[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

                             SECOND SESSION

                               __________

                             JUNE 17, 1998

                               __________

                           Serial No. 105-90

                               __________

         Printed for the use of the Committee on Ways and Means



                    U.S. GOVERNMENT PRINTING OFFICE
60-940                      WASHINGTON : 1999



                      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
Advisories announcing the hearing................................     2

                               WITNESSES

Office of the U.S. Trade Representative, Susan Esserman, General 
  Counsel........................................................    59
U.S. Department of State, Hon. Stanley O. Roth, Assistant 
  Secretary, East Asian and Pacific Affairs......................    71
Acton Institute for the Study of Religion and Liberty, Father 
  Robert A. Sirico...............................................   127
American Federation of Labor and Congress of Industrial 
  Organizations, Barbara Shailor.................................   198
Amway Corporation, Richard Holwill...............................   171
Cargill, Incorporated, Ernest S. Micek...........................    99
Cincinnati Milacron, Christopher Hall............................   163
Craner, Lorne W., International Republican Institute.............   152
Dannenfelser, Martin J., Jr., Family Research Council............   144
Dooley, Hon. Calvin M., a Representative in Congress from the 
  State of California............................................    48
Emergency Committee for American Trade, Ernest S. Micek..........    99
Family Research Council, Martin J. Dannenfelser, Jr..............   144
Hall, Christopher, Cincinnati Milacron, and Society of the 
  Plastics Industry, Inc.........................................   163
Holwill, Richard, Amway Corporation, and U.S. Chamber of Commerce   171
International Republican Institute, Lorne W. Craner..............   152
Johnson, Clark A., Pier 1 Imports, Inc., and National Retail 
  Federation.....................................................   117
Kapp, Robert A., United States-China Business Council............   185
Micek, Ernest S., Cargill, Incorporated, and Emergency Committee 
  for American Trade.............................................    99
National Retail Federation, Clark A. Johnson.....................   117
O'Brien, William R., Global Center, Samford University...........   137
Pelosi, Hon. Nancy, a Representative in Congress from the State 
  of California..................................................    41
Pier 1 Imports, Inc., Clark A. Johnson...........................   117
Shailor, Barbara, American Federation of Labor and Congress of 
  Industrial Organizations.......................................   198
Sirico, Father Robert A., Acton Institute for the Study of 
  Religion and Liberty...........................................   127
Smith, Hon. Christopher H., a Representative in Congress from the 
  State of New Jersey............................................    19
Society of the Plastics Industry, Inc., Christopher Hall.........   163
Solomon, Hon. Gerald B., a Representative in Congress from the 
  State of New York..............................................    17
Stark, Hon. Fortney Pete, a Representative in Congress from the 
  State of California............................................     8
United States-China Business Council, Robert A. Kapp.............   185
U.S. Chamber of Commerce, Richard Holwill........................   171
Weldon, Hon. Curt, a Representative in Congress from the State of 
  Pennsylvania...................................................    25

                       SUBMISSIONS FOR THE RECORD

U.S. General Accounting Office, JayEtta Z. Hecker, Associate 
  Director, International Relations and Trade Issues, National 
  Security and International Affairs Division, statement and 
  attachments....................................................   214
American Association of Exporters and Importers, New York, NY, 
  statement......................................................   237
American Chamber of Commerce in Hong Kong, China, statement......   241
American Chamber of Commerce People's Republic of China--Beijing, 
  statements.....................................................   243
American Farm Bureau Federation, statement.......................   246
Chemical Manufacturers Association, Arlington, VA, statement.....   250
Coalition of Service Industries, Robert Vastine, statement and 
  attachments....................................................   254
Distilled Spirits Council of the United States, Inc., statement..   266
Intel Corporation, Michael C. Maibach, statement.................   272
National Business Association, Greenville, SC, Bryan McCanless, 
  statement......................................................   280
U.S. Integrated Carbon Steel Producers, et al., statement........   290


 U.S.-CHINA TRADE RELATIONS AND RENEWAL OF CHINA'S MOST-FAVORED-NATION 
                                 STATUS

                              ----------                              


                        WEDNESDAY, JUNE 17, 1998

                  House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 1:03 p.m., in 
room 1100, Longworth House Office Building, Hon. Phil Crane 
(Chairman of the Subcommittee) presiding.
    [The advisories announcing the hearing follow:]
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    [GRAPHIC] [TIFF OMITTED]60940A.003
    
    Chairman Crane. Will everyone please take seats and hold 
the conversation down to a minimum inside this room. And I want 
to welcome everyone to this meeting of the Ways and Means Trade 
Subcommittee to review the critical issue of U.S.-China trade 
relations.
    On an annual basis, as required by the 1974 Jackson-Vanik 
statute, Congress considers the question of renewing China's 
MFN, or normal, trade status. After many years of isolation, 
China conditionally regained its status in 1980. As my 
colleagues know, every President since that time has 
recommended a renewal of this treatment. Even President 
Clinton, who experimented during his first year in office with 
linking China's MFN, most-favored-nation trade status to human 
rights conditions, ultimately conceded that such policies do 
not promote our national interests and do nothing to improve 
the human rights situation in this turbulent region of the 
world.
    All legislative attempts at revoking MFN since 1980 or 
subjecting it to additional conditions have been resoundingly 
unsuccessful. This year, despite the investigation surrounding 
allegations of export control violations, we cannot afford to 
let the outcome be any different.
    The Speaker recently joined Chairman Archer and me in a 
letter that affirmed our commitment to the importance of 
separating the MFN trade issue from the ongoing investigations.
    The truth is that all Presidents since 1980 have realized 
that slapping China through the revocation of MFN will not 
bring about the changes that we all seek in China. Cutting off 
avenues of communication and trade between the United States 
and China will not help the Chinese people create the future 
that we want for them. In addition, revoking MFN could 
encourage additional financial instability in the region.
    We must continue to emphasize that MFN is nothing more than 
normal trade treatment, uniform among 150 U.S. trading 
partners. I believe it's misleading to characterize MFN as 
somehow exceptional or especially favorable tariff treatment. 
Because the terminology in the statute causes endless confusion 
to those who don't focus on these topics everyday, I intend for 
the Trade Subcommittee to markup H.R. 2316, bipartisan 
legislation which would change the MFN label to normal trade 
relations, or NTR. I am sure we will all enjoy getting used to 
a new acronym.
    I would now like to yield to my distinguished colleague 
from California, Mr. Matsui, for an opening statement.
    Mr. Matsui. Thank you very much, Chairman.
    I would like to just submit my written statement for the 
record in view of the fact that you have a long hearing, and I 
think this issue, for the last 7 or 8 years, has been debated 
time and time again. And we probably know all of the issues 
that have to be discussed and all the issues that go into 
making a decision on whether to renew or not renew most-
favored-nation status.
    I might just point out, and followup on what Chairman Crane 
has said: that China is 22 percent of the world population. One 
out of every five individuals living on this planet is a 
citizen of China.
    The U.S.-China relationship may be the most important 
bilateral relationship the United States has for the next 
decade, the next 25 years, perhaps the next generation. And it 
would be my hope that Members of Congress--House Members, 
Senators, people from the outside--would not politicize this 
issue. This issue is too critical for the future of not only 
this country, but for the free world. And it's my hope that, as 
time goes on, that we begin to recognize that the President's 
policies of engagement of the Chinese is really the appropriate 
policy to take. None of us want to see a renewal of the cold 
war, and it's certainly my hope that all of us understand that 
the decisions, comments, and statements we make now could have 
that kind of an effect over the next generation, the next 
decade.
    Thanks, Mr. Chairman.
    [The opening statement of Hon. Jim Ramstad follows:]
    [GRAPHIC] [TIFF OMITTED]60940A.004
    
    Chairman Crane. Thank you. And I want to thank the 
witnesses in advance for their prepared testimony and ask that 
you please try and keep your presentations to 5 minutes or less 
so that we can conclude the hearing by mid-afternoon. And 
please feel free to elaborate for the printed record. Any 
printed statements will be made a part of the permanent record.
    The first witness today is our distinguished colleague on 
the Committee, Mr. Stark from California, followed by my good 
friend and Chairman of the Rules Committee, Jerry Solomon, who 
has a long record in Congress on this issue. We will then 
proceed with Mr. Smith from New Jersey, followed by Mr. Weldon 
of Pennsylvania. She's not here yet, but Ms. Pelosi will be 
next, assuming she arrives, and I feel confident she will. And 
we'll conclude with Mr. Dooley of California. Again, please try 
and keep it to 5 minutes or less. Thank you.

STATEMENT OF HON. PETE STARK, A REPRESENTATIVE IN CONGRESS FROM 
                    THE STATE OF CALIFORNIA

    Mr. Stark. Thank you very much, Mr. Chairman. I appreciate 
the opportunity to be here.
    As you well know, I oppose renewing the most-favored-nation 
trading status to the People's Republic of China. Their record 
of forced abortions and sterilizations, human rights abuse, 
slave labor, proliferation of mass weapons of destruction 
provide more than enough reason to deny the status to China.
    We talk about a meeting of the minds; I just think it's 
important to start the hearing off understanding that the 
Chinese have no interest or intent to meet our minds. The 
Chinese do not understand what human rights are, as we 
understand them. By our terms, the Chinese Government is 
barbaric. They do not believe in the value of human life. They 
do not believe in the right of self-determination; they oppose 
it, and they have no intention or desire to change. They will 
outmaneuver us and outflank us at the negotiating table and 
say, Oh, yes, we'll change. But they haven't; they've gotten 
worse. They release a few dissidents, and they put 10 more in. 
And they mock us and laugh at us.
    Now, nobody in their right mind suggests we would not trade 
with China at all, but why we should give them an advantage 
that we allow only to our friends and allies escapes me.
    You should recognize that there has been no record of 
China's aggregate improvement and, indeed, no indication that 
China intends to live by what we would say is the Christian-
Judean ethic in this country, by the right of people to enjoy 
liberty and to protect human life. They don't believe in that. 
They believe the State owns the lives of their citizens, and 
they can force sterilization and abortions as they decide. And 
they want to do that. They believe that's their right. They 
believe it's all right to kill young girls; they don't need 
them, they don't want them. They don't add to their--whatever 
their mind set is that says government is intent to do. They 
are barbarians. Women who attempt to have more than one child 
either get abortions or get sterilized. China's work force 
produces goods and ships them to America, and they are produced 
with slave labor. There's forced overtime. It's typical for 
workers to work 6 and 7 days a week for 13 cents an hour. 
Migrant workers are housed in inhumane quarters.
    Our President contends that continued engagement with these 
barbarians is essential to forming a common strategy. How do 
you form a common strategy with heathens? We wouldn't need to 
remedy a nuclear arms race between Pakistan and India if China 
hadn't supplied Pakistan with the nuclear weapons in the first 
place.
    China must be condemned for their violations of 
proliferating weapons of mass destruction. The CIA has reported 
that China has 13 intercontinental ballistic missiles. They've 
sold Pakistan 34 nuclear-capable M-11 missiles. The Clinton 
administration did not want to oppose sanctions then, and they 
dismissed the CIA counterproliferation evidence.
    In February 1996, the PRC sold 5,000 ring magnets to 
Pakistan to use in their uranium enrichment facility. In May 
1997, the State Department cited seven Chinese entities for 
exporting chemical weapons technology to Iran. In 1997, the CIA 
identified China as being the most significant supplier of 
weapons-of-mass-destruction related goods and technology to 
foreign countries. In September 1997, the Navy reported that 
China is the most active supplier of Iran's nuclear, chemical, 
and biological weapons program. In 1998, China was found to be 
transfering chemical weapons to Iran, and just June 16, 1998 
initial CIA findings show that China is helping Libya develop 
its own ballistic program.
    What is there that makes us want to deal with these people? 
There may be millions of them, as my colleague from California 
suggests, but trading with them--dealing with them as we would 
deal with intelligent, loving, caring human beings--is idiocy. 
They don't hear us. They want our weapons of mass destruction. 
They want us to buy their cheap sneakers and T-shirts, and they 
are laughing all the way to the bank while they continue to 
perpetuate slavery, to denigrate the value of human life, and 
to peddle weapons of mass destruction around the world.
    We must find another way to deal with this nation, and the 
sooner we face up to the fact that appeasing them, 
mollycoddling them, and subsidizing them will only give them 
the strength to someday turn and bite us. When we recognize 
that, we will begin to change our policy toward China and not 
try to contain them through trade. It's a gift to the enemies 
of humanity, and we should not be part of it.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]
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    Chairman Crane. Mr. Solomon.

   STATEMENT OF HON. GERALD B. SOLOMON, A REPRESENTATIVE IN 
              CONGRESS FROM THE STATE OF NEW YORK

    Mr. Solomon. Mr. Chairman, I have great respect for you and 
your ranking member, Mr. Matsui, and I apologize for being 
late. I was at a meeting which is about to establish the Select 
Committee on China, looking into the transfer of satellite 
technology to the People's Republic of China, which, without 
question, now has resulted in the development and deployment, 
as Mr. Stark has just said, of at least 13 out of a known 18, 
deadly intercontinental ballistic missiles aimed at the United 
States of America. And that's really what is the crux of this 
debate here today.
    In a week or so, the President of the United States will be 
received by the dictators who run China, in the very place 
where those dictators killed over 1,000 innocent people. This 
is morally revolting, but it is the logical result of our 
policy of appeasement of Communist China over the years, 
unfortunately under other administrations as well.
    Of course, the continuous unlinked granting of MFN is the 
cornerstone of that appeasement policy. That is why I've 
introduced H.J. Res. 121, which is pending before you right 
now, which would temporarily--and I emphasize temporarily--
suspend MFN for China.
    Mr. Chairman, as has been the norm for over a decade, the 
trade picture with China continues to worsen. China's refusal 
to grant fair and open access to American goods has resulted in 
our trade deficit with that country skyrocketing to over $50 
billion. And I've sat at this table year after year after year, 
when it was only $5 billion, $10 billion, $15 billion, and $30 
billion. Now it's more than $50 billion and skyrocketing.
    Mr. Chairman, this costs thousands of American jobs. 
Supporters of the current policy keep telling us that U.S. 
exporters will get access to this vast Chinese market in return 
for this, but that remains just an elusive myth. It just is not 
happening. American exports to China totaled only $13 billion 
in 1997, less than one-fifth of one percent of the total 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 all of their exports.
    On human rights, Mr. Chairman, I truly hope that no one is 
fooled by the recent release of a couple of dissidents from 
Chinese jails. The fundamental situation remains the same. 
China continues to be a vicious violator of basic human rights, 
consistently ranked at the bottom by all human rights observers 
from all across this world. According to our very own State 
Department, in its 1997 human rights report noted that the 
Chinese Government, ``continued tight restrictions on freedom 
of speech, freedom of press, assembly, association, religion, 
privacy, and worker rights.'' Everything, Mr. Chairman; 
``serious rights abuses persisted in minority areas, including 
Tibet.'' And what a terrible, terrible thing that is there, 
where tight controls on religion and other fundamental freedom 
continue, and are even intensifying, as we sit here this 
minute. All these years of trade, yet we still wait for the 
improvement in human rights that the engagement theorists keep 
promising.
    In the field of national security--and this probably is, 
without question; the most important issue here today--our 
appeasement of China's reckless proliferation activities has 
finally borne its bitter fruit in the form of a nuclear arms 
race in south Asia. There should be no mistaking China's guilt 
in this matter.
    Just days before the first Indian nuclear test last month, 
their defense minister stated unambiguously that China 
represents the No. 1 threat to Indian security. Subsequent 
statements and analysis by Indian officials and observers leave 
little doubt that China's longstanding support for Pakistan's 
nuclear and missile programs, coupled with American appeasement 
of China's actions, prompted the Indian tests.
    Mr. Chairman, MFN has led directly the bankruptcy of our 
so-called nonproliferation policies, which, quite bluntly, Mr. 
Chairman, have been discarded by this administration in its 
quest for trade dollars with this Communist country. Last year, 
a new element was interjected in this debate: The revelations 
that the Chinese embassy here in Washington sought to buy 
influence with the U.S. Government through campaign 
contributions. This year, we have had confirmation of this from 
Democratic fundraiser Johnny Chung, who has admitted to 
receiving $300,000 from a Chinese military officer, who also 
happens to be connected to Chinese firms involved in the 
business of launching satellites and proliferated missiles.
    The dots are beginning to connect themselves here, Mr. 
Chairman, and the odor of money and influence peddling that 
hangs over this entire debate smells. It smells badly.
    Tomorrow, my committee will create a Select Committee to 
get to the bottom of all this. But frankly, Mr. Chairman, we 
don't need a Select Committee to know that it is our policy of 
business as usual, at any cost, that has set the stage for this 
whole sorry scenario.
    MFN is the crux of that policy, and until we link it to the 
behavior of the Chinese Government, as Mr. Stark has said, we 
will continue to invite the kind of abuses we see now. These 
are the very bitter fruits of engagement, Mr. Chairman.
    And in closing, let me just say cutting off MFN does not 
mean that we cease all trade and contact with China--and you 
should all listen to this. It simply means we raise tariffs on 
Chinese goods to the point where we get their attention. That's 
the only way that will get their attention. This, and only 
this, will encourage better behavior by the Chinese dictators. 
When we see that happening, this Congress can turn around 
within days, weeks, or months and restore MFN for China. You're 
not cutting it off permanently. You don't have to wait 1 or 2 
years; you can do it at the whim of this Congress; the next day 
if you want to. I guarantee you, having worked with the Chinese 
for all of these 50 years, that this would hit them like a 
rock. Then they would wake up and, pay at least some 
consideration to human rights, to human decency, to human life 
itself.
    And, Mr. Chairman, I plead with you, and I know your 
position, I know you're sincere and well meaning, you ought to 
come out and we all should, once and for all, temporarily stop 
MFN for China. And you will see the direct results, resulting 
in the saving of human life.
    Thank you, Mr. Chairman.
    Chairman Crane. Thank you.
    Mr. Smith.

  STATEMENT OF HON. CHRISTOPHER H. SMITH, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF NEW JERSEY

    Mr. Smith of New Jersey. Thank you very much, Chairman 
Crane and Members of the Subcommittee, and thank you for the 
invitation to be here.
    Whatever decision the Congress makes about MFN for China 
this summer, the American people will see it as a decision 
about the role of morality in U.S. foreign policy, and they 
will be right.
    Mr. Chairman, I think you would agree with me that 
legislatures should judge their actions against two basic laws 
of economics: What you subsidize you get more of; what you 
penalize you get less of. So in judging whether we should 
continue to confer billions of dollars in economic benefits on 
the Government of the People's Republic of China, we need to 
decide whether we want more of what this government has been 
doing for the last several years. In other words, the China MFN 
is about whether a government that routinely practices forced 
abortion and forced sterilization should be rewarded or 
punished.
    Last week, I convened a hearing of my Subcommittee on 
International Operations and Human Rights. We heard from Harry 
Wu and other witnesses, but also from a woman from Fujian 
Province who gave stark and compelling testimony of how she ran 
the program and how she and the other family-planning cadres 
routinely compelled woman to have abortions in the ninth month 
of pregnancy. She talked about certificates--birth approval 
certificates--without which the child is illegal in the eyes of 
the Government and is, therefore, killed by abortion. She 
talked about the tears shed by women whose babies were first 
stolen by the State and then killed with a shot of formaldehyde 
or some other substance into the head.
    This vote is about how we treat a government that imprisons 
Catholic bishops and priests, Protestant ministers, and Tibetan 
monks and nuns.
    This is vote about a government that routinely uses slave 
labor, and has dying rooms in its orphanages where so-called 
unwanted children--mostly girls and handicapped--are left to 
die of starvation and disease.
    This is the country of which Chi Haotian, the PRC Defense 
Minister, when he came to our country said, No one died at 
Tiananmen Square. My Subcommittee, Mr. Chairman, very quickly 
put together a hearing and had several eye witnesses come 
forward, including an editor from the People's Daily who told 
us how he saw people die right in front of his eyes. And yet 
this high-ranking Chinese Government official, who received a 
19-gun salute and the red carpet treatment at the White House, 
said that no one died at Tiananmen Square. No doubt he and his 
comrades will be there at Tiananmen Square to welcome our 
President when he visits. Chi was the one who ordered the 
killings.
    Those who believe that ``comprehensive engagement,'' will 
eventually bring about respect for human rights in China must 
ask themselves several questions.
    First, how long do we need to keep trying this strategy 
before it begins to produce results? It has not succeeded yet 
in the 25 years that we've been trying it--25 years of a 
tragic, unrequited love affair with the Communist regime in 
Beijing. There is no question that increased contact with the 
West has changed China's economic system, but there is little 
or no evidence that it has increased the regime's respect for 
fundamental rights. As a matter of fact, Amnesty International 
and other organizations say things have actually gotten worse.
    Mr. Chairman, this is because China's economic system is 
not changing from a Communist system into a free economy. 
Rather, it is making a much simpler transformation: from 
communism to fascism. Foreign businesses are permitted to make 
money and lots of it, but only if they take the Government as 
their partner. I repeat, this is not freedom; it is fascism. 
American businessmen made money in Nazi Germany in the 1930's, 
but at least they did not have the temerity to predict that 
because they were making money, human rights were somehow just 
around the corner.
    What more does Beijing have to do before we admit that our 
engagement has not been constructive, that it has, instead, 
been destructive of human rights?
    Second, when big business and the Clinton administration 
really want to change the conduct of the Government, they talk 
about sanctions. Let's not forget: When intellectual property 
rights were at risk, we very quickly said sanctions would be in 
the offing. And a 301 action was initiated, and we were all set 
to impose sanctions in order to preserve intellectual property 
rights and combat piracy and infringement of those copyrights..
    Let me also say that Wei Jingsheng testified recently 
before my Subcommittee, and he made the point--and this is 
counter intuitive to what some of you may thing--that when we 
are in a mode of appeasement and working with the dictators, 
that's when the bullyboys in the Laogai--the Gulag system--are 
afraid to beat, punish, and mete out torture. He said, You may 
think that's not the case, but we know from experience, that 
things go from bad to worse as soon as you are in a concession 
mode.
    I happen to believe very strongly, Mr. Chairman, that, as 
Mr. Solomon said, we should suspend MFN and say, Look, our 
markets are open, but you've got to make some fundamental 
changes in the way you treat your own citizenry and stop these 
abuses of human rights.
    You know, the underground church--the Roman Catholic and 
the Protestant Evangelical Church, is under incredible siege. I 
met with Bishop Su, of Boading Province, an underground bishop 
who celebrated Mass for our delegation. He got arrested--
rearrested. He had already spent 19 years in the Gulag because 
of his faith, and he went right back to the Gulag as a result 
of our meeting. Some other people have testified that, just as 
with other Communist countries over the years, as soon as MFN 
is locked in for another year--in the book, as they say in 
baseball--right away they go to massive amounts of torture, 
executions, and the like because they know they're scot-free, 
nobody's looking.
    We need to say that MFN and its linkage to human rights is 
something we care about. This Sub-committee and Members 
individually, when they vote on this on legislation, can 
advance the ball significantly. Where is China going to find a 
market for its $60-plus billion worth of goods? They're not 
going to find it in Europe, Asia, or anywhere else. We have 
real clout; let's use it on behalf of the suffering people in 
the People's Republic of China.
    Thank you, Mr. Chairman.
    [The prepared statement follows:]
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    Chairman Crane. Thank you.
    Mr. Weldon.

