[House Hearing, 106 Congress]
[From the U.S. Government Publishing Office]



 
UNITED STATES-CHINA TRADE RELATIONS AND THE POSSIBLE ACCESSION OF CHINA 
                    TO THE WORLD TRADE ORGANIZATION

=======================================================================

                                HEARING

                               before the

                         SUBCOMMITTEE ON TRADE

                                 of the

                      COMMITTEE ON WAYS AND MEANS
                        HOUSE OF REPRESENTATIVES

                       ONE HUNDRED SIXTH CONGRESS

                             FIRST SESSION

                               __________

                              JUNE 8, 1999

                               __________

                             Serial 106-28

                               __________

         Printed for the use of the Committee on Ways and Means



                     U.S. GOVERNMENT PRINTING OFFICE
64-126 CC                    WASHINGTON : 2000




                      COMMITTEE ON WAYS AND MEANS

                      BILL ARCHER, Texas, Chairman

PHILIP M. CRANE, Illinois            CHARLES B. RANGEL, New York
BILL THOMAS, California              FORTNEY PETE STARK, California
E. CLAY SHAW, Jr., Florida           ROBERT T. MATSUI, California
NANCY L. JOHNSON, Connecticut        WILLIAM J. COYNE, Pennsylvania
AMO HOUGHTON, New York               SANDER M. LEVIN, Michigan
WALLY HERGER, California             BENJAMIN L. CARDIN, Maryland
JIM McCRERY, Louisiana               JIM McDERMOTT, Washington
DAVE CAMP, Michigan                  GERALD D. KLECZKA, Wisconsin
JIM RAMSTAD, Minnesota               JOHN LEWIS, Georgia
JIM NUSSLE, Iowa                     RICHARD E. NEAL, Massachusetts
SAM JOHNSON, Texas                   MICHAEL R. McNULTY, New York
JENNIFER DUNN, Washington            WILLIAM J. JEFFERSON, Louisiana
MAC COLLINS, Georgia                 JOHN S. TANNER, Tennessee
ROB PORTMAN, Ohio                    XAVIER BECERRA, California
PHILIP S. ENGLISH, Pennsylvania      KAREN L. THURMAN, Florida
WES WATKINS, Oklahoma                LLOYD DOGGETT, Texas
J.D. HAYWORTH, Arizona
JERRY WELLER, Illinois
KENNY HULSHOF, Missouri
SCOTT McINNIS, Colorado
RON LEWIS, Kentucky
MARK FOLEY, Florida

                     A.L. Singleton, Chief of Staff

                  Janice Mays, Minority Chief Counsel

                                 ______

                         Subcommittee on Trade

                  PHILIP M. CRANE, Illinois, Chairman

BILL THOMAS, California              SANDER M. LEVIN, Michigan
E. CLAY SHAW, Jr., Florida           CHARLES B. RANGEL, New York
AMO HOUGHTON, New York               RICHARD E. NEAL, Massachusetts
DAVE CAMP, Michigan                  MICHAEL R. McNULTY, New York
JIM RAMSTAD, Minnesota               WILLIAM J. JEFFERSON, Louisiana
JENNIFER DUNN, Washington            XAVIER BECERRA, California
WALLY HERGER, California
JIM NUSSLE, Iowa


Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public 
hearing records of the Committee on Ways and Means are also published 
in electronic form. The printed hearing record remains the official 
version. Because electronic submissions are used to prepare both 
printed and electronic versions of the hearing record, the process of 
converting between various electronic formats may introduce 
unintentional errors or omissions. Such occurrences are inherent in the 
current publication process and should diminish as the process is 
further refined.


                            C O N T E N T S

                               __________

                                                                   Page

Advisory of May 28, 1999, announcing the hearing.................     2

                               WITNESSES

Office of United States Trade Representative, Hon. Richard 
  Fisher, Deputy United States Trade Representative..............    39
U.S. Department of State, Stanley O. Roth, Assistant Secretary, 
  East Asian and Pacific Affairs.................................    47

                                 ______

American Federation of Labor and Congress of Industrial 
  Organizations, John J. Sweeney.................................   102
Amway Corporation, Steve Van Andel...............................    77
Blumenauer, Hon. Earl, a Representative in Congress from the 
  State of Oregon................................................    36
Business Coalition for U.S.-China Trade:
    George David.................................................    72
    George M.C. Fisher...........................................    62
Dooley, Hon. Calvin M., a Representative in Congress from the 
  State of California............................................    33
Eastman Kodak Company, George M.C. Fisher........................    62
Emergency Committee for American Trade, Harold ``Terry'' McGraw 
  III............................................................    65
FDX Corporation, Frederick W. Smith..............................    88
Fisher, George M.C., Eastman Kodak Company, and Business 
  Coalition for U.S.-China Trade.................................    62
Frank, Hon. Barney, a Representative in Congress from the State 
  of Massachusetts...............................................    17
Gambow, Neil E., Jr., Post Glover Resistors Inc..................   110
Kapp, Robert A., United States-China Business Council............   114
McGraw-Hill Companies, Harold ``Terry'' McGraw III...............    65
Motion Picture Association of America, Inc., Jack Valenti........   106
New York Life Insurance Company, Sy Sternberg....................    82
Pelosi, Hon. Nancy, a Representative in Congress from the State 
  of California..................................................    22
Post Glover Resistors Inc., Neil E. Gambow, Jr...................   109
Rohrabacher, Hon. Dana, a Representative in Congress from the 
  State of California............................................    31
Smith, Hon. Christopher H., a Representative in Congress from the 
  State of New Jersey............................................    11
Smith, Frederick W., FDX Corporation.............................    88
Sternberg, Sy, New York Life Insurance Company...................    82
Sweeney, John J., American Federation of Labor and Congress of 
  Industrial Organizations.......................................   102
United States-China Business Council:
    Robert A. Kapp...............................................   114
    George David.................................................    72
U.S. Chamber of Commerce, Steve Van Andel........................    77
United Technologies Corporation, George David....................    72
Valenti, Jack, Motion Picture Association of America, Inc........   106
Van Andel, Steve, Amway Corporation, and U.S. Chamber of Commerce    77
Wolf, Hon. Frank R., a Representative in Congress from the State 
  of Virginia....................................................    19

                       SUBMISSIONS FOR THE RECORD

American Apparel Manufacturers Association, Arlington, VA, 
  statement......................................................   124
American Textile Manufacturers Institute, statment...............   125
International Mass Retail Association, Arlington, VA, statement..   127
SMART, Bethesda, MD, Bernard D. Brill, statement.................   128


UNITED STATES-CHINA TRADE RELATIONS AND THE POSSIBLE ACCESSION OF CHINA 
                    TO THE WORLD TRADE ORGANIZATION

                              ----------                              


                         TUESDAY, JUNE 8, 1999

                  House of Representatives,
                       Committee on Ways and Means,
                                     Subcommittee on Trade,
                                                    Washington, DC.
    The Subcommittee met, pursuant to notice, at 1:02 p.m., in 
room 1100, Longworth House Office Building, Hon. Philip Crane 
(Chairman of the Subcommittee) presiding.
    [The advisory announcing the hearing follows:]

ADVISORY

FROM THE 
COMMITTEE
 ON WAYS 
AND 
MEANS

                         SUBCOMMITTEE ON TRADE

                                                Contact: (202) 225-1721
FOR IMMEDIATE RELEASE

May 28, 1999

No. TR-11

Crane Announces Hearing on United States-China Trade Relations and the 
      Possible Accession of China to the World Trade Organization

    Congressman Philip M. Crane (R-IL), Chairman, Subcommittee on Trade 
of the Committee on Ways and Means, today announced that the 
Subcommittee will hold a hearing on United States-China trade relations 
and the possible accession of China to the World Trade Organization 
(WTO). The hearing will take place on Tuesday, June 8, 1999, in the 
main Committee hearing room, 1100 Longworth House Office Building, 
beginning at 1:00 p.m.
      
    Oral testimony at this hearing will be heard from both invited and 
public witnesses. Also, any individual or organization not scheduled 
for an oral appearance may submit a written statement for consideration 
by the Committee or for inclusion in the printed record of the hearing.
      

BACKGROUND:

      
    Article XII of the Agreement Establishing the World Trade 
Organization states that any State or separate customs territory may 
accede to the WTO ``on terms to be agreed between it and the WTO.'' In 
practice, any WTO applicant must negotiate terms for membership in the 
WTO in the form of a Protocol of Accession. Through the operation of a 
Working Party, the United States and other WTO members have an 
opportunity to review the trade regimes of applicants to ensure that 
they are capable of implementing WTO obligations. In parallel with the 
Working Party's efforts, the United States and other interested member 
governments conduct separate negotiations with the applicant. These 
bilateral negotiations are aimed at achieving specific concessions and 
commitments on tariff levels, agricultural market access, and trade in 
services.
      
