cases, such as high-
quality silk apparel sold not only by high-end department
stores but also by mass retailers, China is the only source of
a given product at affordable prices. In the case of silk
apparel, even U.S. producers are not alternative suppliers.
Failure to renew MFN for China would trigger an avalanche
of price increases across the United States, without
consideration to the tight budgets of American families. For
example, The Trade Partnership has concluded that failure to
renew China's MFN tariff status would increase the prices of
many toys by 66 percent, perhaps wiping several particularly
popular stuffed toys off the list of possible presents for many
children. Similarly, the range of available low-priced bicycles
for young children would be cut dramatically. Very inexpensive
personal tape players would likely disappear. Low-cost footwear
would no longer be low-cost. Silk apparel prices would leap out
of the range of most budget consumers.
Imports from China of these products are significant, and
failure to renew MFN would have broad effects on American
families. For example, toys imported from China account for
about half of all toys sold in the United States. Footwear
imported from China account for about 60 percent of all
footwear sold in the United States. Joel Popkin of Joel Popkin
Associates was recently quoted in the Washington Post as
concluding that declining import prices have reduced the
increase in the U.S. inflation rate, as measured by the
consumer price index, by 0.3 percentage points.\1\
---------------------------------------------------------------------------
\1\ John M. Berry, ``Increased Global Competition Helps Hold Down
U.S. Inflation,'' The Washington Post, June 5, 1997, p. D-1.
---------------------------------------------------------------------------
Imagine what would happen to the inflation rate--and
American families' budgets--if the prices of consumer goods
imported from China shot up by as much as 66 percent.
Overall, the International Business and Economic Research
Corporation estimates that failure to renew MFN for China would
cost the average American family an extra $300 a year in higher
prices they would be forced to pay. Clearly this non-MFN
``tax'' would take a particularly heavy toll on low-income
families who depend on lower-cost goods.
III. MFN for China Creates Good Jobs in the United States
MFN for China creates high-paying jobs in the United
States. You have heard from many that U.S. exports to China
support more than 170,000 American jobs every year. These
include high-paying jobs in growing industries such as
telecommunications, information technology, aviation and power
generation. These jobs would be jeopardized by a failure to
renew MFN because China would, in retaliation, simply shift its
purchases from U.S. companies to companies in Europe, Japan,
Canada and elsewhere. In addition, U.S. jobs related to U.S.
investments in China would also suffer if China retaliated in
even subtle ways against those investments as a consequence of
a U.S. denial of MFN for China.
But what is not as widely known is that U.S. imports from
China, which are more directly affected by MFN tariff
treatment, support an even larger number of high-paying U.S.
jobs than U.S. exports to China. The Trade Partnership
estimates that U.S. imports of consumer goods alone from China
in 1996 supported more than 2.4 million American jobs in such
high-paying sectors as manufacturing (the jobs related to
making cash registers and trucks to transport goods to stores,
for example), finance and insurance, transportation,
wholesaling and, of course, retailing. Failure to renew MFN for
China would force many companies in these sectors to lay off
workers because the reduction in demand for imports would no
longer justify their jobs.
IV. MFN for China Promotes Change Within China
Engagement with China through trade is the best way to
promote change in China, not just economic change but political
and human rights changes as well. One need just look at what is
going on in southern China to know this is true. Capitalism is
thriving in southern China thanks to a flood of foreign
investment and close integration with businesses in Hong Kong.
It is in southern China that you find Chinese citizens enamored
of the West and what it has to offer.
The Federation's members strongly believe that the best way
to build pressure from within for a change in China's human
rights practices is to expose still more Chinese citizens and
current ane future government officials to Western ideals,
through business contacts, the Internet, the media, and by
educating Chinese students in American universities. The
process takes time and exercising adequate patience can be
difficult. But, one thing is certain. We believe that the
failure to renew MFN for China will not advance the cause of
human rights protection in China.
V. Failure To Renew China's MFN Trading Status Would Deal a Severe Blow
to Hong Kong
Failure to renew China's MFN trading status would deal a
severe blow to Hong Kong. Hong Kong is the main gateway for
China's trade and investment abroad. Indeed, some have
estimated that more than half of U.S.-China trade passes
through Hong Kong. The majority of Hong Kong's manufacturing
industry is now located across the border in China, and many
multinationals make Hong Kong their international base. The
government of Hong Kong projects a halving of the colony's
growth to just under 3 percent if China loses MFN.
Such a blow would be all the more ironic if it were dealt
in the name of protecting democracy in Hong Kong. Governor
Patten said it best: ``For the people of Hong Kong, there is no
comfort in the proposition that if China reduces their
freedoms, the United States will take away their jobs.''
VI. Conclusion
There is much at stake in the decision to renew China's MFN
tariff status. Much of what is at stake lies within American
borders. Misguided efforts to promote human rights and
democracy in China, and even Hong Kong, would likely have the
opposite effect intended. Added to that would be an enormously
heavy burden on American families.
Mr. Chairman, the American retail industry urges you and
this Committee to recommend a continuation of China's most
favored nation trading status.
Mr. Houghton [presiding]. Mr. Moore will now testify.
STATEMENT OF CARLOS MOORE, EXECUTIVE VICE PRESIDENT, AMERICAN
TEXTILE MANUFACTURERS INSTITUTE
Mr. Moore. Thank you, Mr. Chairman.
My name is Carlos Moore. I am executive vice president of
the American Textile Manufacturers Institute, ATMI. Our members
make and sell nearly every kind of textile product and consume
almost 80 percent of all textile fibers used in the United
States. Our members also have a keen interest in trade,
especially with respect to China, which is the world's largest
exporter of textiles and apparel.
Today I would like to expand upon my written statement by
developing more extensively the idea of linkage between the
United States granting MFN for China and the demands of the
United States on China in the WTO accession negotiations.
Let me begin by saying that China has not earned the
privilege of MFN status, and ATMI opposes renewing MFN until
China makes major reforms. These reforms include, but are not
limited to, opening their market to provide effective access to
our products and the products of other countries, and stopping
illegal transshipments of textiles and apparel.
And, Mr. Chairman, if I could add here, the written
statement I submitted contains a map prepared by the U.S.
Customs Service showing the transshipment routes from China to
other countries. That map was included in the black-and-white
copies, but I do have color copies here which I think show the
routes much more clearly, and would like to have them added to
my statement, especially for the Members of the Subcommittee.
The other major reforms we seek include that China cease
piracy of our intellectual property, and that they delink
foreign investment to export performance. What we find most
interesting is that this same list, plus some other items,
appears on the list of reforms that the United States is
seeking in the WTO accession talks, a very similar list. We
would like to offer an approach that, in fact, links the two.
We urge Congress to withhold MFN status from China until
China implements those reforms which would qualify it for WTO
membership. It seems logical, sensible, and reasonable to grant
MFN status only after China makes the changes that qualify it
to join the world trading community as a WTO member. It also
seems that China will be much more likely to make those reforms
if MFN is withheld.
Mr. Chairman, let me be even more specific. The United
States negotiated an excellent bilateral textile agreement with
China earlier this year, and at that time we congratulated--and
continue to congratulate--Ambassador Rita Hayes, the chief
textile negotiator, for bringing home such a good agreement;
and Ambassador Barshefsky for taking a hardline and demanding
market access for U.S. textile and apparel products into China.
The agreement achieved vital objectives. It cut back quotas
because China had been cheating under the agreement it had,
tough enforcement language, and market access. What we need now
is to enhance access by extending it to other products, and to
obtain further improvements during the WTO accession talks.
In our view, before China can join the WTO--and before
Congress should grant MFN treatment--China must bind its
tariffs at U.S. levels; eliminate nontariff barriers, including
subsidies and state trading practices; phase out textile and
apparel quotas over 10 years; end transshipment of products and
overshipment of quotas; end design and copyright piracy; and
finally--and maybe most importantly--agree to a special
permanent safeguard mechanism based on disruption of the U.S.
market without compensation or retaliation that can be applied
for a time necessary to remedy the disruption.
This latter requirement is essential, we believe, to
mitigate the enormous damage that China has shown it can
inflict on U.S. producers and workers.
Mr. Chairman, in our judgment, there is a connection
between the WTO access negotiations which have been going on
for years and the necessity for leverage over China to adhere
to some meaningful reforms and concessions in those WTO
negotiations.
If Congress can make that link--withholding MFN status as
the price that China must pay to reform its system to join the
WTO accession--I believe that all of us in this economy will be
better off, especially over the longer haul, as China joins the
community of nations under really meaningful reforms and with
an open market system.
Thank you.
[The prepared statement and attachments follow:]
Statement of Carlos Moore, Executive Vice President, American Textile
Manufacturers Institute
This statement is submitted by the American Textile
Manufacturers Institute (ATMI), the national association of the
textile mill products industry. ATMI members make and sell
every kind of textile product, and understandably, have a keen
interest in matters relating to international trade,
particularly with respect to China, the world's largest
exporter of textiles and apparel, and the largest foreign
supplier to the U.S. market.
China has achieved its position of prominence in the U.S.
market primarily due to its being accorded most-favored-nation
(MFN) status, thus entitled to the low rates of import duties
which such designation conveys. By its very nature, the
principle of most-favored-nation confers benefits on countries
which deserve to be treated on a par with others with which we
trade. ATMI finds little evidence that China deserves such
status. Rather, China has abused the privileges which MFN
status confers and ATMI believes that China's MFN status should
not be renewed unless and until China makes--not commits to,
not promises to--but makes several fundamental reforms in its
commercial and trading practices:
China must reduce its tariffs to levels that will
truly permit imports access to the Chinese market.
China must cease the transshipment of textile and
apparel products through third countries to the United States
in violation of U.S. law and its textile trade agreement with
the United States.
China must cease its flagrant intellectual
property piracy, including (but certainly not limited to) the
theft and reproduction of American textile designs, patterns,
trademarks and logos.
China must eliminate its myriad of non-tariff
barriers and adopt import regulations that are transparent and
fair.
China must abandon its performance-linked
investment laws which require that the great majority of goods
produced in China by foreign investors be exported rather than
sold in the domestic market.
In short, China must act as a responsible trading partner,
offering the United States access and treatment at least
roughly equivalent to that which the United States accords
China. Our trade relations with China should be equitable,
reciprocal and fair. Currently, they are none of these, as our
$40 billion trade deficit with China conclusively demonstrates.
Of even greater concern to ATMI is the fact that last year,
while the United States exported only $49 million worth of
textiles and apparel products to China, the U.S. imported
fourteen times as much, $6.8 billion, from China. Clearly, this
is a parasitic trading relationship and we are the unwilling
host.
With respect to two of the items noted above, transshipment
and intellectual property piracy, the record is clear. On not
less than nine occasions, the interagency Committee for the
Implementation of Textile Agreements (CITA) has published
Federal Register notices advising the Commissioner of Customs
that China's textile and apparel quotas--already the largest of
any country's--were being reduced to compensate for illegal
transshipments. The attached map (Exhibit A), prepared by the
Customs Service, shows some of the countries through which
China transships to the United States.
As the attached article from the June 3 edition of the
Journal of Commerce (Exhibit B) notes, China's intellectual
property piracy continues unabated. In this regard, it should
be noted for the record that this past January a member of the
ATMI staff was in Beijing and found a variety of pirated
materials for sale at retail: illegal copies of computer
software, audio and visual recordings. This purchase took place
six months after China signed an agreement promising to cease
forthwith the production and distribution of such materials.
Here we are a year after the agreement and, as the Journal of
Commerce points out, the ``latest version'' of pirated American
intellectual property is still sold in China.
When will it stop? How will it stop? What can the United
States do to compel China to open its market, stop pirating our
valuable intellectual property, adopt trade rules and
regulations commensurate with its standing as one of the
world's largest trading nations, cease illegal transshipment of
textiles and apparel and provide even-handed treatment of
potential investors? The record shows that ``constructive
engagement,'' negotiation, rapproachment, dialogue and
agreement-signing have not achieved the desired ends. These
have all been tried--repeatedly--and failed. The United States
has exhausted its supply of carrots in trying to persuade China
to undertake the necessary reforms. It is now time to use the
stick: revoke China's MFN status until the reforms are in
place.
Closely linked to MFN status and, we believe, worthy of the
Subcommittee on Trade's consideration is China's accession to
the World Trade Organization (WTO). The world's most populous
nation with the fifth largest economy (which will rise to
fourth largest with the absorption of Hong Kong on July 1),
China cannot be allowed to continue to bend, break or blithely
ignore many of the rules of fair trade which govern the world's
commerce and reap the benefits of both MFN status and WTO
membership. China should not be admitted to the WTO until it
has completed the following reforms:
It must have a convertible currency with one and
only one rate of exchange;
It must cease the repeated violation of trade
agreements to which it is a signatory;
It must end the subsidization of its exports;
It must stop dumping its exports in foreign
markets;
It must open its market to imports, which means,
among other things, lowering tariffs to reasonable levels and
binding them to the WTO, removing capricious and arbitrary non-
tariff barriers and adopting truly transparent rules and
regulations;
It must abolish its export performance-linked
investment laws;
It must not constrain its import trade through
state-controlled quasi-commercial enterprises, and
It must cease forthwith its massive intellectual
property violations.