  STATEMENT OF HON. CURT WELDON, A REPRESENTATIVE IN CONGRESS 
                 FROM THE STATE OF PENNSYLVANIA

    Mr. Weldon of Pennsylvania. Thank you, Mr. Chairman. It's a 
pleasure to be here today. I have a deep respect for both you 
and this Subcommittee, as well as my colleagues at the table 
with me.
    My testimony today--you've put my statement in the record, 
so I will talk basically ad hoc. I will differ from my other 
colleagues at the table. As someone who is on the Human Rights 
Caucus and takes great pride in focusing on human rights issues 
around the world, I am pro-life and take great pride in my 
votes to stop abortion in this country and around the world. 
But I am pro-MFN.
    I also come as the Chairman of the Military Research and 
Development Subcommittee, which oversees $37 billion of our 
dollars each year to focus on defense systems to protect our 
country, our people, and our troops from the growing 
proliferation posed by weapons of mass destruction and by 
missile technologies.
    I am here to say that while I am pro-MFN, I am pro-
constructive and enforced engagement with China. I am the first 
to admit that there are very serious problems, but, Mr. 
Chairman, I think we have to look at what's happening here. You 
have a country of 1.3 billion people with a Government about 50 
years old. I would ask my colleagues to look back when America 
was 50 years old: Were women considered citizens? Were blacks 
considered human beings? They were pieces of property that we 
bought and sold. This country was not perfect. Now, I'm not 
trying to say that we should forgive China the atrocities that 
they do in forcing abortions and in other human rights 
violations. But to totally isolate them--and politically make 
the case that all is not going to be well unless we totally 
remove them from the world--I think will not have the desired 
result.
    Let me say, Mr. Chairman, that nobody works harder on the 
issue of proliferation in this Congress than I do. I work this 
issue on a daily basis; but, unlike my colleagues, I'm willing 
to confront the Chinese. In my two trips to China last year, I 
sat across the table from General Gong at lunch, in front of 
all of his subordinates. Now, you remember General Gong is the 
one--No. 2 in the Chinese military--who issued the veiled 
threat against Los Angeles. And he was commenting to me about 
how unhappy they were with the United States. And I said, Let 
me tell you something, General: We in the United States do not 
take high Chinese officials making veiled threats against our 
cities lightly. He put his head down in embarrassment and 
didn't know what to say. That's the kind of approach we should 
be using: We should be confronting them across the table. We 
should be debating them and engaging them.
    Now, on the issue of proliferation, Mr. Chairman, let me 
ask to put in the record a CRS, Congressional Research Service 
analysis that I've had prepared of 21 Chinese violations of 
arms controls agreements since 1992.
    Chairman Crane. Without objection, so ordered.
    Mr. Weldon of Pennsylvania. This listing, which I had CRS 
prepare, basically shows potential violations of every major 
arms control agreement that this country is a signatory to and 
which China has also pledged to abide by, from the MTCR to 
other major arms control agreements. This administration only 
imposed sanctions in 3 of those 21 cases, and they were 
eventually waived. Now we can, of course, blame China. We can 
blame China for the most recent Loral case, which I'm in the 
middle of investigating, but, Mr. Chairman, let me say that if 
we have arms control agreements we don't enforce, maybe we 
ought to blame ourselves. Maybe we ought to look at the White 
House and ask this administration why there could be 21 
consecutive violations of transfers of M-11 missiles to 
Pakistan, ring magnets to Pakistan for their nuclear weapons 
program, and no sanctions?
    If you have an arms control agreement and you're not going 
to enforce it when it's violated, of course you can blame the 
country that's doing the violation. But I also blame our 
administration because the same practice is happening with 
Russia.
    I would also be happy to enter into the record Mr. 
Chairman, the CRS report on Russia where there were 17 
violations of arms control agreements in the past 6 years and, 
again, no sanctions were imposed.
    [The information follows:]
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    And we wonder why India and Pakistan are saber-rattling 
now, or why Iran and Iraq have medium-range missile or nuclear 
capabilities. It's because they got that technology from China 
and Russia, and they got it in spite of arms control agreements 
that, if they were properly enforced, would have stopped that 
technology from being sold or transferred abroad.
    So I say the bulk of the problem lies right here in our 
city, right at the end of Pennsylvania Avenue. If we really 
want to put the heat on China, then start enforcing the laws on 
the books; start using the pressure we can apply. But should we 
hurt the Chinese people--the Chinese people who would be set 
aside--and portray them as some kind of radicals who should be 
ostracized from the world community? I think not.
    I think, Mr. Chairman, that the time has come for us--and, 
sure, I understand the political vote. The easy political vote 
is the vote against MFN. But I say--as someone who waswilling 
to hold China accountable every step of the way for its human rights 
violations, for its policy on forced abortions--on the issue of defense 
and security, on violations of arms control agreements, it is better to 
deal with them directly and confront them. On both of my trips to China 
last year, I spoke at the PLA's National Defense University. I went 
before mid- and senior-level officers in the Chinese military and I 
confronted them on the issues that I'm bringing up today: arms control 
violations, cooperation in nuclear technology with Pakistan, M-11 
missile sales to Pakistan, and the other numerous violations that I 
cite here in this document. That is the way to deal with China, and 
eventually we will prevail.
    Allowing the argument that's put forth by my colleagues 
here--all of whom are my good friends--I think it is the wrong 
signal, at the wrong time, and I think in the end will not help 
us. So I'm here to say, Mr. Chairman, that I support the 
renewal of MFN.
    [The prepared statement follows:]
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    Chairman Crane. Thank you, Mr. Weldon.
    Ms. Pelosi.

 STATEMENT OF HON. NANCY PELOSI, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF CALIFORNIA

    Ms. Pelosi. Thank you very much, Mr. Chairman. Here we are 
again: 10 years we've been doing this, 10 hearings--9 years; 
next year it will be 10. And to tell you the truth, Mr. 
Chairman, I have never expected this Subcommittee to ever vote 
out Mr. Solomon's amendments to reject the President's special 
request for a special waiver for China to have most-favored-
nation status. But I would hope that, in having this 
discussion, we point out the need for a change in U.S.-China 
policy.
    Although my colleague, Mr. Weldon, and I disagree on MFN, I 
certainly agree with him that we have to enforce our own laws, 
and in making this point on MFN a privileged resolution that 
comes to the floor, it gives us that opportunity. So if people 
say they don't approve of President Clinton's policy, MFN is 
the cornerstone of it. And one way to get the President to 
change his policy is to remove the support for it.
    I come as a member of the Appropriations Committee, as the 
ranking member of the Foreign Operations Committee; I also 
serve as a member of the Intelligence Committee. And I can say 
with great confidence that in the areas of concern to 
Congress--trade, proliferation, and human rights--that the case 
is even stronger than ever that we should not renew most-
favored-nation status for China this year.
    I know as I say that--I wish that I could say that progress 
has been made but, unfortunately, that is not the case. The 
President likes to describe his engagement policy as 
constructive engagement. I say it is neither constructive nor 
true engagement, because it is a policy that does whatever the 
Chinese want; it does not have the give-and-take to respond to 
our concerns about proliferation, human rights, and trade. I 
want to set the record very straight, because the President is 
fond of saying that those who oppose him on his China policy 
wish to isolate China. Nothing could be further from the truth.
    We want engagement that is honest, that is effective, and 
that sustains our values, our own economy, and international 
security.
    I've said already that I don't expect this Subcommittee to 
reject the President's request, but I do think that this 
Subcommittee should face the facts. As I've said, Mr. Chairman, 
we've been doing this for many years, and when we first set 
upon this issue about 10 years ago, the trade deficit was about 
$2 billion with China. For 1997, it was $50 billion and for 
1998 it is projected to be $63 billion--the trade deficit is on 
President Clinton's watch alone.
    Now, how effective is his policy on trade? On President 
Clinton's watch alone, by the end of this year, the trade 
deficit--for his watch alone--will be a quarter of a trillion 
dollars--not million, not billion--a quarter of a trillion 
dollars and growing. Something must be wrong with that.
    Don't take my word for it. The administration's own book, 
the United States Trade Representative Estimate on Foreign 
Trade Barriers, says that China has used prohibitively high 
tariffs--which in late 1997 still reached as high as 100 
percent on some motor vehicles--in combination with other 
import restrictions and foreign exchange controls to protect 
its domestic industry and restrict imports. These high nominal 
tariff rates, to which China adds applicable value-added taxes 
and, on some goods, consumption taxes, contribute to 
inefficiencies in China's economy and pose a major barrier to 
U.S. commercial opportunity.
    And regarding trade in services, the same report notes that 
China's market for services today remains essentially closed. 
Restrictive investment laws, lack of transparency in 
administrative procedures, and arbitrary application of 
regulations and law limit U.S. service exports and investment 
in China. It goes on further, but I want to talk about the 
proliferation issue, so I refer you to the USTR's own book on 
foreign trade barriers.
    In the case of proliferation, those who support thestatus 
quo are saying we need the Chinese Government's help in solving the 
nuclear weapons crisis in south Asia. But Pakistan's nuclear program 
was developed with China's help, which the U.S. Government consistently 
ignored, as Mr. Weldon mentioned. Without China's help, Pakistan would 
not have been able to develop or carry out its missile capacity with 
which it could deliver nuclear warheads or carry out its nuclear tests. 
Without China's help, Pakistan would not be participating in a nuclear 
arms race in south Asia. And in addition to that, those who support the 
status quo tout the agreement that President Jiang Zemin signed last 
October, halting China's proliferation of weapons of mass destruction. 
Less than 4 months later, Mr. Chairman, China was caught trying to 
transfer dangerous chemical weapons to Iran, in violation of the very 
agreement President Clinton is claiming as progress. I submit more 
about that as well as more on proliferation, for the record.
    In terms of human rights--so much to say, so little time. 
Those who support the status quo point to the forced exile of 
Wang Deng and Wei Xin Chang as progress. These people were not 
freed. They were forcefully exiled--forcibly exiled. They 
cannot speak freely in China; how could that be progress? I 
will submit a list of all of the atrocities and human rights 
violations for the record, Mr. Chairman. According to Human 
Rights Watch Asia, there has been no substantial improvement in 
China's human rights record in the past year. Isolated prisoner 
releases such as the release of Weng Deng and Wei Xin Chang, 
have little impact on the overall state of repression in China. 
In the 6 months since Wei's release, others have been detained 
and arrested. The overall pattern of government treatment of 
political dissidents has not changed.
    Mr. Chairman, I wish I had more time. As we embark on our 
annual debate over granting MFN, most-favored nation status to 
China we must face up to the realities of the U.S.-China 
relationship. MFN is the centerpiece of the administration's 
China policy, a policy which is not working. Instead of an 
honest, effective, and sustainable engagement which would make 
trade fairer, the world safer, and people freer, we have in 
place a policy which actually makes matters worse. Trade with 
China is growing more lopsided. China's proliferation of 
weapons of mass destruction continues, and China's people are 
not free.
    We have the opportunity to signal to this administration, 
and to the Chinese Government, that the status quo is not 
acceptable by opposing MFN for China. We must associate 
ourselves with the aspirations of the Chinese people.
    And I remind my colleague, Mr. Weldon, that Taiwan is also 
50 years old, and enjoys a thriving democracy--and their 
elections were even threatened by missiles from mainland China 
just recently. So 50 years, for some of us, is old. For some of 
us, it is young; for me, it's young. But I point to the fact 
that, because the people of China share our aspirations, they 
should not be penalized because they live under an 
authoritarian regime which promises the mirage of a market for 
some products made in America at the expense of our values--and 
hopefully not at the expense of our international security.
    Thank you, Mr. Chairman, Mr. Matsui, members of the 
committee.
    [The prepared statement follows:]
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    Chairman Crane. Thank you, Ms. Pelosi.
    Our final witness is Mr. Dooley, and if your comments 
exceed 5 minutes that will be part of the permanent record in 
printed form, not verbal. Please proceed.