    China applied for accession to the General Agreement on Tariffs and 
Trade in July 1986, and work has proceeded sporadically in the China 
Working Party since that time to negotiate the conditions upon which 
China will enter the WTO.
      
    On April 8, 1999, Ambassador Barshefsky announced that U.S. and 
Chinese negotiators secured broad progress toward an expansive 
bilateral market access agreement, along with Chinese commitments to 
adopt WTO rules relating to such issues as technology transfer and 
offsets, subsidies, product safeguards, and State enterprises. China 
also agreed to an immediate end to sanitary and phytosanitary bans on 
the importation of United States wheat, meat, and citrus products.
      
    Because the United States does not extend unconditional normal-
trade-relations (NTR) status to China as a result of the application of 
the Jackson-Vanik amendment to that country, the United States must 
invoke the non-application clause of the WTO (Article XXXV) upon 
China's accession, meaning that the United States would not apply the 
WTO Agreements to China. Granting China unconditional NTR trade status 
would require amending sections 402(a) and (b) of the Trade Act of 
1974, the so-called Jackson-Vanik amendment. That law sets forth 
criteria which must be met, or waived by the President, in order for 
the President to grant NTR status to non-market economies such as 
China. Conditional, non-discriminatory NTR trade status was first 
granted to the People's Republic of China, pursuant to Title IV, on 
February 1, 1980, and has been extended annually since that time. 
Extensions are granted based upon a Presidential determination that 
such an extension will substantially promote the freedom of emigration 
objectives in Title IV of the Trade Act of 1974.
      
    Annual Presidential waiver authority under Title IV expires on July 
3 of each year. The renewal procedure requires the President to submit 
to Congress a recommendation for a 12-month extension by no later than 
30 days prior to the waiver's expiration (i.e., by not later than June 
3). The waiver authority continues in effect unless disapproved by 
Congress. Disapproval, should it occur, would take the form of a joint 
resolution disapproving the President's determination to waive the 
Jackson-Vanik freedom of emigration requirements for China.
      
    In announcing the hearing, Chairman Crane said: ``It is troubling 
for those of us who support normalizing U.S. trade relations with China 
to observe that China's WTO negotiations-marked by enormous progress in 
April--are again suspended due to China's unwillingness to sit back 
down at the table. Premier Zhu's offer to President Clinton represents 
costless, unilateral trade concessions for U.S. firms and workers which 
are in danger of slipping through our fingers, a sad casualty of 
deteriorating of relations in other areas. I urge the President and the 
Chinese leadership to push ahead on trade talks with a clear 
appreciation of the commercial gains that would be associated with a 
sound WTO agreement, despite the formidable problems that dominate many 
other aspects of bilateral relations between our two countries.''
      

FOCUS OF THE HEARING:

      
    The focus of the hearing will be to examine the status and future 
of United States-China trade relations, including the yearly renewal of 
China's normal trade status, and the problems and opportunities 
associated with the entry of China into the WTO. Testimony will be 
received on objectives for the negotiations with China, as well as on 
the anticipated impact of its WTO membership on U.S. workers, 
industries, and other affected parties. In particular, witnesses should 
discuss the potential value of the recent Chinese concessions to U.S. 
commercial interests. Members of the Subcommittee would also welcome 
testimony on how progress in China's WTO negotiations are affecting the 
pending application of Taiwan to join the WTO and the potential impact 
on China, Taiwan, and Hong Kong of normalized trade relations.
      

DETAILS FOR SUBMISSIONS OF REQUESTS TO BE HEARD:

      
    Requests to be heard at the hearing must be made by telephone to 
Traci Altman or Pete Davila at (202) 225-1721 no later than the close 
of business, Wednesday, June 3, 1999 . The telephone request should be 
followed by a formal written request to A.L. Singleton, Chief of Staff, 
Committee on Ways and Means, U.S. House of Representatives, 1102 
Longworth House Office Building, Washington, D.C. 20515. The staff of 
the Subcommittee on Trade will notify by telephone those scheduled to 
appear as soon as possible after the filing deadline. Any questions 
concerning a scheduled appearance should be directed to the 
Subcommittee on Trade staff at (202) 225-6649.
      
    In view of the limited time available to hear witnesses, the 
Subcommittee may not be able to accommodate all requests to be heard. 
Those persons and organizations not scheduled for an oral appearance 
are encouraged to submit written statements for the record of the 
hearing. All persons requesting to be heard, whether they are scheduled 
for oral testimony or not, will be notified as soon as possible after 
the filing deadline.
      
    Witnesses scheduled to present oral testimony are required to 
summarize briefly their written statements in no more than five 
minutes. THE FIVE-MINUTE RULE WILL BE STRICTLY ENFORCED. The full 
written statement of each witness will be included in the printed 
record, in accordance with House Rules.
      
    In order to assure the most productive use of the limited amount of 
time available to question witnesses, all witnesses scheduled to appear 
before the Subcommittee are required to submit 200 copies, along with 
an IBM compatible 3.5-inch diskette in WordPerfect 5.1 format, of their 
prepared statement for review by Members prior to the hearing. 
Testimony should arrive at the Subcommittee on Trade office, room 1104 
Longworth House Office Building, no later than Friday, June 4, 1999. 
Failure to do so may result in the witness being denied the opportunity 
to testify in person.
      

WRITTEN STATEMENTS IN LIEU OF PERSONAL APPEARANCE:

      
    Any person or organization wishing to submit a written statement 
for the printed record of the hearing should submit six (6) single-
spaced copies of their statement, along with an IBM compatible 3.5-inch 
diskette in WordPerfect 5.1 format, with their name, address, and 
hearing date noted on a label, by the close of business, Tuesday, June 
22, 1999 , to A.L. Singleton, Chief of Staff, Committee on Ways and 
Means, U.S. House of Representatives, 1102 Longworth House Office 
Building, Washington, D.C. 20515. If those filing written statements 
wish to have their statements distributed to the press and interested 
public at the hearing, they may deliver 200 additional copies for this 
purpose to the Subcommittee on Trade office, room 1104 Longworth House 
Office Building, by close of business the day before the hearing.
      

FORMATTING REQUIREMENTS:

      
    Each statement presented for printing to the Committee by a 
witness, any written statement or exhibit submitted for the printed 
record or any written comments in response to a request for written 
comments must conform to the guidelines listed below. Any statement or 
exhibit not in compliance with these guidelines will not be printed, 
but will be maintained in the Committee files for review and use by the 
Committee.
      
    1. All statements and any accompanying exhibits for printing must 
be submitted on an IBM compatible 3.5-inch diskette in WordPerfect 5.1 
format, typed in single space and may not exceed a total of 10 pages 
including attachments. Witnesses are advised that the Committee will 
rely on electronic submissions for printing the official hearing 
record.
      
    2. Copies of whole documents submitted as exhibit material will not 
be accepted for printing. Instead, exhibit material should be 
referenced and quoted or paraphrased. All exhibit material not meeting 
these specifications will be maintained in the Committee files for 
review and use by the Committee.
      
    3. A witness appearing at a public hearing, or submitting a 
statement for the record of a public hearing, or submitting written 
comments in response to a published request for comments by the 
Committee, must include on his statement or submission a list of all 
clients, persons, or organizations on whose behalf the witness appears.
      
    4. A supplemental sheet must accompany each statement listing the 
name, company, address, telephone and fax numbers where the witness or 
the designated representative may be reached. This supplemental sheet 
will not be included in the printed record.
      
    The above restrictions and limitations apply only to material being 
submitted for printing. Statements and exhibits or supplementary 
material submitted solely for distribution to the Members, the press, 
and the public during the course of a public hearing may be submitted 
in other forms.
      

    Note: All Committee advisories and news releases are available on 
the World Wide Web at ``http://www.house.gove/ways--means/''.
      

    The Committee seeks to make its facilities accessible to persons 
with disabilities. If you are in need of special accommodations, please 
call 202-225-1721 or 202-226-3411 TTD/TTY in advance of the event (four 
business days notice is requested). Questions with regard to special 
accommodation needs in general (including availability of Committee 
materials in alternative formats) may be directed to the Committee as 
noted above.
      