The recent U.S.-China textile trade bilateral market access
agreement will lead to reductions in China's tariffs for a
large number of textile and apparel products; other products,
however, were not included and need to be addressed in the
accession talks. Also critical is the non-tariff barrier side
of the equation which needs to be fully addressed in the
accession agreement. Prior to China's accession to the WTO,
China must agree:
To bind its textile and apparel tariffs at U.S.
levels;
To eliminate all non-tariff barriers, including
but not limited to export performance requirements,
restrictions on imports for state trading companies, licensing
and quota restrictions;
To a full ten-year phase-out of its quotas,
beginning with the date of its accession to the WTO and
following the same ten-year integration schedule set forth in
the Agreement on Textiles and Clothing (ATC);
To the creation of a permanent special safeguard
mechanism which would allow for the reimposition of quotas if
Chinese imports surge into the U.S. market and cause market
disruption;
To end the transshipment of its products through
third countries and overshipment of its quotas;
To end the piracy of American designs and
copyrights.
Other nations, far smaller, less economically powerful than
China, have paid the full price for WTO membership. To admit
China on less stringent terms should be unthinkable. In ATMI's
view, renewal of MFN status should also be contingent upon
these reforms and should not be granted until then.
[GRAPHIC] [TIFF OMITTED] T1705.009
[GRAPHIC] [TIFF OMITTED] T1705.010
Mr. Houghton. Thank you, sir.
Ms. Shailor, and then we will get to you last, Mr. O'Quinn,
if that is all right.
Mr. O'Quinn. Fine.
STATEMENT OF BARBARA SHAILOR, DIRECTOR, DEPARTMENT OF
INTERNATIONAL AFFAIRS, AMERICAN FEDERATION OF LABOR AND
CONGRESS OF INDUSTRIAL ORGANIZATIONS (AFL-CIO)
Ms. Shailor. Thank you, Mr. Chairman, for the opportunity
to present the views of the AFL-CIO on the extension of most-
favored-nation trading status to China.
As we have in the past, we oppose granting China continued
access to the U.S. market on the same terms as other trading
partners. Our opposition has not changed, but then neither have
the objective conditions with respect to China's denial of
basic worker rights, its brutal repression of dissidents, and
its flaunting of international agreements on arms sales, market
access, intellectual property rights, forced labor, and the
environment.
The massive and growing U.S. trade deficit with China makes
clear the serious consequences of China's nonreciprocal and
discriminatory trade and investment policies. These policies
have cost American workers jobs and created a downward pressure
on their wages.
MFN proponents have argued that continued trade and
investment growth will bring democratic changes to China. The
17 years of experience suggests otherwise. The only change that
has occurred is that another year has gone by: another year in
which the Chinese Government has failed to improve its human
rights or workers' conditions, has failed to honor the
agreements it has signed. Our trade deficit continues to grow,
and repression in the country has worsened.
As the State Department confirmed, no dissidents were known
to be active at the year's end. This is because each and every
one of them has been imprisoned, exiled, or intimidated into
silence. Over 1 billion citizens, and not 1 active dissident.
What should be clear is that passivity in the face of
oppression and abuse of power is not working. What we should
have learned from the last 8 years is that accommodation mixed
with hope does not, has not, and will not work. The few signs
of progress we have seen, either in human rights or
intellectual property rights protection, have only come when
trade sanctions seemed most imminent.
When Congress voted to impose trade sanctions against China
in 1989 and 1990 in the wake of the Tiananmen Square massacre,
the Chinese Government responded by releasing several hundred
dissidents. When President Clinton delinked human rights from
trade in 1994, efforts by the Chinese Government to demonstrate
progress on human rights ended. Only when the USTR threatened
to impose trade sanctions in 1995 did the Chinese Government
take steps to reduce their massive piracy of intellectual
property.
Ours has been a strategy of accommodation, both to the
Chinese Government and to U.S. multinationals investing in and
trading with China. Meanwhile, the Chinese Government has
accelerated its mercantilistic trade strategy and consolidated
political, economic, and military power.
The issue of greatest concern to the AFL-CIO is the Chinese
Government's total repression of independent labor unions.
Attempting to organize a union independent of the Communist
Party is a crime. Referred to as the Polish disease,
independent labor organizing poses the greatest threat to the
totalitarian government.
In a complaint presented to the ILO last week in Geneva,
the International Confederation of Free Trade Unions documents
the lengthy prison sentences, incarceration in psychiatric
institutes, torture by electric shock, deprivation of water,
and the withholding of medical care routinely endured by
imprisoned trade unionists.
As these trade unionists toil in labor camps, the Chinese
Government continues to violate the 1992 memo of understanding
on prison labor. Products made via forced labor continue to
come into our country while our trade deficit skyrockets,
reaching nearly $40 billion last year. And it is a continuing
and ongoing scandal that companies owned by the Chinese
People's Liberation Army continue to sell their products in the
United States.
The administration, Congress, and the companies have put on
blinders against these harsh realities because of the lure of
the Chinese market. For all of the hoopla about the size of the
Chinese market, the United States sold more goods last year to
Belgium, Singapore, and the Netherlands. And for all the talk
about jobs supported by U.S. exports to China, 9 out of 10 of
the top export surplus categories were in raw materials and
intermediate goods.
Even in the aerospace and auto industry, China's policy of
extorting technology transfers and production capacity from
American companies exporting to China is costing the United
States good jobs. Transferring technology for short-term market
access will take its toll for years to come.
The AFL-CIO supports trade expansion, international
engagement, and equitable development. But the Chinese
Government is not engaging in free trade, and we help neither
the vast majority of Chinese citizens nor our own working
families by ignoring this basic fact.
Thank you, Mr. Chairman.
[The prepared statement and attachment follow:]
Statement of Barbara Shailor, Director, Department of International
Affairs, American Federation of Labor and Congress of Industrial
Organizations (AFL-CIO)
Thank you, Mr. Chairman and members of the Committee, for
this opportunity to present the views of the AFL-CIO on the
extension of most favored nation (MFN) trading status to China.
As we have in the past, we oppose granting China continued
access to the U.S. market on the same terms as most of our
other trading partners. Our opposition has not changed, but
then neither have the objective conditions with respect to
China's denial of basic worker rights, its brutal repression of
dissidents, and its flaunting of international agreements on
arms sales, market access, intellectual property rights, forced
labor, and the environment. The massive and growing U.S. trade
deficit with China makes clear the serious consequences of
China's non-reciprocal and discriminatory trade and investment
policies. These policies have cost American workers jobs and
increased downward pressure on their wages.
What has changed in this year's debate relative to last
year's is that another year has gone by: another year in which
the Chinese government has failed to improve its human or
worker rights record and has failed to honor the agreements it
has signed. Another year in which our trade deficit grew by $6
billion, while our exports remained stationary.
If anything, the repression has worsened. The State
Department's Human Rights report this year stated baldly that
``No dissidents were known to be active at year's end,'' as
each and every one was in prison, exiled, or intimidated into
silence. Over one billion citizens and not a single active
dissident. This should be enough to chill anyone's blood.
MFN proponents have argued that continued trade growth will
bring democracy to China. Instead, China seems intent upon
stifling democratic developments in its neighbors. This year,
the Chinese government announced that it would roll back civil
liberties in Hong Kong after July 1st. In addition, China has
aggressively threatened the emerging democracy in Taiwan,
refusing to renounce the use of military force there.
The Administration's own annual reports on Foreign Trade
Barriers indicate that China routinely fails to abide by the
Memoranda of Understanding that it signs with the United
States. Mickey Kantor, then-USTR, told the Washington Post
(June 18, 1996): ``China has been somewhat more difficult to
work with on trade agreements than some other countries. There
is very little history of rule of law, or frankly, respect for
law.''
The U.S. government has extended MFN trading privileges to
China every year for the last 17 years, and has nothing to show
for it.
What should be clear is that passivity in the face of
repression and abuse of power is not working. It has been eight
years since Tiananmen Square. For eight years, the U.S.
Congress has debated granting China MFN status every spring,
but has taken very little action. What we should have learned
from these last eight years is that accommodation mixed with
hope does not, has not, and will not work.
The few signs of progress we have seen--either in human
rights or in intellectual property rights protection--have come
when trade sanctions seemed most imminent. When Congress voted
to impose trade sanctions against China in 1989 and 1990 in the
wake of the Tienanmen Square massacre, the Chinese government
responded by releasing several hundred dissidents. When
President Clinton delinked MFN from human rights in 1994, most
efforts by the Chinese government to demonstrate progress on
human rights ended.
Similarly, the U.S. government finally got the attention of
the Chinese government with respect to intellectual property
rights protection when the U.S. Trade Representative threatened
to impose trade sanctions on $1 billion worth of goods in 1995.
Overall, however, the message we have sent has been that we
fear confrontation above all. Ours has been a strategy of
accommodation, both to the Chinese government and to U.S.
companies investing in and trading with China. Meanwhile, the
Chinese government accelerates its mercantilist growth
strategy, consolidating political, economic, and military
power.
The issue of greatest concern to the AFL-CIO is the Chinese
government's repression of free and independent labor unions.
Attempting to organize a union independent of the Communist
Party is a crime. Worker activists whose only crime was to
promote a discussion of labor rights under China's legal
framework have been sentenced to the Laogai, China's system of
forced labor camps. Labor union organizers (or those who write
or speak about such a possibility) actually face longer
sentences than students or intellectuals--maybe because the
establishment of free labor unions poses a greater threat to
the government.
Certainly, historically, free trade unions have contributed
to strong democracies, to vibrant political debates, and to the
establishment of a stable middle class. If the Chinese
government's goal is to preserve power and concentrate the
benefits of growth in its own hands, maybe it is right to fear
an independent labor movement.
While a large majority of all foreign or mixed enterprises
have union representation, in fact most of these unions serve
to control workers, not to represent them. Australian academic
Anita Chan has reported, for example, that in the Minhang
district of Shanghai, 67% of union leaders are on the
managerial staff of companies, and 20% are Communist Party
officials.
Many ``organized'' workers are not even aware of the
existence of a union in their own factories. U.S. investors
implicitly endorse this charade by their silence.
China's official unions do not attempt to conceal their
subservience to the Communist Party. In 1994, the All China
Federation of Trade Unions' (ACFTU) official magazine declared
that, ``The premise for unions [in China] is to carry out the
tasks of the party.'' In 1995, the ACFTU General Secretary
reaffirmed this position, saying that, ``Unions in China should
resolutely uphold the unitary leadership of the party. Unions
at all levels should maintain a high degree of unanimity with
the party politically, in ideas and actions.''
Working conditions in industries such as toys, apparel, and
electronics, in which there is significant foreign investment,
are unacceptable and, in many cases, illegal: excessive hours
worked, violation of minimum wage laws, poor health and safety
conditions, physical abuse by managers, and illegal levies and
deductions. Deplorable working conditions and phony unions may,
in the end, undermine the very stability U.S. multinational
corporations have sought to foster in China.
It is an ongoing scandal that companies owned by the
Chinese People's Liberation Army continue to sell their goods
in American stores. Harry Wu, the Chinese human rights
activist, revealed recently that K-Mart purchased 73 tons of
men's rainwear and ponchos in 1996 from China Tiancheng, a
company the U.S. Defense Intelligence Agency confirms is owned
by the People's Liberation Army General Political Department.
The Chinese have failed to comply with the 1992 Memorandum
of Understanding on prison labor. Forced labor products
continue to come into our country. Just recently, evidence was
provided to the Senate Foreign Relations Committee concerning
binder clips and auto parts produced in Chinese prisons.
U.S. policy toward China makes American consumers its
unwitting accomplices. When Americans go shopping, they
shouldn't have to support the repressive Chinese military
apparatus, buy goods produced in forced labor camps, or
subsidize the profits of companies that treat their workers
disgracefully.
Last year, the United States racked up a merchandise trade
deficit with China of almost $40 billion. In the first three
months of this year, that deficit was up by 38%. The Chinese
deficit may surpass our deficit with Japan soon; the only
difference is that our exports to Japan are much greater than
those to China. Last year, we exported $68 billion worth of
goods to Japan, but only $12 billion to China.
For all the attention given to Japan's trade barriers,
Japan's market looks open in comparison to China's. For all the
hoopla about the size of the Chinese market, the United States
sold more last year to Belgium, Singapore, and the Netherlands.
And for all the talk about the jobs supported by U.S. exports
to China, nine out of the top ten trade surplus categories last
year were raw materials and intermediate goods: fertilizers,
cotton, cereals, wood pulp, rawhides, etc. The top ten deficit
categories, in contrast, were virtually all manufactured goods.
(See Table.)
U.S.-China Trade Balance, Top Ten Items, 1996
($ Billions)
------------------------------------------------------------------------
U.S. Surplus U.S. Deficit
------------------------------------------------------------------------
Aircraft..................... 1.681 Electrical 7.474
Machinery.
Fertilizers.................. .890 Toys & Games... 7.368
Cotton....................... .615 Footwear....... 6.383
Cereals...................... .440 Apparel 5.018
Articles.
Wood Pulp.................... .187 Leather 2.623
Articles.
Raw Hides.................... .116 Furniture, 2.297
Bedding,
Cushions.
Manmade Fibers............... .108 Machinery...... 2.172
Animal & Veg. Fat & Oils..... .106 Plastics & 1.338
Articles
thereof.
Aluminum & Articles thereof.. .105 Optical, 1.051
Photographic.
Copper & Articles thereof.... .043 Prepared .604
Feathers &
Down.
------------------------------------------------------------------------
Source: U.S. Department of Commerce, National Trade Data Bank.