 STATEMENT OF HON. CALVIN DOOLEY, A REPRESENTATIVE IN CONGRESS 
                  FROM THE STATE OF CALIFORNIA

    Mr. Dooley. Thank you, Mr. Chairman. And thanks to all you 
Members of the Subcommittee for giving me the opportunity to 
appear before you today. As you know, I have a been a strong 
supporter of continued normal trading relations with China, and 
have worked hard to advance a protrade agenda in Congress. I am 
concerned about the growing reluctance of the Congress to 
provide the leadership needed on international issues to make 
improvements in trade relations and economic conditions 
throughout the world.
    Opponents of extending MFN have discussed China's human 
rights record, nuclear proliferation, religious freedoms, and 
barriers. Clearly, problems exist with China and work needs to 
continue on all fronts. However, Presidents Clinton, Bush, 
Reagan, Carter, and Ford have recognized that engagement is a 
better policy than isolationism. They recognize that to wall 
ourselves off from 20 percent of the world's population is not 
in the interests of the citizens of China or the working men 
and women of the United States. President Clinton's trip to 
China later this month will provide the United States with 
another forum to pursue improvements in all these areas. 
Without a policy of engagement, this type of trip and the 
benefits that it willprovide would not be possible.
    The reality is that China has one of the fastest growing 
economies in the world. From 1979 to 1997, China's real GDP 
grew average rate of 9.9 percent annually, and projected growth 
is estimated by some at an average rate of 7 percent a year 
over the next two decades. At this rate China, could double the 
size of its economy every 10 years.
    I represent the San Joaquin Valley, CA. And this highly 
productive agricultural area produces agriculture commodities 
worth in excess of $22 billion annually, more than half of 
which is exported. China is currently the sixth largest export 
market for U.S. agricultural goods. In 1996, China bought over 
$1.9 billion of U.S. agricultural products. With 1.2 billion 
people and limited arable land, China must rely on imports to 
satisfy its demands for food. USDA estimates that two-thirds of 
the future growth in U.S. farm exports will be in Asia, and of 
that increase 50 percent will be in China alone.
    We must maintain our ability to be a reliable supplier of 
agricultural products. Our competitors in world market--
Australia, Europe, Canada, and South America--stand ready to 
fill the needs of China into the next century if we cut off 
trade.
    Our ultimate goal must be to fully integrate China into the 
world trading arena as a full participant. This means helping 
to encourage WTO accession to China to ensure that they will 
abide by internationally accepted trading rules. It also means 
continued bilateral talks to address specific issues, like 
intellectual property rights and nontariff trade barriers.
    Mr. Chairman, I recognize that problems continue to exist 
in China, and remain committed to making improvements in the 
area of human rights, trade policies, and nuclear 
proliferation. And I appreciate the efforts of some of my 
colleagues. However, I strongly disagree with the philosophy of 
this engagement and believe that it would be a mistake to 
disprove the extension on MFN.
    I think many of us, when we look at what is happening in 
the globalization of the world economy, equate it to the 
Americanization of the world economy. As we found in, I think, 
every instance where we have engaged in economic integration 
with any developing country in the world, it has resulted in 
our values becoming increasingly instilled, whether it be the 
U.S. values on human rights; the U.S. values on religious 
freedom, or movement toward none capitalism and more democracy 
in these countries which we have chosen not to isolate but to 
engage.
    And that is the issue before us today: How can we most 
effectively advance the interests of the working men and women 
of the United States as well as the interest of the citizens of 
China? I think that clearly argues for us to continue with our 
approval of China and MFN.
    [The prepared statement follows:]
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    Chairman Crane. Thank you very much, Mr. Dooley.
    Mr. Matsui.
    Mr. Matsui. I have no questions, Mr. Chairman. I'd like to 
thank all of the panelists for appearing before the 
Subcommittee today.
    Chairman Crane. Mr. Nussle. Mr. McDermott.
    Mr. McDermott. Thank you, Mr. Chairman. I just wanted to 
ask Mr. Smith one question: What was the date of Tiananmen 
Square?
    Mr. Smith. of New Jersey. Nineteen eighty-nine.
    Mr. McDermott. And that was in June, wasn't it?
    Mr. Smith of New Jersey. Yes, it was.
    Mr. McDermott. Did Mr. Bush recommend most-favored-nation 
status that year?
    Mr. Smith of New Jersey. I'm not sure if it had already 
been made that year.
    Ms. Pelosi. I can answer that, Mr. Chairman. As you know, 
Mr. McDermott, in our country, June 4, 1989 was the date that--
the time was different between here and China--but June 4, 
1989, was beyond the time when a President could--it would be 
up to Congress to reject. We considered it at the time, but it 
was in a major state of flux, and we didn't realize that 
President Bush would not go along with signing the Chinese 
student protection bill, which was the vehicle that we used 
that year to express our concern about U.S.-China relations. As 
you know, in the House and Senate, Members voted overwhelmingly 
to protect the Chinese students and our students with scholars 
in America. But that was the vehicle that year, which the 
President vetoed over Thanksgiving, and that--I often wonder 
how things would be different around here if President Bush had 
never signed that bill and sent a message to the regime of that 
time that we had our limits. But, instead of sending that 
message, he sent Secretary Eagleburger to toast the regime in 
Beijing, but that's what was----
    Mr. McDermott. In 1991 and 1992, did President Bush 
recommend--the renewal of normal trade relations with China?
    Mr. Smith of New Jersey. Yes, he did, and let me make it 
very clear that when President Bush recommended renewal of MFN 
objections were bipartisan and I spoke out very strongly as did 
Mr. Solomon and others, and thought it was very ill-advised 
that a so-called constructive engagement--they didn't perhaps 
put that same word on it----
    Mr. McDermott. I just wanted to bring some balance to this 
discussion. It seemed like all the problems in our 
relationships with China started when President Clinton was 
elected, and suddenly we gave up fighting for our national 
interests.
    Mr. Smith of New Jersey. Not at all. But let me just say, 
Mr. McDermott, that Mr. Clinton, President Clinton, made--could 
I respond? Let me just say thatmany of us thought that 
President Clinton, then candidate Clinton, had it right. And I 
publicly, as did other Republicans, spoke out and said that he was 
right when he criticized President Bush and said that he was ``coddling 
dictators'' meaning Li Peng and the rest of the gang in Beijing after 
Tiananmen Square and because of the human rights abuses. What we find 
so bewildering is that Mr. Clinton, after he issued his executive order 
and things went from--and remember, the operative language in that 
executive order was ``significant progress'' in human rights--there was 
significant regression in every area, and Mr. Weldon talked about 
confronting and dealing and meeting with the Chinese. I've led three 
human rights trips to China; met with Li Peng, Peng Peiyun who runs the 
coercive population control program and many, many others in their 
regime. So, I do believe we need to meet them across the table, but 
destructive appeasement--which is what we're engaged in now, which 
destroys the people--you know, I said it earlier, Mr. McDermott, and I 
know you can reject it. Maybe you do----
    Mr. McDermott. The problem, Mr. Smith, is that you don't 
like what we're doing. But tell me, what is your solution for 
the Chinese population? How, if you were President or the Prime 
Minister of China, would you deal with these issues?
    Mr. Smith of New Jersey. Voluntarism. Unless you're----
    Mr. McDermott. Voluntarism? Do you know the history of 
famine in that country?
    Mr. Smith of New Jersey. I also know that coercion should 
be totally unacceptable.
    Mr. McDermott. I'm not saying that coercion is the answer. 
I'm not defending the Chinese way.
    Mr. Smith of New Jersey. But you're asking me what I would 
do; I am answering.
    Mr. McDermott. Your plan would be just to tell the people 
of China, ``Please don't have any more kids.'' That would be 
your plan.
    Mr. Smith of New Jersey. That's what voluntarism is all 
about, and the premise of your question is that you would allow 
them to engage in coercion as a means to an end. The means 
justifies the end?
    Mr. McDermott. You wouldn't have any kind of education 
program teaching about the various methods of family planning?
    Mr. Smith of New Jersey. Education, with a bedrock of----
    Mr. McDermott. Would you have a family planning education 
program?
    Mr. Smith of New Jersey. I would have no problem with 
voluntary--the emphasis is on voluntary----
    Mr. McDermott. But all kinds of family planning? All kinds?
    Mr. Smith of New Jersey. Would you let me finish?
    Mr. McDermott. Mr. Smith, I just want to hear the answer. 
Would you advocate all kinds of family planning or not?
    Mr. Smith of New Jersey. It's up to the individual, but not 
abortion. Abortion takes the life of a baby.
    Mr. McDermott. So, there's some kinds of family planing 
that you would not tolerate.
    Mr. Smith of New Jersey. You're suggesting that----
    Mr. McDermott. So, you're going to tell the Chinese how to 
do everything, even ``voluntarily''.
    Mr. Smith of New Jersey. You're suggesting abortion is 
birth control? Is that what you're saying? That's the core of 
what you're saying.
    Ms. Pelosi. If I may, Mr. Smith, our responsibility is what 
to advise the American President as Members of Congress. And 
we're advising the American President to have a different 
policy so that the Chinese people can decide for themselves 
what form of government and what systems they want to live 
under.
    Chairman Crane. Ms. Dunn.
    Ms. Dunn. Thank you very much, Mr. Chairman. I'd like to 
make a statement at this time. I want to thank the Chairman for 
scheduling this hearing before the upcoming summit between the 
United States and China next week. As a long-time supporter of 
free and open trade, I believe that retaining normal trade 
relations with China is the key to fostering a great mutual 
understanding between our two countries. And I appreciate the 
opportunity to hear from our panel of witnesses today.
    All of us here understand the importance of open relations 
with China. The economic effects of enhanced trade help build 
the United States economy and help strengthen international 
markets. The open exchange of goods and services has been a 
critical component of fostering understanding between nations 
for centuries and has helped bring about regional, economic, 
and diplomatic stability. Creating an environment of normal 
relations and ongoing engagement only serves to lower the walls 
of fear and suspicion while building a spirit of cooperation 
through joint ventures.
    More specifically to today's headlines, with the weakening 
Yen and the inability of Japanese officials to halt their 
current recession, China will play an even larger role in 
helping to stabilize the Asian economy. But what should be our 
ultimate objective with China with respect to trade relations? 
I believe that liberalized trade with a communist society in 
the process of opening itself up the world community will 
someday deliver to our trading partners our most precious gift, 
and that is freedom. Indeed, we are already starting to see the 
effects of China's more liberalized trade policies. The number 
of Chinese citizens employed in private business continues to 
escalate. Between 1986 and 1996, the number of employees in 
private enterprises jumped from 65.9 million to 232.9 million 
people. This trend is also borne out by the fact that the share 
of industrial output by the nonstate sector in China is 
increasing rapidly while the share of the state sector 
continues to decline.
    Since the government of the PRC must continue to produce 
economic growth or face the internal stability threats brought 
about by high unemployment, I expect to see further gains by 
these private enterprises. Continuing normal trade relations 
with China for this year is critical, and I look forward to the 
day when their normal trade status with the United States is 
made permanent. It is well beyond the time to realize that not 
granting normal trade relations to China is unacceptable. It 
would be equivalent to severing all United States-China 
relationships. Even if we do absolutely nothing to pressure 
China to release political prisoners, to grant total religious 
freedom, to hold elections nationwide, to allow more property 
ownership, or to contain proliferation, a country that denies 
the human spirit cannot sustain the wave of personal freedom 
that accompanies open relations with the rest of the world. 
Only isolation breeds rigid conformities.
    The need to have a strong Chinese economy to anchor Asia is 
even more true as we enter a new era of nuclear proliferation 
in South Asia. Over the last month, I have heard a great deal 
of criticism regarding Congress' stance on some of the new 
questions that have arisen in this area. Iwant to take a look 
at a couple of these issues today, because to ignore them is to ignore 
reality and to be naive.
    First, let's look at some facts. On May 1, 1998, the CIA 
reported that China now possesses 18 long-range missiles--
nuclear missiles armed with nuclear warheads--13 of which are 
aimed at United States cities. It's been widely reported that 
they continue to develop and fine tune short-, middle-, and 
long-range missiles. The PRC played a large role in the 
development of nuclear technology in Pakistan through the 
1970's, and it provided defense applications of nuclear 
technology for them throughout the 1980's. Now, we are hearing 
that similar technology is being sold in Iran.
    When reports begin to surface about the administration's 
approval to transfer sensitive missile technology to China from 
companies--in view of China's inappropriate diversion of U.S. 
aeronautic manufacturing equipment to the their defense 
facilities--and the agreement of the United States to sell 
Clipper computers to China capable of greatly advancing their 
nuclear capabilities, Congress must respond. This is 
particularly true when you consider that much of this was done 
over the objection of the Pentagon, whose analyst argued that 
national security could be jeopardized.
    This sort of intelligence immediately requires a response 
from Congress, whose responsibility is to protect the national 
security interests of the United States. As you all know, the 
United States policy toward China is multifaceted and nuanced. 
The importance of opening up their markets to United States 
goods, eliminating religious persecution, permitting political 
dissent, and promoting rule of law cannot be overstated. At the 
same time, protecting the freedom and the safety we hold 
precious in this country must be our primary goal when it comes 
to relations with any country; it's in a category by itself 
above these other important objectives.
    As the world's most populated country and a growing 
superpower, China is becoming a major player on the world stage 
as we enter the millennium. We cannot place an overimportance 
on one aspect of our relationship with China without asking the 
tough national security questions that will always demand 
Congress' attention.
    Mr. Chairman, I look forward to participating with other 
Members of Congress and this inquiry in answering these 
important questions. But I believe that we are in a historic 
period of change around the world, and China, as much as any 
other country, is a microcosm of the many difficult issues we 
will face as policymakers. I firmly believe that our past 
policy of engagement with China has greatly enhanced the 
relationship between our two countries, so it is even more 
critical as we move forward together in an increasingly 
uncertain world. I thank the Chairman for his willingness to 
hold this hearing, and I look forward to working with my 
colleagues on the Subcommittee to defeat the disapproval 
resolution that would deny China normal trade status for this 
year.
    Mr. Stark. Mr. Chairman, could I ask the gentlelady if she 
would apply those remarks to Cuba as well? Ms. Dunn.
    Ms. Dunn. These are remarks I apply specifically to China.
    Mr. Stark. Would you hold that same thing true for Cuba?
    Ms. Dunn. No, this is related only to MFN in our 
relations----
    Mr. Stark. So, you wouldn't open up trade to Cuba?
    Ms. Dunn. If you wish to be specific about what you are 
asking me, I would----
    Mr. Stark. Just, would you apply your same philosophy to 
Cuba? Would you open up trade to engage with Cuba, would you 
trade with them? Why not Cuba? Why wouldn't you include Cuba?
    Ms. Dunn. As you know very well, Mr. Stark, there are a 
number of reasons that we have put sanctions on Cuba----
    Mr. Stark. Name one that didn't apply to China.
    Ms. Dunn. That we can save for another day.
    Chairman Crane. The time of the gentlelady has expired, and 
you can continue this conversation----
    Mr. Stark. It's an interesting thing, Mr. Chairman, how we 
can apply one set of standards to one country and another set 
to another and, somehow, they don't seem to balance.
    Chairman Crane. Next, Mr. Jefferson.
    Mr. Jefferson. Thank you, Mr. Chairman. I don't have much 
in the way of questions of this panel. I do want to observe 
that all of us have been working on one side or the other on 
this issue for a number of years, some of us since the start of 
this whole process of the MFN waiver, and some of us come to 
the debate accustomed to that. As you know, the whole issue 
started out with the Jackson-Vanik questions about immigration. 
And we stray far away from that in these discussions now 
because we use them as an annual opportunity to try and 
leverage the Chinese to different standards of conduct, more 
acceptable standards of conduct, ones which are more in line 
with what we agree with and expect, and also expect of our 
partners.
    I wonder--those who have testified that are opposed to the 
President's current policy of deleting the trade issue from the 
human rights questions and recognize that nothing has anything 
to do--no one has discussed Jackson-Vanik really today; we've 
discussed other issues. Is there another level of engagement 
that you argue for with respect to our relationship with China? 
I know you don't argue for isolation; that doesn't make any 
sense. The mercury level we're talking about--what is that 
level of engagement, and what is the stuff you have to take to 
get there--if there is an approach other than engaging them as 
freely and as openly as possible in trading and investing 
opportunities? Is there some other way to get at theengagement? 
As I said, there has to be a plan other than this, because you can't 
simply say, Ignore China. So, what is the plan?
    Mr. Stark. Mr. Jefferson, if I might try and respond. I may 
have been here--Mr. Clay may have, as well--when Jackson-Vanik 
was first initiated. The immigration was really an icon for 
human rights. Although immigration was at the basis of Jackson-
Vanik, it also included other human rights, and many of us 
travelled to countries periodically just to see whether we 
would renew most-favored-nation status. Sometimes we did, 
sometimes we didn't, and it tended to work.
    I would suggest that we could do as we did with Romania. In 
response to an extension of a most-favored-nation status, you 
might very well give a little more to China. But we've been 
dealing now, I think over 10 years, and have basically had a 
denigration or a diminution of human rights and any positive 
response whatsoever. In other words, it's been all give on our 
part. The deficit has grown; their trade policies have gotten 
worse, and we haven't really seen any significant, bilateral 
response from China. We might say, Just give them airplanes or, 
Just give them rice and cotton--which would make some of us 
more happy in this room--and stop buying sneakers; I don't 
care.
    It is to my experience--I think all of us have visited 
China--they won't discuss human rights with us or they put that 
aside and say, Let's talk about trade; let's talk about 
manufacturing; let's talk about your exporting more technology 
to us. I'm suggesting that we've just been bad, and whether 
it's our administration or previous administrations, we've been 
out-negotiated. We have gotten nothing for our efforts. So, 
nobody in this room, I believe, is suggesting isolationism.
    Not having MFN temporarily is a setback; it's an economic 
fine, if you will, but there's nobody to suggest for a minute 
that there wouldn't be trade. There's nothing to suggest you 
can't go half way, but in the past that hasn't worked and China 
knows that we won't follow through. We have tremendous pressure 
from the manufacturers and the agricultural interests in this 
country who want to ship and sell. We have tremendous pressure 
from the importers--the K-Marts and the Wal-Marts of the 
world--who want to sell cheap goods here, and China recognizes 
we won't override those economic pressures.
    So, at some point, we've got to have something different 
than all or nothing. I think what all of us are saying is that 
the current policy hasn't worked, whether it's our 
administration, whether it was the Bush administration, or the 
Reagan administration. So, why don't we try something 
different, and then I think we could all work together in great 
harmony and set some goals. If they don't meet those goals--
whether it's in the exportation of weaponry or restricting 
trade--we've talked about it and China must face consequences.
    What are the sanctions we've heard about today that people 
are asking the White House to put on for the selling of 
weaponry? What are those sanctions? Let's impose those; that's 
OK with me. They happen to be some of the same trade sanctions 
that you would take away if you didn't give them MFN. So, while 
the people who favor MFN say that we should sanction for 
weapons violations, what kind of sanctions?
    So, I guess all I'm saying is that it's time for change. 
Our threats mean nothing, China knows it, and that's the kind 
of frustrating sense that we have. We have no authority, and we 
are just giving-in every step of the way. I think that doesn't 
make us credible to enforce any violations, whether it's 
nonproliferation, human rights, or fair trade practices. They 
won't listen and we have done nothing, collectively, to suggest 
to China that we mean business.
    Mr. Smith of New Jersey. Mr. Jefferson, if I could respond 
briefly. No one's suggesting that we recall our own ambassador 
or close down our diplomatic mission in Beijing or any of the 
consulates that we have there. What we're talking about is a 
response to a dictatorship where we have some real tools that 
can make a difference. The balance of trade, as we all know, is 
$60-plus billion to about $13 billion of our exports going 
there.
    I led the effort, along with Tony Hall and Frank Wolf, in 
the 1980's to suspend most-favored-nation status for Romania. 
I'll never forget all those years, after all of those human 
rights trips to Romania, hearing how great and different and 
how grand Nicholas Ceaucescu was. Now I can't find anyone who 
will say Ceaucescu was a great guy, because now the records 
have come forward--and we knew some, but it was only the tip of 
the iceberg then--as to how repressive he was.
    Now, we're talking about a dictatorship. Much of what we do 
enhances the People's Liberation Army. They have, as I said in 
my testimony--I don't think there are too many communists 
anymore, in the old-line style of communism. These are real 
fascists; they're making money.
    Recently one of our colleagues was in Moscow and asked 
their chief China watcher what the difference is between China 
and what happened here in Russia? He said the military is part 
of the gravy train. They're becoming the fat cats, but they're 
also getting a technological transfer that is almost 
exponentially beefing up their military capabilities. And 
unless we see a change in their mindset, their vision, and the 
way they treat their own people, we don't want to be enhancing 
them.
    I was one of the few Republicans on the International 
Relations Committee in the early 1980's who broke with 
Republican ranks and said, Apartheid is such an egregious human 
right violation, I'm going to vote for those sanctions to end 
Apartheid and to stop all investing. There were some short-term 
troubles; some people even got poorer. Some blacks even got 
poorer, but, thank God, it was the catalyst that eventually 
greased the skids for the end of Apartheid.
    Chairman Crane. Mr. Ramstad.
    Mr. Ramstad. Thank you, Mr. Chairman. Thank you for your 
leadership on this important issue. Thank you for calling 
today's hearing on the renewal of normal trade relations with 
China. I'm going to be very brief, because we have other panels 
waiting. But, Mr. Chairman, I just want to join in the remarks 
of my distinguished colleague and friend from Washington State, 
Ms. Dunn.
    I also want to say that it's hard for me to believe that 
anyone would ignore one-fifth of the world's population. One 
out of five of the world's consumers happen to live in China. 
And while I respect the good faith position of the adversaries 
of this normal trade relationship with China, to me it seems 
obvious that we could have a greater impact on human rights if 
we were engaged, if we're physically there--American workers, 
American companies actually are there--than if we disengage. It 
seems to me that a policy of disengagement would be nothing 
more than cutting off our nose to spite our face.
    When you look at the figures, you see that normal trade 
relations are critical to jobs--absolutely critical to jobs. 
Merchandise exports alone to China in 1995 totaled $12 billion, 
supporting 170,000 American jobs. By the way, those jobs pay, 
on the average, 16 percent more than nontrade related jobs. 
Certainly, we in Minnesota understand what that means. In 1996 
alone, we exported over $60 million worth of goods to the 
growing Chinese market. We're currently working on improving 
that number through the Minnesota trade offices--Minnesota-
China initiative. Thanks to corporate leaders like Ernie Micek 
of Cargill, who's here today to testify today on the third 
panel, we are expanding our export opportunities as well as the 
job opportunities for people in Minnesota.
    So I applaud your efforts, Mr. Chairman, in extending 
normal trade relations with China and, at the same time, being 
engaged and doing something about their abysmal human rights 
record. Again, engagement, in my judgment--and the judgment of 
many thoughtful people, some of our distinguished colleagues 
from this panel notwithstanding--seems to me the right thing to 
do and the preferable thing to do. So, I look forward to 
hearing from the rest of our panels, from the other witnesses 
and, again, thank you, Mr. Chairman, for this hearing today.
    Chairman Crane. Thank you, Mr. Ramstad.
    There is one final observation I'd like to make about an 
open letter to Congress in today's New York Times: In addition 
to sponsors of normal trade relations with China, such as 
George Bush, Jimmy Carter, and Gerald Ford, virtually all of 
their Secretaries are cosigners of this letter calling for 
preservation of normal trade relations. I would recommend it to 
our colleagues. And with that, I want to express appreciation 
to all of you. Notwithstanding our differences, we have 
opportunities to work together as well as to oppose one 
another's views. I thank you for coming and testifying today.
    Our next panel is Susan Esserman, General Counsel, Office 
of the U.S. Trade Representative; and the Honorable Stanley O. 
Roth, Assistant Secretary of State for East Asian and Pacific 
Affairs, U.S. Department of State. And if you folks will be 
seated, please.
    Let me again reiterate that, if you can, please keep your 
verbal presentations to 5 minutes or less. Any printed 
statements will be made a part of the permanent record. And, 
with that, ladies first.

  STATEMENT OF SUSAN ESSERMAN, GENERAL COUNSEL, OFFICE OF THE 
               UNITED STATES TRADE REPRESENTATIVE

    Ms. Esserman. Thank you very much, Mr. Chairman, for this 
opportunity today to discuss China's most-favored-nation 
status. China will play a crucial role in the major 
international issues that our country must address in the 
decades to come. These include security in Korea, nuclear tests 
in South Asia, proliferation of advanced weapons, crime and 
drugs, the environment, human rights, religious freedom, and 
trade. The administration, thus, has a policy of comprehensive 
engagement with China. This does not mean endorsement of 
Chinese policies. Instead, it is the best way to further our 
interests across a broad range of issues, finding mutual 
interest where possible and addressing differences in a 
forthright way.
    I'd like to use the time to explain why engagement and MFN 
in particular is a far better approach than the alternative. 
Fundamental to engagement is MFN status. MFN is a misnomer. It 
is normal trade relations, the same tariff status we grant 
nearly all our trading partners. It confers no special benefits 
on China. Renewing MFN is in our economic interest. Since it 
was granted in 1980, U.S. exports to China have grown from an 
insignificant level to nearly $13 billion. China has become our 
sixth largest agricultural market, and exports to China and 
Hong Kong now support over 400,000 American jobs.
    It is also in our broader strategic interest. One example 
is China's response to the Asian financial crisis. Trade has 
given China a stake in economic stability beyond its borders. 
This has led China to contribute to the IMF recovery packages 
for Thailand and Indonesia, and to resist pressure to devalue 
its currency.
    By contrast, to revoke MFN status would be to sever our 
trade relationship. Across a wide range of economic and 
security interests, there would be consequences that we would 
come to regret. Assistant Secretary Roth will speak to the 
severe consequences in areas beyond trade. I'd like to just 
focus briefly on the economic consequences. Revoking MFN would 
raise tariffs from 6 percent to a trade-weighted average of 44 
percent on Chinese goods, raising prices consumers pay for 
basic goods. In every region of the country, it would threaten 
the jobs of manufacturing workers, the incomes of farmers, as 
well as adversely affect retail, service, marketing, and 
transportation workers that are connected to U.S.-China trade. 
It would derail WTO negotiations and jeopardize the access we 
have achieved in our bilateral agreements.
    Revoking MFN would also badly damage Hong Kong with severe 
impacts on Hong Kong trade and jobs. This would occur at the 
worst possible time, as the Asian crisis poses real economic 
difficulties. And Hong Kong just held its first election as the 
Hong Kong Special Administrative Region; this is why all 
leading Hong Kong figures support China's MFN status.
    Revoking MFN status would worsen the Asian financial 
crisis. A disruption of the magnitude of revoking MFN would 
introduce new financial and economic instability to Asia with 
unpredictable and very negative effects in the region and on 
the American economy. In short, to renew MFN is to protect 
fundamental U.S. interests and values.
    I would like to take one minute, if I could, to talk about 
our trade agenda, with MFN as the foundation for our 
relationship. The administration has two principal goals in its 
trade policy with China: First and foremost, we continue to 
actively pursue market opening initiatives on a broad scale for 
U.S. goods, services, and agricultural products. Especially in 
light of our trade deficit with China, we must see greater 
balance in our trade relationship with high growth in our 
exports. Continuing to open China's markets--not isolation and 
termination of our trade relationship--is the best way to 
tackle that part of the deficit due to trade barriers in China.
    Second, a fundamental principle of our policy has been 
working to ensure that China accepts the rule of lawso that 
China's trade and economic policies are consistent with international 
trade practices and norms. We have pursued these objectives both 
through WTO discussions and bilateral initiatives relying on a full 
range of U.S. trade laws. Engagement in this manner has helped us to 
advance both our trade and economic interests and broader values.
    There are many examples of engagement, but I want to just 
highlight one in particular because I think it is very helpful, 
if I might for just one minute, Mr. Chairman. Not long ago, 
China's intellectual property laws were weak and piracy was 
widespread. Two sets of negotiations, in which we threatened 
retaliation twice, and actually invoked retaliation under 
section 301, won landmark agreements in 1995 and 1996. Under 
these agreements, China significantly reduced the scale of 
piracy and began to establish a modern, legal infrastructure 
for the protection of intellectual property rights.
    These gains were achieved not only through hammering out 
the terms of trade agreements, but through intensive, 
continuous, and ongoing work with Chinese and administration 
officials, with active assistance from our industry. Surely 
more needs to be done; problems remain, but the key here is 
intensive engagement to continue the advancement in this area. 
The same is true in the WTO. I refer you to my statement, which 
will be in the record.
    Let me just conclude by saying that trade policy is about 
access and fairness, but the effect extends beyond commerce to 
fundamental national interests, values, and ideals. While many 
difficult problems lie ahead, the long-term trends in our trade 
relationship are important. These trends are not only good for 
China, they are good for America. The direction we are moving 
in gives the best opportunity to maintain our gains and tackle 
the array of trade problems that persist which, I assure you, 
we will continue to pursue relentlessly.
    So the administration strongly supports China's MFN status, 
and we very much look forward to working with you, Mr. 
Chairman.
    [The prepared statement follows:]
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    Chairman Crane. Thank you, Ms. Esserman.
    Mr. Roth.

STATEMENT OF STANLEY O. ROTH, ASSISTANT SECRETARY OF STATE FOR 
    EAST ASIAN AND PACIFIC AFFAIRS, U.S. DEPARTMENT OF STATE