                                


    Chairman Crane. Will everybody please take seats so we can 
start? We have a long full day. Everyone, please take a seat. I 
would like to request of my colleagues here on the Subcommittee 
that you please do not question our colleagues who are 
testifying today. It is not that there may not be legitimate 
questions that you could take up with them at a later time, but 
we are under a constraint, especially for Secretary Fisher. He 
has a son graduating from Harvard, and he has a flight to catch 
to make the commencement exercises. So out of deference to him, 
he follows our colleagues here in his testimony. We want to get 
him on his plane.
    All of our colleagues, I would ask you if you will, please, 
to try and confine your oral testimony to 5 minutes or less. 
All written testimony will be made a part of the permanent 
record. With that, we will take you up in the order that you 
are indicated on the program here. Chris Smith will be our 
first witness, followed by Frank Wolf--well, of those present, 
Frank Wolf and Cal Dooley.
    But before that, let me just say that we are here today to 
review the status of U.S.-China trade relations in light of 
recent progress in China's negotiations to join the World Trade 
Organization. On an annual basis, as required by the 1974 
Jackson-Vanik statute, Congress considers the question of 
renewing China's NTR, normal trade relation status. I am 
putting Members and witnesses on notice that we may adopt a 
penalty system for careless references to the obsolete term MFN 
trade status. It may cost you a dollar.
    With the recent revelations of our lax defense against 
Chinese espionage activities and the bitter reaction in China 
to the accidental bombing of the Chinese Embassy in Belgrade, 
United States-Chinese relations continue down a rocky road. 
Clearly there are many areas of our bilateral relationship 
which will be fraught with friction and possible danger if the 
two countries remain on a course of mutual condemnation. The 
shining exception to the negative revelations of recent weeks 
is China's new willingness to embrace the market-oriented trade 
disciplines of the WTO as evidenced in the April 8 package of 
concessions put on the table by Premier Zhu Rongji. This 
extraordinary set of possible commitments is analyzed by the 
Congressional Research Service in a recent paper that has been 
distributed to the Members and is available in our Committee 
offices.
    There is no doubt that history in Asia and the evolution of 
China will be different in the next century if the United 
States lets this WTO deal, which is so close at hand, slip 
through our fingers. The President and Congress face the choice 
of harvesting extraordinary commercial opportunities for U.S. 
firms and workers. Unlike any other major trade agreement, this 
is a one-sided set of concessions. In exchange for steep tariff 
reductions and wholesale reforms of the Chinese trading system, 
the United States gives up nothing. At the same time, we 
preserve our positive influence over the direction of the 
turbulent change that is occurring in China.
    I urge the administration and China to conclude this 
important negotiation as soon as possible. At that point, I am 
committed to working with the President to achieve permanent 
NTR for China. Since 1980, all legislative attempts aimed at 
revoking NTR have been unsuccessful. House votes in recent 
years have been resoundingly in favor of maintaining commercial 
engagement with China. One wonders what is gained by bringing 
the disapproval resolution up for sure defeat year after year. 
This is not a dynamic that creates any pressure on the Chinese 
to improve human rights practices. All Presidents since 1980 
have realized that slapping China through the revocation of NTR 
will not bring about the changes that we all seek in China. 
Cutting off avenues of communication and trade will not help 
the Chinese people create the future that we want for them. 
Nothing would be better for our long-term national security 
interests in China and the Asian region than ensuring that 
China enters the next century on an economic reform path shaped 
and defined by the free market trade rules of the WTO.
    I would now like to yield to my distinguished colleague 
from Michigan, Mr. Levin, for an opening statement.
    Mr. Levin. Thank you very much, Mr. Chairman. This year's 
review of U.S. trade relations with China comes, as we know, on 
the heels of several major events: the tenth anniversary of the 
violent suppression of student demonstrations at Tiananmen 
Square; the Cox report's revelation of extensive breaches of 
security at our national laboratories, and the highly 
disproportionate response of the Chinese Government to the 
accidental bombing of China's Embassy in Belgrade.
    These events no doubt have an impact on another major 
event, the negotiation on China's accession to the WTO and the 
eventual extension of permanent normal trade relations to 
China. We do not make trade policy in a vacuum. It is to be 
expected that developments in U.S. security and diplomatic 
relations with China will have an impact on commercial 
relations with China. Clearly, we must pursue our national 
interests in each and every aspect of our relationship with 
China. That means tightening security at our national 
laboratories and taking greater precautions in pursuing 
international scientific exchanges. It means pressing China to 
improve its human rights record through multiple efforts. It 
also means continuing to develop sound economic relations with 
China.
    China's economy is simply too large to be ignored, and it's 
growing. It offers potential benefits to U.S. producers of 
goods and services, but it also competes with many of these 
same producers. For these reasons, we must develop the rules 
that will govern all of the dimensions of our economic 
relationship with China. In the end, I believe that most 
Members of Congress and most of our constituents will judge any 
agreement on China's accession to the WTO on what it will mean 
mainly for the American people and for their own standard of 
living.
    Recent events have the potential to deter us from working 
on the economic issues at the core of U.S. negotiations with 
China and its accession to the WTO. We must not let that 
happen. Its accession to the WTO raises challenges inherent to 
the accession itself. Specifically, how can the country that 
contains the world's largest nonmarket economy still in the 
early stages of transition to a market economy, and where the 
rule of law is still relatively weak, become part of an 
international structure based on market principles and the rule 
of law? How can the country with the world's largest labor 
market, where certain core labor standards, for example, the 
right to bargain collectively and the right to free association 
have not yet taken root, be integrated into an organization 
that is just beginning to grapple with the interaction between 
trade policy and labor market issues?
    I have no doubt that this year's debate on annual renewal 
of NTR will be the occasion for raising a wide range of issues. 
I believe that it is important that we give those issues full 
consideration. I believe that at the end of the debate, we will 
vote to renew China's NTR status for another year. But while 
the process runs its course, it is essential that we keep our 
eyes on the terms under which China should be admitted to the 
WTO. Even as we consider the immediate question of annual 
renewal, we should be working toward answers to that broader 
question.
    On that note, let me say just a few words on how China 
should be brought into the WTO. As I have said on several 
occasions, China's accession to the WTO must be done and must 
be done right. That means that the accession agreement must 
contain mechanisms to ensure that China lives up to its market 
access commitments that it makes on paper, that the U.S. will 
be able to detect violations of those commitments when they 
occur, and that we will be able to enforce those commitments 
effectively.
    When U.S. businesses compete in countries that have well-
established, consistently enforced commercial laws, they 
operate against a backdrop of predictability. They can 
anticipate that certain actions will have certain legal 
consequences and they can exercise their business judgement 
accordingly. China lacks the legal framework critical to the 
efficient operation of commerce and the predictability that 
comes with such a framework. Therefore, the agreement on 
China's accession to the WTO must establish itself, mechanisms 
for detecting violations of China's commitments and enforcing 
U.S. rights.
    As today's New York Times reports, there is substantial 
resistance within the ranks of China's bureaucracy to making 
the market access commitments necessary to join the WTO, 
including in key areas such as telecommunications. Thus, when 
it comes to trade relations with China, close monitoring and 
rigorous enforcement are necessary.
    In short, we must not conclude a deal with China simply on 
the basis of expressed commitments to afford greater market 
access. Especially in light of the erosion of confidence 
brought on by recent events, our negotiators must insist on 
concrete mechanisms. Moreover, we must not forget that China 
increasingly will be a competitor as well as a consumer. It is 
a competitor that is not constrained by the market principles 
that govern the operation of U.S. enterprises. Our negotiations 
with China should not be solely about how United States 
companies operate in the Chinese market, but also about how 
Chinese companies operate in the American market.
    Our trade laws already contain provisions that apply 
specifically to certain imports from nonmarket economies that 
harm U.S. industries. Those provisions must continue to apply 
to China as long as China remains a nonmarket economy. We 
should set no artificial deadlines for changing the rules that 
apply to China as a competitor.
    Further, and let me add, China's accession to the WTO 
should serve as an impetus to equip the WTO with the means to 
address the interaction between trade policy and labor market 
issues. Some of the issues negotiated with the Chinese and 
several that remain outstanding do reflect the interplay 
between the very different labor market structures of China and 
our country. Examples include the specific and special 
antidumping rules that apply to goods from China and special 
sectoral safeguard mechanisms against surges of Chinese goods 
into the United States.
    With the challenge of integration of the world's largest 
labor market into the world's trading system, the time has come 
to recognize more fully that policies affecting labor markets 
are inherently commercial issues having major impacts on trade, 
and should be dealt with as trade issues. China's accession 
cannot bear all the weight of this task. However, it should be 
a catalyst. The United States should obtain China's commitment 
to engage on these vital issues with other WTO members 
beginning with the Ministerial Conference in Seattle.
    Finally, let me say a word about review of China's human 
rights record. It has been 10 years since the atrocities at 
Tiananmen. In that time, annual review of MFN status, pursuant 
to Jackson-Vanik, has become a vehicle for careful scrutiny of 
its record. Though views on the effectiveness of that vehicle 
have varied, it has ensured that at least yearly, Congress 
would press China to improve its human rights record. As we 
contemplate granting China permanent NTR status, it is 
incumbent upon us to find an alternative framework with which 
to continue our important efforts in that direction.
    Our negotiators have made important strides toward China's 
accession to the WTO, but important work remains to be done. I 
remain hopeful that soon the negotiators will return to the 
table and they will buildupon the progress made, as well as 
tackling those issues left outstanding. Discussion of Chinese 
accession to the WTO deserves better than the usual polarized 
debate between protectionism and free trade. Globalization is 
here to stay and will increase. The real issue is not 
protectionism versus free trade. It is the structure in which 
free trade will operate, especially as evolving economies are 
integrated into the world trading system. In this regard, China 
raises most decisively both the opportunities and the 
challenges.
    Thank you, Mr. Chairman.
    Chairman Crane. Thank you. I would now like to yield to our 
distinguished colleague from Washington State, Ms. Dunn.
    Ms. Dunn. Mr. Chairman, I would ask unanimous consent to 
submit my remarks for the record.
    Chairman Crane. Without objection, so ordered.
    [The opening statement follows:]