China's policy of extorting technology transfers and
investment from American companies interested in selling in
China is costing the United States good jobs in the aircraft
and automotive sectors today. More serious, transferring
technology--much of which has been subsidized by American
taxpayers--will impose much greater costs ten and twenty years
from now, as American companies give away their technological
advantage for short-term market access. Already, U.S. aircraft
exports to China have fallen 23% from their peak in 1993.
In other words, the dream of a massive consumer market in
China remains just that. Revoking MFN now would impose greater
costs on China than on the United States. That is one of the
only advantages of having a trade relationship where imports
exceed exports by more than four to one. Yes, it would also
impose some short-term costs on American businesses, consumers,
and workers. But in the long run, encouraging China to develop
down a democratic, egalitarian, and sustainable path will be
infinitely more in the interest of both countries than our
present set of policies, which have utterly failed to bring
about necessary and long-overdue change.
The AFL-CIO supports trade expansion, international
engagement, and equitable development. But the Chinese
government is not engaging in free trade, and we help neither
the Chinese people in their aspirations nor our own workforce
by ignoring this basic fact.
Mr. Chairman, members of the Committee, thank you for your
time and attention.
Mr. Houghton. Thank you very much.
Mr. O'Quinn.
STATEMENT OF ROBERT P. O'QUINN, POLICY ANALYST FOR
INTERNATIONAL ECONOMICS AND TRADE, ASIAN STUDIES CENTER, THE
HERITAGE FOUNDATION
Mr. O'Quinn. Thank you, Mr. Chairman.
Americans believe that freedom is the natural right of
every human being. In defiance of this belief in human rights,
China's authoritarian regime has repeatedly violated the rights
of the Chinese people.
For example, the U.S. State Department alleges that China
silences public dissent against the government and the
Communist party. China requires churches, mosques, synagogues,
and temples to register with the government and abide by the
regulations of various patriotic organizations.
And finally, China maintains a one-child policy that
punishes couples for having more than one child with fines,
withdrawal of social services, and loss of employment in the
government sector. Such human rights abuses justifiably outrage
the American people.
However, the question before Congress is not whether the
People's Republic of China has an authoritarian government that
disrespects human rights; clearly, China does. Rather, the
question is whether maintaining a normal trading relationship,
which is known by the archaic legal term ``most favored
nation,'' is more likely than revoking MFN to improve living
conditions for the Chinese people, to foster their freedom, to
enhance the emergence of democracy in China, and to improve the
economic welfare of the American people.
I firmly believe that maintaining China's MFN status serves
the interests of both the American and Chinese people for the
following reasons:
First, MFN advances the cause of freedom in China. American
trade and investment strengthens the private sector in China
and weakens Beijing's authoritarian regime. In 1979, Paramount
Leader Deng Xiaoping bet against history that the Communist
Party could introduce a market economy while maintaining a
political dictatorship in China. Beijing is now like a man
standing astride a small stream when the winter snowfall begins
to melt. As the climate for economic freedom warms, the stream
grows from a trickle into a torrent. As time passes, the banks
will erode and the man will eventually fall into a mighty river
and drown. The United States should gladly accept Deng's wager;
this bet is one Beijing is sure to lose.
American trade and investment fosters the growth of private
enterprises in China. As more and more Chinese entrepreneurs
hire workers away from the state sector, the Chinese people are
becoming less dependent on Beijing's authoritarian regime for
life's necessities. American trade and investment improves the
lives of ordinary people.
Take the example of Zhu Wenjun, a former teacher outside of
Shanghai, who was working for $25 a month and is now employed
in a factory exporting clothing and textiles for $360 a month.
She noted to the New York Times that, ``You used to be a
teacher for life; now you can switch jobs. Now I am talking
with people overseas.''
Or take the example of Ye Ziuying, a 26-year-old woman
working in a small town in Guandong Province. Because of
economic liberalization and trade, she rose from making $35 a
month in a state-owned factory to earning more than $1,200 a
month. In fact, this enabled her not only to buy her own house
but to pay the $1,800 government fine to enable her to bring a
second child into the world rather than having a forced
abortion.
MFN is a tool for bringing about freedom in China, and this
I think we can agree on. But revoking MFN would harm both Hong
Kong and Taiwan, two long-time friends of the United States.
The government of Hong Kong estimates that Hong Kong's flow of
trade would decline 8 percent by cutting off MFN, reducing
their gross domestic product by 2.8 percent and causing 86,000
Hong Kong workers to lose their jobs.
And as Governor Chris Patten noted, for the people of Hong
Kong there is no comfort in the proposition that China reduce--
that if China reduces their freedom, the United States will
take away their jobs. For Taiwan, whose economy is increasingly
integrated with the mainland, revoking MFN could provoke a
recession. There is no reason that Congress should
inadvertently deliver a knock-out punch to Taiwan, a long-time
friend and fledgling democracy.
In summary--and the other points are in my written
statement--maintaining a normal trading relationship with China
is more likely than revoking MFN to advance the cause of
freedom. I understand the desire of many Members and Senators
to do something about China. However, when contemplating the
trade legislation, Congress should recall the wise admonition
contained in the Hippocratic oath: First do no harm. Revoking
MFN harms both the American and Chinese people.
[The prepared statement follows:]
Statement of Robert P. O'Quinn, Policy Analyst for International
Economics and Trade, Asian Studies Center, The Heritage Foundation
Mr. Chairman and members of the Subcommittee on Trade, I am
Robert P. O'Quinn, Policy Analyst for International Economics
and Trade in the Asian Studies Center of The Heritage
Foundation. Thank you for inviting me to testify about renewing
Most Favored Nation (MFN) status for the People's Republic of
China.
As Americans, we believe that freedom is the natural right
of every human. To quote from the Declaration of Independence,
``WE hold these Truths to be self-evident, that all Men are
created equal, that they are endowed by their Creator with
certain unalienable Rights, that among these are Life, Liberty
and the Pursuit of Happiness (sic).''
In defiance of the Declaration's universal principles,
China's authoritarian regime has repeatedly violated the rights
of the Chinese people. In its China Country Report on Human
Rights Practices for 1996, the U.S. Department of State
alleges:
China silences all expression of public dissent
against the government and the Communist Party by intimidation,
administrative detention, prison sentences, and exile.
China requires all churches, mosques, synagogues,
and temples to register with the government and abide by the
regulations of various ``patriotic'' associations. If religious
organizations fail to register, China suppresses them through
threats, demolition of unregistered property, extortion,
interrogation, detention, and prison sentences.
China maintains a ``one child'' policy that
punishes couples that have more than one child with fines,
withdrawal of social services, and the loss of employment at
state-owned enterprises and government ministries. While
Beijing does not compel women to have abortions as a matter of
policy, international human rights organizations have
documented instances where local officials have forced women to
undergo abortions or sterilizations.
Such human rights abuses justifiably outrage the American
people.
The question before Congress is not whether the People's
Republic of China has an authoritarian government that does not
respect human rights. Clearly, China does. Rather, the question
is whether maintaining a normal trading relationship, which is
known by archaic legal terminology as Most Favored Nation, is
more likely than revoking MFN to improve living conditions for
the Chinese people, to foster greater freedom, to promote a
peaceful evolution toward democracy in China, and to enhance
the economic welfare of the American people. I believe that
maintaining China's MFN status serves the interests of both the
American and Chinese people for the following seven reasons:
1. MFN Advances the Cause of Freedom in China
American trade and investment strengthens China's private
sector and weakens Beijing's authoritarian regime. In 1978,
Paramount Leader Deng Xiao Ping bet against history that the
Communist Party could introduce a market economy while
maintaining a political dictatorship in China. Because of
economic reform and trade liberalization, Beijing is now like a
man standing astride a small stream when the winter snowfall
begins to melt. As the climate for economic freedom warms, this
stream grows from a trickle into a torrent. As time passes, the
banks will erode. The man will then fall into the mighty river
and drown. The United States should gladly accept Deng's wager;
Beijing is sure to lose this bet.
American trade and investment fosters the growth of private
enterprises in China. Authoritarian regimes survive by keeping
their people poor and economically dependent on the government.
As expanding trade allows Chinese entrepreneurs to hire more
and more workers away from the government sector, the Chinese
people are becoming less dependent on Beijing's authoritarian
regime for life's necessities including food, shelter,
education, health care, housing, and old-age pensions.
American trade and investment improves the lives of
ordinary Chinese people. For example, economic reform and trade
liberalization have transformed the life of Zhu Wenjun, a 45
year-old woman living outside of Shanghai. Zhu quit her job as
a teacher in a government school that paid $25 a month to work
for a company exporting clothing and toys for $360 a month. The
New York Times quoted Zhu, ``It use to be that when you became
a teacher, you were a teacher for life. Now you can switch
jobs. Now I am talking with people overseas and thinking about
economic issues.''
American trade and investment even undermines China's
notorious one-child policy. The New York Times also reported
about Ye Ziuying, a 26 year-old woman that runs a small clock
shop in Dongguan, a small town in Guandong province. Because of
economic reform and trade liberalization, she rose from a $35 a
month worker in state-owned factory to an entrepreneur earning
$1,200 a month. Along with buying her own home, she was able to
pay the $1,800 government fine so she could have a second
child.
American trade and investment is a time bomb that will
ultimately eviscerate Beijing's authoritarian government.
Economic reform and trade liberalization are creating a new
Chinese middle class, a necessary prerequisite for successful
democratization. In Chile, South Korea, Taiwan, and Thailand,
economic liberalization in one generation produced a large,
well-educated, financially secure middle class in the next that
demanded political freedom and won democracy.
2. MFN Exposes the Chinese People to Democratic Values
The best ambassadors for democratic values are ordinary
Americans. Through trade and investment, the Chinese people can
meet ordinary Americans and learn about democratic values.
American companies doing business in China provide the Chinese
people with practical lessons about economic freedom, adherence
to the rule of law, and ethical business conduct.
An evangelical organization, Christian Voice noted, ``[O]ne
will find strong pro-MFN sentiment among China's religious
community, notwithstanding their persecutions by Chinese
authorities. They recognize that having an open trade door to
the West--along with its concomitant transmission of political,
religious, cultural, economic, and social values--provides the
best hope for transforming China over the long haul.''
3. Revoking MFN Would Slow the Progress Toward Freedom in China
Like other economic sanctions, revoking MFN is unlikely to
achieve its proponents' objective of promoting freedom in
China. In a comprehensive study of all economic sanctions
imposed worldwide between 1914 and 1990, Gary Hufbauer, Jeffrey
Schott, and Kimberly Ann Elliott found that economic sanctions
failed to achieve their stated objectives in 66 percent of the
116 cases studied. None of the special factors that Hufbauer,
Schott, and Elliot cited as necessary for at least partial
success (such as a historic parent-colony relationship between
the sender country and the target country and a weak economy in
target country that is highly dependent on trade and investment
with the sender country) are present in the case of China.
No other country would follow the United States and
terminate its trade and investment ties to China. Therefore,
revoking MFN would not pose a sufficient economic penalty on
China to cause Beijing to change its objectionable policies.
According to the World Bank, revoking MFN would cause a shock
that would reduce China's gross domestic product by 6.5 percent
immediately. However, China could quickly re-orient its exports
to other countries, so its economy would fully recover from MFN
revocation within two years.
Instead, revoking MFN may cause Beijing to resist more
strongly than ever American demands for improving human rights.
After President Clinton imposed an unilateral prohibition on
new investment in Myanmar on May 20, 1997, the leaders of the
Association of South East Asian Nations (ASEAN) defied American
objections and decided to admit Myanmar to ASEAN on May 31.
This should serve as a warning to Congress that revoking
China's MFN status could backfire.
4. Revoking MFN Would Harm Hong Kong
Hong Kong's economy would suffer greatly because a large of
portion of Hong Kong's trade involves transshipping goods
between the People's Republic of China and the United States.
The Government of Hong Kong estimates that revoking MFN would
decrease Hong Kong's trade flows by 6 percent to 8 percent,
reduce Hong Kong's gross domestic product by 2.0 percent to 2.8
percent, and cause 61,000 to 86,000 Hong Kong workers to lose
their jobs. As Hong Kong Governor Chris Patten wryly noted,
``For the people of Hong Kong there is no comfort in the
proposition that if China reduces their freedom, the United
States will take away their jobs.''
All of the people of Hong Kong strongly support renewing
China's MFN status. Democratic Party leader Martin Lee has
warned Congress that ``Hong Kong would be hurt first and badly
so'' by revoking MFN. Indeed, revoking MFN would give Beijing a
pretext to intervene and further curtail freedom in Hong Kong
after its reversion to China.
5. Revoking MFN Would Harm Taiwan
Taiwan's two-way trade with China exceeds $20 billion, and
Taiwan has invested more than $20 billion in the mainland.
Taiwanese companies have relocated many of their low-skill,
labor-intensive manufacturing operations to the mainland.
Today, Taiwanese exports contain many components from the
People's Republic of China. Revoking MFN would disrupt these
trading relationships and possibly send Taiwan's economy into a
recession. In trying to send a message to Beijing, Congress
should not inadvertently deliver a knock-out punch to Taiwan, a
long-time friend and fledging democracy.
6. Revoking MFN Would Increase Taxes on the American People
Tariffs are taxes. Revoking MFN would hike the average
tariff on Chinese imports from approximately 4 percent to 50
percent. That amounts to a $16 billion tax increase, falling
most heavily on poor Americans who would no longer be able to
buy low-price clothing and shoes made in China for their
families. It make no sense for Congress to protest the misdeeds
of the Chinese government by raising taxes on the American
people through the revocation of China's MFN status.