    Mr. Roth. Thank you, Mr. Chairman. I have submitted a 
rather lengthy statement for the record, and I won't attempt to 
read it within the 5 minutes you've given us. Let me simply 
point out that the first section deals with U.S. interests in 
China and what the stakes are. This Subcommittee is very 
familiar with that. The second section, which I wasn't even 
going to mention at all, deals with engagement and what the 
proofs of engagement have been; I wanted to lay out a record. 
But let me simply state at this point that there were a number 
of assertions in the previous panel that we have no benefits, 
no results, in human rights, nonproliferation, economic 
issues--and I think that's simply a distortion of the factual 
record. So, I would like to refer you to some of the specific 
examples I've pointed to in the statement. I tried not to 
overstate. I'm not saying there are no human rights, 
nonproliferation, or economic problems remaining, but I think 
we shouldn't rewrite history and claim there are no successes 
so far for the engagement policy.
    Now, let me turn to the specific issue on the table which 
is MFN. A lot of the basic arguments on the consequences of 
denying MFN have already been laid out by my colleague from 
USTR. Let me add a few points. First I think, in addition to 
what effect it would have on Hong Kong, it's important to point 
out it would also have a major negative impact on Taiwan, 
another one of our major friends in the region, and that's 
certainly a fact that I think this Subcommittee, this Congress, 
will want to take into account. This would be a very major, 
negative blow to Taiwan at a time when its own currency and 
market are under attack as part of the Asia financial crisis.
    A second point--we can talk about more in questions if you 
want--is the impact upon China itself. I think it's very 
important to recognize that China has undertaken some major, 
structural, economic reform that we're encouraging, including 
the privatization of its state economic enterprises--a massive 
undertaking including banking and financial reform, development 
of mortgage and housing industries. If we were to deny MFN, 
which would have a significant impact on their economy, I think 
we would be undermining the very reform sectors that we most 
want to support, and this would have real serious consequences 
for us over a period of time.
    Finally, let me talk about some of the consequences that it 
would have toward U.S.-China relations, because I think a key 
point is that this is not only a commercial issue. Revocation 
of MFN would affect our relationship with China across the 
board. By denying what is essentially normal tradeties, we 
would be reversing engagement and, therefore, we'd be imperiling the 
gain that we have achieved thus far--a difficult enough process as it 
is. And I think we would be eliminating the prospects for future 
progress.
    Let me just give you a few examples--and this is not an 
exhaustive list--of what the world might look like if we 
revoked MFN for China. I think it would undercut our strategic 
cooperation, particularly in defusing escalating tensions in 
South Asia but also dismantling North Korea's nuclear program 
and pursuing a permanent peace settlement on the Korean 
peninsula. It would undoubtedly encourage more belligerent and 
xenophobic foreign policy on the part of China's leadership. 
They have a number of maritime territorial disputes with a 
variety of countries, and I think we might well see those 
exacerbated. It would have to handicap our efforts to 
strengthen China's integration into nonproliferation regimes, 
and it would limit our ability to curtail technology transfers 
to unstable regions.
    Finally, an aspect that isn't talked about nearly enough: 
It would risk support for the U.S. initiatives at the United 
Nations. This is not a minor point: China is a permanent member 
of the Security Council. They are perfectly capable of 
exercising the veto, which they have really not done. If one 
recalls Soviet behavior during the height of the cold war, you 
know just how devastating the relentless use of the veto can be 
as a tool for blocking U.S. foreign policy objectives, and we 
should take this into account. It would also jeopardize Chinese 
cooperation on global issues, some of which we've made 
important progress on: combating drug trafficking and alien 
smuggling--an area we hope to make more progress--and climate 
change.
    Finally, let me get to the threshold question: Would 
risking vitally needed cooperation on all the above fronts get 
the United States anything positive in return? In my view, 
denial of MFN could actually hinder our efforts to improve 
human rights in China. It would create a tense, hostile 
atmosphere in which Chinese leaders would be less inclined to 
take the kind of action we have worked painstakingly to 
encourage: releasing political dissidents, allowing 
international visits with prisoners, signing and ratifying 
international human rights covenants, and engaging 
international religious leaders.
    Furthermore, the loss of the U.S. market might have the 
unintended effect of weakening some of the most progressive 
elements of Chinese society. Private entrepreneurs have been 
able to expand personal freedom by being independent of the 
State, and our trade and investment have helped to expand the 
habits of free enterprise and independent thinking. We need to 
encourage this sector, not stunt its growth; we can only do 
that providing access to American markets and ideals.
    Mr. Chairman, in conclusion, as Secretary Albright has 
often said, there is no greater opportunity for challenge in 
U.S. foreign policy than to encourage China's integration into 
the world community. President Clinton's decision to extend MFN 
status to China reflects our commitment to this goal. Thank you 
very much.
    [The prepared statement follows:]
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    Chairman Crane. Thank you, Mr. Roth.
    Ms. Esserman, my understanding is that Charlene's airborne 
right now; is that correct?
    Ms. Esserman. That is correct.
    Chairman Crane. En route to China. All right, well, you 
tell her when she gets back that we're sorry we missed her.
    Ms. Dunn.
    Ms. Dunn. Thank you very much, Mr. Chairman, and thank you 
for your testimony. It was very, very interesting, I think, 
especially the results of our closing down on MFN and how it 
would affect us and our friends in the Asian economy.
    I want to ask you, Mrs. Esserman, to take a moment to focus 
more directly on the importance of MFN to nations other than 
China, in particular, Hong Kong and Taiwan. I think that people 
forget that this is not simply a situation between us and 
China. As we well know, in that relationship there are 
obstacles in the road, and we want to consider all those 
obstacles. But we also believe thoroughly that trade is 
terribly important in providing us with an environment where we 
can begin to talk about these things.
    I wonder if you would just reiterate--for example, we know 
in China we have something like 1,000 American companies and 
3,500 Americans employed by those companies living in China. I 
wonder if you would take a minute or two--and perhaps you, too 
Mr. Roth--to talk about the effect on some of the very good 
friends that we do business with in the Far East.
    Ms. Esserman. Thank you, Congresswoman Dunn. You are 
absolutely right that the revocation of MFN would have a 
significant adverse affect on Hong Kong. Hong Kong handles over 
50 percent of U.S.-China trade, making it very dependent on the 
normal commercial trade relations status. Hong Kong authorities 
themselves estimate that MFN revocation would slash trade by 
$20 to $30 billion, with a resulting loss of jobs between 
60,000 to 85,000 jobs. That is why, as I have said, Hong Kong 
leaders across the board have stated their strong support for 
the renewal of MFN.
    It is also crucially important that we continue to extend 
the normal trading relations to China now, at this very 
sensitive time. With the Asian crisis, it is particularly 
important for Hong Kong that we extend China MFN, and this is 
the case for other countries in the region also.
    Mr. Roth. Why don't I say a little bit about Taiwan? As you 
know, Taiwan has invested massively in China. It's actually 
been one of the stabilizing elements in that relationship. But 
much of that investment is geared to export industries--Korea 
exports, the United States is one of the largest markets. I 
think it's pretty obviousthat if you start massively curtailing 
exports from China to the United States by virtue of revoking MFN then 
you're going to be hurting Taiwan-owned industries. Some of these will 
go out of business and then there's going to be a major loss of 
investment on the part of Taiwanese investors.
    And as is the case with Hong Kong, the majority of the 
leaders in Taiwan have made no secret that they, too, would 
like to see MFN extended.
    Ms. Dunn. Thank you very much. I must say that there have 
been strong proponents of this point-of-view that you just 
expressed: last year Governor Chris Patton came to Washington, 
DC and spoke articulately about this. This year as Wei Sie Chen 
visited us here in Washington, DC, and also my hometown of 
Seattle, WA at a forum that was led by Robert Kapp, president 
of the United States-China Business Council, and she expressed 
this point-of-view.
    I think it's a terribly important point for us to remember 
that our friends--who are not just all over the world, but 
specifically in Taipei, Taiwan, and also in Hong Kong--are 
depending on our extending MFN.
    I yield back.
    Chairman Crane. Mr. Jefferson.
    Mr. Jefferson. Thank you, Mr. Chairman.
    As I read the President's message to the Congress 
transmitting his notification of his waiver of the application 
of Jackson-Vanik, it is, of course, limited to the issue of 
freedom of immigration and freedom to encourage further 
progress of immigration. So, it's unfair to the President to 
say, don't you think, that if he makes those two findings and 
submits it to Congress that he is somehow not discharging his 
responsibility on the MFN issue? Because these other issues 
that we've heard discussion about don't apply, technically or 
legally, at all to the Jackson-Vanik discussion, which is the 
essence of what the President has to make a determination 
about. Isn't that correct?
    Mr. Roth. Well, the President's specific report to the 
Congress deals with the narrow parameters of the legislation 
itself and treats it as a legal issue. But I think all of us--
--
    Mr. Jefferson. That is all he has to do, isn't it?
    Mr. Roth. Yes.
    Mr. Jefferson. That's his whole responsibility. So, if he 
does that, he's met his responsibility, correct?
    Mr. Roth. Yes.
    Mr. Jefferson. Now, with respect to the other issues, they 
fall within the realm of what we--when the President says he 
delinks human rights from the trade issues, it doesn't 
necessarily mean that one has less priority than the other; 
does it? I'm trying to follow these witnesses who say when you 
delink, it means one has less priority than the other. They may 
have equal priority in their spheres of discussion and 
consideration. Isn't that correct?
    Mr. Roth. Exactly.
    Mr. Jefferson. And so with the issue of human rights, 
religious freedom, and political freedom that we all care 
about: aren't they on track for discussion and for resolution, 
but in another sphere of consideration? Not with respect to the 
trade and investment side, but with respect to the diplomatic 
side. The State issues and all those matters are always present 
and the administration's pressing on those issues. Isn't that 
true?
    Mr. Roth. Yes, you're making my case better than I did.
    Mr. Jefferson. I'm trying to; now, the issue. With respect 
to the other matters of non-proliferation and all the 
discussion we've heard about those: What has been the record of 
cooperation that recognizes that these issues are separate from 
the issues that are really before this Subcommittee? 
Nonetheless, let me ask you: What has been the record in the 
last year of the Chinese Government with respect to the 
proliferation issue?
    Mr. Roth. Overall, I think you would characterize it as 
improving. We reached some significant agreements at the last 
summit, particularly with respect to stopping the sale of 
antiship cruise missiles to Iran and to dual-use export 
controls on nuclear items. And we've seen excellent Chinese 
compliance with the commitments made at the last summit.
    We are working to try to broaden areas in which we're 
getting Chinese commitments. For example, right now, we're 
trying to achieve further progress on missile proliferation. 
But overall, the trend has been positive.
    Mr. Jefferson. With respect to the India-Pakistan question: 
What has been the Chinese response to them?
    Mr. Roth. The Chinese response has been very supportive of 
United States policy. We have worked jointly at the permanent 
five at the United Nations. China was the Chair, actually, at 
the special session in Geneva to deal with the response to the 
nuclear test. And our positions are very similar in terms of 
wanting adherence to the comprehensive test ban: for them to 
both renounce future tests, to agree not to produce additional 
fissile material, and to agree to serious talks to try to 
diffuse the situation on the Indian subcontinent. It was a very 
good relationship of which we're trying to achieve a common 
strategic objective.
    Mr. Jefferson. With respect to the bilateral agreements we 
reached with the Chinese over the last few years, what is the 
record of compliance with those agreements, specifically with 
respect to prison labor, intellectual property rights, textile 
transhipment, market access, property rights, those questions?
    Ms. Esserman. Let me start on the trade side. Their record 
has been pretty good overall. There are areas, for example, in 
the 1992 MOU agreement where they have fully complied, that is, 
in lowering tariffs and removing licenses and certain quotas.
    Where they haven't been so good is in respect to 
agriculture. Agriculture is a very difficult issue; China is a 
very important market to the United States and we are pressing 
very hard to resolve some of these barriers. I might add that 
some of the barriers that we see in China are the same that we 
see around the world--in Europe in particular, where we're 
continuing to have difficult problems with them.
    In the area of intellectual property, we have been working 
intensely with Chinese authorities and provincial authorities 
to not only implement the agreement, but to establish a real 
legal infrastructure so that there is effective intellectual 
property protection.
    In the area of CD's and CD-ROMs, the compliance has been 
quite good and continuing. There are issues that remain: There 
are other piracy problems as well as market access issues that 
we are addressing.
    Mr. Jefferson. On the transshipment--because you 
didn'tmention it, I want to ask you to speak to that one too.
    Ms. Esserman. Yes. We have been vigorous in monitoring our 
textile agreements with China. And where we have found any 
evidence of transshipment, and we have followed the appropriate 
legal procedures and taken action and we have triple charged 
against their quotas.
    Mr. Jefferson. I see my time is up. Mr. Chairman, thank you 
for allowing me----
    Chairman Crane. Mr. Ramstad.
    Mr. Ramstad. Thank you, Mr. Chairman.
    First of all, let me say, Ms. Esserman, I'm a big fan of 
your boss. It's a pleasure to work with Ambassador Barshefsky 
in a bipartisan, pragmatic way on these important trade issues.
    Let me ask you this: Everyone is concerned, of course, 
about the financial instability in Asia and about the Chinese 
currency. In your judgment, do you think China will eventually 
devalue in order to stay competitive with its Asian neighbors?
    Ms. Esserman. I wouldn't want to speculate in this hearing, 
but I would say that we believe that their actions to date, 
where they have chosen to maintain their currency despite 
pressure, have been very, very helpful to the situation.
    Mr. Ramstad. Have they, therefore, been rewarded in terms 
of the trade negotiations?
    Ms. Esserman. Absolutely not. We think, again, that this is 
another product of continued and intensive engagement with 
them. But as we have always said, our trade negotiations will 
be on the merits. In respect of WTO accession, we will work 
with them. Any WTO package will be strictly on the merits and 
on terms that other members have been required to follow.
    Mr. Ramstad. Good. Let me ask you another question, Ms. 
Esserman. In your statement you talked about the status of WTO 
negotiations, that they indicated some positive signs. You 
mentioned that China agreed not to use export subsidies for 
agriculture. What implications for U.S. agriculture are in 
these signals?
    Ms. Esserman. Well, we think that is a very important step. 
That's very, very important to our agricultural community. It 
is, of course, one step. In the area of agriculture, as I 
mentioned, there is already a significant market for 
agriculture producers. China is our agriculture producers' 
sixth largest market, but many problems remain and we are 
working intently on them. They are in the form of high tariffs, 
tariff rate quotas, as well as these so-called safety standards 
that are really not based on science. So we have a ways to go 
in the agriculture area.
    Mr. Ramstad. Finally, Ms. Esserman, will you support the 
bill that Chairman Crane and I and others have sponsored to 
change the nomenclature from most-favored-nation status--which 
is misleading--to normal trade relations with China? That term 
is much more descriptive and accurate.
    Ms. Esserman. Absolutely. It goes a long way to help clear 
up the issue.
    Mr. Ramstad. Thank you, Mr. Chairman, Ms. Esserman. I yield 
back.
    Chairman Crane. Thank you.
    Mr. Houghton.
    Mr. Houghton. Thank you very much. Mr. Ramstad said that he 
was a big fan of your boss. I'm a big fan of you, Ms. Esserman. 
[Laughter.]
    And, Mr. Roth, it's nice to see you. I guess the basic 
question is: Where do we come at this? Some people don't think 
China is doing the right thing economically. There's force 
directed on economic placing, many times, of slave labor. In 
terms of the employment we've got problems. Also in terms of 
abortion, many times the concept of religion, intellectual 
property rights, and all sorts of things like that. But I think 
the question is, Do we sort of stare them down and flag them 
and tell them they're bad, or do we sort of work through them?
    I wasn't here for Chris Smith's testimony, but it's hard to 
separate the basic trading from the other issues. I basically 
come from the standpoint that it's better to work with people, 
particularly when you have this enormous powerhouse out there. 
And we are now so inextricably intertwined with the economy and 
the rest of the world--and now even more so with China--that to 
wag our finger and threaten them, scold them, just doesn't seem 
the right thing. But those issues are out there; they're very, 
very important, and not just in this room.
    How do you handle those things? Maybe you'd both like to--
--
    Mr. Roth. Let me take the first crack at it. But I think in 
your question itself, you've basically underlined the strategy 
behind what we're trying to do with engagement. It's not a 
feel-good strategy to avoid confrontation; rather it's a very 
pragmatic and realistic strategy designed to try to produce 
results on all the issues that we care about, whether it's some 
of the diplomatic foreign policy security issues that I deal 
with, or the economic issues that my colleagues at USTR and the 
other economic agencies spend so much time on.
    But the real question is, What works, what gets results, 
and is it a confrontational policy? Would that lead us to 
progress?
    I said in my statement, and I firmly believe that if we 
revoke MFN, things would go backward on human rights, that 
they'd go dramatically backward on nonproliferation. I think 
we'd get less cooperation on key foreign policy issues like the 
Korean peninsula and South Asia. And my colleague from USTR has 
explained at great length what the economic consequences might 
be for the United States, and for some of our key friends in 
Asia.
    So I think the engagement strategy is exactly what you 
suggested: a means of trying to elicit progress on issues that 
affect American interests.
    Mr. Houghton. So what you, in effect, are saying, is that 
you do believe strongly in some of these other issues, which 
are noneconomic; that the best way to resolve them is not to 
cut off relationships, but to be further involved in changing 
them, as I guess we have seen in a variety of different areas 
in China.
    Mr. Roth. Yes.
    Mr. Houghton. Ms. Esserman.
    Ms. Esserman. Congressman Houghton, I want to add to what 
Assistant Secretary Roth just said, because I think it is 
particularly pertinent in the trade area. Obviously, we cannot 
make progress in our trade relationship if we have no 
relationship.
    But the nature of the trade problems require intensive and 
painstaking work.And I did mention earlier our intellectual 
property situation. I think it is very, very interesting.
    Actually, this point definitely applies to our WTO 
accession negotiations: What we did there was we confronted the 
Chinese with the problem. We were insistent on dealing with the 
problem. We negotiated an agreement. They weren't complying as 
we wanted them to do. We threatened, and then actually invoked 
retaliation. But most importantly, we worked with them to 
develop the legal infrastructure necessary to make that 
agreement a success. And what that has required is ongoing and 
painstaking work, bringing our Customs and Justice authorities 
and the Patent and Trademark Organization over, working with 
them and working with our industry to make sure they've 
developed the kind of infrastructure necessary to ensure that 
we secure the gains that we must for our intellectual property 
industries.
    So really, the best way to go at this point is to be 
working intensely with them, and not be afraid to use the 
targeted trade tools when necessary.
    Mr. Houghton. OK, thank you very much. Thank you, Mr. 
Chairman.
    Chairman Crane. Mr. McDermott.
    Mr. McDermott. Thank you, Mr. Chairman.
    I'd like to ask a couple questions just to hear your 
thinking, because I don't really know the answers to these. 
Maybe there is no answer, but let's just suppose that the 
Congress turns down most-favored-nation for China; that leads 
to what consequences in China? Tell me what you think would 
occur there, in terms of employment, or devaluation of the 
Renminbi, or whatever.
    Mr. Roth. Well, let me talk more on the foreign policy side 
and the development of China itself, and then turn the economic 
questions over to Susan.
    First of all, I tried to indicate in my statement that 
you're undermining the very reformist elements in China itself 
that we should be encouraging; people that are trying to 
promote a lot of the steps, whether it's the privatization of 
the state economic enterprises, or financial reform, and the 
like.
    I think beyond that you're also going to see a movement to 
the right, as it were--more hardline positions on foreign 
policy issues. And I think a lot of the cooperation on certain 
areas that I've described could disappear. I would also have to 
worry about what the response might be in the Security Council 
in terms of how they might react.
    So I think what you'd get is a combined response: That if 
you did this you would a worsening of our relationships with 
China, you would be hurting your reform movement within China, 
and you would be hurting American economic interests 
simultaneously.
    Mr. McDermott. Just as an aside, I think I heard Secretary 
Rubin say that if we didn't pay our arrears and dues to the 
U.N., that we will lose our vote on the Security Council at the 
end of this year; is that correct? And if we miss this year 
then we lose our vote in the General Assembly?
    Mr. Roth. I haven't heard it for Security Council.
    Mr. McDermott. Oh, it's in the General Assembly; we would 
lose our vote.
    Mr. Roth. Let me get you his exact comment and response. I 
want to see what he said.
    Mr. McDermott. OK.
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    Ms. Esserman, could you give us a feeling for what would 
actually happen economically if we did not extend most favorite 
nation to China? Without making it seem worse than it is, I 
want a realistic estimate on your part of what that would do to 
the Chinese economy.
    Ms. Esserman. Well, I think most fundamentally what has 
caused great concern at this juncture is that the act of--the 
magnitude of--revoking MFN would really cause destabilization 
within China and within the region. And I think that is a very, 
very serious concern.
    Mr. McDermott. But by what mechanism would it cause 
destabilization? Like when the stock market fell last week and 
confidence fell in Asian economies, or would it actually be 
closing of markets and loss of exports? What would be the 
mechanism by which that destabilization would occur?
    Ms. Esserman. Well, it would be through a variety of means. 
It would create great instability in affecting confidence in 
the region, and it would affect opportunities for China in the 
United States. But of course, and most fundamentally, that kind 
of instability in Asia will have an effect on the United 
States' interests, and there are a range of concerns--economic 
concerns--that we have about the revocation of MFN. Its impact 
on our own economy here, in terms of increased costs of 
consumer goods, potential loss of jobs, would be felt in a wide 
array of areas, including the concern that we would lose the 
gains that we have fought so hard to achieve in the 
intellectual property area. And the gains that we have made in 
the WTO accession negotiations, while very slow and 
painstaking, that progress would simply stop.
    Mr. McDermott. What's the likelihood that you would expect 
the RMB to be devalued?
    Ms. Esserman. I'm sorry, I didn't hear your question.
    Mr. McDermott. The currency devaluation; what's the 
likelihood that that would happen if we withdrew most-favored-
nation trading sting? Is it more likely, or less likely, or 
would it have no effect?
    Ms. Esserman. Well, I wouldn't want to comment on what the 
Chinese plans are on devaluation. Let me simply say thatwe are 
pleased with their actions to date, and certainly any kind of dramatic 
action like revoking MFN would have a destabilizing effect on China.
    Mr. McDermott. It's my view that destabilizing China 
through this kind of action, both politically and economically, 
leads to more human rights abuses. Is that a fair estimate?
    Mr. Roth. Yes, I would not want to have a straight-line 
projection, but I would certainly say that, in the context of a 
very bad U.S.-China relationship, as well as a suffering 
Chinese economy, the leverage that we and the international 
community would have on China to improve the human rights 
situation would certainly be diminished.
    Ms. Esserman. And I think if you look at history, during 
the times of the greatest closure in China--between the early 
1950's and the early 1970's--that's a time of great abuse.
    Mr. McDermott. Thank you, Mr. Chairman.
    Chairman Crane. Mr. Matsui.
    Mr. Matsui. Mr. Chairman, I am sorry I was late. I was 
meeting with some constituents back there, and I want to 
apologize to both Ambassador Esserman, and certainly Secretary 
Roth as well. Perhaps these questions have already been 
addressed.
    Secretary Roth, in terms of the--and I was just saying to 
Chairman Crane here that it's so difficult to address 
hypothetical questions. It may be difficult for you to even 
respond to some of them, because obviously you don't want to 
get further out than you may want to get out, or should get 
out, at this particular time.
    But in terms of what the Chinese are doing with respect to 
India and Pakistan now, with the nuclear weapons having been 
detonated by both countries: Could you say, one way or the 
other, whether China has been playing a positive role now in 
helping us? Because I know the whole issue of how to set up 
roles between the two countries--just as we did with the Soviet 
Union during the Cold War--those are some areas that need to be 
addressed by the rest of the free world.
    Now, if you can't answer it I would not expect it, but if 
you could, that would be helpful.
    Mr. Roth. Actually, I don't think that's a hypothetical 
question. I think you're asking what role China is playing now, 
which is a factual question.
    Mr. Matsui. Right.
    Mr. Roth. As I tried to indicate previously, I think that 
the Chinese have been helpful in response to this immediate 
wave of nuclear tests in both countries. They did chair the 
Permanent Five, P-5 session in Geneva, in which we're trying to 
come up with a coordinated P-5 response to what happened. And 
they took substantive positions there, pretty much parallel to 
our own in terms of what they want: adherence to a 
comprehensive test band, competence-building measures, direct 
talks between India and Pakistan, adherence to limits on 
fissile materials, and the like.
    So they had a very robust nonproliferation package that 
mirrored our own. I think it's a very helpful response.
    Mr. Matsui. Thank you. In terms of the issue of 
intellectual property protection, Ambassador Esserman, I know 
that 2 years ago we entered into an agreement with the Chinese 
with respect to protection of our intellectual property. 
Obviously we've had some rough roads over the last 24 months.
    So with respect to the enforcement of the agreement, could 
you tell me how that agreement is going right now, how would 
you rate it in terms of the monitoring that your agency has 
been conducting?
    Ms. Esserman. I would say that in certain areas the 
implementation of the agreement has been very, very good and 
very successful. In the area of CD and CD-ROM piracy, the 
agreement has been very successful. And as I had mentioned 
earlier, we have been working intensely with the Chinese and 
provincial authorities to establish a legal infrastructure. And 
the Chinese Government has taken extensive action: arresting 
intellectual property violators, closing down 64 CD and CD-ROM 
production lines, and taking a number of other measures.
    That does not mean that all the work is done. We have a 
considerable amount of work to do dealing with software piracy, 
and we're working intensely on that. We also have a range of 
other issues such as trademark, and we need to make much more 
progress in the area of market access.
    Mr. Matsui. One last question.
    Secretary Roth, in the area of human rights abuses and 
religious freedom, are you seeing--maybe this isn't within your 
bailiwick, because you do have a secretary in charge of the 
human rights. But are you seeing some changes now in China, in 
those areas?
    I know that Reverend Billy Graham and a number of others 
have said we must continue to engage the Chinese, continue 
most-favored-nation status. Obviously, they want the President 
to continue his efforts and take the trip as well. Perhaps you 
might talk about some of those areas.
    Mr. Roth. Without in any way wanting to minimize the 
problems that still remain--and they're formidable--I think I 
would say that we've seen some progress on human rights. Some 
of it is very well known to this Subcommittee: the release of 
prominent dissidents on medical parole in the U.S., Wei 
Jingsheng and Wang Dan. The signing of one U.N. covenant last 
year, and the announcement that the Chinese are going to sign 
the political covenant later this year.
    We've had very positive major steps--the receiving of a 
religious delegation that the United States sent, which 
included a 1-hour meeting with President Jiang--and all these 
are an atmosphere that things are somewhat improving.
    I think even more important, Secretary Albright came away 
from her recent trip there stating that China is changing. She 
had meetings on her trip that physically wouldn't have been 
possible 2 years ago. We had a meeting at our Ambassador's 
residence with local Government leaders, think-tank people, 
members of various levels of government in which they talked 
about the process of change in China. We discussed legal 
reform, rule of law, and other issues.
    These things weren't on the agenda. Two years ago you 
couldn't find the phrase ``rule of law'' in a Chinese 
newspaper; now it's a headline issue. You're seeing village 
elections in some places, and in a few cases even the election 
of the nongovernment party candidate.
    So there is a process that's starting some change, but 
there's a long way to go, and I'm not by any means trying 
tosuggest that we do not have formidable problems remaining.
    Mr. Matsui. Are our Defense Department and also our Justice 
Department continuing meeting on a regular basis with the 
Chinese, in terms of assisting the Chinese in how to establish 
a court system with due process? Second, regarding some of the 
military conversion efforts I know Secretary Perry has been 
involved in: Are those efforts, where we have face-to-face 
engagement with the Chinese on conversion and also maybe 
setting up a judicial system continuing?
    Mr. Roth. One of the outcomes of the previous summit was 
that we did agree to engage with the Chinese on a regular basis 
across a series of issues, and you've highlighted two of them.
    For example, on the law enforcement issue we have a 
vigorous rule-of-law program with a lot of different programs 
being considered--about exchanges, training of lawyers and 
judges--that's quite promising, and that happens regularly. The 
Justice Department is also involved in this, although a lot of 
the work happens through NGOs.
    On the military side, we have a working relationship as 
well, military-to-military, but it's not on the conversion 
side. Unfortunately, that program was shut down by the Congress 
on the other side, and so our activities are in other areas. 
But we're concentrating on things like peacekeeping, on search-
and-rescue, on transparency, trying on getting them to produce 
a more accurate analysis of their own budget, their white 
papers, what their doctrine is.
    But we are trying to engage the Chinese military in these 
areas without, of course, getting into any relationship on 
military sales.
    Mr. Matsui. If we should eliminate most-favored-nation--and 
I know my time is up, Mr. Chairman--eliminate most-favored-
nation status, would you believe that those would all continue? 
Or would they--perhaps the Chinese would--what would your----
    Mr. Roth. Clearly, the Chinese would take it quite 
seriously as a major step backward if the United States were to 
revoke MFN, and they would wonder what engagement meant if that 
happened. While I would not want to give you a roadmap of what 
they might do, I think that one could expect very serious 
consequences in multiple areas.
    Mr. Matsui. Thank you. Thank you, Mr. Chairman.
    Chairman Crane. Mr. Neal.
    Mr. Neal. Thanks, Mr. Chairman. I just have a quick 
question and an observation. The MFN vote, as you might expect, 
generates some of the toughest letters that Members of Congress 
receive, in some measure, because there's so little information 
surrounding the entire question.
    But given your experience, isn't it really an issue of both 
sides telling a bit of the truth, and you just have to proceed 
with an element of faith? There have been some democratic 
reforms or near-democratic reforms that have been instituted by 
the Chinese Government, and things are better than they were, 
but not quite what we desire that they be.
    I've given up trying to write back to constituents about 
that. Instead, I call them on the phone and try to talk it 
through with them. If you can't convince them of the merit of 
your argument, at least you can persuade them to postpone a 
final decision on what you've done.
    I think that's part of this engagement process, because we 
have not succeeded very well when we try to hit them over the 
head. Even with much of the controversy that surrounds the 
president's visit, the truth is that even if we come back with 
an approval 51 to 49, we once again have advanced the 
democratic arguments, haven't we?
    Mr. Roth. I think that's a fair point, and I think you 
illustrated the fact that there is a bit of dilemma because 
there is truth on both sides. Most of the issues we've been 
talking about is good news and bad news. Some areas progress, 
some areas not enough progress.
    Not too many areas I'm happy to say were there setbacks. 
But this is a complex picture, where you can't give one 
straight, simple answer across the board.
    Ms. Esserman. And I would just extend as well, in the trade 
area it is a complex picture. The point is, looking back since 
the beginning of our grant to MFN, we have made a fair amount 
of progress.
    Businesses are now having access to China; they are 
operating in China and transmitting our values. The level of 
state ownership has declined. There has been long-term gains. 
These are good trends, but many, many problems remain. The real 
question is how you best address that. And our strongly held 
belief that terminating the relationship will not help at all 
to advance these many concerns that people have rightly pointed 
out across the range of issues.
    Mr. Neal. Thank you. That's pretty much where I come down. 
Thank you both.
    Chairman Crane. I want to express appreciation to our 
panelists for their performance today, and relieve you from 
further duty. And as I say, any written remarks will be made a 
part of the permanent record, Mr. Roth.
    Ms. Esserman. Thank you very much, Mr. Chairman.
    Chairman Crane. Thank you. And with that I would like to 
call our next panel, Ernest Micek, Chairman and Chief Executive 
Officer of Cargill Incorporated; and Clark Johnson, President 
and Chief Executive Officer of Pier 1 Imports Inc. And I would 
like for Mr. Micek to be presented to our panel here by Mr. 
Ramstad as Cargill and his district.
    And I had the pleasure of visiting up there with Mr. 
Ramstad before, and had the opportunity to be at the Cargill 
Headquarters. And when you get up there it impresses you 
overwhelmingly as a magnificent campus. But it's very beautiful 
and doing outstanding work.
    With that, I'd like to yield to Mr. Ramstad.
    Mr. Ramstad. Thank you, Mr. Chairman, and welcome to you, 
Ernie Micek. Certainly as CEO of the largest privately held 
company in the world, with operations in 72 countries and 
79,000 employees worldwide, your expertise is certainly 
welcomed here today. We appreciate your coming to Washington to 
testify.
    Also, I want to thank you especially for your outstanding 
leadership and advocacy in support of free and fair trade. Your 
efforts to open new export market and create jobs throughout 
the world are most impressive, and exemplary. You've been a 
real leader in the corporate world, creating jobs. Certainly, 
nobody's been a better corporate citizen in our State of 
Minnesota than Cargill, and with your leadership, we appreciate 
that as well.
    I just want to conclude by saying, and challenging your 
counterparts out there in the corporate world. If every CEO 
would exert half the effort and influence you have, we wouldn't 
have to battle MFN each year as we do. We wouldn't have to go 
scrapping for each and every vote, andhave these close calls, 
when jobs are on the line, when American prosperity is on the line, 
when economic growth is on the line. We'd also have Fast Track 
Authority, which is so important to the administration to have to open 
new markets and to create jobs for the American people.
    So I want to thank you and welcome you here today, Ernie. 
You certainly are not only one of the best and the brightest, 
but you've been a real friend of free trade, and that's deeply 
appreciated.
    Thank you, Mr. Chairman, I yield back.
    Chairman Crane. Thank you.
    Mr. Matsui.
    I'm sorry. Mr. Micek, you're next.