Statement of Hon. Jennifer Dunn, a Representative in Congress from the 
State of Washington

    Mr. Chairman----
    Each year this Committee and the Congress turns its 
attention to China there is a heated debate about new 
information that may further jeopardize this complex 
relationship. Whether it be the technology transfer controversy 
of last year, human rights abuses, record trade deficits, or 
aggressive maneuvering toward Taiwan, we can always find fault 
in the actions of the Chinese government. Every year, however, 
we overcome these obstacles because we recognize that the long-
term interest of both the American and Chinese people, not 
their governments, is best served through engagement.
    This year it is different.
    Just 11 months after President Clinton's visit to China, 
the two countries are now deeply embedded in mutual acrimony 
and distrust. The U.S. Embassy in Beijing is still repairing 
damage inflicted during four days of violent demonstrations 
that followed the bombing of China's Embassy in Belgrade. 
Bilateral dialogues on most subjects have been suspended. China 
has withdrawn permission for U.S. warships to call on Hong 
Kong. The bipartisan Cox Report was recently released detailing 
a systematic Chinese effort to attain sensitive U.S. military 
secrets. China has even put a bilateral agreement with the U.S. 
on its accession to the World Trade Organization on indefinite 
hold. Only six weeks ago, this seemed to be China's top 
priority for this year.
    Perhaps most troubling is the intense battle inside China 
between Premier Zhu Rongji and hard-line communists who see an 
opportunity to increase their power within the government. In 
mid-April the Clinton Administration rejected Premier Zhu's 
forward leaning offer on accession to the WTO. This left him to 
return empty-handed to Beijing where he was besieged by those 
seeking to halt economic reform. This deal, in their 
estimation, was a sellout.
    These events, particularly the Cox Report, raise serious 
questions about our national security that must be addressed. 
But they must be addressed independently and with a careful eye 
toward a comprehensive China policy. And we must recognize the 
difference between selling U.S. goods and services made by 
hard-working Americans and selling sensitive military 
technology that threatens our national security. With calls 
from officials inside both the U.S. and Chinese governments for 
an overhaul of our respective policies toward one another, we 
are at a critical juncture.
    I strongly believe that it is in the best interest of the 
American and Chinese people to engage one another. The open 
exchange of goods and services has been a critical component of 
fostering understanding between nations for centuries. It 
permits Ned Graham, the son of Rev. Billy Graham and strong 
proponent of trade with China, to distribute millions of bibles 
in mainland China. And it will help foster the development of 
the Internet, which I believe will be an unstoppable force in 
getting new ideas into a closed society. As a result, I believe 
it is critical that we continue to foster our trade 
relationship with China during this precarious time.
    It is my hope that China will take the necessary steps for 
an agreement on WTO accession soon so that it may particiapte 
in the important global trade talks that will occur at the 
Seattle Round later this year. Halting trade with China will 
only further undermine the efforts of Premier Zhu to reform 
their state-controlled economy and will improve the status of 
hard-line communists intent on demonizing the U.S.
    I look forward to speaking personally with all of my 
colleagues over the next month to understand their views on 
this important matter.
    Thank you, Mr. Chairman, for putting together an impressive 
line-up of witnesses for our hearing today. I am interested in 
hearing their important perspectives on a broad range of issues 
involving our relationship with China.
      

                                


    Chairman Crane. I want to thank the witnesses in advance 
for their prepared testimony they are about to deliver, and ask 
you again, please try and keep your prepared statements to 5 
minutes or less. Any printed statement will be made a part of 
the permanent record.
    I would like to welcome also our colleague Mr. Blumenauer, 
who was not on the printed record here, but he is here as a 
witness this morning. With that, we'll proceed.
    Mr. Rangel. Mr. Chairman.
    Chairman Crane. Yes.
    Mr. Rangel. I would like unanimous consent to enter my 
statement into the record.
    Chairman Crane. Without objection, so ordered.
    [The opening statements of Mr. Rangel and Mr. Ramstad 
follow:]

Statement of Hon. Charles B. Rangel, a Representative in Congress from 
the State of New York, and Ranking Member, Committee on Ways and Means

    Mr. Chairman, thank you for holding today's hearing. This 
hearing comes at a crucial juncture for U.S.-China relations, 
and presents an ideal opportunity for this Subcommittee to 
assess and evaluate the recent events that have complicated our 
relationship with that country.
    Over the last six months, U.S.-China relations have hit 
historic high and low points. In January, the Select Committee 
completed the classified phase of its work, preparing the Cox 
report which detailed China's wide spread and systematic effort 
to obtain classified U.S. military technology. That report, 
which was released to the public two weeks ago, has raised 
legitimate concerns about aspects of our policy toward China.
    In February, the State Department issued its annual report 
on human rights abuses. Unfortunately, that report suggests 
that some of the positive steps that China made on the human 
rights front in 1997 and early 1998 were short lived, and that 
the overall human rights situation in China worsened last year. 
That is not welcome news, particularly as we marked the 10th 
anniversary last week of the massacre at Tiananmen Square.
    In early April, relations with China seemed to improve. 
President Clinton and Premier Zhu Rongji, the leading advocate 
for market reform in China, met in Washington and were able to 
to announce that U.S. and Chinese negotiators had made 
significant progress on the terms of China's accession to the 
WTO. As we all know, the amelioration was short-lived. The 
accidental bombing by NATO of China's embassy in Belgrade, and 
the ensuing hostile demonstrations against the U.S. embassy in 
Beijing and U.S. consulates across China have rekindled 
hostilities on either side.
    I realize we are holding this hearing specifically to 
discuss our trade relations with China. We cannot, however, 
ignore the broader security and political issues that will 
color this debate.
    We all agree that the human rights situation in China must 
improve, and we all agree on the need for political and 
democratic reforms, as well as more open access to the Chinese 
market to address the large and growing trade imbalance. The 
question is what are the best and most appropriate means to 
achieve these shared goals.
    The most effective way to bring about improvements in human 
rights and political and religious freedoms in China is through 
continued engagement with the Chinese government and increased 
contacts with the Chinese people about our way of life. 
Withdrawal and ceasing to do business with China by removal of 
NTR status will harm, not improve, the situation. Therefore, I 
continue to believe that a prudent, eyes-open policy of 
engagement is the correct approach. As I have in the past, I 
will support a renewal of MFN treatment for China this year.
    History has shown that using trade as a weapon can work 
only if we have a consensus with our trading partners that we 
will work collectively and apply similar policies. As proven by 
the trade embargo against Cuba, for example, our unilateral 
trade sanctions only give our foreign competitors an advantage. 
Too many other countries are ready and willing to fill the 
vacuum we would leave in the huge Chinese market as a 
consequence of withdrawal of NTR status. We would merely lose 
exports and the jobs they create.
    A policy of engagement, however, cannot be pursued blindly. 
We must be more realistic about the limits of this 
relationship, cognizant of where U.S. and Chinese interests 
diverge, and vigilant in areas of national security where China 
seeks to be a competitor. However, it does not support a 
complete withdrawal from the relationship.
    We also should not repudiate areas where we have 
substantial common interests, namely--China's accession to the 
WTO. Earlier this spring, Ambassador Barshefsky and her 
negotiating team made remarkable progress toward establishing 
the terms under which China will be granted WTO membership. I 
applaud their efforts, and hope that the United States and 
China will be able to resume negotiations on accession as soon 
as possible. If our negotiators obtain the market access and 
other commitments necessary to ensure that U.S. companies and 
workers benefit from China's entry into the WTO and negotiate a 
framework that will ensure China adheres to those commitments, 
then I believe we in Congress should support their efforts.
      