7. Revoking MFN Would Jeopardize the Jobs of 200,000 American Workers
In 1996, China bought approximately $14 billion of goods
and services from the United States. These exports support
approximately 200,000 high-paying American jobs. Moreover, the
People's Republic of China is one of the fastest growing
markets for American businesses. If Congress were to revoke
China's MFN status, Beijing would certainly retaliate by
imposing prohibitive tariffs on American imports. Companies in
the European Union, Canada, Japan, Australia, South Korea,
Taiwan, and other Asian countries would view MFN revocation as
a golden opportunity to expand their share of China's vast
market at America's expense. In the end, the Chinese would buy
what they desired in other countries. Revoking MFN simply
shifts export sales and related jobs from the United States to
other countries.
In summary, maintaining a normal trading relationship with
China is more likely than revoking MFN to advance the cause of
freedom within China. I understand the desire of many Members
and Senators to ``do something'' about China. However, when
contemplating trade legislation, Congress should recall the
wise admonition contained in the Hippocratic oath, ``First, do
no harm.'' Revoking MFN harms both the American and Chinese
people.
Mr. Houghton. Thank you very much, Mr. O'Quinn. And I
appreciate the testimony of everyone here.
You know, one of the big problems we have is that if our
standards were as high as we would really like, we wouldn't
trade with anybody. I mean, Afghanistan, Cuba, Laos, North
Korea, and Vietnam are the only countries that do not have our
most-favored-nation treatment, whether it is a permanent thing
or done on an annual basis. Yet there are lots of other
countries that are sort of miserable in the way they operate
their human rights, intellectual property rights, or their
trading practices. So it is a real issue.
And you--I guess it was Mr. Moore--were talking, just
before your chart, about China and that before being admitted
to the WTO, it should end subsidization of its exports. We
don't like that; it is a lousy idea, and I have talked to the
AFL-CIO many times, but you have got to work at this thing
gradually. Dumping exports in foreign markets--I was in a
company that almost went out of business because of dumping
practices, not from China but Japan.
Next, China must open its markets to imports. It must do
that; it should do that; it ought to do that. The question is,
how do we get at it? Do we get at it with a cleaver, or just
gradually, with a scalpel? And it is tough.
And here you have the human rights issue--which, Mr. Hall,
you talked about--and obviously the concept of democracy, and
you all talked about Hong Kong. How do you get at it? Do you do
it this way?
I think, having myself--and I give you my own subjective
feeling--having done business in China for many years, that the
one thing you cannot do is back these people into a corner.
Then they react in the wrong way. They don't react the way we
would react. And so you take your future in your hands by
judging people like this by your own standards.
It is really a tough one, because I don't think any of us
could sit here and say that we like many of the issues, whether
it is currency, human rights, democracy, Taiwan and Hong Kong,
or what they are doing as far as unfair labor wages and things
like that. But how do you get at it?
Look, I have got to go for a vote. Would you like to sort
of sum up? Are there any other things you would like to add
before you leave?
Mr. Moore. Mr. Chairman, I would like to add one point
specific to your concern. Because it is a very difficult
question: How do you bring about reform? But it seems to me
that the connection we try to build--we have tremendous
leverage over China in two ways. One, they want to join the WTO
very badly. The WTO accession agreement is really a blank page,
and countries who are already members of WTO can write what
they want on that page. And that can be the price of admission
for China.
Mr. Houghton. Well, not really. I mean----
Mr. Moore. Well, almost.
Mr. Houghton. Well, not almost. They are not going to get
into the WTO by handing back a blank page. There are other
people----
Mr. Moore. No. What I meant was that the United States and
the European Union can put in whatever conditions they want,
whether or not it is necessarily consistent with being a member
of the WTO. If they say that China has to eliminate illegal
export subsidies and China agrees to do that, then that is part
of the price of admission. We think there is a great
opportunity to reform China's system in a major way. And one of
the greatest pieces of leverage we have is whether or not we
grant them MFN treatment.
Mr. Houghton. No, no; I think you are confusing the two
things, WTO and MFN.
Mr. Moore. No, sir; I am linking them on purpose. I am
saying that if Congress were to withhold the MFN status pending
China's agreement on the reforms that are needed to become a
full-fledged member of the community of nations in WTO, I think
China would agree, by and large.
Mr. Houghton. That is an opinion, and it may be true.
Mr. Moore. It is an opinion, yes, sir.
Mr. Houghton. But I do think they are separate issues or
you can separate them.
Have you got any other comments, Mr. Hall or Mr. O'Quinn?
Mr. O'Quinn. I will make a very brief comment, Mr.
Chairman, knowing that you have to go and vote.
First of all, I would agree that WTO accession is the best
opportunity we have to promote economic reform and
liberalization in China. And I think both the Bush
administration and Clinton administration have understood this
and pursued it in a very deliberate manner. I think Charlene
Barshefsky is to be congratulated for how she has conducted
those negotiations to date.
I would say also that there are a variety of levers that
the United States can use on China to deal with a variety of
issues, and we have focused exclusively on economic levers,
particularly renewing MFN status. I think it has been shown
historically to be more effective to use noneconomic levers,
such things as denying China the right to host the Olympics.
Various diplomatic measures that we can take can be targeted
specifically at the leadership rather than the general economy
of China. Casting out this wide net hurts ordinary Chinese
people and Chinese entrepreneurs, the very sectors of Chinese
society that we want to strengthen and encourage.
So I think that what we need, in terms of using tools or
sanctions, is to focus very narrowly and specifically on the
leadership; they can be primarily noneconomic in character.
Mr. Houghton. All right. Thank you.
Ms. Shailor?
Ms. Shailor. Yes, thank you, Mr. Chairman.
I think a very strong message from the U.S. Congress
revoking MFN will ultimately strengthen the administration's
ability to deal with the issues related to integrating China
into the World Trade Organization. In fact, rather than
weakening it, certainly the will of this body and the
acknowledgment that the situation has not improved over the
last 17 years will send a signal to the Chinese to begin to
improve conditions. They have only improved when they have been
presented with possible trade sanctions before.
Mr. Houghton. If I understand it correctly, you and Mr.
Moore both feel that MFN and the World Trade Organization
should be linked?
Mr. Moore. I certainly do, yes, sir.
Mr. Houghton. And do you feel that?
Mr. Hall. No, Mr. Chairman, we do not. Revoking MFN hurts
American workers a great deal, so we don't need to revoke MFN.
We clearly need to pass MFN this summer.
We can put all the conditions we want on China--I am sure
we would have disagreements on what kind of conditions--but we
can look at negotiating a commercially meaningful WTO accession
agreement. We can do that, but let's not link the two, Mr.
Chairman.
Mr. Houghton. But you would feel that an entirely different
set of criteria ought to be used as far as the World Trade
Organization accession?
Mr. Hall. That is correct.
Mr. O'Quinn. That is correct, and I will submit a very
detailed paper I have on China's accession and what we should
ask for, for the record.
Mr. Houghton. I would like to see that as, I am sure, would
other Members of the Subcommittee.
[The information is being retained in the Committee files.]
Mr. Houghton. I am sorry; it is the first day back and many
people are not here. There are a whole set of things going on.
If you would like to submit other information, please do. Thank
you very much.
The Subcommittee on Trade hearing on extending MFN trade
status to China is adjourned.
[Whereupon, at 5:13 p.m., the hearing was adjourned.]
[Submissions for the record follow:]
Statement of Eugene Milosh, President, American Association of
Exporters and Importers (AAEI)
Introduction and Background
Good morning, Chairman Crane and members of the Trade
Subcommittee. My name is Eugene Milosh, and I am President of
the American Association of Exporters and Importers (AAEI).
AAEI is a national organization, comprised of approximately
1,000 U.S. company-members who export, import, distribute and
manufacture a complete spectrum of products, including
chemicals, electronics, machinery, automobiles/parts, household
consumer goods, footwear, food, toys, specialty items, textiles
and apparel. Members also include firms and companies which
serve the international trade community, such as customs
brokers, freight forwarders, banks, attorneys, insurance firms
and carriers. Many of AAEI's member firms and companies have or
are considering investment in China.
U.S. businesses in these areas of international trade will
benefit, either directly or indirectly, from a decision to
extend Most-Favored-Nation (MFN) status for China beyond July
of 1997. A substantial number of AAEI exporters and importers
are currently engaged in direct trade with China, with many
AAEI retailer members sourcing as much as 30%-40% of imports
from China. Overall, more than one-half of AAEI's membership is
involved in trade with China in some capacity. Considering the
importance of continued China MFN for U.S. industry, including
AAEI's members, we urge the Administration and Congress to
revamp U.S. policy in an effort to avoid the annual MFN debate.
To this end, AAEI supports President Clinton's 1994 decision to
de-link human rights concerns from MFN consideration and urges
serious exploration of long-term or permanent renewal of
China's MFN status.
U.S.-China trade and investment has grown tremendously in
volume and complexity since the U.S. first accorded China MFN
status. Total trade has more than tripled since 1981 and nearly
doubled since 1990. Total cumulative U.S. investment in China
is rapidly increasing, and China is one of our fastest growing
export markets, purchasing an estimated $14.4 billion in U.S.
goods and services last year.
MFN status is the cornerstone of normal commercial trading
relationships with countries worldwide, including China, and is
a key aspect of the bilateral trade agreement with China
negotiated in 1979. The term ``most-favored-nation'' is a
misnomer, suggesting some sort of privileged trading
relationship. In fact, we grant most of the world's nations MFN
status, which merely entitles a U.S. trading partner to the
standard tariff rates available to other trading partners in
good standing. The U.S., like most other countries, maintains
two complete tariff schedules--one set of standard rates for
MFN countries, and a second set of often prohibitive rates for
non-MFN countries. The tariff differential between these rate
schedules generally ranges from 10% to 50%, and can be as high
as 100% or more for some products, so that the loss of MFN
status can effectively price a country's exports to the U.S.
out of the market. The additional cost associated with denying
MFN status would be paid for by U.S. companies and consumers.
AAEI Supports Unconditional MFN Renewal
AAEI strongly supports the President's 1994 decision to de-
link human rights issues from the annual renewal of China's MFN
status. As we testified in previous years, we believe that the
threat of terminating China's MFN status is neither an
appropriate nor effective tool for addressing human rights
concerns. We urge the members of the Trade Subcommittee to take
a strong stand in ensuring that human rights issues are kept
separate from U.S. trade relations with China, as all of our
other trading partners/competitors do.
The Chinese market is already the world's third largest,
according to an International Monetary Fund (IMF) study, and
has continued to grow at an annual rate of more than 10%. This
market is simply too important to our future international
competitiveness and to the battle against inflation in the U.S.
to ignore or to jeopardize through an unstable trading
relationship. As President Clinton has recognized, MFN is the
essential cornerstone for a long-term, stable bilateral
relationship with China in both the economic and foreign policy
realms. Any annual review process introduces uncertainty,
weakening the ability of U.S. traders and investors to make
long run plans, and saddles U.S./China trade and investment
with a risk factor cost not faced by our international
competitors.
AAEI members agree that human rights issues warrant our
attention and further bilateral negotiations between the U.S.
and China. However, the Association does not believe that the
threat of terminating MFN is an appropriate or constructive
tool for pursuing this important U.S. foreign policy objective.
History suggests that despite China's strong interest in trade
with the U.S., efforts to impose our will on the Chinese
Government through a series of public demands will prove to be
counterproductive. MFN is the foundation on which the U.S.
bilateral relationship with China rests.
Terminating MFN for China would not simply result in higher
tariff rates for some imported goods; it would sever the basic
economic--and, consequently, geopolitical--relationship between
the two countries. It would also strengthen those in China who
desire to see the People's Republic turn inward again, away
from ideologically threatening capitalist influences, and would
weaken those liberalizing forces that we seek to encourage.
This would be particularly unfortunate while the leadership
situation in China remains unsettled.
China's Post-June MFN Status Should Be Renewed
AAEI supports the President's human rights objectives. For
reasons noted above, we do not believe that the unilateral
threat to eliminate MFN--and the uncertainty associated with
annual MFN debates--furthers either U.S. foreign policy or
trade objectives. As an association of companies engaged in
trade with China, the balance of our comments will focus on the
trade and economic aspects of the debate. This, however, should
not in any way be construed to suggest any lesser interest in
the successful resolution of U.S. human rights concerns in
China.
China has made some good faith efforts to respond to U.S.
market-opening initiatives. Among important developments, China
has agreed to remove high tariffs on hundreds of U.S. imports,
increase transparency with regard to its trade operations and
move towards currency convertibility.
There are a number of other reasons for supporting the
continuation of MFN treatment for China. Trade with China must
be kept open to maintain benefits to U.S. industry of a
bilateral economic relationship with China. Failure to renew
MFN would threaten the jobs of thousands of U.S. workers
producing goods for export to China and would harm American
businesses relying on Chinese imports for their livelihood.
Tariffs, which are at an average 4%-5%, would skyrocket to as
high as 110% in some cases, increasing costs to American
consumers by billions of dollars. In many cases, this increased
cost would be inflationary and fall most heavily on those
Americans least able to bear the burden.
An MFN Cut-Off Would Harm U.S. Importers
The loss of China's MFN status would also have both
immediate and long-term consequences for AAEI members and the
entire importing community. In the short-term, they would incur
significant losses on merchandise already contracted for sale
at a specific price, but not yet delivered. Payment for these
orders are often guaranteed by irrevocable letters of credit.