  STATEMENT OF ERNEST S. MICEK, CHAIRMAN AND CHIEF EXECUTIVE 
OFFICER, CARGILL, INC. AND CHAIRMAN OF THE EMERGENCY COMMITTEE 
                       FOR AMERICAN TRADE

    Mr. Micek. Mr. Chairman, Mr. Ramstad, and Members of this 
Subcommittee, thank you very much for those kind remarks.
    Good afternoon. My name is Ernie Micek. I'm Chairman and 
Chief Executive Officer of Cargill, Inc. Today I am testifying 
as Chairman of the Emergency Committee for American Trade, 
known as ECAT, on behalf of its member companies about the need 
to renew China's MFN treatment, a priority for ECAT member 
companies.
    Cargill has been doing business in China for nearly 30 
years. Our presence in China does not mean that we approve of 
everything that happens there. We believe that a great deal 
must change to transform China into a pluralistic society, 
governed democratically, and driven by a market economy.
    Our experience of doing business in more than 70 countries 
convinces us that walling off a neighbor cuts off any 
opportunity to change that neighbor's behavior, and makes the 
global neighborhood a more dangerous place. We believe that 
lesson applies to China as well.
    I have five points I would like to make in my presentation 
today, and refer you to the written version of my testimony for 
more detail.
    First, MFN treatment does not confer any special status to 
China beyond what is normal trade status for the majority of 
U.S. trading partners. ECAT does not believe that there should 
be any change in China's MFN status because of recent 
allegations concerning the possible transfer of sensitive 
technology to China.
    These allegations should be properly investigated, and any 
illegal conduct should be punished by applicable U.S. law. 
America's vital bilateral relations with China should not be 
put on hold while the investigations are carried out.
    Second, the renewal of China's MFN status is essential for 
the continued expansion of U.S. trade and investment in China. 
Since the first extension of MFN treatment to China in 1979, 
U.S. exports of American goods and services have grown nearly 
20-fold to $16 billion in 1997, while U.S. investments in China 
have grown to $25 billion.
    U.S. exports to China support nearly 200,000 U.S. jobs 
across every sector of our economy. China already is one of the 
top five largest markets for U.S. agriculture exports, buying 
an average of 8 to 10 million tons of grain per year, with the 
potential to import 30 million tons of grain by the year 2010.
    In addition to grain, Cargill ships orange juice and 
phosphate fertilizer, as well as cotton, corn, soybeans, 
soybean products, and meat from the United States.
    Cargill has invested in facilities in China, and we now 
employ over 500 people in China. We're proud of the fact that 
we and many other U.S. firms have made a positive impact on the 
lives, attitudes, and behaviors of our employees in China 
through improvements in workplace habits, supplying better 
products, and paying higher wages and benefits.
    Cargill has brought safety, quality, and ethics programs, 
and good management and environmental practices to China. For 
example, we require our workers to wear hard hats, safety 
shoes, safety glasses, and ear plugs when necessary--all new 
practices in China. Even the guardrails we installed around our 
work site were a foreign concept to the average Chinese worker.
    Cargill's corporate quality program and guiding 
principles--our code of conduct--have been translated into 
Chinese and taught to our employees.
    Cargill's trade with China also provides important benefits 
here at home. The export of phosphate fertilizer to China and 
elsewhere enables our Florida fertilizer facilities to operate 
year round.
    Jim Johnson, one of our union employees in Tampa, spent a 
week in Washington last year, telling that story to Members of 
Congress as part of the effort to secure passage of fast-track 
legislation. He and others like him at our many export-
dependent facilities know the United States needs to compete in 
today's global economy, and needs fast-track trade negotiating 
authority to get the best competitive terms it can.
    Doing business in China is not without challenges, as 
described in my written statement. The important point I'm 
making with this detail on Cargill's experience in China is 
this: We are struggling, but we are building our business as we 
have learned to do in many other countries, responsibly and 
honorably. Our limited success to date and our hopes for the 
future, like the hopes of other American companies, will be 
jeopardized if China's MFN status is withdrawn.
    My third point is that withdrawal of China's MFN treatment 
will jeopardize U.S. security interests and the spread of 
Western influence in China. More than just commercial interests 
are at stake. Withdrawal of China's MFN status would undercut 
important gains the United States has made in achieving greater 
strategic cooperation with China, and would undermine the 
remarkable transformation of Chinese society over the past two 
decades, resulting from its opening to the West. The Chinese 
people today enjoy higher living standards, greater economic 
freedom, and more access to outside information than ever 
before.
    Fourth, the continuation of China's MFN status is essential 
in maintaining the health of Hong Kong's economy and preserving 
Taiwan's prosperity and autonomy. Hong Kongremains a vitally 
important gateway to China, and its open economy is a major influence 
on mainland China. Maintaining China's MFN status, in turn, is crucial 
to Hong Kong's economy and to the one-China policy and efforts to 
preserve economic relations with Taiwan.
    Finally, we should not lose sight of the importance of 
maintaining a broad vision and moving toward a more stable 
relationship with China built on greater mutual understanding 
and trust. U.S. extension of permanent MFN status to China and 
China's entry into the WTO on commercially reasonable terms, 
would solidify this relationship.
    An important step in the process was the agreement last 
fall to hold regular summits between the United States and 
China. President Clinton's state visit this month is another 
chance to move ahead the U.S. agenda, and make progress in 
commercial and diplomatic relations.
    In conclusion, granting China MFN status advances U.S. 
national interests. It is essential to the expansion of U.S. 
trade in China and the Asia-Pacific region, maintaining a 
strong U.S. economy, and promoting U.S. security interests.
    Cargill, the Emergency Committee for American Trade, The 
Business Coalition for U.S.-China Trade, and many other 
business groups, strongly support the renewal of China's MFN 
status. I appreciate this opportunity to appear before the 
Trade Subcommittee on behalf of ECAT, and I look forward to 
responding to your questions.
    Mr. Chairman, in closing, I'd like to make one more 
statement. I want to thank you for the excellent letter that 
you sent with Speaker Gingrich and Chairman Archer to the 
President, supporting renewal of China's MFN treatment. Your 
letter is helping to frame the debate over MFN renewal in a 
constructive manner.
    I would also ask that the statement of the Business 
Coalition for U.S.-China Trade in support of MFN renewal, and 
the Business Coalition letter to Speaker Gingrich supporting 
MFN, be entered into the record of this hearing. Thank you very 
much.
    [The prepared statement follows:]
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    Chairman Crane. Thank you. We appreciate your testimony.
    And the bells have gone off, and inasmuch as we are on 
tight time constraints over there--now they've changed the 
guidelines and don't leave the lights on. And I think we should 
recess, subject to call of the chair. We'll go over, respond to 
this vote. And we'll come back as quickly as possible and get 
Mr. Johnson's testimony.
    Mr. Johnson. Thank you, Chairman. Fine.
    [Recess.]
    Chairman Crane. The committee will come to order. And I 
apologize to our witnesses for this interruption, but it turned 
out to be three votes.
    And now, Mr. Johnson, if you would be so kind to make your 
presentation.

 STATEMENT OF CLARK A. JOHNSON, PRESIDENT AND CHIEF EXECUTIVE 
                 OFFICER, PIER 1 IMPORTS, INC.

    Mr. Clark Johnson. Thank you, Mr. Chairman. My name is 
Clark Johnson, and I'm chairman of the board and chief 
executive officer of Pier 1 Imports. I'm here to testify today 
on behalf of the National Retail Federation, as well as my 
company, Pier 1 Imports.
    The National Retail Federation is the world's largest 
retail trade association, with membership that includes 
department stores, specialty stores, discount, mass 
merchandises and independent stores, as well as 32 national and 
50 state associations.
    The NRF membership represents over 1.4 million retailers in 
the United States, covering 22 million people, or 1 out of 
every 5 people in the United States work in retail. Last year 
companies in our organizations had combined sales of over $2.5 
trillion.
    While there's several issues that I could talk about that 
in my judgment should compel the Congress to extend MFN, I want 
to cover just two subjects.
    The first subject is the negative impact on low and middle 
income American citizens if MFN is not renewed. The mission of 
a retailer in American is to provide an assortment of a wide 
range of goods from everywhere in the world, and present that 
merchandise to our retail customers in a fashion that 
represents significant value for the customers.
    China makes products that working families can afford. One 
of the strengths of China is that products that require a high 
labor content and are low value-added products really is what 
China is noted for.
    Let me give you an example of shoes, because we heard 
something about shoes here earlier today. Forty percent of all 
of the shoes sold in the United States come from China, and 60 
percent of the low-priced shoes come from China.
    As an example of how meaningful that is to Americans, I was 
in one of our members retail establishments this summer up in 
North Carolina, and they had a sale, three pair of leather 
shoes from China for $8.81. So when you ask yourself the 
question how do low and middle income Americans get by with 
four or five children? One of the ways they do is buy good 
quality products that are imported from China and elsewhere.
    Imports generally have helped keep American inflation low. 
Although we've gone through some tenuous times in America, 
where American industry has had to restructure to become 
competitive with overseas suppliers, most of that has passed 
now, and today America is as competitive as any country in the 
world.
    I think the final question is, if we weren't buying some of 
these products of yesterday from overseas and from China, where 
would the labor come in the United States to domake these 
products?
    It's been estimated by the International Business and 
Economic Research Corporation that failure to renew normal 
trade relations for China would cost every American an extra 
$300 a year in higher prices for goods. In effect, that's a tax 
increase put on Americans, and in our collective judgment 
that's not the way to do that.
    The second factor that I'd like to touch on is China's 
potential as a market for the future of the United States and 
U.S. goods.
    Pier 1 Imports has been in China since 1975. I made my 
first trip there in 1985, and in the 13 years that I've been 
going to China, I have seen tremendous improvements. In fact, I 
was in China last week for two days, in Beijing, and when I 
commented that I had been coming to China for 13 years, one of 
my business associates said there's been more change in China 
in the last 13 years than in the 1,000 years before that. 
Remember, China's a country 3,500 years old, and we're 222 
years old, so they've been through a lot over there. But I've 
seen significant signs that progress is being made.
    There have been a series of interesting articles running in 
``The Washington Post'' on China. One that was in ``The Post'' 
today was particularly timely for this hearing, and stated that 
as of 1997 there were 263 million Chinese, out of a population 
of 1.2 billion, working in private industry.
    In 1978, just 20 years ago, there were 150,000. So they've 
gone from 150,000 in 1978 to 263 million. To me that is one of 
the strongest signs of the fact that China is moving in the 
right direction.
    Sixty-seven percent of all the Chinese live in state-owned 
housing. They have a major program underway to convert that 
state housing to independent ownership. Only 2 percent of 
Americans live in state or government housing.
    When I was there I was the guest of the Bureau of Experts. 
This bureau in China in 1997 facilitated the arrival of 80,000 
experts from all over the world, that came to China to help 
them modernize every aspect of the Chinese society. Of the 
80,000 experts, 14,000 were from the United States.
    So as we heard earlier, if China is a country that's 
closing down rather than opening up, why then the fact that 
they would let 80,000 people from all over the world come on an 
independent basis, and promulgate whatever their trends were, 
is important.
    Could I have one more minute, Chairman, to conclude my 
remarks?
    Chairman Crane. Yes, you may.
    Mr. Clark Johnson. Do you have another vote?
    Chairman Crane. Okay, we're still in business.
    Mr. Clark Johnson. Okay. Well, let me just finish here, and 
I'll be rapid, Mr. Chairman.
    Beyond MFN, which is important, America's world trade 
activities today represents 30 percent of our gross domestic 
product, $2.4 trillion worth of activity. The same activity 
that retailers represent.
    The way that we will enhance the standard of living of all 
Americans going forward is to continue to aggressively open up 
markets for American's goods around the world, for those goods 
that Americans are known for, technology, software, 
entertainment, airplanes. But what we need to be is dependable, 
consistent, predictable suppliers and customers to our world 
markets.
    There is a rush toward market economies all around the 
world, and the Chinese people are entrepreneurial, and are 
moving to their version of capitalism in a very rapid fashion. 
When this process is finished with MFN, Mr. Chairman, I think 
it's mandatory that we put Fast Track back on the front burner.
    My trade specialist that I listen to said that the world 
ahead of us is going to evolve into three trading blocks; 
Europe and Eastern Europe, the hemisphere that we live in, and 
Eastern Asia. And that it is ludicrous that the United States 
is losing the business in Central and South America--that we 
are--to the Germans, to the French, to the Japanese, and to 
others, because we haven't been able to go down there with Fast 
Track and really tell the American story. That's our legitimate 
market down there, and the time for us to get position is after 
this battle is over.
    I appreciate the opportunity of having been here today, and 
my associate and I will be happy to respond to any questions.
    [The prepared statement follows:]
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    Chairman Crane. We appreciate your willingness to 
participate and contribute toward this hearing. You made a very 
astute point there about the importance of trade in our 
national economy. We constitute less than 5 percent of the 
population on the face of this earth. Where are the customers? 
They're beyond our borders. Trade has been the most dynamic 
component of our economy and it's better than one-third of our 
total economy today, and still growing, but that could stagnate 
absent Fast Track, as you've pointed out.
    One of the things that's interesting to me is the news that 
I saw in today's paper, that the European Union is now going to 
open up free trade relations with sub-Saharan Africa. And I say 
that because we reported that bill out of our committee back in 
March, and out of the House in March, and the Senate had its 
first hearing on that today. And I was over there with Charlie 
Rangel and some other colleagues to testify. But at least the 
EU's getting the message. We aren't getting it here at all.
    So I think that we've got to lift the blinders, and 
recognize the importance of what has to be done. And stop 
playing games in these critical areas.
    Mr. Clark Johnson. Mr. Chairman, we don't have shooting 
wars anymore, but we have an economic war, and it's as vicious 
as any physical wars we've had in the past. We need to be on 
the front lines armed with the tools to promote the wellbeing 
of America and our citizens.
    Chairman Crane. Well, that vicious war though works to the 
benefit of all consumers. You better come forward with the most 
competitive best quality product at the lowest price if you 
want to survive. And thank the good Lord we've been in the 
vanguard of that effort worldwide in trade thus far, but there 
are categories.
    Some of the imports, for example from China, you've touched 
upon. I mean, you know, low cost items. Like shoes, textiles, 
and apparels. I mean these are products that are not being 
manufactured here to meet the competitive world price, at least 
to the degree that guarantees that we aren't importing a lot of 
that. And those are categories where the biggest dollar amounts 
of imports are coming. But then you examine who are the 
consumers. The consumers here in the United States are people 
in lower income brackets.
    So you could put a great wall of China around the United 
States and say we're not going to import any of that anymore, 
but who pays for it.
    Mr. Micek, you said in your testimony that the agricultural 
sector in China, where your firm operates, remains under heavy 
government control. And you mentioned the central government 
controls grain production, pricing, and distribution.
    Is this in the process of changing at all?
    Mr. Micek. Well, we'd like to think it would change, but as 
long as we operate on a year-by-year basis on renewing MFN, as 
important as food is to China with 1.3 billion people, the 
Chinese just simply cannot take the risk of depending on 
someone like the United States to supply them food in light of 
the risk that trade could be disrupted.
    So we must become a more reliable supplier going forward. 
One way to accomplish this would be to grant permanent MFN 
status, so that we do not have this annual argument about the 
renewal of China's MFN treatment. For example, in our company, 
if we have to rely on a particular raw material, we surely 
would look at a supplier that would give us reliability and 
consistency over a period of time. In China today, the United 
States is not looked at in this way, certainly from the 
agricultural standpoint.
    The net result is that we are a residual supplier to China 
today, at a time when the U.S. farmer is as competitive as 
anyone in the world. We see this as unfortunate. If China had 
permanent MFN status, I think it would be an important step in 
the right direction.
    Chairman Crane. Well, I do, too. As I say, we have several 
items on the table. CBI parity is another, and our Sub-Saharan 
Africa bill, or going forward with MFN, or normal trade 
relations. We want to change that designation because it's 
misleading to the average person. I've mentioned this is simply 
normal relations, which we have with all but six countries on 
the face of this earth, and people are startled to hear that 
because they have different interpretations of the meaning.
    At any rate, it's an annual battle, and hopefully, we'll 
see WTO accession on the part of China and conformity to 
guidelines to guarantee that we can provide permanent normal 
relations at that time.
    Mr. Micek. I'm looking forward to that.
    Chairman Crane. Mr. Portman, do you have any questions that 
you would like to put to the witnesses?
    Mr. Portman. Mr. Chairman, I want to thank you for having 
the hearing and for bringing some focus to this.
    I just caught the tailend of the testimony.
    I couldn't agree with you more. If we could call this 
normal trading relations, we would have a chance. It's just as 
good an acronym as MFN, isn't it?
    Mr. Clark Johnson. Oh, categorically. Couldn't agree with 
it more.
    Mr. Portman. No, it's just that I'm sorry I was not here 
today to hear your testimony. I appreciate the support you all 
are giving us. I'm sure you've heard this Cargill, Pier 1, and 
other companies, to the extent you can get out and explain to 
your shareholders and your employees the importance of 
international trade generally and with China specifically. It 
would be most helpful for the policymakers. Because we hear a 
lot from the other side and a more informed point of view would 
be very helpful. So thank you, gentlemen for being here.
    Mr. Clark Johnson. Thank you very much.
    Mr. Portman. Thank you, Mr. Chairman.
    Chairman Crane. Thank you both for your testimony. We will 
now call our next panel: The Reverend Robert A. Sirico, 
president, Acton Institute for the Study of Religion and 
Liberty; William R. O'Brien, director, Global Center, Beeson 
Divinity School; Martin J. Dannenfelser, Jr., director, 
Government and Media Relations, for Family Research Council; 
and Lorne Craner, president, International Republican 
Institute.
    Gentlemen, if you will take your seats. Then in the order 
that I presented you, if you will give your testimony, and try 
and keep your oral remarks to five minutes. All printed 
statements though will be made a part of the permanent record. 
With that, we'll commence with Reverend Sirico.