                                


Statement of Hon. Jim Ramstad a Representative in Congress from the 
State of Minnesota

    Mr. Chairman, thank you for calling this important hearing 
today to review U.S.-China Trade Relations and China's bid to 
accede to the WTO.
    We are at a critical point in our relationship with China. 
Recent incidents certainly have put a strain on the 
relationship, but I am hopeful that Congress will seriously 
look at these issues in a comprehensive fashion and 
thoughtfully review all of our policy options, whether it 
relate to trade or foreign policy in general.
    While the mood on Capitol Hill is definitely not pro-China, 
it is important to remember that the debate about China's WTO 
accessing is about holding China accountable to international 
trading rules and protecting U.S. businesses. As troubling as 
the allegations are, I still believe bringing China into the 
international community is the only way to promote and protect 
U.S. businesses in their dealings in China.
    We know that WTO membership, if constructed appropriately, 
would significantly boost China's economic growth. WTO 
membership will require greater liberalization and openness, 
which will in turn boost productivity, and according to some 
estimates, expand China's GDP growth by an additional 0.5% each 
year.
    Recent estimates also predict that the tentative trade 
agreement, which the Administration unfortunately decided not 
to conclude, as well as China's WTO accession, would have a 
positive impact on the US-China trade deficit. Many of China's 
trade offers on market access would provide across the board 
benefits for all U.S. exporters and some other offers would 
lower barriers for specific products and services. The 
agreement, if consummated, could mean substantial new 
opportunities for U.S. firms and farmers exporting to or 
investing in China through greater access to an expanding 
economy.
    Mr. Chairman, thanks again for calling this hearing. I look 
forward to hearing from our witnesses today about this 
important issue before our country.
      

                                


    Chairman Crane. With that then, we will yield first to Hon. 
Chris Smith of New Jersey.

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

    Mr. Smith of New Jersey. Thank you very much, Chairman 
Crane and Members of the Subcommittee. I appreciate this 
opportunity to be here this morning.
    Mr. Chairman, the administration's feckless human rights 
policy toward China has failed miserably. In the 5 years since 
President Clinton delinked China's MFN status from human rights 
considerations, there has been significant regression, not 
progress, within China. Even standing apart from new 
revelations of nuclear espionage and the skyrocketing United 
States-China trade deficit, this deteriorating situation 
justifies, in my view, a fundamental reassessment of United 
States-China trade policy.
    An example may help flesh out the seriousness of the 
matter. In 1992, the United States and Chinese Governments 
signed a memorandum of understanding prohibiting trade in 
slave-made goods, which was followed by a 1994 statement of 
cooperation. Notwithstanding those agreements and China's own 
showcase laws against slave-made goods, Beijing is turning the 
laogai, the Chinese gulag, into an incredible profitmaking 
venture. Slave-made products from office supplies to Christmas 
decorations regularly make their way to the shelves of American 
stores. Even the State Department has been forced to admit, and 
I quote, that ``forced labor is a problem,'' and that the 
Chinese cooperation with the MOU, and this is their words, 
``has been inadequate.''
    Indeed, the Department reports that in every case where the 
United States asked to visit a suspect facility during 1998, 
and I quote the State Department, ``the Chinese Ministry of 
Justice refused the request, ignored it, or simply denied the 
allegations made without further elaboration.'' In short, Mr. 
Chairman, the MOU is not worth the paper that it is written on.
    The slave-labor MOU is just one of many examples. But it 
illustrates a fundamental lesson that we ignore at our own 
peril. When dealing with the Communist dictatorship of the 
People's Republic of China, the United States cannot settle for 
paper promises or deferred compliance. We must stop accepting 
pledges of future improvement in place of actual improvements. 
The Chinese dictatorship regularly tells bold-faced lies about 
the way it treats its own people, such as asserting as it did 
recently, that no one died at Tiananmen Square, when General Qi 
Huatian was in town and made that infamous statement, I 
convened a hearing of my Subcommittee and invited witnesses, 
including a journalist from the People's Daily, who was 
actually imprisoned himself, to give an account as to what 
actually happened at Tiananmen Square. Everyone concluded that 
people died there, where bayonetted, were killed, were mowed 
down, and Qi Huatian said--and he was the butcher of Beijing. 
He was the one who was in operational command of the killing 
that went on in Tiananmen Square. He said to a U.S. audience at 
the War College, no one died. He was given a 19-gun salute, a 
red carpet treatment here in the United States, and met with 
selected Members of both Houses, of the House and Senate. I 
tried to meet with him and couldn't get a meeting with him.
    I have had 12 hearings in my Subcommittee, more than 12, 
and we have heard from people on slave labor, on all the other 
kinds of atrocities that have been committed, including the 
systematic use of torture, which has gotten worse, not better, 
Mr. Chairman. We can't pretend that somehow things are 
improving.
    Mr. Chairman, reforms within China must precede the 
rewards, I would suggest, of WTO membership, and they should be 
a prerequisite for the annual MFN status. We need to relink it. 
Unfortunately, the President delinked it. We need to be wise 
enough to say human rights matter. We care what you do with 
intellectual property rights and with copyright law, but if you 
so abuse your own people, then we have a problem with that, and 
we won't trade with any dictatorship that happens to come 
along.
    Mr. Chairman, in quarterly reports Amnesty International 
has released since the President's visit to China, and I have 
had them testify again before my Subcommittee, they have come 
up with seven different categories of compliance. In every 
category, the Chinese Government has failed miserably. For 
example, release of all prisoners of conscience and Tiananmen 
Square prisoners. According to Amnesty International, ``total 
failure, regression.'' Review of all counterrevolutionary 
prison terms. Amnesty International, ``total failure, no 
progress.'' Allow religious freedom, ``total failure, no 
progress.'' Prevent coercive family planning and harvesting of 
organs. Amnesty International, ``No progress.'' Fully implement 
pledges on human rights treaties, ``No progress.'' Review the 
re-education through labor system, ``total failure, no 
progress.'' End police and prison brutality, which of course 
includes the systematic use of torture, ``total failure, no 
progress.''
    Mr. Chairman, the Communist government of the PRC continues 
to engage in systematic violations of human rights on a massive 
scale, including the genocide going on in Tibet. The failure of 
the administration's current policy to affect any improvement 
should come as no surprise. While the rulers of the Chinese 
Communist Party may be ruthless and despotic, they are not 
stupid. If there is no cost, if there is no penalty to their 
brutality we will get more of it, and that is what has been 
happening since the delinking.
    Thus, let me just point out when big business and the 
administration, and the bipartisan group of Congressmen really 
want change, what do we do? We threatened sanctions on at least 
three separate occasions. When intellectual property rights 
were the issue, we dragged out the sanctions tool and said we 
are willing to impose sanctions unless you change. Beijing got 
the message and they made reforms and put them into effect.
    Mr. Chairman, I hope that this year we more seriously 
consider the human rights issue. We have paid attention to it 
in the past, but I think those Members who have said in the 
past let's just give it to them and hope things do improve, 
constructive engagement has not worked. We can wait until 
Christmas, until doomsday, we are not going to see a change. I 
think we are only kidding ourselves. The dictatorship is 
getting stronger. They are creating more and more military 
capabilities, as we have seen. They have blue water navy 
aspirations. When you piece it all together, this is not a 
government moving on the path to reform, but quite the 
contrary. They have had significant regression in every 
category. I hope that we will withhold MFN this year. I hope 
the Subcommittee will consider that. Thank you.
    [The prepared statement follow:] 
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    Chairman Crane. Thank you.
    Mr. Frank.