If duty rates increased from Column 1 to Column 2 levels before
Customs clearance, these companies would be required to absorb
the increases or pass them on to American consumers. American
companies and American consumers, not Chinese, are harmed by
increasing duty rates for merchandise which was previously
ordered.
Over the longer term, the cost of delays, lost time, and
unavailability of alternative supply could be even more
damaging to businesses than duty increases. Many consumer
products imported from China are not available in the U.S., and
alternative sources of supply overseas would likely be much
more costly than Chinese goods, of lesser quality, or
unavailable altogether. The difficulties and uncertainties of
trade with China have already pushed U.S. importers to search
for alternative sources of supply. With the long lead times
necessary for orders in many industries, some companies could
easily lose a whole season, or even a whole year. This could
cause major economic hardship. Companies would be forced to
raise prices on goods, with consumers bearing the ultimate
burden. In most cases, U.S. producers would not benefit from a
cut in supply of Chinese products. Yet, a reduction in supply
of these basic consumer items would cause considerable hardship
to Americans with limited or fixed incomes who purchase basic-
necessity consumer goods imported into the U.S. from China.
With the growing threat of a higher inflation rate, this a poor
time to increase the U.S. cost of living.
MFN withdrawal from China would produce devastating
inflationary repercussions, potentially crippling the U.S.
retailing industry. There is no country on earth that could
easily replace the vast quantities of low price consumer and
industrial products, currently sourced from China. Sudden
inflation, caused by MFN withdrawal, would lead to skyrocketing
interest rates and consequently undermine economic assumptions
made in the Budget Reconciliation Bill before Congress. U.S.
economic growth would, in turn, come to a standstill and the
stock market would react with loss in equity values.
Termination of China's MFN status could also make it
difficult for U.S. companies to obtain products which are not
easily accessible from other countries. In the case of textiles
and apparel, U.S. quotas limit the amount of merchandise which
can be imported from foreign countries. Thus, even countries
which might have the ability to provide a somewhat competitive
supply of a particular product may be unable to do so because
they have filled their ``quota'' for the year. Furthermore,
when quota is in short supply, as it most certainly would be if
China MFN status were terminated, U.S. importers would pay a
premium for quota itself, and provoke quota calls based on
surges from countries not under quota.
An MFN Cut-Off Would Also Harm U.S. Exporters
Failure to renew China's MFN status would harm U.S.
exporters as well as importers. China represents a significant,
and very promising, market for U.S. exports, with approximately
$14.4 billion worth of American goods purchased by the Chinese
last year. The Department of Commerce estimates the value of
U.S.-China trade and investments will be $600 billion in the
next five to seven years. Historically, China has been quick to
retaliate against foreign countries perceived as interfering
with domestic issues. It would not be surprising for China to
withdraw MFN for American goods and services and to limit U.S.
investment and government procurement opportunities in response
to elimination of MFN for Chinese goods. In fact, in 1987
during negotiation of a bilateral textile agreement with the
U.S., China threatened to find another supplier for the nearly
$500 million worth of annual U.S. agricultural exports to
China. More recently, U.S. aircraft exports have been
threatened.
Unilateral U.S. action against China would cause a severe
blow to U.S. exports to China. In addition to a possible loss
of $14.4 billion in U.S. exports, loss of the Chinese market
would have a significant impact on some of our most competitive
industries--agriculture, aircraft, heavy equipment, machinery,
telecommunications and chemicals. And, with our Western allies
keeping the door open for many of their goods to China, the
hard-won U.S. market share could disappear overnight, resulting
in lost jobs in the export sector of the U.S. economy and an
increase in the trade deficit. It would be truly ironic if the
net result of the last few year's hard-won Chinese market
opening commitments expanded business for European and Japanese
competitors because U.S. companies are effectively excluded
from the market by a U.S.-China breakdown.
Beyond the immediate loss of business in China and Hong
Kong, an MFN cut-off would significantly jeopardize long-term
U.S. commercial interests in the region. A Sino-American trade
war would deprive U.S. companies of important business
relationships and opportunities at a critical time in the
growth of the Chinese economy.
China's economy has grown rapidly in recent years, at an
average annual rate approaching 10%, and is poised for major
expansion over the next decade. According to an IMF study,
China's economy is now the world's third largest. Some predict
it will be the largest economy in the world by the year 2010,
or the year 2020 at the latest. U.S. companies have established
a major presence in China, providing an ideal foundation for
future expansion. A trade breach would threaten this
foundation. It would also provide U.S. competitors in Asia and
Europe with a major advantage.
MFN Trade Sanctions Would Be Counterproductive
Unilateral trade sanctions imposed for foreign policy
purposes have a very poor history of effectiveness. They serve
mainly as symbolic gestures, often at great expense to U.S.
economic interests, U.S. exports and foreign market share, and
consumer prices.
Elimination of China MFN, and the resulting withdrawal of
U.S. business from China, would decrease Chinese exposure to
Western values and free market ideas which have clearly played
a part in China's move toward trade liberalization and a market
economy. Liberalized, market-oriented sectors, such as those in
South China, would be the first to be injured or even shut down
if MFN were withdrawn, and Chinese authorities would direct
business back to state-owned enterprises. Terminating MFN would
merely enable Chinese authorities to blame the U.S. government
for its current domestic economic problems, further
strengthening hard-line, anti-Western elements in the
government.
Furthermore, sanctions run counter to other U.S. foreign
policy interests, including the stability of the Hong Kong
economy and the future of the Hong Kong people. Hong Kong
accounts for two-thirds of all foreign investment in China and
one-third of China's foreign exchange, and is the port of entry
and exit for much of the world's trade with China, especially
that of the United States. Because of the unique combination of
communications, financial and technical support, established
and reliable legal system, and common language available in
Hong Kong, more than 900 American companies have established a
significant presence there, and of these, approximately 200
have chosen Hong Kong as their base for business operations
throughout the region.
The damage to Hong Kong resulting from an MFN cut-off would
seriously jeopardize Hong Kong's continued ability to serve
this important role for American companies as entrepot and
investment ``gateway'' for China and the region. According to
Hong Kong Government estimates, if the U.S. denied MFN for
China, Hong Kong could suffer a reduction by 32% to 45% (or
$9.4 billion to $13.3 billion) worth of re-exports from China
to the U.S. Together with other related trade flows, there
might be a reduction of 6% to 8% (or $22.5 billion to $31.8
billion) worth of Hong Kong's overall trade, a loss of
approximately $3.1 billion to $4.3 billion in income and
approximately 61,000 to 86,000 jobs as a direct impact. Damage
to Hong Kong would also have counterproductive effects on
political and economic reform in China. Hong Kong is South
China's most important source of external investment, with Hong
Kong companies providing employment to three million people in
Guongdong Province alone. The impact of MFN removal would be
felt disproportionately there, weakening the very forces of
liberalization key to future economic and political progress in
China, and Hong Kong's security and well-being. The people of
Hong Kong would be put at risk should Hong Kong, as it now
functions, become less valuable to China.
Finally, the U.S. should not unilaterally act without the
support of our major trading partners. Unless multilaterally
imposed, sanctions are certain to be unsuccessful and the U.S.
could run the risk of alienating its allies.
The U.S. Should Support China's Admission to the WTO
China's accession to the World Trade Organization (WTO)
under commercially acceptable terms will open markets for U.S.
goods and services, assure market-oriented economic reforms,
and subject China to the rules and disciplines of the global
trading system. This is the United States' strongest
opportunity to get China to commit to central WTO principles,
including national treatment, non-discrimination, reciprocal
market access, transparency, protection of intellectual
property rights (IPR), binding dispute settlement, trading
rights, judicial review, uniform application of laws, and
adherence to state-trading subsidy programs. Once a member of
the WTO, China will be subject to the force and scrutiny of the
global trade community as opposed to the U.S. acting alone.
In order to effectively secure the full benefits of China's
market-opening commitments, the U.S. must extend ``permanent
MFN.'' The WTO's ``unconditional MFN'' clause, set forth in
GATT Article I, requires all members to provide unconditional
MFN to every other member. If the U.S. continues to
``condition'' China's MFN status on annual reviews, China would
have the legal right, under WTO, to withhold the full benefits
of the agreement.
We support the role of Congress in consulting on the terms
on any WTO accession protocol. However, we oppose new
legislation that would require Congress to formally ratify
China's accession and add new statutory pre-conditions. This
invites camouflaged projectionist measures.
For over two decades, U.S.-China commercial relations have
been defined by the Jackson-Vanik Amendment to the Trade Act of
1974, which is an outdated provision, implemented during Cold
War conditions. By law, Jackson-Vanik relegates the U.S. to a
second-class commercial relationship with China. The U.S.
stands alone in this policy. All other major exporting nations
grant China permanent, unconditional MFN. The U.S. restrictive
policy only serves to isolate U.S. companies, workers and
farmers in the Chinese marketplace. Jackson-Vanik is a constant
cloud of uncertainty over the entire U.S.-China relationship,
driving Chinese purchasers to source from their more reliable
European, Japanese, Canadian or Australian counterparts.
Conclusion
AAEI strongly supports renewal of MFN for China for another
year. As stated, AAEI supports the President's 1994 decision to
de-link human rights issues from the annual renewal of China's
MFN status. Although we recognize the importance of focusing
attention on human rights concerns in China, we do not believe
that terminating China's MFN status will contribute to this
worthy objective. We urge members of the Subcommittee to take a
strong stand to ensure that human rights issues are kept
separate from U.S. trade relations with China, as is the case
with almost all of our other trading partners.
AAEI supports initiatives by the Administration and
Congress to grant China MFN status on a permanent basis and
urges serious consideration of a revision of the Jackson-Vanik
Amendment toward this aim. A revision of Jackson-Vanik does not
require a revision of U.S. human rights objectives in China.
AAEI supports those human rights objectives. AAEI believes that
President Clinton correctly determined that those objectives
should not be limited to trade issues between the United States
and China. The U.S. human rights objectives can, and should, be
attained without terminating China's MFN status. Terminating
China's MFN status could only harm U.S. trade and foreign
policy interests, and ultimately, the progressive forces in
China on which future progress will depend.
On behalf of the American Association of Exporters and
Importers, I wish to thank Chairman Crane and the Trade
Subcommittee for this opportunity to present the views of our
membership on this important issue.
Statement of the American Chamber of Commerce in Hong Kong
Introduction
China's emergence as a world power presents the United
States with a major challenge as well as a major opportunity.
Having taken its rightful place in the community of nations, a
stable, prosperous and peaceable China has much to offer the
U.S. and the world at large. With China's co-operation, U.S.
efforts to promote global free trade, prevent the spread of
weapons of mass destruction, take action through the United
Nations, ensure the security of northern Asia, and reduce
global environmental damage stand a greater chance of success.
To this end, the U.S. should seek China's responsible
participation in the world community. China should be
encouraged to take on an international role commensurate with
its economy, population and size, and to shoulder the attendant
burdens and responsibilities.
To meet the challenge posed by China's rising influence,
the U.S. must craft a policy toward China that best serves
long-term national interests. In the conduct of this policy,
the U.S. should seek to cultivate greater mutual confidence,
while working on issues that advance mutual interests. A
constructive relationship with China cannot be built on the
recrimination that has marked U.S.-China relations the past.
Building trust and confidence will require that U.S. and
Chinese officials at all levels meet regularly, not just when
relations have reached an impasse. Whenever appropriate, the
U.S. should also invite China to participate in gatherings of
the world's leading countries.
A successful China policy requires that the president take
the lead in explaining to Congress and the American people the
rationale for improved relations with China. The president and
his cabinet must necessarily acknowledge that the two countries
have real political, economic, and cultural differences, and
then explain the importance of bridging those differences. A
well-reasoned, clearly articulated policy toward China will
attract broader political and popular support in the U.S. and
provide an enduring framework for amicable and mutually
beneficial U.S.-China relations.
Trade
Trade forms a cornerstone of U.S.-China relations, with
both countries benefiting considerably from greatly expanded
bilateral trade and investment since 1978. Last year, bilateral
merchandise trade exceeded US$63 billion. By the end of 1995,
approved U.S. investment in China reached an estimated US$28
billion in roughly 20,000 projects, making the U.S. the third
largest investor in China after Hong Kong and Taiwan. Yet both
countries maintain obstacles to even broader trade relations:
the U.S. has refused to grant China permanent most-favored-
nation tariff treatment; China, on the other hand, has denied
American companies fair access to its markets.
World Trade Organization: The U.S. should make every effort
to bring China into the World Trade Organization (WTO) on terms
that comply with current international norms, but that also
which acknowledge China's particular economic situation.
China's accession agreement should include explicit timetables
that allow China to bring its economy and commerce into
compliance with WTO standards within a reasonable period of
time on an industry-by-industry basis. The agreement should
require that China commit to further tariff reductions, the
elimination of non-tariff barriers, increased market access for
foreign products and services, national treatment for foreign
companies, the reduction and eventual elimination of
performance requirements, and the phase-out of subsidies to
state industries.
Most-Favored-Nation Trade Status: China's full entry into
the world trade system demands that other nations grant it the
same trade treatment afforded the vast majority of other
nations. Without permanent most-favored-nation status, China
has less incentive to make the painful economic adjustments
that full participation in the international trade system
requires. Congress should positively consider and the
administration strongly support legislation giving China
permanent most-favored-nation tariff treatment. The U.S. cannot
expect that China will accept the responsibilities and burdens
of membership in the world trade system when the U.S. refuses
to grant it, without reservation, treatment normally only
denied a nation's enemies.