STATEMENT OF REVEREND ROBERT SIRICO, PRESIDENT, ACTON INSTITUTE 
             FOR THE STUDY OF RELIGION AND LIBERTY

    Reverend Sirico. Mr. Chairman, I'm Father Robert Sirico----
    Chairman Crane. Sirico, I'm sorry.
    Reverend Sirico [continuing]. That's all right.
    Chairman Crane. I apologize.
    Reverend Sirico. I represent the Acton Institute for the 
Study of Religion and Liberty, a nonprofit research 
organization that promotes international contact between 
scholars, students, and civic organizations in pursuit of a 
classically liberal world view of peace, prosperity, enterprise 
and religious freedom.
    At the outset, let me say that my fundamental concern on 
the issue of trade with China--especially in saying some things 
today before Congress that will upset some of my usual friends 
and allies--is how to better the human rights situation in 
China with particular regard to the growing religious community 
there. I take trade as a means to this end.
    Some people think that denying MFN to China would 
constitute a much needed rebuke to the Chinese regime and 
compel the government to change its policies regarding minority 
religions. I agree that the political rulers ofChina are in 
need of a moral rebuke, but one that is effective and is itself moral. 
As a Catholic priest, although not speaking for the Bishops' 
Conference, who has visited with members of the underground Catholic 
and Protestant churches, I feel a strong spiritual bond to members of 
the clergy who have been jailed for speaking out against Government 
policies--or even for preaching the gospel.
    What I do not understand is how cutting China off from 
membership in the world community of trading nations is going 
to bolster religious freedom in that country. I have yet to 
hear a persuasive argument that it would do so. I think it is 
imperative that those who favor revoking MFN for China 
understand that free trade is not solely about economic matters 
of profit for corporations. It is also about freedom and 
strengthening the civic order in that country.
    From my conversations with missionaries, Christian business 
people, and members of the Church hierarchy, it is clear that 
there is a struggle taking place in China but not of the 
Marxist variety. It is a struggle between the growing civil 
sector made up of churches, business associations, and local 
governments over against the state bureaucracies still 
dominated by old ways of thinking. Economic exchange within 
China and with the rest of the world is helping strengthen this 
civil sector.
    The dissemination of technologies--like phone systems, 
computers, access to the Internet--allow dissident religious 
groups to be in contact with others and with groups around the 
world, and thereby draw attention to the plight of those 
persecuted for their beliefs. Business can promote this by 
donating computers to churches, providing communications 
technology to civic groups, and obtaining for dissident groups 
access to books they could not otherwise afford. We have noted 
in the last months and years a rise in the contact that we have 
with Chinese groups on our website on the Internet.
    In this context, permit me to directly confront the issue 
of China's one child per family rule. It is a gruesome policy. 
As a long-time pro-life activist, I want it to be clear that I 
find China's population control methods to be a ghastly crime. 
They must end. I would like to see the U.S. take stronger 
measures to make sure that not one dime of U.S. taxpayer 
dollars goes toward providing any kind of moral sanction to 
this policy. But we must also realize the role that rising 
prosperity in China has played in reducing the numbers of 
forced abortions in China. I point you to Seth Faison's 
fascinating report in the August 17, 1997 issue of The New York 
Times.
    It is important to understand where the one-child-per-
family policy comes from in the first place. It was an 
essential part of the socialist project. If a government is 
going to plan production, dictate lines of work, tell people 
where to live--they're also going to have to tell people how 
many children they must have. But with that socialist dogma 
finding fewer and fewer adherents and free enterprise now 
flourishing in huge sections of the country, the population 
control part of the central planning regime is also breaking 
down. You see the practical, pastoral, and moral considerations 
can reinforce each other. Quite simply, there is no case to be 
made that injuring trading relations with China's private 
sector will accomplish the worthy ends sought by those 
advocating denying MFN today.
    However, these commercial relationships cannot proceed 
without a clearer view of China's abysmal record on human 
rights. Here I must agree with the critics of MFN for China and 
disagree with others who might be allies in trying to keep free 
trade open. I can only echo the words of Pope John Paul II 
``that every decision to invest involves a moral choice and 
implies certain moral obligations.'' If they are to profit from 
dealings with China, they must also reciprocate by being forces 
for good and for freedom in that country as well.
    The same is true in our diplomatic posture. I find the 
Clinton administration too willing to sweep important human 
rights issues under the rug and too quick to claim that calling 
the Chinese leaders to account would constitute a breach of 
protocol. That is why I call upon President Clinton on the 
occasion of his upcoming visit to China to speak out 
forcefully, principally, and publicly about the human rights 
violations occurring in China precisely when the eyes of the 
world are upon him--in the presence of the Chinese leadership 
in Tiananmen Square.
    We need not choose between morality and economic progress. 
Pressure should be brought to bear against the government in 
Beijing, but not against the Chinese people. Along with the 
revival in the economic sector, there comes a religious revival 
as well. It was set in motion after officials loosened some 
specific laws but they could not have known what would follow.
    Christian, Buddhist, and Islamic faiths are replacing the 
previous state religions of Marxism and Maoism. Once-empty 
Buddhist temples now team with worshipers. Christianity is more 
vigorous today in China than at the height of the Jesuit 
influence in the 17th century or the Protestant evangelical 
efforts of the 1920's. All three represent a challenge to the 
status quo. Religion has become a powerful force for further 
change in this society.
    We must also remember that the rights to freedom of worship 
assembly and speech are facilitated by the natural and sacred 
right to own and trade property. I'm also bound to point out 
that the Holy Father has spoken out in very strong terms about 
the evils that sanctions can visit upon a country. They punish 
people, not governments, He has said. One Vatican diplomat 
recently pointed out to me that in places where there is no 
trade with the outside world, there are weak church 
organizations and civil society is virtually non-existent. He 
cited North Korea, Cuba, and Vietnam as cases in point.
    In sum, it is understandable that Americans do not want to 
see their tax dollars used to back regimes that are unfriendly 
to their core values. Neither should American firms doing 
business in China avert their eyes from violations of human 
rights. Rather they should serve as advocates for greater 
freedom. But the upshot of denying China most favored nation 
trading status would be to risk scuttling the opportunity to be 
a force for good, to keep contact with the rising civic sector, 
and to improve the lot of the Chinese people.
    In countries where religious minorities are treated poorly, 
we face a choice. We can erect a wall that shuts out our 
influence or we can keep the door open using moral suasion, 
commerce, and diplomatic ties to encourage and extend the 
process of reform. A policy of peace and trade promotes a wider 
range of freedoms. It actually holds out the prospect for 
making the right kind of difference andprovides a genuine moral 
center for international, political, and economic relationships. Thank 
you.
    [The prepared statement follows:]
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    Chairman Crane. Thank you.
    Our next witness is Mr. O'Brien.

   STATEMENT OF WILLIAM R. O'BRIEN, DIRECTOR, GLOBAL CENTER, 
                     BEESON DIVINITY SCHOOL

    Mr. O'Brien. Thank you, Mr. Chairman, and committee for 
this opportunity today.
    I would like to approach this from the standpoint of the 
development in fields of religion and diplomacy over the last 
four decades and through a lens of my own experience as an 
expatriate living in Asia for one of those decades. My youthful 
intrigue with China developed into more holistic concerns while 
living in Indonesia from 1963 to 1971. I followed with keen 
interest political developments, as well as nurturing a concern 
for Christ followers in China and their churches.
    I followed the Vietnam War from Indonesia. Listening to the 
debates of the U.S. about the domino theory, I scratched my 
head in wonderment. We happened to be in Hong Kong as a family 
in January 1965, when Indonesia pulled out of the United 
Nations and helped form the Conference of the New Emerging 
Forces. The headquarters were to be built in Jakarta. The 
member bodies included North Vietnam, Cambodia, North Korea, 
and China. As the attempted coup in October 1965 unfolded, it 
was apparent for those of us who lived inside Indonesia that we 
were watching the implementation of a vice theory--not a domino 
theory.
    If the coup had been successful, conceivably the China in 
the North and Indonesia in the South--that kind of vice grip--
would have been put on Singapore thereby controlling the Sea 
Lanes between East Asia and the Western routes. If that had 
happened, history would be different today.
    There probably would have been a different perspective on 
the ethnic Chinese minority in Indonesia, if that had happened. 
There certainly would have been a different story of Christians 
and churches in both places. Meanwhile, history took a 
different turn politically and economically in China to mention 
nothing of the progressively freer opportunity for the 
expression of religion in China.
    I'm concerned with the fact that we'd not just be pushing 
our own agenda--what's in the best of the United States--but 
that we truly get inside the skin of a Middle Kingdom mindset. 
China--Middle Kingdom is the term China refers to itself by, 
not the word China. They understood that Bai--meaning north, 
the north capital, Beijing; Nan--south, Nan Xing, south 
capital; Xi--Xi on the west capital; but the east capital was 
not Shang--Shanghai. It would be apparent it would be. But it 
was Eto, which is Tokyo. So we see the vastness of the 
territory considered to fall within the geographical and mental 
boundaries of what we now know as modern China and Japan.
    To become a part of an interdependent world whereby the 
touch of computer keys over $1 trillion is exchanged across the 
borderless territories every 24 hours is a formidable challenge 
for Middle Kingdom mindsets. Further for centuries of feudal 
cultures to be interrupted by a foreign political ideology such 
as Marxism ala Mao is quite a jar in itself. Then to be jolted 
once again with a reform perspective that exposes a mystique 
best served by secrecy represents another quantum leap.
    If Deng Siao-ping believed in the economic reform he 
initiated, he also obviously felt it could only be kept on 
track through the Middle Kingdom mindset that perceives the 
whole is more important than any single part. Therefore, reform 
must be guarded and guided in such a way so as not to see 
happen in China what was happening in Russia. The larger 
communal mindset always takes precedence over individuals, and 
certainly over individualism.
    Now the reform continues to move in ways that cause many to 
see China as the world economic leader by the end of the first 
quarter of the 21st century. Peter Drucker affirms this with 
the caveat that it will not be China, but the Chinese who hold 
sway economically--see his article in the March 10, 1997 Forbes 
magazine.
    Chinese multinational corporations are already owned by 
families and clans. The 50 million overseas Chinese have built 
vast networks of commerce well-connected on themainland. These 
corporations, as most other Chinese relations, work on the basis of 
friendship and trust. Any western corporation that fails to recognize a 
Middle Kingdom mindset will have a rocky road. Any government, 
including our own, that assumes one can work with and in China solely 
from our own interest from an Enlightenment and Reformation mindset 
will learn what it means to be on the short end of the stick in the 
21st century.
    The religion issue, as our colleague here has mentioned, is 
very important. It cannot be separated and insulated away. In 
1979, China recognized five religious entities--Buddhist, 
Taoists, Muslims, Protestants, and Catholics--granting freedom 
to assemble and worship. It did not include indigenous 
movements such as Watchman Nee's Little Flock, nor Seventh-Day 
Adventists, among others. Those were viewed as cults and 
therefore did not come under the policy of religious freedom.
    Since 1979, we have witnessed increasing toleration of 
religious expression on the part of the Communist party's 
United Front Work Department. Leadership of the Three-Self 
Patriotic Movement and the China Christian Council has walked a 
fine line to meet the needs of churches and believers.
    Because time is of essence, I hope the whole thing will be 
entered in the report, but let me just say over the last 20 
years, the increasing openness to religious freedom--while 
there are policy guidelines--there is no governmental mandate 
that is forcing pastors and leaders to report, as long as they 
operate within the guidelines that are becoming increasingly 
more free.
    With all of that to say that China is a very multi-complex 
reality, China as a nation is flexing its mind as well as its 
muscle and its heart. Everything is changing. I would not want 
to be the nation standing on the outside chunking rocks at this 
mammoth. Such action may prove to ourselves we're not afraid of 
the big bad wolf, but I believe it to be not self-serving, but 
self-defeating. In fact, as a non-economist, I wondered to 
myself if the term and notion of this MFN is not a vocabulary 
of the era of competing national economies, and does not serve 
us well in this new civilization aborning. After all, we are 
shaped by the words we use.
    So I urge this committee, and the House as a whole, to be 
strongly supportive of MFN status for China. Then having done 
so, urge the State Department and any other governmental entity 
along with NGOs to choose very carefully persons designated to 
relate to the Chinese government and its people. This crucial 
intersection in which we find ourselves must not become the 
crossroads of partisan collisions that would keep us from 
influencing change in China by such influence perhaps undergo 
healing changes within our own body politic. Thank you very 
much.
    [The prepared statement follows:]
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    Chairman Crane. Thank you, Mr. O'Brien.
    Mr. Dannenfelser.

STATEMENT OF MARTIN J. DANNENFELSER, JR., DIRECTOR, GOVERNMENT 
        AND MEDIA RELATIONS, FOR FAMILY RESEARCH COUNCIL

    Mr. Dannenfelser. Thank you, Mr. Chairman. Mr. Chairman, 
members of the subcommittee, ladies and gentlemen, I appreciate 
the opportunity to testify today about the Family Research 
Council's policy priorities towards China. The subcommittee has 
asked me particularly to address the question of whether the 
U.S. should continue to renew most-favored nation status for 
China.
    The Family Research Council President Gary Bower appeared 
before your subcommittee last year to testify against renewing 
MFN for China and I am here again before this body for the same 
reason--to urge Congress to revoke MFN status to China. I 
believe the reasons to do so have only increased in the past 
year. Denial of MFN for China will ultimately send a single to 
the rulers that we're serious and bring long-term improvement 
in the deplorable conditions suffered by the people of China.
    Where have we come after another year of the same form of 
engagement with China? Arguably, we are in a less safe and more 
volatile world. Unlike what the gentleman said earlier that we 
don't have shooting wars anymore, the world is still a very 
dangerous place. We now have an estimated 13 Chinese long-range 
missiles pointed at American cities. Pakistan andIndia are on 
the brink of a nuclear arms race at least partially due to China 
selling nuclear weapons materials and missiles to Pakistan. There are 
also technology transfers to Iran and other countries.
    Hong Kong is now being ruled by a public legislature 
controlled by Beijing. Our trade deficit with China has 
increased by about $15 billion. It was $50 billion in 1997, and 
many economics are projecting that it will grow to about $60 
billion this year. Besides the highly publicized, but very 
limited symbols of releasing political dissidents Wei Jingsheng 
and Wan Dan, who were barred from returning to their home 
country, there has been no concrete evidence that conditions 
are getting any better for those in China who dare to disagree 
with their government.
    Members of an underground church in China recently sent a 
letter to Freedom House telling of how the police threw out the 
church's members, beating some, and then raised the church. The 
fact that the Chinese regime would implement crackdowns such as 
this on the eve of the first visit by a U.S. president in nine 
years suggests that our current policy with China is not being 
the desired reforms we envision.
    Last week, President Clinton presented his reasons for 
going to China. I believe he is setting up a false dichotomy by 
claiming that the debate is between a policy of engagement and 
a policy of isolationism. The debate is really about what type 
of engagement we are going to have. It is not isolationism to 
put American values at the forefront of our policy. Let me make 
it 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're merely 
telling the Chinese rulers that there are certain minimal 
standards a country must meet if it wishes to be fully welcomed 
into the family of civilized nations.
    China is currently exporting to America four times than it 
imports from America. Depending on the American market for a 
large portion of its total exports--approximately 35 percent--
China has far more to fear from its suspension of MFN than 
America has as in being China's own friendly public relations 
campaign in Washington today attests. America, in other words, 
stands before China in the summer of 1998 for the most part as 
customer. In most free economic relationships, it is the 
customer who has the power. Those who would argue that American 
values of equality and freedom for all will seep into Chinese 
culture as a result of increased trade forget that Chinese 
tyranny can also seep into ours.
    The Chinese government generally places strict constraints 
on one of the best vehicles to the outside world--the Internet. 
Last year Prodigy agreed to block all of the Internet sites 
that the government requested in order to enter into a joint 
venture with the company controlled by China's military. You 
can visit a Free Tibet website in Washington. However, you 
cannot access the human rights in China website in Hong Kong. 
Chinese censors, with the aid of Prodigy, block that site.
    There is evidence to suggest that if the U.S. were to 
redirect its trade policy toward China, more trade 
opportunities--not less--could result. It was in 1990 and 1991 
when China was faced with a real prospect of losing MFN after 
the massacre of 700 to 2,000 students at Tiananmen Square that 
Beijing announced a large contract with Boeing. They were 
clearly afraid and responded accordingly--not only with the 
Boeing contract, but by: releasing some 800 political 
prisoners; promising to ban exports of goods produced by slave 
labor; ending illegal textile shipments; accelerating U.S. 
imports; closing down all illegal factories dealing in 
copyright and software theft; and opening a nuclear reactor 
that 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 of a real prospect of losing its cherished MFN privileges 
with its greatest export market.
    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 disadvantaged trade relationships. Facts 
continue to emerge indicating America's national security is 
seriously at risk.
    U.S. high-tech trade with China is being conducted with a 
shortsightedness that exceeds any similar error we have made in 
the past. China is unquestionably engaging in the largest scale 
military buildup of any great power. Beijing uses much of the 
$40 billion in hard currency it nets from trade with the United 
States to finance its military buildup. Many of China's 
companies are virtually wholly-owned subsidiaries of the 
People's Liberation Army.
    At a minimum, Congress should enact a ban on the 
importation of materials from companies controlled by the 
People's Liberation Army. The involvement of China's PLA-
controlled firms in slave labor, transfer of nuclear technology 
and chemical weapons to terrorist states, and the oppression of 
religious believers in China cannot be seriously denied. If we 
can't, at the very least, regulate our dealings with the 
oppressors army, how is anything we say going to be taken 
seriously in Beijing?
    That same army is responsible for many of the atrocities 
committed against the people of China. China's human rights 
violations shock, or at least should shock, the conscience of 
the world. Our State Department continues to report that 
torture, extradition, judicial killings, arbitrary arrests and 
detention, forced abortion and sterilization, and brutal 
oppression of ethnic minorities and religions still exist in 
China.
    The Beijing regime has also indicated that it used 
Christians as the enemy of totalitarian Communism. Its 
leadership, determined not to repeat the mistakes as they 
viewed them, of the Soviet empire speaks disparagingly of the 
``Polish disease.'' The religious resistance to Communism 
galvanized by Pope John Paul is very much on the minds of 
Chinese leaders.
    Christians are not the only ones persecuted in Beijing. 
Buddhists, particularly those in Tibet and Muslims in the 
Northwest are experiencing a Chinese version of ethnic 
cleansing.
    Despite the numerous examples of a consistently abusive and 
authoritarian regime, our country failed to initiate the rather 
mild gesture of condemning these abuses at the United Nations 
conference on human rights this past March. President Clinton, 
when he delinked trade from human rights in 1994 that that 
would be the vehicle for raising human rights concerns.
    Mr. Chairman, the students who marched for freedom 
inTiananmen Square carried copies of our Declaration of Independence--a 
document which 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. 
That they, and we still believe them. Thank you very much.
    [The prepared statement follows:]
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    Chairman Crane. Thank you.
    Mr. Craner.