 STATEMENT OF HON. BARNEY FRANK, A REPRESENTATIVE IN CONGRESS 
                FROM THE STATE OF MASSACHUSETTS

    Mr. Frank. Thank you, Mr. Chairman. I believe the time has 
come for a very drastic reorientation of our approach to the 
People's Republic of China. We began that approach, after all, 
during the height of the cold war. The initial approaches came 
under President Nixon with Secretary Kissinger, explicitly to 
throw the Soviet Union off balance. We began a triangular 
relationship in which an American rapprochement with the 
People's Republic of China was meant to cause maximum 
destabilization in the Soviet Union's view of the world.
    I think there was a great deal to be said for what was then 
called ``playing the China card.'' But we are still playing the 
China card, and the game is over. The table has been folded up. 
It does not make sense. In a three-way relationship with the 
Soviet Union as a problem, there was something to be said for 
our trying to establish this good relationship with the 
People's Republic. That is gone now, the Soviet threat. We, 
however, are suffering from cultural lag. We still act as if 
the Chinese are doing us a very big favor by letting us buy 
five or six times as much from them as they buy from us, by 
letting them continue on an oppressive internal regime with no 
real serious objections from us, with increasingly being 
uncooperative strategically, vetoing at the U.N. continued 
peace forces in various parts of the world where things are 
doing well.
    In other words, I think we have transformed a strategic 
relationship in which we were seeking a good relationship with 
China to offset the Russians, to a situation now where we act 
as if the Chinese are doing us a big favor in a relationship in 
which they get all the advantages. I don't know a great deal 
about Chinese reading habits, but my guess is that one of the 
most popular books right now in the Chinese inner circles is 
Tom Sawyer, because they have figured out how to get America to 
paint the fence and act like they are doing us a big favor by 
giving us the paintbrush. It is one of the most unequal 
economic relationships in the history of mankind, the American-
Chinese trading relationship.
    Now I can understand the dilemma some people would feel if 
they took the abuse of human rights record of China, and let's 
remember, China today is the greatest denier of human freedom 
in the world, and probably by sheer bulk, the greatest denier 
of human freedom in the history of the world, or certainly no 
current contender comes close.
    Now people might argue well, yes it's true they are 
terribly oppressive, but we get some economic benefits from 
dealing with them. Yes, you have to be pragmatic. Sometimes 
economic benefits will lead you to overlook some oppression. 
But in this case, we don't get economic benefits. They get 
almost all the economic benefits. They have a fairly 
mercantilist regime. They buy from us as little as possible. 
They sell overwhelmingly, and they sell in part because they 
have enormous advantages that come from the mistreatment and 
exploitation of their own workers. We are not talking about 
comparative advantage in the classic sense of free trade. We 
are talking about a regime which has been so oppressive and 
where the oppression extends to its own denial of the most 
basic rights of its own workers so that that's one of the 
reasons we have this exploitation.
    So we are overlooking the terrible abuse of human rights in 
return for them making money off the deal. Now you could argue 
well, we have these strategic interests with them, and if they 
were in fact a restraining influence on the lunatics who run 
North Korea, that might be useful. But increasingly in the last 
few years, they haven't done much of that. I guess we're 
holding our breath to make sure they don't veto a resolution at 
the U.N. that might lead us out of the Kosovo situation. But 
the Chinese have certainly not been very strategically well and 
kind toward us. At best they have been neutral on some issues, 
and they have been disruptive, as I said, vetoing some U.N. 
resolutions.
    Well, then the final argument might have been well, but we 
are a good influence on them. After all, as countries make more 
money off us, they become more willing to support human rights. 
That simply isn't true. This notion that there is something 
inherently democratizing about the economic development process 
hasn't proven to be the case in China at all. The notion that 
the bigger our trade deficit, the more democratic they are 
going to get just has no basis to it whatsoever.
    Now that does not mean we should under no circumstances 
allow them into the World Trade Organization, although I do 
think that the annual review is very important. I note it is no 
longer most favored nation. We now call it normal trade 
relations, proving that political correctness, that is, concern 
with the implications of semantics, is not confined to one 
party or another. We just legislated a little political 
correctness here by changing ``most favored nation'' to 
``normal trade relations.'' Maybe we should go a little further 
and say let's call it ``a big favor China does us.'' You could 
get in maybe a couple more votes if you changed it a little bit 
even more. But the fundamental point is that we get very little 
gain.
    Then the last point I want to make is this. Even on its own 
terms, what we have now is people saying well look, you know we 
are getting all these concessions from China. Well, the 
concessions are China's promises to stop doing outrageously 
abusive trade practices that they never should have done in the 
first place. And we can't even be sure they are going to do it, 
because what we are told is, and it seems to me contradictory, 
and I'll close with this, Mr. Chairman. You better make this 
deal with China because if we make this deal, they will stop 
doing all these terrible exclusionary unfair things. But, we're 
told, it is very tenuous that Zhu Rongji has got the votes to 
do that--votes is obviously kind of a silly concept. I 
apologize for imposing my values on China by talking about 
something like votes. Zhu Rongji may not be able to pull this 
off. Well, that's an explicit admission that there is enormous 
resistance in China, even to stopping the exclusionary trade 
practices they have been engaging in.
    So the notion that we would put any agreement in place 
without extremely tough safeguards and enforcement mechanisms, 
given the recognition that these very concessions, that they 
will stop doing these things they should never have been doing 
in the first place, are so contested seems to me a grave error.
    So I think we are a long way from reaching the utopia deal. 
I hope we will continue to vote on normal trade relations or 
whatever euphemism you call it next year, and I hope in fact 
we'll vote it down.
    Chairman Crane. Thank you, Mr. Frank.
    Mr. Wolf.

 STATEMENT OF HON. FRANK R. WOLF, A REPRESENTATIVE IN CONGRESS 
                   FROM THE STATE OF VIRGINIA

    Mr. Wolf. Mr. Chairman and Members, my objections to MFN 
have historically stemmed from the concern about China's human 
rights abuses, its proliferation of weapons and unfair trading 
practices. There has been absolutely no improvement in any of 
these areas. But there is a new element this year thrown into 
the mix. That is, the undisputed evidence of China's espionage 
of United States nuclear labs and its acquisition of knowledge 
about our most advanced nuclear warheads.
    As I look at the issue in the Cox report, it's almost like 
the United States will be providing China the economic means 
through trade to develop the missiles on which they are going 
to attach advanced nuclear warheads that they took from us, and 
target these missiles against our children and our 
grandchildren. It's absolutely crazy. It is like an Alice in 
Wonderland. We are giving them the economic--it's like giving 
Nazi Germany the economic support to build its war system 
whereby they can fight the men that are landing at D-Day.
    While it may be painful for some if we restrict China's 
abilities to trade on favorable terms, China is now, let's say 
it, a greater threat to the United States security than it has 
ever been. All said, they have tried to influence our political 
process, and as Mr. Frank said, we now help them because they 
are donating money to the process, and we then give them MFN.
    The human rights abuses are the same. Catholic bishops--and 
I know in an abstract thing maybe it doesn't matter--but they 
have been in jail sometimes for 30 years, bishops and priests 
have been in jail for 30 years. One that Mr. Smith got Holy 
Communion from went to jail. What do we do? Even in the report 
that we sent to the floor, we never even mention these issues. 
It's give them MFN. We never mention the issues.
    House churches are under terrific pressure. Evangelical 
pastors are being arrested as we sit here today. Churches are 
being destroyed. Bibles are being confiscated. In 1997, I was 
in Tibet. The conditions in Lhasa are terrible. Lhasa is 
nothing more than a dirty Chinese city that the Chinese run 
with cameras all over. They have destroyed 4,000 to 6,000 
monasteries. Every monastery that's still up has a cadre of 
Chinese officials monitoring them. It would be like at your 
church or synagogue there would be somebody from the CIA 
running the operation. We do absolutely nothing.
    The Muslims in the northwest portion of the country are 
still being persecuted. No one speaks out for the Muslims. 
Democracy activists are prohibited from demonstrating for 
Tiananmen's 10th anniversary. Mr. Smith and I were in Beijing 
Prison Number 1 in 1991. The guys we saw in the prison are 
still in the prison. Imagine what you were doing in June 1989. 
The Washington Post masthead has changed. Some of you are 
older. Your hair is greyer. Things have changed. But these men 
are still in the prisons and we have done nothing to help them 
out.
    They have gulag camps, slave labor camps. People in this 
room are wearing clothing made in gulag camps that are being 
exported to the U.S. They are taking kidneys and corneas out of 
slave labor people and selling them in the United States for 
$35,000 and $40,000. Nothing has really changed with regard to 
human rights in China. Our policy has done absolutely nothing.
    I think the best policy may be the one that Bill Safire 
mentioned the other day in the New York Times. He said that the 
best scenario would be for the Congress to reject MFN for 
China, the President to veto the bill, and the Senate to 
sustain the veto. That would at least put us on the right side 
of history. If you watch the Chinese ambassador on the Sunday 
talk shows. The arrogance that he has of what they are doing. 
They trashed our Embassy, they bussed people there, and we want 
to give them MFN.
    This government will fall. They have copied the play book 
of Ceausescu's Romania Government. They will fall. The more 
trade we give them, the longer they will stay. The less trade 
we give them, the faster they will fall. So I would urge the 
Subcommittee, to reject MFN to China. I don't think we are 
going to change anybody's mind, I really don't. I am not 
optimistic, but we want to show up. As Woody Allen said, 90 
percent of life is just showing up. I just want to show up so 
that when Radio Free Europe covers this hearing, the people 
that I talk to in Tibet know that there are people who still 
care about them. Just like Sharansky would tell us, every time 
the Congress spoke out on his behalf, if he knew, his life got 
better, he got more food, he was taken care of, and his family 
knew. But this government will fall.
    I would just ask you this. When you send out your 
resolution, at least put in a conference report, something 
about the priest. Put something about the bishops. Put 
something about Tibet. Put something about these issues so that 
when this thing is covered, at least, even if it goes the other 
way, they will know that the United States still cares. Look at 
the exhibit over in the Cannon Caucus today commemorating 
Tiananmen Square. The students had the Statue of Liberty, and 
they quoted the words of Patrick Henry, ``Give me liberty or 
give me death.'' At least when you send the report, at least 
give a page or two or three talking, that even though you think 
trade is going to go on, we do care and we do remember the 
people that are being persecuted today. I thank you for the 
opportunity.
    [The prepared statement follows:]