Tiananmen Sanctions: The U.S. should immediately lift
sanctions that prohibit the Overseas Private Investment
Corporation and Trade Development Agency from providing
assistance to American companies competing for business in
China. These sanctions punish American business far more than
they do their intended target. Prohibitions that bar the U.S.-
Asia Environmental Partnership from operating in China should
also be lifted. Providing assistance to American companies
selling modern environmental technology and equipment in China
will not only increase U.S. exports, but also enhance the
health and welfare of Chinese citizens, and help reduce global
pollution.
Joint Commission for Commerce and Trade (JCCT): Established
in 1983, the JCCT provides an excellent forum for high-level
bilateral discussions on trade and investment issues. The JCCT
should continue the task of resolving differences in two-way
trade accounting and complex issues of methodology in reporting
trade balances. The JCCT also plays a productive role to
facilitate greater U.S. business involvement in China.
Hong Kong
Both China and the U.S. have an abiding interest in Hong
Kong's continued prosperity and stability after the territory
returns to Chinese rule this year. In addition to economic
benefits, Hong Kong's successful transition to Chinese
sovereignty will bring China enhanced prospects for a peaceful
resolution of its differences with Taiwan. U.S. interests
include the over 36,000 American citizens who reside in Hong
Kong, bilateral merchandise trade totalling almost US$24
billion in 1996, and investments worth an estimated US$14
billion through 1995.
Hong Kong's tremendous success rests on various attributes,
including a strong and independent legal system, the free
passage of people and goods, non-discriminatory government
policies, a freely convertible currency, the free flow of ideas
and information, minimal levels of corruption and coercion, and
a world-class infrastructure. The U.S. should support the
preservation of these attributes in order to maintain the
territory's prosperity and stability, the livelihood of the
Hong Kong people, and the viability of American economic
interests in Hong Kong. In this regard, the U.S. should make
clear that international confidence in Hong Kong's future as an
international business center depends on Hong Kong being
governed by the terms of the Joint Declaration and the Basic
Law. For its part, Congress should consider carefully before
pursuing additional legislation concerning Hong Kong. Current
U.S. law, as embodied in the U.S.-Hong Kong Policy Act, already
requires that the U.S. monitor developments in Hong Kong and
provides adequate remedies should China fail to meet its
internationally recognized obligations regarding the territory.
Taiwan
Taiwan's future remains the most troublesome issue in U.S.-
China relations; the one issue that could conceivably bring
both countries into open conflict. Friendly bilateral relations
and stability in the region depend on peaceful accommodation
between the People's Republic of China (PRC) and Taiwan.
Consequently, the U.S. must stress to the PRC and Taiwan that
they must avoid a violent resolution of the issue.
Although Taiwan's economic influence and close trade
relations with the U.S. require continued dialogue and co-
operation, as elaborated in the Taiwan Relations Act, the U.S.
should adhere to the to three joint communiques on Taiwan. The
U.S. must recognize that China will interpret attempts to
upgrade relations as a violation of the precedent that has
governed U.S. relations with Taiwan for almost 25 years. A U.S.
retreat from its acceptance of a one China policy would cripple
relations with the PRC.
Human Rights
The U.S. has an abiding interest in the way all countries,
including China, treat their people. Policies that respect
recognized humanitarian values, political freedoms and the rule
of law also promote stronger economic growth and enhance
stability. The U.S. should pursue its concerns about human
rights through bilateral discussions, possibly under the
auspices of an established forum or commission, and through
multilateral forums such as the United Nations.
Discussions on human rights should in part address China's
own interests, such as the establishment of the rule of law,
and consider those forces, such as economic growth, that help
underpin human rights. An ongoing dialogue on human rights also
requires that the U.S. listens to China's criticisms of
American human rights shortcomings. U.S. criticisms of China
should acknowledge that, despite continuing political and
religious repression, the lives of the great majority of the
Chinese people have improved markedly since 1979. China's
subsequent economic and administrative reforms have
significantly reduced poverty, introduced grassroots political
pluralism, allowed wider access to information and much greater
personal choice. Chinese citizens now enjoy considerably more
control over employment, travel, housing and schooling than
they did two decades ago.
American business has played a role in fostering these
changes. Foreign trade and investment have brought into China
new ideas and practices, and employed millions of Chinese
workers. American companies have set the standard in China for
ethical practices, respect for law, worker training,
remuneration, environmental protection and dignity in the
workplace. In order to promote continued American leadership on
such issues, AmCham encourages member companies to adopt a set
of voluntary business principles covering the ethical conduct
of business activities.
Regional Security
After two decades of sustained peace in Asia, recent events
and lingering historical animosities call into question the
durability of this peace. The absence of established regional
security institutions make the peaceful accommodation of
China's growing power less certain. China's extensive
territorial claims and recent military actions have caused
concern among its neighbours and in the U.S. Unfortunately,
strengthened security ties between the region's nations and the
U.S. have raised China's fears of encirclement.
The U.S. and China should increase bilateral military ties
to promote greater mutual understanding and trust. Military
exchanges that discuss training, doctrine, and technology will
help reduce mutual suspicion by enhancing the transparency of
each country's capabilities and intentions. The U.S. should
encourage the Chinese to begin such exchanges with its
neighbours as well. China should be encouraged to enter
regional security discussions, including those concerning
competing territorial claims in the South China Sea. The U.S.
should continue efforts to persuade China to play a stabilising
role in the region, especially with regard to the Korean
peninsula, where the two countries share mutual concerns. The
U.S. should continue its dialogue with China about North Korea
and give greater recognition of China's tacit co-operation with
U.S. efforts in diffusing tensions between the two Koreas.
Weapons of mass destruction, and the means of their
delivery, threaten not only regional security, but also global
security. China has pledged to prevent the further spread of
such weapons by acceding to the various international
conventions governing such weapons.
The U.S. should insist that China abide by the Nuclear Non-
Proliferation Treaty, the Missile Technology Control Regime,
the Chemical Weapons Convention, and the Biological and Toxin
Weapons Convention. The U.S. should also encourage China to
join international organizations, such as the Nuclear Suppliers
Group, dedicated to the control of the technologies covered
under these conventions. At the same time, the U.S. should
remove prohibitions that limit the export to China of civilian
nuclear technology that is available from our allies, since
these limitations only harm American business.
Statement of the American Chamber of Commerce, People's Republic of
China, Beijing
MFN for China
Position Summary
The American Chamber of Commerce, People's Republic of
China, in Beijing (AmCham China) supports, and urges Congress
to uphold, the President's decision to grant unconditional MFN
status to China for another year. MFN is not preferential
treatment. It is the cornerstone of a normal bilateral trading
relationship. Withdrawal or conditioning MFN status for China
would likely result in a destructive trade war, while failing
to accomplish the policy objectives of those who call for it.
Further, the annual debate over China's MFN status undermines
U.S. commercial interests in China and significantly strains
U.S.-China relations. AmCham China also encourages the
President to seek and Congress to pass at the earliest
opportune time legislation extending to China permanent MFN
status.
The American Chamber of Commerce in China strongly supports
and urges Congress to uphold the President's decision to grant
unconditional most-favored-nation (MFN) status to China for the
coming year.
Despite its name, MFN status is not preferential treatment.
Quite the contrary, it is the cornerstone of any normal
bilateral trading relationship, and amounts to no more than
what might be termed ``normal trading rights.'' MFN status
merely accords a country the same level of tariff rates the
United States extends to imports from virtually all of its
trading partners. Only four of the 227 countries with which the
United States traded last year did not enjoy MFN status.
Indeed, the U.S. affords better-than-MFN treatment to many
countries.
Withdrawal or conditioning of China's MFN status would
invite retaliation, which would jeopardize U.S. exports to, and
business in, China. This, in turn, would give our foreign
competitors an unfair advantage in the rapidly expanding
Chinese economy and threaten the ability of American companies
to compete throughout the Asia-Pacific region. Withdrawal of
MFN would also precipitate a dramatic deterioration in our
overall diplomatic relations with China, thus impeding our
ability to negotiate with China on other important aspects of
our relationship like nonproliferation and security in the
Asia-Pacific region. No evidence suggests that revoking China's
MFN status would impel China to ease its human rights stance,
especially without similar pressure from China's other trading
partners, who to date have shown little willingness to join the
United States in multilateral sanctions against China.
Significantly, the governments of both Hong Kong and Taiwan
have warned of the potential adverse effects of withdrawing MFN
for China.
AmCham China further urges the President to seek, and
Congress to pass, legislation extending to China permanent MFN.
Annual review of the MFN status granted to non-market economies
like China was originally conceived as a means to promote
freedom of emigration from the former Soviet Union. China, by
contrast, currently has few barriers to emigration. Using the
threat of revoking MFN status to accomplish other objectives in
China--be they in the area of human rights, intellectual
property or the reversion of Hong Kong--has nothing to do with
the original intent of the Congress. Most importantly,
unilateral sanctions have proven to be a blunt instrument
ineffective in producing desired changes in Chinese behavior.
The annual debate over China's MFN status undermines the
credibility of American companies as reliable trade partners
for China and puts at risk billions of dollars in export sales.
Ending the annual review of China's MFN treatment once and for
all would be a highly constructive step to strengthen and
normalize the U.S.-China relationship and to ensure a stable
environment for increased American exports to China. We also
urge Congress to take this important step at the earliest
opportune time.
About AmCham
The American Chamber of Commerce, People's Republic of
China (AmCham China) is a private, non-profit organization
representing more than 350 American companies doing business in
China. AmCham China is committed to promoting the development
of trade, commerce and investment between the U.S. and China;
providing a forum for American business in China; and working
with Chinese and American officials to further strengthen U.S.
business interests in China.
The elected 15-member 1997 AmCham Board of Governors
includes representatives of the following companies: Cargill
Investments, Coudert Brothers law firm, Baker & McKenzie law
firm, U.S.-China Industrial Exchange, Inc., KPMG Peat Marwick,
Baskin Robbins International, Rockwell International, McDonnell
Douglas, Motorola, First National Bank of Chicago, AT&T, United
Technologies, Dow Jones & Company, General Motors, and Burson
Marstellar public relations. Chairman of AmCham's 1997 Board of
Governors is John Holden, representing Cargill Investments.
American Electronics Association
June 17, 1997
The Honorable William R. Archer
U.S. House of Representatives
1236 Longworth Office Building
Washington, DC 20515-4307
Dear Mr. Chairman:
On behalf of the 3,000 member-companies of the American Electronics
Association (AEA), we are writing you to underscore the importance of
U.S.-China trade for American exports to Asia and for the future
prosperity of the U.S. economy. We ardently support full one-year
renewal of most favored nation status for China without conditions.
China is the world's third largest economy, with the world's
highest annual growth rate of 9%. Demanding an estimated $750 billion
in infrastructure essentials over the next 10 years, China represents a
critical market for U.S. high-technology products. Currently, aggregate
U.S. trade with China now totals more than $14 billion. These exports
directly support more than 170,000 American jobs.
Further, if normal trade relations with China are disrupted, Hong
Kong would be devastated, since its prosperity is built on trade with
China. Revoking MFN for China would reduce Hong Kong's re-exports to
the United States by as much as 45%; slash overall trade by as much as
8%; eliminate as many as 86,000 jobs and cut GDP growth by as much as
2.8 percentage points.
We understand that long-term improvement and stability in U.S.-
China relations also requires concrete actions by China. We urge China
to honor its agreements and to undertake the commitments required to
join the World Trade Organization on a commercially acceptable basis.
Progress has been made, but much more remains to be done.
We also share the concerns of all Americans about human rights. Our
experience in doing business in China suggests that American companies
can have a profound positive influence by treating their employees with
respect, promoting local Chinese workers and managers to positions of
real responsibility, and providing training and education. Severing
U.S.-China trade would eliminate U.S. companies as a model and set back
the entrepreneurial forces in Chinese society which offer the best hope
for the future progress toward freedom and democracy.
Our collective goal should be to move beyond the divisive annual
struggles over China's MFN status toward a stable and mature
relationship which advances American goals, jobs, and prosperity. We
look forward to working with you and the Administration in the coming
months to achieve the shared goal of stabilizing this vital
relationship.