STATEMENT OF LORNE CRANER, PRESIDENT, INTERNATIONAL REPUBLICAN 
                           INSTITUTE

    Mr. Lorne Craner. Mr. Chairman, Congressman Portman, thank 
you for the opportunity to testify today. I'm not going to add 
to the China policy prescriptions you'll be receiving on 
important issues such as proliferation, Taiwan, trade deficits, 
and campaign contributions. IRI is not a think tank, but we are 
a do tank, and we're helping to nurture democracy abroad.
    So today, I want to give you IRI's perspective on some 
changes in China in which we became involved five years ago at 
the suggestion of both analysts and dissidents. I will address 
three questions: first, is China reforming its political 
system; second, do the reforms matter; and third, if they do 
matter, how can the U.S. help advance them?
    First, is China reforming its political system? The answer 
is a qualified yes incrementally, but in three areas--
electoral, legislative, and legal--that could have far-reaching 
consequences. For a decade, elections have been occurring in 
China's rural villages. They were, at first, of a very ragged 
quality. But with the passage of time, experience was gained 
and outside advice including IRI's was accepted.
    Today, up to half of China's 1 million villages have 
elections that can be described as technically well-
administered. The elections have enabled hundreds of millions 
to choose village councils responsible for local governance--
from taxes to economic development. In the process, those 
elected--about 40 percent of whom are not Communist--are 
learning that they must serve the voters. As a result, 
responsive government--something that has never before 
existed--is coming to be expected by as many as 850 million 
rural Chinese.
    In the meantime, elections are moving to a higher level to 
townships. The law governing village elections is expected to 
be debated, improved, and made permanent by China's National 
People's Congress. It may sound odd to talk about debate in 
China's National People's Congress, which has long been a 
classic Communist rubber stamp legislature whose members simply 
passed laws handed down by ministries. In the last five years, 
however, China's legislature has heavily amended draft bills 
and is expected this year to begin writing legislation. The NPC 
has also begun to exercise a greater degree of oversight 
authority. With these developments the NPC is moving away from 
being a rubber stamp for the rule of man and has begun to act 
as an institutional bulwark for the rule of law.
    Legal reform is the final area in which IRI has worked, 
initially with judges charged with adjudicating new commercial 
laws, and more recently in helping to set up a new legal aid 
system for China's poor and indigent. This recent, but 
unprecedented development, should give ordinary Chinese a means 
of redress against entrenched economic and political interests.
    The second question I posed at the beginning of my 
testimony is whether these reforms matter. I've already noted 
the unprecedented changes in political culture: rural voters 
expecting representation from those they elect; legislators 
exercising long dormant authority and ordinary citizens 
beginning to access a nascest legal system. These are the 
foundations of democracy and are therefore consequential for 
China itself. But the answer to whether these reforms matter 
for the U.S. lies in the very fears of those who seek China's 
isolation and containment. They believe that China's growing 
power will--within a decade or two--result in aggression 
against the U.S. But aggression requires both ability and 
intent. There are many powerful countries with the ability for 
aggressive action, but no intent to exercise it. The world 
would be well-served if early in the next century, China was 
similarly a powerful country lacking an aggressive intent.
    A more democratic government responsive to a well-informed 
populace and restrained by a functioning legal system would 
likely be more interested in the welfare of those they serve in 
a foreign adventurism.
    The last of the three questions I posed is how the U.S. can 
help advance these reforms. To answer that question, we need to 
know why they are occurring, and it is not because of the 
goodness in someone's heart. They are a direct result of 
economic change in China. Elections, for example, have occurred 
because the previous form of local government--communes--was 
dissolved in an attempt to raise crop yields. China's 
legislature is gaining more authority because of the need to 
reconcile free-market laws with varying regional stages of 
development. China's first recognizable legal system is taking 
shape to attract foreign investment and to resolve the tensions 
that result when ordinary citizens are hurt by economic change.
    The economic motivation for these reforms should make one 
way the U.S. can help advance them obvious. Engagement has 
encouraged economic change and by extension helped initiate 
gradual political reform. As many have noted recently, however, 
there is a certain amount of faith in the belief that 
commercial transactions alone lead to rapid democratization. 
Critics of MFN call this the inevitability cop-out. There is 
some wisdom to their opposition to commercially-based 
engagement, especially given the short time until China can 
become a first-rate military power.
    At IRI, we have pursued engagement with a purpose--
organizing and catalyzing developments within China that are 
specifically in line with U.S. interests. It is important for 
the future of both countries that the U.S. make these 
developments a significant component of engagement and 
encourage support and assist them. I look forward to answering 
your questions.
    [The prepared statement follows:]
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    Chairman Crane. Thank you very much.
    I have a quickie for you, Mr. Dannenfelser. It has to do 
with an article in today's New York Times--front page article. 
The article is about China's churches. They have some 
interesting observations in there that I wondered if you might 
have some information on. They say, according to a man named 
Reverend Don Angew--recent President of the National 
Association of Evangelicals in the U.S.--that China may 
experiencing the single--this is a direct quote--``single 
greatest revival in the history of christianity.'' Is that 
consistent with your evaluation?
    Mr. Dannenfelser. Well, as Paul Marshall, who's studied 
very widely on this subject, has said, China is a large enough 
country that everything is true somewhere within that country. 
So that's not to suggest that everywhere in China there's the 
same degree of oppression against religion. But there are some 
very basic things that can't be done still.
    For instance, the Vatican cannot appoint bishops. The 
Chinese government won't recognize those bishops. You can't 
preach about the second coming of Christ, which is an essential 
tenet of christianity.
    I think that they have certain information that comes from 
them from various sources. We have--but I don't believe that 
they really got out into the countryside unescorted by Chinese 
leaders. We have gotten people who have really--we've heard 
from people who have gone there and gone out and met with the 
underground church leaders. They've had to worship in the 
middle of the night. So they report a great deal of oppression 
and sent back messages of please continue to keep up the 
pressure back in the United States.
    So I wouldn't suggest there is not--there is a great deal 
of, you know, belief and so on that is growing there. I think 
the people, you know, who have this faith will persevere in 
many cases despite the government, but they should not be 
subjected to abuse for practicing their beliefs.
    Chairman Crane. Well, another point in this article is in 
1949--it says there were fewer than 1 million Protestants in 
China and 79 three years after the end of the cultural 
revolution when the Mao's mobs attacked churches and the homes 
of believers. Only three Protestant churches were open in all 
of China and today there are more than 12,000--up from 3,000 to 
more than 12,000 official Protestant churches that are open. 
That doesn't include the house churches.
    We had Billy Graham's son, who's been doing missionary work 
over there for the last nine years. They have been distributing 
Bibles to a lot of those house church activities. I don't think 
they are supposed to be doing that sort of--I mean the house 
church thing, I don't think is wholeheartedly legal--do you 
know the answer to that, Mr. O'Brien?
    Mr. O'Brien. There are 37,000 registered churches and 
meeting places. The terminology has shifted over this 20 years: 
registered church meaning they have openly agreed to work 
within the broad guidelines of freedom; registered meeting 
places that cooperate; unregistered cooperating meeting places 
that some call ``house churches'' or underground; and then 
unregistered non-cooperating. We don't know how many 
unregistered non-cooperating there are, but we know there are 
12,000 registered churches and another 25,000 unregistered but 
cooperating. They number 12 to 15 million. Now you'll hear 50 
to 60 million total. But nobody knows because there's no way to 
count.
    One, that culture doesn't put an emphasis on numbers, and 
we do. No. 2, they're just so proliferated, there's no way to 
get at it. There's 17 theological training centers and bible 
schools. As I indicated in my testimony, the Amity Press has 
printed and distributed 20 million Bibles within China itself. 
Interestingly, the pastors of unregistered churches come to the 
registered churches to get both their Bibles and their hymn 
books. They invite pastors of registered churches to preach in 
their pulpits. No registered pastor would go uninvited because 
it would cause the people in the unregistered churches to 
suspect they were spies or something. So there's a lot of 
misinformation, there's a lot of disinformation.
    But as I pointed out, if you look over a 20-year period, 
the progressive development toward freedom and there is an 
impressive revival. As you pointed, something--anything you 
read is true; it's happening somewhere. You may have harassment 
in one area and a revival breaking out in the province next to 
it. You have some people who are arrested--not because they're 
Christians, but because they broke the law, just like in this 
country.
    The issue of miracles in the cultic areas and those that 
did not fall in the original guidelines of freedom--there's a 
lot of heresy--the emphasis on miracles as a determinant of 
whether you're a believer or not. So they're desperately trying 
to produce new leadership that can combat heresy. So to me it's 
a very encouraging picture. I know personally these leaders.
    Chairman Crane. I have seen the figures and this article 
also documents that, that there are an estimated close to 40 
million Christians in China----
    Mr. O'Brien. It's an estimate.
    Chairman Crane [continuing]. Which is interesting because 
of the 1.2 billion Chinese only 40 million are Communists. I am 
now delegating my Chair responsibilities to Congressman 
Houghton. Rob Portman and I have to go--unless you want to ask 
a quickie before we run to catch this vote.
    Mr. Portman. Thank you, and I'm sorry that I can't stay 
with you to do our constitutional duty here. I have a number of 
questions.
    Just to tell you where I'm coming from. Many of the 
concerns raised by Mr. Dannenfelser are ones that I know that I 
asked the other panel to share and some of you addressed some 
of them. I tried to list the ones I heard Mr. Dannenfelser 
mentioning and I know there are others about China selling 
missiles to Pakistan or nuclear materials to Pakistan; you 
mentioned Iran, as well, and we have some information on that; 
the poor conditions for political prisoners; you mentioned the 
churches being forced to be underground or being harassed; the 
Chinese markets not being open enough to U.S. products; the 
concerns, of course, with the People's Liberation Army; with of 
course, the one-child policy; and forced abortions which you 
spoke about.
    You know, my question is a very simple one, and I will 
direct it to Mr. Dannenfelser, although all of you are free to 
chime in. I think I know most of your answers, but when I hear 
this litany, all of which concerns me a lot, and having been to 
China. In 1984, I spent 10 weeks on an unofficial trip. I went 
off the track a few times when I wasn't supposed to and 
survived it. You know, it is a huge, fascinating country but it 
has changed so much.
    I just wonder how revoking MFN is going to help in any of 
these categories. Having again heard your arguments about all 
the problems, and so on, I don't see how disengaging in any 
respect--putting China in the category as the six countries 
that we don't offer normal trading relations to which is the 
Cubas and the North Koreas of the world--how that's going to 
help at all in terms of moving China toward a freer country, a 
country that does respect human rights. I just wondered if you 
could expand on that.
    Mr. Dannenfelser. Well, I think one point to keep in mind 
is that they are largest growing military power in the world; 
that representatives of their government have made it clear 
that they plan to reunify Taiwan by the year 2010----
    Mr. Portman. Again, I've got to run. I apologize.
    Mr. Dannenfelser. But I think that that's a distinction 
that they are really the only--well, not the only--they are the 
most significant military threat to us down the road.
    Mr. Portman. So you put them into another category than 
those other countries that aren't a threat?
    Mr. Dannenfelser. I think so. The other thing is that you 
deal with different countries based on the circumstances and 
levers, I guess, that you have. Trade is the best peaceful 
lever that we have for dealing with China. When you have a 35-
to-2 situation--you know, 35 percent of their export market is 
the United States; they only represent 2 percent of ours, and 
that figure has stayed pretty flat for quite a number of years 
now despite the belief that it's just over the horizon. There's 
this great opportunity there that just has not materialized, 
except for maybe a number of large corporations.
    So I think that, again, the fact that in the past--in the 
recent past--that they did take some tangible action only when 
they thought we were ready to act, I would believe that even 
now to the extent that conditions are not worse is that the 
Chinese leaders realized that, if they want to maintain the 
relationship they have now, that they need to place some limit 
on what they do because that threat is still there. So I think 
that's another factor to take into consideration.
    Mr. Portman. Thank you. I've got two minutes to literally 
run to vote. I apologize I can't stay, but Chairman Houghton 
will take over.
    Mr. Houghton [presiding]. All right. Good morning, 
gentlemen, thank you very much. I'm sorry I wasn't here for 
your testimony. Do you have anything else to add? I'd be 
delighted to hear it. If not, we'll move on to the next panel.
    Mr. O'Brien. Just one interesting anecdote. This whole 
terminology on underground, clandestine church, everybody knows 
where all of the unregistered churches are. A Chinese pastor 
who boasts of having the largest unregistered church in China 
is in Guangzhou. His church meets on the second floor of a 
building, right over the police station. And everybody knows 
everything that's going on. We really need to get past some 
myths. There's enough smoke to know there's fire in places; 
it's true in a lot of places. But I think it's in our best 
interest and theirs to get inside the Middle Kingdom mind set 
and be encouragers and affirmers where we can.
    Mr. Dannenfelser. If I could add from a Catholic 
perspective, my colleague here mentioned that the Holy Father 
is not permitted to appoint bishops in China with regard to the 
patriotic association, and that is true, but I think you need 
to understand the complexity of this. One prelate in China 
estimated that 70 percent of the patriotic association bishops 
have made private vows of obedience to the Holy Father, and 
this was evidenced recently when the Vatican invited two 
patriotic association bishops to attend the Asian Synod of 
Bishops that was held in Rome several weeks ago.
    And the whole posture of the Vatican with regard to the 
patriotic association and the underground Catholic church is to 
encourage a reconciliation between the two, and not an 
isolation and a continuation of the breach.
    Mr. Houghton. That's very helpful, thank you. Anybody else?
    Mr. Dannenfelser. If I could add one or two quick things, 
following up on the question that Congressman Portmanasked a 
few minutes ago. I think a real problem with our current policy is that 
we seem to have only additional incentives in our dealings with China. 
There is really no application of a disincentive. And even when they 
commit abuses, at least on the President's part, his answer seems to 
be, well let's give them new incentives to comply with the agreement 
that they just violated.
    So it almost creates a situation where that benefits them 
to violate these agreements to get another incentive. And I 
think that that is really troublesome situation, and I think a 
balanced policy where they think that there is some penalty for 
egregious behavior, would, I think, give them some reason to 
pause when they contemplate doing some of the more undesirable 
things.
    Mr. Houghton. Have you got anything to add, Mr. Craner?
    Mr. Lorne Craner. I would add two things. No. 1, I don't 
disagree with the last statement by my colleague, but in 
addressing----
    Mr. Houghton. Which colleague?
    Mr. Lorne Craner. My colleague, Mr. Dannenfelser.
    Mr. Houghton. All right, I see. Thank you.
    Mr. Lorne Craner. But in addressing the issue of isolating 
China, I don't think we have to speculate about what it would 
do. We can look at some fairly recent history, and that is the 
period from 1949 to about 1969. China was largely isolated from 
the rest of the world. Internally, it stumbled from a communist 
revolution to the cannibalism of the Cultural Revolution, and 
in those twenty years we had to fight China twice, in Korea and 
then to a degree in Vietnam.
    By contrast, we began to engage China in about 1969 to 
1972. I think anybody who went there then, or even in the 
1980s, as Congressman Portman did, would not recognize China 
today. So I think, we don't need to speculate on whether 
isolating China helps it internally or makes it a greater 
enemy. I think we have history to show us the answer there.
    Mr. Houghton. Okay. Well, thank you very much. I appreciate 
your time, gentlemen, and your wisdom. Now we'll have another 
panel. And that panel will consist of, unless there are any 
changes, Mr. Hall, Mr. Holwill, Mr. Kapp, and Barbara Shailor.
    Well, okay, I'm not going to apologize for the discrepancy 
of the number of bodies here and the in-and-out votes, because 
we always do this. It's always the pattern down here. But in 
any event, this is an important issue. We're delighted you're 
here. We're sorry you had to wait so long. But let's go right 
into this. Maybe we'll start with Mr. Hall.

    STATEMENT OF CHRISTOPHER HALL, DIRECTOR, INTERNATIONAL 
BUSINESS, CINCINNATI MILACRON, ON BEHALF OF THE SOCIETY OF THE 
                    PLASTICS INDUSTRY, INC.

    Mr. Hall. Thank you. Mr. Chairman, it is indeed a pleasure 
to speak to you today on behalf of the Society of the Plastics 
Industry, known as SPI, and Cincinnati Milacron in support of 
renewing most-favored-nation status for China. I appreciate 
this opportunity to present the views of SPI, and those of 
Milacron.
    The Society of the Plastics Industry is a trade association 
of more than two thousand members, representing all segments of 
the plastics industry in the United States. SPI's business 
units and committees are composed of plastics processors, raw 
material suppliers, machinery manufacturers, mold makers, and 
other industry-related groups and individuals. U.S. 
manufacturers of plastics raw materials, products, machinery, 
and molds directly employ more than 1.3 million workers and 
ship more than 274 billion.
    Plastics products rank fourth among the top manufacturing 
industry groups in shipments, only behind motor vehicles, 
petroleum refining, and electronics. Cincinnati Milacron is a 
global leader in plastics processing machinery, mold-making 
equipment, machine tools, and other industrial products, with 
1997 sales of 1.9 billion. Based in Ohio, Milacron employs more 
than 13,000 in 30 plants in North America and Europe, with 
joint ventures and licensees for manufacturing and marketing in 
Asia and South America.
    I have been with Cincinnati Milacron for more than 30 
years, with direct responsibility for Milacron's international 
business and the company's China operations for several years. 
Growing and shaping a company's international business is 
certainly a challenge, but a necessary one in today's global 
marketplace.
    International trade continues to play an increasingly 
important role, not only for Cincinnati Milacron but also for 
the entire plastics industry. As plastics industry exports 
continue to grow, so do the industries' export-related jobs. 
International trade accounted for more than 118,000 plastics 
industry jobs in the United States--plastics raw material, 
products, and machinery industries in 1996, a 22 percent 
increase in four years. More than 14 percent of overall 
plastics industry employment are directly related to the 
industry's exports.
    International business for Cincinnati Milacron has also 
increased significantly in the past several years, accounting 
for 43 percent of our business and creating thousands of jobs 
in Ohio, around the country and the world.
    There is no doubt that China is an important market, both 
for my company and for the U.S. plastics industry. U.S. exports 
of plastics raw materials and products to China ranked seventh 
out of all U.S. exports in 1997, and have increased 94 percent 
in five years, to more than 432 million. U.S. exports of 
plastic resins, products, and machinery to China alone 
accounted for nearly 3,000 jobs in the U.S. in 1997.
    Cincinnati Milacron's presence in China also has grown 
considerably in recent years with exports of machinery and 
tools to China, which is a significant part of our business. We 
have offices and employees in the cities in China of Beijing, 
Shanghai, and Guangzhou. We estimate that our China sales 
account for more than 100 jobs throughout the company. But this 
is only the tip of the iceberg. Milacron's many suppliers, most 
of which are small businesses and rely heavily on their 
Milacron business, benefit significantly from our business with 
China.
    Fifty-five supplying companies provide more than 85 percent 
of Milacron's purchases, totaling more than 400 million 
annually. A business relationship with Cincinnati Milacron can 
represent 50 percent, or up to 10 million dollars of sales for 
these small to mid-size companies, the core of their business 
success. Supplying companies such as CastFab Technologies and 
Dayco are critical in meeting the needs of both our domestic 
and our Chinese customers.
    Milacron also has a responsibility to service and respondto 
our U.S. customers already in China. Some of the Cincinnati Milacron 
plastics equipment currently in use in China are owned by U.S. 
companies such as Lear and Kodak. These companies need to know that 
their U.S. supplier can deliver top-quality service. This type of 
quality customer service requires that we have Cincinnati Milacron 
employees located in China, to make sure that our U.S. customers are--
--
    Mr. Houghton. Mr. Hall, could I just interrupt a minute? 
The red light is on. Now, if you want to continue, that's 
perfectly all right by me. We're going to try to keep it in 
reasonable segments here, but go right ahead.
    Mr. Hall. Okay, just a couple more minutes, I think we can 
wrap up. Thank you, Mr. Chairman.
    In addition to the suppliers located in the United States 
and the U.S.-based customers network in China, Milacron has 
developed relationships with Chinese-European joint ventures, 
providing the opportunity for our company to break into the 
often difficult-to-penetrate European market. Furthermore, our 
success and presence in China is related to our business 
interests in the entire Asian region. Milacron's presence in 
Japan, Singapore, and other Asian countries is linked to our 
business in China, the largest economy in the region. We want 
to, we need to continue our expansion into the Asian markets, 
and we need unencumbered access to the Chinese market to do 
that.
    Cincinnati Milacron and the Society of the Plastics 
Industry strongly support renewing most favored nation status 
for China. I will be the first to admit that gaining access to 
the Chinese market and expanding there is not easy. A high 
value-added tax on plastics machinery, excessive bureaucratic 
red tape, and intellectual property rights concerns can 
discourage companies from tackling the Chinese market.
    While it may often be daunting, Cincinnati Milacron 
believes that China is critical for our continued growth, both 
domestically and internationally. If trade barriers are to be 
lowered, we must continue the dialogue between our two 
countries, to make sure that even more U.S. products reach 
Chinese customers. The Society of the Plastics Industry 
believes strongly, and so do we, that to promote an improvement 
in China's human rights practices, the United States should 
encourage an environment in which China accomplishes political 
reform on its own behalf.
    I do know that in Milacron's 25 years in the China market, 
we have seen radical changes for the better. We have seen a 
dramatic increase in the standard of living of the Chinese 
consumer. We have witnessed a greater openness to our company 
and U.S. business in general. I firmly believe that if the 
United States cracks the MFN whip, we will pay through a loss 
of sales and jobs, and our competitors from Europe and other 
Asian countries will benefit as a result. The United States, no 
matter what it does, cannot stop China from growing, but we 
must choose whether we will be part of it or whether we will be 
watching from the sideline.
    Cincinnati Milacron hopes to there playing, and leading, in 
the game to expand our China business and grow our U.S. job 
base as a result. We urge you and your colleagues to vote 
against House Joint Resolution 121, which would disapprove 
extending MFN treatment to China, and we urge you to support 
the United States' continuing a dialogue to improve the 
business ties between our two nations.
    Thank you, Mr. Chairman, for allowing Cincinnati Milacron 
and the Society of Plastics Industry to express our views. I 
would be pleased to take any questions you have.
    [The prepared statement follows:]
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    Mr. Houghton. Okay, well, thanks very much, Mr. Hall. I 
think we can wait until the end for the questions.
    Now Mr. Holwill.

     STATEMENT OF RICHARD HOLWILL, DIRECTOR, INTERNATIONAL 
RELATIONS, AMWAY CORPORATION, AND CO-CHAIRMAN, ASIA TASK FORCE, 
  U.S. CHAMBER OF COMMERCE, ON BEHALF OF THE U.S. CHAMBER OF 
                            COMMERCE

    Mr. Holwill. Mr. Chairman, I am Richard Holwill, director 
of international affairs for the Amway Corporation, but I have 
the honor today of testifying on behalf of the U.S. Chamber of 
Commerce. I'm a member of the International Policy Committee 
and co-chairman of the Asia Task Force of the Chamber. I have 
submitted my testimony for the record. I have a summary here, 
but in the interest of time I'll attempt to summarize the 
summary for you.
    We believe that expansion of U.S. trade is vital to 
America's economic future. The economy of China has experienced 
explosive growth in recent years, and it has tremendous 
potential for the future. The estimates of China's 
infrastructure requirements and the potential of its huge 
domestic market help to make China a top international priority 
for many U.S. companies during the 1980's and 1990's.
    The members of the U.S. Chamber are eager to pursue these 
opportunities in the marketplace in China, particularly given 
the aggressive efforts of our European and Asian competitors 
there. Last year, the United States exported approximately12.8 
billion dollars in goods to China. These were, by and large, high-
paying, that is, they supported hundreds of high-paying jobs in the 
United States, jobs that pay on average 10 to 15 percent more than 
domestic jobs. In 1997, China bought more than 1.6 billion in U.S. 
agricultural exports.
    Withdrawing MFN is simply not a viable option. It would put 
these jobs at risk. Without MFN, tariffs on U.S. imports from 
China would dramatically increase, anywhere from 10 to 70 
percent more. These tariff hikes would impose a tax of at least 
300 dollars on the average American family. And if China were 
to lose MFN status, it would have a legal right and every 
reason to retaliate against U.S. exports, putting at risk 
billions of dollars of U.S. sales.
    The recent economic growth in China has largely been fueled 
by this explosive surge of exports to the United States and 
other countries. Our bilateral trade deficit has grown steadily 
in the 1990's to a total of over 50 billion dollars last year. 
Expansion of our exports to China is the only viable way to 
reduce the trade deficit.
    The actual challenge facing the United States is to move 
away from this ritualized debate over MFN, and to remove the 
barriers to trade. We believe that these annual debates on 
China's MFN status are counterproductive, because they distract 
from the more important issue of bringing China into the World 
Trade Organization. U.S. products face formidable market 
barriers in China. The present commercial environment is 
difficult for U.S. companies. It makes it hard for us to 
compete and to prosper. While MFN cannot address these issues, 
they are appropriate topics for consideration in the context of 
China's bid to join the WTO.
    The challenges for the U.S. government are to bring China, 
one of the world's fastest growing trading nations, into the 
WTO, where it will be obliged to adhere to international 
standards and norms. WTO accession on commercially viable terms 
offers the best opportunity for securing vital access to this 
market.
    Looking at our annual MFN exercise, China is rightly 
concerned that the U.S. Congress may not agree to permanent 
MFN, even in the context of a WTO accession agreement. Thus, 
Chinese negotiators appear cynical about the benefits to them 
of making concessions when it appears that the entire package 
might be rejected by this Congress. Therefore, we urge members 
of Congress to consider the vote on MFN in this context, and to 
send a strong signal that permanent MFN is a desirable option 
in the near future, particularly in context of measurable 
progress on WTO accession.
    We further believe that expanding economic cooperation with 
China will have ancillary benefits in the area of human and 
worker rights. U.S. companies operating in China establish 
benchmarks for corporate practices in such critical areas as 
personnel management, corporate citizenship, fairness, and 
equal opportunity.
    The recent experience of the Amway Corporation in China can 
serve as a case study of this phenomenon, and of the potential, 
the problems, and the manner in which progress can best be made 
in China. We opened there in 1995 and by 1997, our sales to 
China exceeded 178 million dollars. Our direct-selling system 
enabled Chinese citizens to establish their own businesses and 
control of their future in a way never before possible. In 
April of this year, the Chinese government imposed a ban on 
direct selling that was intended to eliminate fraud, but also 
threatened to put us and our Chinese citizen partners out of 
business.
    I just returned from Beijing and can say that we've 
resolved most, but not all, of the outstanding issues there. We 
found officials open to reason and willing to work with us to 
resolve these difficult issues. We believe we will be able to 
reopen in the very near future. I would point out that we 
proposed to the Chinese government a series of international 
standards that would permit them to protect their citizens, 
while permitting us to offer that business opportunity. They 
were interested in these international standards far more than 
any solution that bore a made-in-the-USA label.
    As a practical matter, we require a fair degree of goodwill 
to operate successfully in China. If Congress terminates MFN 
status for China, it will have effectively put us out of 
business. If, as we expect, we gain permission from the Chinese 
government to resume operations, it would be ironic, indeed 
tragic, if then the U.S. Congress killed our business.
    Mr. Chairman, that concludes my remarks. I look forward to 
your questions.
    [The prepared statement follows:]
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    Mr. Houghton. Thank you, Mr. Holwill. Again, we're going to 
wait for the end to have questions.
    Mr. Kapp.