Statement of Hon. Frank R. Wolf, a Representative in Congress from the 
State of Virginia

        Trade Privileges for China Are Not in the U.S. Interest

    Mr. Chairman and members of the Subcommittee. Thank you for 
the opportunity to testify before you today on China trade 
privileges.
    For a number years I have been a strong opponent of 
extending Most-Favored-Nation trade status--now known as Normal 
Trading Relations--to the People's Republic of China. My 
objections have historically stemmed from my concern about 
China's human rights abuses, its proliferation of weapons and 
its unfair trading practices. There has been no improvement in 
any of these areas.
    But this year, a new element has been thrown into the mix--
undisputed evidence of China's espionage in U.S. nuclear labs 
and its acquisition of knowledge about some of America's most 
advanced nuclear warheads.
    As I look at this issue and the Cox report, I am concerned 
that the United States will be providing China the economic 
means through trade to develop missiles on which to attach 
advanced nuclear warheads designed with information stolen from 
the United States so these missiles can then be used to hit our 
grandchildren, or even our children.
    The report of the bipartisan Select Committee on National 
Security and Military/Commercial Concerns with the People's 
Republic of China chaired by Rep. Chris Cox found clear 
evidence that design information stolen from the United States 
will enable China to build thermonuclear warheads and attach 
them to ICBM missiles sooner than would have otherwise been 
possible. It said ``the PRC has the infrastructure and the 
technical ability to use elements of U.S. warhead design 
information in the PLA's next generation of thermonuclear 
weapons.... The PRC could begin serial production of such 
weapons during the next decade....'' It also concludes, ``The 
Select Committee judges that elements of the stolen information 
on U.S. thermonuclear warhead designs will assist the PRC in 
building its next generation of mobile ICBM's, which may be 
tested this year.'' China's mobile ICBM missiles will have the 
ability to hit the United States.
    While it may be painful for some if we restrict China's 
ability to trade on favorable terms with the United States, 
China is now a greater threat to the U.S. national security 
than it has ever been in the past.
    We also need to remember that China has deliberately tried 
to influence our political process through illegal campaign 
donations.
    Every year I share with this subcommittee a litany of human 
rights abuses committed by the Chinese government. The human 
rights abuses are the same this year. There has been no 
improvement. Even the State Department acknowledged that in its 
most recent human rights report.
    Catholic bishops and priests are still being arrested, 
fined, beaten and imprisoned. Some have been in prison for 
many, many years--even decades.
    House church Christians and laypeople are still being 
arrested, fined, beaten and imprisoned.
    Churches are still being destroyed.
    Bibles are still being confiscated.
    The Tibetan culture and religion is still being 
systematically destroyed. Tibetan Buddhist monks and nuns are 
being arrested and tortured. Tibetan Buddhist monasteries are 
still being controlled by cadres of Chinese communist security 
officials. The Tibetan people are still being deprived of their 
freedom, their livelihood and their culture.
    I have seen the repression in Tibet with my own eyes. It is 
frightening.
    Muslims in the Northwest portion of China are still being 
persecuted--Amnesty International issued a comprehensive report 
on persecution of Muslim Uighurs earlier this year. Uighurs are 
being arbitrarily detained. Thousands of Uighur political 
prisoners are in jail and are being tortured.
    Democracy activists are still being watched, arrested, 
imprisoned, held under house arrest and sent to reeducation 
through labor camps.
    Over one hundred Tiananmen Square protestors are still in 
prison.
    Those wishing to remember the 10th anniversary of the 
tragic events of spring 1989 when hundreds of protestors were 
brutally massacred at Tiananmen Square were prevented by the 
Chinese government from doing so. The families of the dead, 
wounded and exiled who are demanding an apology from the 
government of China for its actions in 1989 are being 
persecuted.
    Th Ambassador insulted the intelligence of the American 
people on Sunday talk shows with his demands.
    China still runs a massive system of gulag slave labor 
camps--the laogai.
    It still has a program in which the kidneys, corneas and 
other organs are taken from executed prisoners and sold to 
foreign buyers for tens of thousands of dollars. Some of these 
organs are being peddled in the United States, against U.S. 
law.
    It still engages in coercive population practices--
including forced abortions and sterilizations.
    So nothing has really changed with regard to human rights 
in China.
    Our policy has done nothing to improve China's behavior 
regarding proliferation. According to the Director of Central 
Intelligence George Tenet, China remains a ``key supplier'' of 
technology inconsistent with our nonproliferation goals--
particularly missile and chemical technology to Pakistan and 
Iran. On April 15, 1999, the Washington Times cited 
intelligence reports that the Chinese are continuing to sell 
weapon technologies.
    Finally, our policy has resulted in no improvement in 
ending China's unfair trade practices. The U.S. trade deficit 
with China continues to skyrocket (approaching over $60 
billion), U.S. goods are shut out of China's market and U.S. 
jobs continue to be lost to cheap Chinese labor. In 1989, at 
the time of the Tiananmen massacre, our trade deficit with 
China was only $6 billion. Today it is 10 times that.
    Some say allowing China into the WTO will force China to 
play by the rules. China doesn't abide by its commitments 
regarding human rights and proliferation now. I doubt they will 
in the future--especially if it is not in their interest to do 
so.
    Our policy with regard to China has been a total failure. 
It has produced no positive change in the Chinese government on 
issues of human rights, proliferation and trade and it has a 
diminished the ability of the United States to speak credibly 
on these issues. It is also endangering U.S. national security. 
companies making money in China without standing firm on other 
issues important to the United States. Our current policy is 
hurting the interests of the American people and it is not 
bringing freedom to China.
    We are building up China's economy so that one day, a 
strong, authoritarian China with some of the most advanced 
nuclear weapons in the world can threaten our interests in the 
region and threaten our people at home. Why are we doing this? 
It just doesn't make sense.
    This subcommittee, the Congress and the administration must 
send China a strong message about its espionage, its human 
rights abuses, its proliferation, its unfair trade practices 
and the other issues on which we have concern. At the very 
minimum, this subcommittee should include some statement in the 
report accompanying this bill about the Catholic bishops and 
priests that are in jail; the people of Tibet who are being 
persecuted; the Tiananmen protestors who are still in jail and 
the other grave abuses being committed by the Chinese 
government. We must let these people know they are not 
forgotten.
    Congress should not rubber-stamp the administration's 
request for Normal Trading Relations with China. William Safire 
commented several weeks ago in the New York Times that the best 
scenario would be for the Congress to reject MFN for China, the 
President to veto the bill and the Senate to sustain the veto. 
At least that would be something.
    I oppose Normal Trade Relations with China. But, I believe 
Congress will ultimately renew NTR for China and let them off 
the hook. At a minimum, I urge this subcommittee and Congress 
to follow the Safire scenario. Let's send China a message.
      

                                


    Chairman Crane. Thank you, Mr. Wolf.
    Ms. Pelosi.