Sincerely,
Jeffrey Dunn,
President & CEO, ACCEL Graphics, Inc., San Jose, CA
Walter A. Foley,
CEO, ACCEL Technologies, Inc., San Diego, CA
F. Grant Saviers,
President & CEO, Adaptec, Inc., Milpitas, CA
A. Tee Migliori,
President, ADC Technologies, Inc., Minneapolis, MN
John C. Overby,
President & CEO, Advanced Hardware Architechtures, Dullman, WA
Timothy M. Kramer,
President & CEO, AEA Credit Union, Sunnyvale, CA
Leonard Borow,
President, Aeroflex Laboratories, Plainview, NY
John Longfield,
COO, AIMCO, Portland, OR
Ralph S. Sheridan,
President & CEO, American Science and Engineering, Inc., Billerica, MA
Charles W. Trippe,
President & CEO, AmPro Corp., Sunnyvale, CA
Ronald Rosenmzweig,
CEO, Anadigics, Inc., Warren, NJ
Gil Amelio,
Chairman and CEO, Apple Computer, Inc., Cupertino, CA
James C. Morgan,
Chairman, Applied Materials, Inc., Santa Clara, CA
J.S. Saxena,
Chairman & CEO, Applix, Westboro, MA
Glenn Woppman,
President & CEO, Asset Intertech, Inc., Richardson, TX
Andrew Bach,
CEO, AVO International, Dallas, TX
George Huang,
Chairman & CEO, Award Software International, Inc., Mountain View, CA
Stanley Binder,
CEO, Barringer Technologies, Inc., New Providence, NJ
Anthony Zalenski,
President & CEO, Boca Research, Inc., Boca Raton, FL
Francis E. Girard,
President & CEO, Boston Technologies, Inc., Wakefield, MA
Richard M. Barrett,
Janco Corp., Burbank, CA
Bill Hull,
President, California Instruments Corp., San Diego, CA
John Carter,
CEO, Carco Electronics, Menlo Park, CA
A.R. Rankin,
President & CEO, Cardiac Mariners, Inc., Los Gatos, CA
George Sollman,
Vice Chairman, Centigram Communications, San Jose, CA
David A. Peterson,
Pres & CEO, Cerion Technologies, Champaign, IL
E.M. Buttner,
President & CEO, Coastcom, Alameda, CA
Lynn Hayden,
President & CEO, Coiltronics, Inc., Boca Raton, FL
Eckhard Pfeiffer,
President & CEO, Compaq Computer Corp., Houston, TX
Larry Dumouchel,
CFO, Comtech Communications, Melville, NY
Daniel S. Dunleavy,
CFO, Concurrent Computer Corp., Ft. Lauderdale, FL
Robert Nelson,
President, Conductive Rubber Technology, Inc., Bothell, WA
Greg Clarke,
President, Creative Computer Solutions, Inc., Pleasanton, CA
Edward K. Colbert,
Chairman, Data Instruments, Inc., Acton, MA
F. Leland Payne,
CEO, Dataforth Corp., Tucson, AZ
Martin W. DeYoung,
President & CEO, DeYoung Manufacturing, Inc., Kirkland, WA
Andres C. Salazar,
President & CEO, Digital Transmission Systems, Inc., Norcross, GA
Phil Johnston,
CEO, Digital Recorders, Research Triangle Park, NC
Sherman E. DeForest,
CEO, DIGIVISION, San Diego, CA
John Pomeroy,
President & CEO, Dover Technologies, New York, NY
John M. Murphy,
President, DS Technologies, Inc., Orange, CA
James L. Donald,
Chairman, President & CEO, DSC Communications Corp., Plano, TX
F.G. Troutman,
CEO, DSP Technology, Inc., Fremont, CA
Anthony Shum,
President, E.E. International, Inc., Newark, NJ
Kenneth Lynn,
President, EDAWN, Reno, NV
Heinz Badura,
President, Efratom Time & Frequency Products, Inc., Irvine, CA
James Johnson,
President & CEO, Eikon Strategies, Inc., North Bethesda, MD
Donald R. VanLuvanee,
President & CEO, Electro Scientific Industries, Inc., Portland, OR
Edward Keible,
President & CEO, Endgate Corp., Sunnyvale, CA
Stephen E. Cooper,
Chairman, President & CEO, ETEC Systems, Inc., Hayward, CA
Richard A. Van Saun,
President & CEO, FaxTrieve, Inc., Mountain View, CA
Bill Parzybok,
Chairman & CEO, Fluke Corp., Everett, WA
Kathleen Militmore,
Vice President, For Trade International, Lawrence, KS
Harry Jung,
Executive Vice President & General Manager, De La Rue Giori, Sunnyvale,
CA
Don Root,
Chairman & CEO, GM Nameplate, Inc., Seattle, WA
Harry Sello,
President, Harry Sello & Associates, Menlo Park, CA
John Level,
Vice President & General Manager, HiRel Labs, Spokane, WA
Harry Hoge,
President, HSQ Technology, San Francisco, CA
Gregory J. Martin,
President, Ice Holdings, Inc., Playa Del Rey, CA
Ron Williams,
CEO, Inductor Supply, Inc., Anaheim, CA
Herman Miller,
President, INET Corp., Plano, TX
Roger A. Lang,
CEO, Infinity Financial Technology, Inc., Mountain View, CA
William G. Mavity,
President & CEO, InnerDyne, Inc., Sunnyvale, CA
Craig Barrett,
President & COO, Intel Corp., Santa Clara, CA
John C. Backus,
CEO, Intellidata, Herndon, VA
Michael B. Alexander,
Chairman & CEO, Intermetrics, Inc., Cambridge, MA
James L. Gaza,
President & CEO, International Components Corp., Chicago, IL
Cary Vandenberg,
President, Jenoptik Infab InTrak, Inc., Colorado Springs, CO
Robert Aebli,
President, KPI/Heurikon Corp., Madison, WI
Bob Ulrickson,
President, Logical Services, Inc., Santa Clara, CA
J. Mark Lambright,
President & CEO, Lucid Corp., Richardson, TX
Jim Marshall,
President & CEO, Matrix Integrated Systems, Richmond, CA
Joseph R. Mallon, Jr.,
CEO, Measurement Specialities, Inc., Fairfield, NJ
William W. George,
Chairman & CEO, Medtronic, Inc., Minneapolis, MN
W.J. McGinley,
Chairman, Methode Electronics, Chicago, IL
Ray Harris,
President & CEO, Metratek, Inc., Reston, VA
Greg T. Love,
President & CEO, Microscan Systems, Inc., Renton, WA
John W. Moriarty,
President & CEO, Microscript Corp., Danvers, MA
Christopher Galvin,
CEO, Motorola, Inc., Schaumburg, IL
Griff Resor,
President, MRS Technology, Inc., Chelmsford, MA
Donald M. Sullivan,
Chairman & CEO, MTS Systems Corp., Eden Prairie, MN
David J. McClure,
President & CEO, Multipoint Networks, Inc., Belmont, CA
Robert G. Gilbertson,
President & CEO, Network Computing Devices, Inc., Mountain View, CA
Joseph J. Francesconi,
President & CEO, Network Equipment Technologies, Inc., Redwood City, CA
O. Buck Feltman,
President & CEO, NextWave Design Automation, San Jose, CA
May K.Y. Yue,
President & CEO, Norris Education Innovations, Inc., Bloomington, MN
John Thompson,
Pres & COO, Number Nine Visual Technology, Lexington, MA
Robert Cohn,
CEO, Octel Communications, Milpitas, CA
John Belden,
President & CEO, OCTuS, Inc., San Diego, CA
G. Ward Paxton,
Chairman, President & CEO, ODS Networks, Inc., Richardson, TX
Robert E. Shelta,
President & CEO, Open Engineering, Inc., San Francisco, CA
Thomas R. Filesi,
Pres & CEO, Optek Technology, Inc., Carrollton, TX
Herb Dwight,
CEO, Optical Coating Lab, Santa Rosa, CA
Mike Bosworth,
Chairman, President, CEO, OrCAD, Inc., Beaverton, OR
Richard O. Martin,
Chairman & CEO, Physio-Control Corp., Redmond, WA
Steve Yu,
President, Pico Design Inc./Motorola
Eugene Yen,
President, Polotec, Inc., Santa Clara, CA
H.L. Singer,
President, Powers Process Controls, Skokie, IL
Robert Praegitzer,
President & CEO, Praegitzer Industries, Inc., Dallas, OR
Donald F. Chandler,
President & CEO, Precision Filters, Inc., Ithica, NY
Robert A. Kleist,
President & CEO, Printronix, Inc., Irvine, CA
Peter S. Pulizzi,
President, Pulizzi Engineering, Inc., Santa Ana, CA
E. Thomas Hart,
President & CEO, QuickLogic Corp., Santa Clara, CA
Cliff Warren,
Chairman & CEO, Raytek Corp., Santa Cruz, CA
William W. Wilson,
President, Recognition Systems, Inc., Campbell, CA
Robert Forsberg,
President, RF Group, Inc., Norwood, MA
Joseph J. Lazzara,
President & CEO, Scientific Technologies, Inc., Fremont, CA
Charles R. Stockey,
CEO, Security Dynamics, Inc., Bedford, MA
Garrett E. Pierce,
Sr. Vice President & CFO, Sensormatic Electronics Corp., Boca Raton, FL
James D. Diller,
Chairman & CEO, Sierra Semiconductor Corp., San Jose, CA
Gary R. Fairhead,
President & CEO, Sigmatron International, Inc., Elk Grove Village, IL
Ed McCracken,
Chairman & CEO, Silicon Graphics, Mountain View, CA
Lee Kenna,
CEO, Chairman, Simco Electronics, Santa Clara, CA
Eliot F. Terborgh,
CEO, SmarTrunk Systems, Inc., Hayward, CA
John A. McGuire,
President & CEO, Solectek Corp., San Diego, CA
Charles A. Thomas,
President & CEO, Solid State Measurements, Inc., Pittsburgh, PA
Ted Wuerther,
President, Sortex, Inc., Newark, CA
James M. Farley,
Chairman, SpeedFam International, Inc., Chandler, AZ
William Stow,
CEO, StarBase, Irvine, CA
Ronald D. Bub,
President & CEO, Stratedge Corp., San Diego, CA
Edwin L. Harper,
President & CEO, Sy Quest Technology, Inc., Fremont, CA
Paul Larson,
President & CEO, Talarian, Mountain View, CA
John W. Ballard,
President & CEO, TCI International, Inc., Sunnyvale, CA
James McKibben,
Vice President Worldwide Sales, Tegal Corp., Petaluma, CA
Jerome J. Meyer,
Chaiman & CEO, Tektronix, Inc., Wilsonville, OR
Charles F. Oliver,
Executive Vice President, TeleProcessing Products Inc., Simi Valley, CA
J.D. Nichols,
President & CEO, Terra-Mar Resource Information Service, San Mateo, CA
Stephen Hill,
President, Tone Commander Systems, Mukilteo, WA
Frank Lin,
President & CEO, Trident Microsystems, Mountain View, CA
Frank Singer,
Managing Partner, TRIG, Huntington Beach, CA
Greg Campbell,
CEO, Trikon Technologies, Inc., Chatsworth, CA
Leroy Fingerson,
CEO, TSI, Inc., St. Paul, MN
James H. Long, Jr.,
President & CEO, UNIAX Corp., Goleta, CA
Jack D. Lantz,
President & CEO, Unitek Miyachi Corp., Monrovia, CA
Gerhard D. Meese,
President, Universal Instruments Corp., Binghamton, NY
Tracey J. O'Rourke,
Chairman & CEO, Varian Associates, Palo Alto, CA
Will Herman,
President & CEO, Viewlogic Systems, Inc., Marlbro, MA
E. Ashford Gary,
Chairman, Vtech (OEM), Inc., Campbell, CA
Douglas McIlvoy,
President, VXI Electronics, Milwaulkie, OR
James R. Ellis,
President & CEO, Wacker Siltronic Corp., Portland, OR
Ronald A. Abelmann,
President & CEO, Wind River Systems, Inc., Alameda, CA
Paul A. Allaire,
Chairman & CEO, Xerox Corp., Stamford, CT
Jon McAlear,
President & CEO, Zellweger Analytics, Inc., Lincolnshire, IL
Phillips W. Smith,
President & CEO, Zycad Corp., Fremont, CA
Statement of Paul H. Delaney, Jr.
Most-Favored-Nation Disapproval Procedure for China
Title IV of the Trade Act of 1974, as amended, sets out
the requirements for trade relations with those countries whose
products do not currently receive most-favored-nation
("MFN'')treatment in the United States market. Title IV
authorizes the President to extend, under certain
circumstances, MFN (nondiscriminatory) trade concessions to
such countries.
Title IV of the Trade Act of 1974, as amended, governs
United States trade relations with nonmarket economy (``NME'')
countries such as China, and sets forth freedom-of-emigration
criteria which must be met, or waived, by the President, as
well as the minimum provisions which must be included in a
bilateral trade agreement in order for an NME country to obtain
MFN status.
If the President determines that a waiver extension will
substantially promote freedom-of-emigration objectives, he must
submit to Congress a recommendation for a 12-month extension no
later than 30 days prior to the waiver's expiration (in the
present instance, June 3, 1997). Such a waiver continues in
effect unless disapproved by the Congress.
Renewal of MFN Treatment for China
On May 19, 1997, the President of the United States
announced that he had decided, like all of his predecessors
since 1980, to extend MFN status to China for the coming year.
He also noted the problems which the United States has
experienced with China in protecting the intellectual property
rights of American firms and the importance of continuing to
pursue American interests in this area.
At the President's press conference, Ambassador Charlene
Barshefsky, United States Trade Representative (``USTR'')
stated that United States interests are best served by a
secure, stable, open and prosperous China and that the manner
in which the United States engages China will help determine
whether China becomes integrated into international norms and
institutions or whether China will become isolated and
unpredictable.
In Secretary of State Madeleine K. Albright's testimony on
June 10, 1997 before the Senate Finance Committee, she stated
that there is no greater opportunity, or challenge, in United
States foreign policy today than to encourage China's
integration as a fully responsible member of the international
system. She indicated that President Clinton's decision to
extend MFN, or normal trade relations, with China reflects the
Admninistration's commitment to this goal. She suggested that
the Administration fully shares many of the concerns expressed
in Congress and elsewhere about certain Chinese policies and
practices which interfere with American firms attempting to do
business with China on a fair and equitable basis. Secretary of
State Albright cited the negotiations on China's accession to
the World Trade Organization (``WTO'') and indicated that the
Clinton Administration had taken the lead in insisting that
China make meaningful commitments to lowering its trade
barriers before it should be allowed to join the WTO.