  STATEMENT OF ROBERT A. KAPP, PRESIDENT, UNITED STATES-CHINA 
                        BUSINESS COUNCIL

    Mr. Kapp. Mr. Chairman, thank you. I will be very brief. 
Knowing that I might be coming to this hearing near the end of 
the day, I decided that I wouldn't try to repeat verities that 
others had said before. I've associated myself and the U.S.-
China Business Council with many of the very constructive 
remarks that have been offered by other participants in the 
hearing today.
    I have chosen instead in this material to try to get us 
down to the inescapable reality that it's time to get rid of 
annual MFN. We are now in the ninth year, I think it is, of 
this exercise. We went through 10 years in which Congress said 
nothing about MFN annually, between 1980 and 1989, but for the 
last nine years we've been going through an exercise which is 
essentially doomed to perpetual fruitlessness, because it is 
misdirected.
    It stems, as you know, Mr. Chairman, from the making of an 
act by the Congress in 1974 that was aimed to force the Soviet 
Union to permit the emigration of Soviet Jews. Emigration is 
not an issue with China. The Soviet Union is gone. The world 
has changed. Only the annual MFN exercise with China remains. 
It's time to finish it up.
    MFN, as we all know, is not ``Most Favored'' anything. 
There are three or four of what I, perhaps a little bit too 
colorfully, call trade midgets around the world, with whom the 
United States does not maintain MFN relations. But for the 
rest, of course, the United States has MFN trade with one and 
all.
    I have struggled to come up with something new to say to 
break through some of this thick and seemingly perpetual fog, 
and this year I've decided to come up with the analogy of the 
pit stop.
    We are engaged in a long and complex challenge in managing 
and accommodating ourselves to the arrival of China for the 
first time in our history as a major player in the world of 
global economics and global power. It is a long and difficult 
struggle with a nation that has not played that role before in 
the modern era. There are, as Mr. Holwill and everyone else 
experienced with China will attest, many difficulties and many 
areas of conflict and friction.
    In a situation like that, whose rhythms are not governed by 
the annual calendar of Jackson-Vanik, it seems to me that if we 
have to deal with MFN at all, it should be as a necessary but 
routine maintenance stop, and nothing more. You cannot compete 
in the entire race, you cannot win the race, if you don't 
change the wheels, fill the tank, and top off the radiator 
along the way.
    Let's not load MFN down with the intellectual and moral 
baggage, and the strategic baggage, that we go through every 
year in these discussions. This is a humble, unglamourous trade 
matter. It is obsolete to begin with, but as long as we're 
stuck with it should be treated as a humble and unglamourous 
trade matter and nothing more.
    I would just paraphrase by saying that MFN is about 
maintaining the most basic, lowest common denominator standard 
of civility in the economic and non-economic relations of two 
great nations, each a major trade and economic partner of the 
other, and each possessed of the power to shape world events. 
That humble fact is the reason that Congress should sustain MFN 
and free itself from this annual burden at the earliest moment.
    I did want to take a minute to thank your chairman, 
Chairman Crane, and his committee chairman, Chairman Archer, 
and of course the speaker, Speaker Gingrich, for their very 
constructive statement on MFN issued almost immediately after 
President Clinton announced his intention to renew MFN for the 
coming year. Permit me also to call your attention, and the 
attention of interested members, to the letter which 
Representative Curt Weldon, a member of the House National 
Security Committee, has circulated, first to fellow members of 
his committee and I think then to the House as a whole, making 
a very important distinction and maintaining the separateness--
the clear separateness--of the MFN issue from the issues now 
under investigation regarding alleged breaches of United States 
military security that are being handled separately in the 
Congress. I think that's an important point.
    To conclude, as I put it a little bit colorfully, the 
annual MFN debate sustains a cottage industry of publicists, 
advocates, political strategists, journalists, pundits, 
spinmeisters, and instant interpreters, all of whom should be 
given a chance to earn their living in other ways.
    Thank you very much.
    [The prepared statement follows:]
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    Mr. Houghton. Well, thanks very much Mr. Kapp.
    Ms. Shailor.

STATEMENT OF BARBARA SHAILOR, DIRECTOR, INTERNATIONAL AFFAIRS, 
      AMERICAN FEDERATION OF LABOR-CONGRESS OF INDUSTRIAL 
                         ORGANIZATIONS

    Ms. Shailor. Thank you, Mr. Chairman, and thank you for 
this opportunity to present the views of the AFL-CIO, as we 
have for the last eight years on the extension of most-favored 
nation trading status to China.
    The AFL-CIO opposes granting MFN to China. We believe that 
China's egregious and flagrant violations of human and worker 
rights, its flaunting of international agreements on arms 
sales, market access, intellectual property rights, forced 
labor, and the environment, and its non-reciprocal and 
discriminatory trade and investment policies are not improving 
under the current policy.
    Only the threat of withdrawing trade preferences will cause 
the Chinese government to address these very serious concerns. 
Our choice, we believe, with respect to China is not between 
isolationism and engagement, as some would argue. Rather, it is 
between continuing the status quo and using the leverage of our 
marketplace to affect necessary and positive change.
    The key issue that Congress and the country face is whether 
or not our current policy is working. At the AFL-CIO we believe 
that on every dimension--human rights, worker rights, and 
trade--we are seeing a deterioration or failure to make 
significant progress.
    The human rights situation in China continues to be an 
international disgrace. The State Department's 1997 human 
rights report asserts the Chinese government continues to 
commit widespread and well-documented human rights abuses, 
including torture and mistreatment of prisoners, forced 
confessions, arbitrary arrests, and lengthy incommunicado 
detention. The government continues tight restrictions on 
freedom of speech, the press, assembly, association, religion, 
privacy, and worker rights. Human rights abuses in minority 
areas, including Tibet and Chianxing, continue in some cases in 
fact to intensify.
    The AFL-CIO welcomes the release of political prisoners 
this year, particularly Wei Jeishing, who eloquently addressed 
the Executive Council of the AFL-CIO this January. But 
releasing political prisoners forced into exile is not the same 
as allowing them to speak freely and work towards democratic 
change in their own homeland.
    The worker rights situation in China remains particularly 
bleak. The single official recognized labor organization, the 
All China Federation of Trade Unions, is controlled by the 
Communist Party. Its main tasks are to improve labor 
discipline, mobilize workers to achieve party and government 
objectives, and dispense social welfare funds.
    The State Department reports that there were more efforts 
last year to form or register independent unions in 1997 but 
that none of them were successful. The official labor unions in 
China represent the interests of both management and the 
government, but certainly not the interests of working people.
    Workers attempting to organize independent unions or carry 
out strikes in response to truly dreadful working conditions 
are fired, imprisoned, beaten, and tortured. Working conditions 
in industries such as toys, apparel, and electronics, in which 
there is significant foreign investment, are deplorable. 
Excessive hours, violation of minimum wage laws, poor health 
and safety conditions, and physical abuse by managers is 
commonplace.
    A recent report by the National Labor Committee, based on 
extensive investigations carried out in China, reveals that 
workers producing goods for the American consumer market may 
work from 60 to 98 hours a week, 28 days a month, for as little 
as 13 cents an hour. The workers are often housed in 
dormitories 16 to a room.
    Companies that produce in China to sell to American 
consumers reap enormous windfall profits, by taking advantage 
of these shamefully low wages and poor working conditions, 
while charging premium prices for their products. Nike's 
advertising budget alone for one year is 650 million dollars. 
That would pay the entire wage bill for all 50,000 workers at 
the Yuyong factory in China for 19 years. These workers produce 
Nike sneakers 12 hours a day, 7 days a week for 16 cents an 
hour.
    What is the point at which the United States Government 
will set limits on its trade with China? Will we draw the line 
at trading with and boosting the earnings of companies that are 
owned by military organizations responsible for carrying out 
the Chinese government's policy of repressing students, 
workers, and religious and ethnic minority activists?
    The AFL-CIO calls on President Clinton to immediately 
revoke the visas of all representatives of the PLA and the PAP 
doing business in the U.S.; on Congress to enact legislation to 
ban trade and investment with these companies; on corporations 
to pledge to refuse to do business with these organizations; 
and on the American consumers not to buy products produced by 
the Chinese military.
    China's policy of extorting technology transfers in 
investment from American companies interested in selling in 
China is costing the United States good jobs--good jobs in 
aircraft and automotive sectors, to name two. More serious 
transferring technology, much of which has been subsidized by 
American taxpayers, will create in China the capacity to 
challenge American competitiveness in industries that we now 
take for granted. While it may serve the interests of 
individual companies to trade away technological advantage for 
short-term market access, this certainly does not serve the 
national interest.
    The AFL-CIO supports trade expansion, international 
engagement, and equitable development. But the Chinese 
government is not engaging in free trade, and we will neither 
help the Chinese people in their aspirations, nor our own work 
force by ignoring this basic fact.
    Thank you, Mr. Chairman. I'm glad to answer any questions.
    [The prepared statement follows:]
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    Mr. Houghton. Well, thank you very much, Ms. Shailor. You 
know, I could ask each of you individual questions, but maybe 
it will be a good idea if I just threw out a couple of 
questions and then we could sort of chew on them together, to 
sort of get an idea.
    I think one question, is in terms of the businesses 
involved, and I think particularly of the Amway and Cincinnati 
Milacron. But what really is the balance of trade? Is there 
something going back and forth which is fair? That's one issue.
    Another issue is in terms of the Asian financial crisis. 
What impact is that having?
    Another issue is really this concept, as you bring up, Ms. 
Shailor, of the extorting technology transfers and investments. 
I'd be really interested in answers to those or anything else 
you might bring up. So let's open it up. And cut in at any 
time.
    Ms. Shailor. Let me address the technology transfer issues 
for a moment.
    Mr. Houghton. All right.
    Ms. Shailor. We represent many members, obviously, at 
Boeing, at McDonnell-Douglas, at a number of the large 
aerospace companies, and in separate testimony before Congress 
and in many other forums, we have been indicating for several 
years our severe concern about the extortion of technology. In 
particular, for access in the aircraft market. And at Boeing 
and McDonnell-Douglas and, I might add, I assume Cincinnati 
Milachron as well, you will see the transfer of technology 
which is dual-use equipment that is sitting in military 
facilities in China where the nuclear-strike bombers are 
produced.
    I think, when we look at China's accession to the WTO, one 
of the most significant issues is going to be the market-access 
question and the technology-transfer question, and I think, 
certainly under the current circumstances, the technology 
questions need to be looked at very carefully. They are not in 
our national interest and they are creating a key industry for 
the Chinese that we have no way at this hearing or in the 
coming years to determine will eventually come back in ways 
that we seriously regret.
    Mr. Houghton. True. Well, on this--yes, go ahead.
    Mr. Kapp. I just would urge that we be very, very specific 
in our depictions of realities here. The term, ``nuclear-strike 
bomber,'' is a classic example of the kind of easy-to-say term 
that gets launched into the public dialogue with precious 
little detail behind it. I think that it is very important that 
if we're going to cast blanket condemnations across the 
transfer of industrial technology and know-how, and managerial 
know-how, from American corporations to their customers in 
other countries around the world, including China, we be very 
specific as to the nature of the technology----
    Mr. Houghton. Sure.
    Mr. Kapp. And the nature of the----
    Mr. Houghton. No, I understand that, but----
    Ms. Shailor. I can be very specific.
    Mr. Houghton. But let's just, for example, for Cincinnati 
Milacron, suppose you were exporting plastics, or your 
customers were exporting plastics to China. And, I don't know 
if this it could happen or not, and China would say, we want to 
make them ourself. And furthermore, if you do not put up a 
plant here, and if you do not give us our technology, despite 
the fact that you cannot make any money on that, the return on 
investment would be bad, but you felt that was the only way to 
access the Chinese market, what would you do? You don't have to 
answer that, but, I mean, it's a very practical question, and 
I'm sure it's been posed to many industries.
    Mr. Holwill. Mr. Chairman, our company does not make or use 
sensitive technologies. We sell soap and personal-care items, 
but I would like to point out that we are among that do export 
to China. We want to export more to China, and we see the focus 
on MFN as inhibiting the negotiations on WTO, and I would 
suggest to my friend from the AFL-CIO that emphasis on worker 
rights can best be carried out in the context of the WTO 
session agreement. And we would urge them to join us in pushing 
this Congress and this Administration to accelerate that in the 
best, and the most aggressive way possible, and to include such 
standards in the agreement, if possible.
    Ms. Shailor. And I might add on the question of 
specificity. I think this is a problem for multinationals 
throughout the world. It's not unique to American companies. 
And I think there is no question that addressing it 
multilaterally and within the context of the WTO on 
commercially acceptable grounds and in ways that impact on all 
companies would move us forward.
    But you have a situation where companies are in fact being 
held up on their technology transfers. And so, for example, 
you'll see Cincinnati Milacron five--access milling equipment 
in facilities where there is also military production going on 
in China. And it is a concern for Boeing, for McDonnell-
Douglas, for all of the aircraft industry when the Chinese can 
simply say, if you don't transfer this technology, we'll buy 
Airbus equipment instead. So we are sympathetic to the 
pressures that our companies are under, and we would like it 
addressed in a multilateral way, but it still gets to the issue 
of the extortion by the Chinese government.
    Mr. Houghton. Well, now do you have--if I could just 
interrupt a minute--you have page 3 of your testimony. You talk 
about the People's Armed Police and the People's Liberation 
Army, and you suggest that Congress enact legislation to ban 
trade and investment and so on and so on. Why don't you boycott 
them yourselves? Why doesn't the labor union, why doesn't the 
AFL-CIO boycott them, whether the Congress does or whether 
business does?
    Ms. Shailor. Well, boycott is a----
    Mr. Houghton. No, seriously. Why aren't their flyers in 
your communities, where you have organized plants, and they're 
all over the country, why don't you do this yourself?
    Ms. Shailor. We are urging our members, and we have through 
many different ways indicated that we would very much hope that 
we would be able to identify products that were coming in from 
the PLA and urge them not to buy those products. That is a 
common process that we go through in the labor movement, as we 
have done in many situations in many countries where workers 
are being repressed and abused. As we did in Poland, as we did 
in South Africa, as we continue to do in many regions of the 
world.
    You have a situation where Chinese workers are suffering 
terribly as well. They've lived through a very difficult 
history and----
    Mr. Houghton. You know what I mean. You know what I mean on 
this. Now, maybe I could just move along to Mr. Kapp. You talk 
about this unromantic pit stop.
    Mr. Kapp. Mr. Chairman, could I interrupt for just a 
second? I think our friend from Cincinnati Milacron had a 
comment on the previous discussion.
    Mr. Houghton. Okay.
    Mr. Hall. Just quickly, before we do run out of time, I 
would like to submit to the record, in regard to these comments 
about Milacron machines involved in military, if I could at 
some later time in detail.
    Mr. Houghton. You're going to put it in the record?
    Mr. Hall. I would like to prepare something.
    Mr. Houghton. You would like to make a comment? Go ahead, 
make a comment.
    Mr. Hall. At this time, I'm not prepared to, but I would 
like to at a later time.
    Mr. Houghton. All right. Good. We'll make it at the end of 
this or submit it for the record. That would be great.
    Mr. Hall. Thank you.
    [The following was subsequently received:]
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    Mr. Houghton. Now, Mr. Kapp, this unromantic pit stop, 
could you break that down a little bit?
    Mr. Kapp. Yes. What I'm trying to get at there, Mr. 
Chairman, is the fact that, as this panel and all the other 
panels today have once again revealed, and as the comments, I 
believe, of Representative Jefferson, who was speaking when I 
first entered the room, brought us back to the MFN process is a 
creation of an American law which singles out for annual MFN 
renewal so-called non-market economies. And the criterion on 
which the President is to recertify is the question of 
immigration, the permission of the country in question that its 
citizens can emigrate.
    What has happened over the years since the tragedy at 
Tiananmen is that the MFN decision has been decked out, 
Christmas-tree style, with every other imaginable objection 
that Americans of good conscience, and Americans with strong 
political feelings, and others might raise to aspects of 
China's behavior, domestic or international.
    My point is that we've lost track of what the MFN renewal 
actually is. To me at least, and I would hope to the members of 
Congress, it is a simple procedural question. Do they permit 
the emigration, or don't they? The emigration is not an issue, 
and therefore I would like to think, (a) that we can put this 
whole dinosaur into the ground once and for all, and (b), until 
we can do that, we should try to get back to the fact that this 
is a routine maintenance stop every year in a much larger 
challenge, that the United States must face. That challenge is 
to come to terms with the emerging, powerful, and significant 
China on the world scene. This MFN exercise is, in fact, as 
Richard Holwill and others had said, a debilitating distraction 
from what we really should be doing.
    Mr. Houghton. Well, anyway, as I listen to you, the basic 
thrust is China is big; China is important; China's a great 
market; we've got to keep it open. We ought to get rid of any 
of the impediments, such as an annual review of the MFN. And 
they're very important to us; they're very important to 
employment, so on and so forth. And I agree with all that. I 
mean, I am basically down there.
    However, you know, Mrs. Shailor is saying something 
important. Is there a quid pro quo? I mean, would we deal with 
England the same way we are dealing with China? And if not, 
why?
    Mr. Holwill. Mr. Chairman, the point of my remarks was 
simply that there are legitimate criticisms. She has raised 
several; other speakers here today have raised others. But MFN 
is a unilateral move in which we attempt to arrogate to 
ourselves the right to dictate policies within China. China 
does respond well when there are clear international standards 
that it's expected to meet. If we move away from MFN and toward 
a multilateral regime with international standards, such as 
WTO, we will advance those goals far more effectively than if 
we continue to do so in a bilateral manner that engenders only 
hostility and resentment from the Chinese.
    Mr. Houghton. Okay, so what you do is you disagree with 
Mrs. Shailor. I'm going to cite a particular sentence in the 
first paragraph of her testimony. I don't think you have it. 
Let me read it to you.
    ``Only the threat of withdrawing trade preferences will 
cause the Chinese government to address these very serious 
concerns?''
    You don't agree with that?
    Mr. Holwill. I don't, sir. I believe--
    Mr. Houghton. Well, help me on that. Or anybody help me on 
that.
    Mr. Holwill. I do not, and I believe there have been 
several references here today that the Chinese have maintained 
a stable currency through the Asian economic crisis; if we shut 
the door on $68 million in Chinese exports to the United 
States, they will be obliged to find other markets, and the 
primary mechanism which we'll have to do that will be to 
devalue the one currency that is maintaining some stability in 
Asia.
    Mr. Houghton. I agree with you, but you're talking in 
economic terms, and those are real terms, and they're important 
terms, and they're probably the most critical terms. But what 
about the other issues we're trying to get at? It's always this 
balancing between the human and the right versus the economic. 
How do we handle this other area?
    Mr. Kapp. Sir, at the risk of spilling the beans on my 
Senate testimony tomorrow, which I haven't quite finished yet--
--
    Mr. Houghton. I won't tell a soul. [Laughter.]
    Mr. Kapp [continuing]. And I know it will be held 
completely within these round walls. Let me read you a little 
bit of Jasper Becker's description of the famine that engulfed 
China between 1958 and 1961, a famine caused by the obsessive 
dreams of the deified ruler of China and enforced across the 
whole face of the land.
    ``Fear and terror explain the behavior of the cadres who 
did nothing in the face of this catastrophic economic collapse. 
A cadre who questioned orders faced death. The anti-Right 
opportunists campaign had clearly demonstrated this fact, but 
it also showed that opposition not only endangered the 
official, but also his family, his relatives, and his friends. 
As the famine worsened and the peasants lost hope, the cadres 
also found that they could only order by creating more and more 
terror. All judgments and beliefs were suspended. No one dared 
move or act according to what he knew to be true. Instead, even 
the highest-ranking officials moved in a secretive society, 
paralyzed by an all-pervasive network of informers and spies. 
In a world of distorted mirrors, it became hard to grasp that 
such senseless cruelty could really be taking place. Who could 
believe that party officials would plaster and paint trees, 
stripped of their bark by starving peasants, to hide a famine 
from the country's president, Yo Tzou Chi Zhou, who was on a 
visit?''
    Now, Mr. Chairman, if we look at the society that China was 
thirty years ago, the China that adults of China today lived in 
and lived through, we come to understand how far China has in 
fact traveled in the last 20 years. The great leader is gone. 
No more semi-divine leader. No more doctrinal fanaticism. No 
more Marxism-Leninism-Mao Zedong thought in command of 
everything. No more isolation from the world--it is not, in 
fact, a small coincidence these things go together. And, of 
course, spectacularly raised living standards for large numbers 
of people.
    In other words, as we consider legislative policy toward 
China, we somehow have to understand that the China of today, 
for all of the objectionable features that all of us might 
discover somewhere, is still much more advanced and improved 
over the China of a generation ago. We need to bear that in 
mind as we go about determining American policy for a China 
that is still moving forward today and tomorrow.
    Mr. Houghton. Yes, but if we eliminate--yes, go ahead, 
please. Yes.
    Ms. Shailor. A comment on the transition, the political 
transition, that's going on in China. And I think that was an 
excellent recent history. So we've gone then from the Long 
March to the Great Leap Forward to the Cultural Revolution to 
Socialism with Chinese characteristics and I think this period 
could be called capitalism with a Fascist face.
    Mr. Kapp. Well, again, that might be a good sound bite, but 
I think that this issue actually bears a more serious analysis 
at much greater length than such a phase implies.
    Mr. Holwill. Mr. Chairman.
    Mr. Houghton. Yes.
    Mr. Holwill. I would like to add one personal observation 
here and that is, having just completed a round of negotiations 
on a very difficult, technical issue, what I have learned in 
dealing--in looking at this issue is that the Chinese 
themselves are looking to the world to see how to reorder and 
to restructure their society. They themselves are struggling 
with many of these issues.
    And I believe that the best way to achieve the goals, which 
I believe is your primary question, is MFN or the threat of 
denial of MFN going to achieve those goals? I believe the best 
way to do it is to offer to them cooperation in finding the 
appropriate international standards for dealing with issues 
that trouble them. Their workers are demanding better standards 
and those who advocate the improvement of labor--of the status 
of labor in China would be well-advised, I believe, to move 
away from threats and move toward areas of cooperation where 
they can see the benefits of a dynamic and democratic labor 
movement within the country.
    Mr. Houghton. Sure. I just want another crack at this. I 
mean, you know, we're living in an extraordinary time. I've 
been around the business world since the early 1950's and I've 
never seen anything like this. But, you know, we'll go south at 
some time. We always have; we always will. And the thing that I 
worry about is that we go south in a way which then forces us 
to get our balance of trade back into power and into balance 
and then, also, be very careful that the United States keeps 
its status as the country with a reserve currency, rather than 
going to the Euro or something like that. If that goes, then 
we've got a double-barreled hit.
    So I guess the thing that I'm concerned about is that if we 
end up in a situation--we're not there yet--where we have a 
$200 billion-a-year annual trade, not current account, but 
trade deficit with China and we see our currency destabilizing 
and we see--or having to put ourselves back in control--it's 
good to trade with China and it's important to do it, but what 
sort of monitoring mechanism do we have as we go along, if we 
take away this annual review of the MFN?
    Mr. Kapp. Congressman, monitoring mechanism as to what?
    Mr. Houghton. Monitoring--what?
    Mr. Kapp. Monitoring mechanism as to what?
    Mr. Houghton. Monitoring mechanism in terms of our trade 
imbalance.
    Mr. Kapp. Oh, I see.
    Mr. Holwill. Mr. Chairman, I would submit to you that the 
accession of China to the WTO should be the higher priority and 
there will be, through that mechanism, both an opportunity to 
provide oversight to the terms of accession and oversight by 
this committee to the action of WTO in pursuing the cases that 
are brought before it that relate to whatever dispute may be at 
hand, whether it is an investment dispute, a business 
condition--a dispute relating to market access, or a dispute 
relating to the fact that some industries may be operating with 
subsidized or slave labor.
    There are--there will be, through that mechanism, a role 
for this committee that will be vital and it will be a far more 
effective role, I submit, than the one that you now are offered 
through MFN, which is a once-a-year ritual over an all-or-
nothing option for dealing with the problems in China.
    Mr. Houghton. Well, I think you're right. But, at the same 
time, you say on page eight, you know, you say things which are 
great. I mean, they make a lot of sense. They would be nice if 
they were enacted. Provide market access for Texas and 
agricultural products, reduce export subsidy, trim protection 
of market access, liberalize access to foreign exchange, 
provide the provisions of WTO uniformly through China. That's 
not going to happen. I mean, it may ultimately, but in the 
meantime, we've got to live and we've got to be able to keep 
this thing in balance and have them understand the importance 
of our economy as well as theirs. That's what I'm saying about 
some sort of monitoring device.
    Mr. Holwill. Thank you, Mr. Chairman.
    Mr. Houghton. Well, look, you're nice to come. Mr. Hall, 
have you got something which you'd like to enter here? Or would 
you just like to just enter it in the record?
    Mr. Hall. I'd just like to enter it in the record. Thank 
you.
    Mr. Houghton. Okay, fine.
    Well, listen, I really appreciate this. It's been very, 
very helpful and, without any other comment, session adjourned.
    [Whereupon, at 5:45 p.m., the hearing was adjourned subject 
to the call of the Chair.]
    [Submissions for the record follow:]
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