[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
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                   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.
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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:]
    [GRAPHIC] [TIFF OMITTED] T1705.040
    
    [GRAPHIC] [TIFF OMITTED] T1705.041
    
    [GRAPHIC] [TIFF OMITTED] T1705.042
    
      

                                


    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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[GRAPHIC] [TIFF OMITTED] T1705.051

[GRAPHIC] [TIFF OMITTED] T1705.052

[GRAPHIC] [TIFF OMITTED] T1705.053

      

                                


    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.
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                  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.
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