The Administration and others have noted that if China
wishes to join the WTO, China must accept the responsibilities
of a rules-based trading system. Accordingly, China will have
to create and implement such a rules-based trade regime, meet
WTO requirements, make laws public, require judicial review of
all trade actions, apply all trade laws uniformly, and submit
to WTO dispute settlement procedures to ensure compliance with
WTO rules. This approach would enhance the rule of law and the
application of international norms in China's trade relations,
thus benefitting both China and the United States. China's
accession to the WTO must be based on commercially meaningful
market access for goods and services, lowered tariffs,
elimination of quotas and other market access barriers, the
right to export directly, and access to consumers in a full
range of sectors, all of which must be part of any viable
accession package for China.
It is important that there be continuing consultations by
USTR with United States private sector interests regarding the
international commercial relationship between the United States
and China. Dating back to the period of the Trade Reform Act of
1973 (this legislative initiative was ultimately enacted into
law as the Trade Act of 1974), it was clearly the intention of
the Administration and the House Ways and Means Committee and
the Senate Finance Committee to assure appropriate and proper
consultations with United States private sector interests and
this was the specific purpose for establishing the Advisory
Committee structure as a part of the Trade Act of 1974. The
importance of such private sector consultations under
provisions of United States international trade law is an
ongoing consideration which will necessarily affect the support
of United States private sector interests for renewal of MFN
for China.
China's past history of piracy involving intellectual
property and other areas has been very harmful to various
American industries, including computer software, high
technology products, sound recordings, motion pictures,
pharmaceuticals, agrichemicals, books and others. All goods
that carry trademarks are hurt by Chinese piracy. Unless China
undertakes even greater efforts to halt piracy, it is to be
expected that this will continue to act as a serious barrier to
improving relations between the United States and China.
House Ways and Means Committee Proceedings
On July 18, 1996 at a House Ways and Means Committee
hearing on international competitiveness, Chairman Bill Archer
stated that the subject of international competitiveness is
critical to the economic, political, and social well-being of
the United States. The Chairman noted that over the last
decade, the world has developed and is continuing to develop
into a truly global economy and that at no time during our
nation's history has the United States economy been more
dependent on the economies of other countries. The Chairman
stated that our trade policies have been constantly changing to
accommodate this globalization of the world's economies and
that as the world's economies continue to become more
interrelated, the need for a comprehensive policy that is
compatible with our country's international trade, economic,
and financial objectives is crucial.
On March 9, 1995, Congressman Philip M. Crane, Chairman of
the House Ways and Means Committee Subcommittee on Trade, held
a hearing concerning an intellectual property agreement signed
with the People's Republic of China and the prospects for
China's accession to the WTO. As noted at that time by way of
background after an eight-month investigation, USTR found on
February 4, 1995 that China had failed to protect intellectual
property rights and that many United States industries,
including computer software, pharmaceuticals, agricultural and
chemical products, audiovisual works, books and periodicals,
and trademarks, had been adversely affected. Consequently, USTR
ordered the imposition of 100% tariffs on over $1 billion of
imports of Chinese products beginning February 26, 1995 if an
acceptable agreement could not be reached by that date. On
February 26, 1995, USTR announced that the United States and
China had reached agreement to provide for protection of
intellectual property rights for United States companies and
provide market access for United States intellectual property-
based products.
At that time, China had been seeking membership in the WTO
for the past eight years. Although, it had been a member of the
1947 General Agreement on Tariffs and Trade (``GATT''), China
had abandoned its membership after the communist takeover in
1949. In December 1994, China's efforts to join the WTO were
blocked, and it did not become one of the founding members.
Some of the concerns about China's membership include its non-
tariff trade barriers, the non-convertibility of its currency,
its massive state-run sector, and its closed services market.
Another issue relates to whether China may join the WTO as a
developing country member or whether it must meet the
obligations of a more advanced economy.
During the hearing Chairman Crane said that he was pleased
that the United States and China had reached agreement to
assure the protection of United States intellectual property
rights in China, and he indicated that the United States should
aggressively enforce the agreement reached in order for the
United States to make sure that China will in fact respect
intellectual property rights within its borders. Chairman Crane
noted that the United States must assure that China is
complying with the rules of the multilateral trade regime
before China can become a member of the WTO.
It was suggested that this agreement would also improve the
negotiating environment for China as it works toward acceding
to the WTO and that if China wishes to become a member of the
WTO, it must go further and show that it can fully comply with
the rules in the multilateral trade regime.
Chairman Archer, Congressman Gibbons, Congressman Matsui,
and Chairman Crane stated in a letter dated December 15, 1994
that they believed that China's eventual entry into the WTO
system would be beneficial for all concerned given the size of
the Chinese economy and that the United States should take
whatever time is necessary to ensure that any Chinese accession
is done properly and that China's accession would be beneficial
only if China carries out its obligations as a full-fledged
member in good standing.
Ranking Minority Member Charles B. Rangel stated that with
respect to the ongoing negotiations concerning China's
accession to the WTO that the United States should support
China's accession to the WTO provided it is done on
commercially sound terms and with full acceptance by China of
the basic obligations of the WTO system and that no WTO
accession negotiation would be as commercially significant as
that of China.
USTR Ambassador Michael Kantor stated at the hearing that
with respect to China the United States faced historic concerns
over a failure to enforce intellectual property rights which
had had a pernicious effect on United States industries ranging
from agricultural chemicals and pharmaceuticals, to computer
software, to Jeep Cherokees, to the misuse of trademarks, and
the pirating of compact discs and other products.
Ambassador Kantor stressed the importance of market access
in order to minimize the effects of piracy and promote better
relations between China and the United States. He stated that
it is essential that United States companies have the right to
operate independently in China, which would include royalties,
licensing, joint ventures and the right of establishment under
the agreement. The Ambassador noted his support for China's
accession to the WTO provided the terms of membership were on a
commercially reasonable basis.
According to Ambassador Kantor, in order to promote trade
relations with China in the future, certain laws must be
adhered to and followed. United States trademark owners in all
categories of goods and services must be protected in China's
market. The rights of these trademark owners must be enforced
in China. Protection against unfair competition, through the
illegal replication of trademarks and any other actions that
could mislead or confuse consumers, would also provide benefits
to a range of United States industries trading with China.
Ambassador Kantor stated that by enhancing access to the
Chinese market, United States companies should benefit greatly.
China's accession to the WTO should guide the structure of
China's reforms, and it should cement reforms currently in
place. China's accession is important for reasons beyond
bilateral relations. There are numerous applicants for WTO
membership, and many of these countries are now transforming
into market economies. If China accedes to the WTO on anything
less than commercially reasonable terms, or without commitments
to take further reform measures, the integrity of the WTO as a
whole would be at risk.
Congressional Opposition to MFN Renewal for China
On June 3, 1997, Senate Foreign Relations Committee
Chairman Jesse Helms introduced a resolution of disapproval on
MFN trade status for China. Chairman Helms stated that he
believed a majority of Americans are absolutely persuaded that
the United es must conduct its policy toward China on the basis
of morality as well as pragmatism.
Senator Helms has indicated that when a country like China
gets normal trade relations with the United States, it is
getting better treatment than it deserves and that it is wrong
and foolish for the United States to provide such benefits to
China under present circumstances.
Views of American Agriculture
On May 8, 1997, Dean R. Kleckner, President of the American
Farm Bureau Federation, testified before the House Agriculture
Committee Subcommittee on Livestock, Dairy and Poultry
regarding the current status and future prospects of trade
between the United States and the European Union.
President Kleckner stated that the American Farm Bureau
Federation (``AFB'') is the nation's largest general farm
organization representing more than 4.7 million member
families. He noted that the AFB is a strong supporter of free
and open trade. As in the past, the AFB strongly supports MFN
for China.
The AFB has emphasized that trade agreements must be
monitored and enforced and that the AFB has been concerned for
some time about the level of attention and commitment by USTR
on international agricultural issues, and with this in mind the
AFB has called for a Deputy Ambassador for Agriculture (Deputy
USTR for Agriculture). In this regard, AFB is pleased with USTR
Ambassador Charlene Barshefsky's move to designate an
Ambassador for Agriculture, but the AFB still believes that
this is only a granting of the use of a title by the State
Department and not the needed permanent position of USTR. Such
a permanent position of Deputy USTR for Agriculture would not
be at the mercy of personnel changes or changes in
Administrations. The AFB has stated that a Deputy USTR for
Agriculture and continued close coordination with USDA are
critical for successful long-term United States international
agriculture trade and expanding market opportunities.
On May 15, 1997 Jack Laurie, President of the Michigan Farm
Bureau, testified before the Senate Finance Committee
Subcommittee on International Trade regarding market access
issues for United States Agricultural exporters.
Mr. Laurie noted that the (AFB) is a strong supporter of
free and open trade and that the AFB worked hard to secure
passage of the Uruguay Round of the General Agreement on
Tariffs and Trade (``GATT'') as well as the North American Free
Trade Agreement (``NAFTA'') and that the AFB also strongly
supports MFN status for China as a protection against
unreasonable tariffs for United States products.
The AFB has noted that American farmers can compete in any
market in the world if they are given the tools and free market
access. The AFB recognizes the United States faces very strong
competitors around the world, but the AFB suggests that United
States agricultural and food products have always enjoyed an
enviable reputation with international consumers.
The AFB believes that MFN for China must move through
Congress without being encumbered by human rights issues. The
AFB continues to evaluate the ground rules for the accession of
China and Russia into the WTO, and the AFB has clearly
indicated that these negotiations must result in these
countries entering the WTO as developed nations on a
commercially viable basis.
In testimony before Congressional Committees, the AFB has
stated that in 1996 the United States exported $60 billion
(United States dollars) of agricultural goods to our trading
partners and imported $30 billion worth of agricultural goods,
thus giving the United States an extremely positive
international trade surplus of $30 billion (See Attachment A).
In order to continue this excellent record, the United States
needs to remain committed to lowering barriers and creating
more open trading systems with all countries.
The AFB recently noted that it welcomes President Clinton's
announcement that he would ask Congress to renew China's MFN
trade status and stated that the President's decision is
certainly good news for America's farmers and ranchers. The AFB
has indicated that it will be working with Congress to make
sure this issue is considered on the basis of trade. The AFB
stated that both Republicans and Democrats, including House
Speaker Newt Gingrich and Minority Leader Richard Gephardt have
expressed serious concerns about renewing MFN for China under
present circumstances.
The agriculture community is particularly interested in the
tremendous potential of future food and fiber sales to China,
one of the most populous countries in the world, and the AFB
understands that the continuation of MFN will allow producers
to pursue those markets and continue to expand agriculture's
favorable trade balance.
[GRAPHIC] [TIFF OMITTED] T1705.013
Other American Private Sector Views
From an economic standpoint, the present key elements
involving the United States and China are: MFN status, WTO
accession, and the bilateral trade imbalance. As MFN renewal
for China is considered again this year, it is very clear that
the rule of law has become an increasingly significant issue
for United States-China relations. In this regard, it is very
important for China to make certain that contracts will be
honored and that anticompetitive practices will not be
tolerated. China must develop the required legal infrastructure
if China is to obtain the benefits of the world trading system.
In recent years, the bilateral trade imbalance between the
United States and China has increased dramatically and is now
running at an annual rate of over $40 billion (United States
dollars) a year (See Attachment B). In point of fact, the
United States bilateral trade deficit with China is now
approaching trade deficit with Japan (See Attachment C).
Without question it is apparent that various parties
believe that China must make major efforts to conform to the
rule of law if it wishes to obtain the benefits from being a
full participan in the world trading system. China should be
required to provide orderly process to foreign investors and
foreign traders and it should push ahead to improve its legal
system so that disputes may be resolved as they would in market
oriented societies.
International investors and traders will be looking for
continuity and business consistency in their dealings with
China. They will expect an open system in China with legally
enforceable rights and procedures to protect their interests in
the ordinary course of business. These expectations are
certainly not unreasonable when it is recognized that most
other trading nations already have in place such mechanisms to
ensure fair and equitable treatment of both domestic and
foreign parties. If American firms come to believe that they
can expect such conduct from China, this should benefit China
substantially as such enterprises will then be willing to make
even greater commitments to the Chinese economy.
It is important that Chinese practices not discriminate
against foreign based multinationals. In the broadest sense,
wherever possible, American firms should receive equivalent
national treatment by China. In the past, there have been
various cases where United States trade negotiators and
officials have pointed out to China that business harassment of
foreign firms in China cannot be tolerated if China wishes to
maintain MFN status and obtain WTO membership. China must
accept its legal obligations if China wishes to have the rights
of a normal trading partner.
With respect to contractual agreements and understandings,
China must make progress in assuring outside parties that it
will take the necessary steps to promote the letter, intent,
and spirit of its international commitments. Recognizing that
China is presently suspect in many of these areas, it is
particularly important that China be more forthcoming and move
forward to bring about necessary changes so that it can become
a full-fledged member, in good standing, in the international
community. Obstructionist policies and discrimination against
foreign based firms will only increase the prospects that
opposition to China's MFN status and WTO firms necessarily
expect from China fair, equitable, reasonable, and
nondiscriminatory treatment. In order to assure that China
opens its markets to American enterprises, the United States
should be diligent in enforcing the rule of law as it relates
to China's commitments to provide business consistency and
commercial terms to American firms doing business with China.
[GRAPHIC] [TIFF OMITTED] T1705.014
[GRAPHIC] [TIFF OMITTED] T1705.015