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

    Ms. Pelosi. Thank you very much, Mr. Chairman, Mr. Levin, 
and Members of the Subcommittee, for the opportunity to testify 
today. I come here as one who is a supporter of free and open 
trade. I serve as Ranking Member of the Appropriations 
Subcommittee on Foreign Operations, where I have supported 
increases in funding for the Ex-Im Bank, OPIC, TDA. I represent 
a district that is built on trade, and I am blessed with a 
large Chinese-American community in my district, and it is not 
a monolith, in the democratic spirit of our great country, 
contrary to their country of origin.
    So I don't come here with a protectionist argument. I voted 
for NAFTA. I sustained the President's veto on textiles. I 
supported President Bush's fast track legislation. But I do 
think that free trade is not stupid trade. Free trade should be 
fair trade. So in that spirit, I come before you in 
appreciation for the work that this Subcommittee does on trade.
    I come here, Mr. Chairman, to put this debate in the trade 
context. My colleagues have spoken very eloquently about the 
human rights abuses in China. They are well known to you, and I 
have no illusion that on the basis of any human rights 
violations, this Subcommittee would change its recommendation. 
I think that was made clear when in Tiananmen Square the 
Chinese regime crushed its young people under tanks, gave an 
order to kill, to use lethal force, and it has not affected 
this Congress. So I don't think any exposition of further human 
rights violations will move you.
    But I have come to talk to you about the subject that this 
Subcommittee is organized for, trade. Mr. Frank very humorously 
referenced the name had changed to ``normal trade relations.'' 
I would say they are abnormal, because if this is normal, then 
what China is extending to the United States is not normal.
    There have been some name changes across the board in the 
Clinton policy. First it was constructive engagement. Then they 
turned to strategic partnership. Now it's called something 
else, principal purposeful engagement, with our eyes wide open, 
without illusions. Call it whatever you want. The policy 
remains the same, a failure. A failure. So each year, we have 
this opportunity on the MFN vote to hold it as a referendum on 
United States-China policy, and is the policy in keeping with 
the pillars of our foreign policy, three of which are promoting 
democratic values, growing our economy through promoting 
exports, and stopping the proliferation of weapons of mass 
destruction. Three of those pillars have crumbled in the United 
States-China relationship.
    I ask you, my colleagues, why we give normal trade 
relations to China, why don't they give it to us? Or why don't 
we redefine the word ``normal,'' as long as we're changing 
names. Is trade with China normal when the U.S. trade deficit 
with China is surging every year to a projected $67 billion in 
1999? Is it normal that China continues to maintain barriers to 
U.S. goods and services entering the Chinese market, including 
high tariffs, pervasive nontariff barriers, nontransparent 
barriers, nontransparent trade rules and regulations, 
restrictions on trading and distribution rights, restrictive 
government procurement practices, and restriction on 
investments? Is it normal that China continues to pirate United 
States intellectual property, costing United States firms an 
estimated $2.6 billion in lost sales in 1998 alone, according 
to the International Intellectual Property Alliance, and that 
China continues to utilize forced labor for production of 
exports to the United States in violation of United States 
laws?
    For 10 years, advocates of unconditional, unquestioned, 
blinded-by-the-light MFN have argued that economic reform would 
lead to political reform in China, and that United States 
exports would increase. Political reform of course has not 
happened and the increase in United States exports to China as 
a proportion of total United States exports has been so small 
as to be politically insignificant.
    For the record, Mr. Chairman, I have submitted two charts 
that show that we sell more to Taiwan, Singapore, Belgium, 
South Korea, those small countries, than we do to China, and 
South Korea and Brazil, more to them, even though they are in 
an economic crisis.
    I see that the time is going by, but I have to take the 
time always to talk about the overall trade numbers. For the 
first quarter of 1999, the United States deficit with China was 
$13.6 billion, up 18 percent over the same 3-month period last 
year. What more do you need to know that this normal is very 
abnormal? Indeed, it is grotesque in this trade relationship, 
because this trade deficit springs largely from lack of market 
access for U.S. products.
    I can understand why the business community is here in full 
glory. The exporting elites who have their access to the China 
market or prospectively want to have access, are looking out 
for themselves. They are looking out for their sector and 
themselves. Those who are interested in having a platform of 
cheap labor in China need MFN or NTR, whatever you call it, 
grotesque trade status, to get those products back into the 
United States They are interested in themselves. But who on 
this Subcommittee is looking out for the American worker?
    If we in Congress don't do that, I think that we are 
abdicating our responsibility. I remind the Subcommittee of Mr. 
Condit of Boeing's remarks about the Boeing planes, portions of 
which are made in China, when he said every plane that flies to 
China is returning home. That is because much of the production 
of that plane is made in China. Insistence on production, 
insistence on technology transfer. So now we come to this year, 
which is very, very important because of the prospects for WTO.
    I think it would be a good thing if China could be in the 
WTO and abide by the rules. But if they cannot abide by the 
rules, they can wreck the WTO and many of the Western 
economies. Some say that while China has not kept its oral and 
verbal agreements, it has kept its written agreements. Not so. 
I have submitted for the record their violation of the market 
access agreement which the administration's own report to the 
President of the United States on trade agreement programs, 
March 9, 1999, says, ``The restriction of imports remains a 
serious problem.''
    Intellectual property, I mentioned that, but I want to say 
one point there. A particular concern in this same report is 
the significant level of unauthorized use of software by both 
private enterprise and government ministries. Prison labor, my 
colleagues have gone into. The Chinese have violated the 
Memorandum of Understanding on prison labor. They violated 
understandings on market access, intellectual property, prison 
labor, on proliferation of weapons of mass destruction. That is 
all in my record statement. Of course getting back to human 
rights, only from the standpoint of they signed agreements, 
they never ratified it. They certainly have not enforced any 
improvement in human rights in China. Again, these are written 
promises that the Chinese Government never kept.
    So when we talk about WTO accession, it has to be based on 
performance, not promises. I think it would be great if we 
could get to the point where we could trust what the Chinese 
Government has to say. We have to though, as a Congress in this 
country, recognize that workers' rights and the environment are 
competitiveness interest issues and must be central to a WTO 
accession for China. I think that if China is to come in to the 
WTO, there has to be a year where these concessions are 
implemented on the fast track so that we know that they are 
capable of and willing to honor those concessions.
    Then I would like to just in closing say, Mr. Chairman, 
once again, that in our relationship with any country, we 
should be making the people freer, the world safer, and the 
trade fairer. Just again focusing on trade because that is this 
Subcommittee's work, that goal has not been met. None of the 
three has, but in terms of sticking strictly with the trade 
issue, that goal has not been met. Before we move forward, we 
must develop alternative mechanisms to ensure enforcement of 
China's commitments and to preserve Congress' annual 
opportunity to review the state of the United States-China 
relationship.
    Again, Mr. Chairman, I thank you so much for the 
opportunity to testify today, to Mr. Levin, and Members of the 
Subcommittee as well.
    [The prepared statement follows:]

Statement of Hon. Nancy Pelosi, a Representative in Congress from the 
State of California

    Mr. Chairman, Ranking Member Levin, and Members of the 
Subcommittee, thank you for the opportunity to testify today. 
Once again, I am appearing before you to discuss U.S.-China 
trade, and once again, I wish that I could report that the 
Clinton-Bush China policy was working. Sadly, I cannot. Another 
year has passed and U.S.-China policy has not made trade 
fairer, people freer or the world safer.
    All of the issues of concern in the U.S.-China relationship 
deserve and need a full public airing. As this hearing is on 
trade, I will focus my remarks on that topic. It is interesting 
that many name changes have been made along the way in the 
status quo China policy in order to try to make that policy 
more palatable. The Administration has moved from so-called 
``constructive engagement,'' to so-called ``strategic 
partnership'' to, most recently, so-called ``principled, 
purposeful engagement....with our eyes wide open, without 
illusions.'' The problem is, the underlying policy remains the 
same.
    This Committee itself has helped with the name change 
process, changing ``Most Favored Nation'' (MFN) status to 
``Normal Trade Relations'' (NTR), begging the question of what 
normal trade relations are or should be. Is trade with China 
``normal'' when the U.S. trade deficit with China is surging 
every year, to a projected $67 BILLION in 1999? Is it 
``normal'' that China continues to maintain barriers to U.S. 
goods and services entering the Chinese market, including high 
tariffs; pervasive non-tariff barriers; non-transparent 
barriers; non-transparent trade rules and regulations; 
restrictions on trading and distribution rights; restrictive 
government procurement practices; and restrictions on 
investment? Is it ``normal'' that China continues to pirate 
U.S. intellectual property, costing U.S. firms an estimated 
$2.6 BILLION in lost sales in 1998 (according to the 
International Intellectual Property Alliance) and that China 
continues to utilize forced labor for production of exports to 
the United States, in violation of U.S. law?
    For ten years, advocates of unconditional MFN have argued 
that economic reform would lead to political reform in China 
and that U.S. exports to China would increase. Political reform 
has not happened in China. And, the increase in U.S. exports to 
China as a proportion of total U.S. exports has been so small 
as to be practically insignificant. According to the 
Congressional Research Service, in 1989, U.S. exports to China 
in 1989 were 1.65% of U.S. exports worldwide. In 1998, U.S. 
exports to China totaled only 2.1% of U.S. exports worldwide.
    The overall numbers of the U.S.-China trade relationship 
have gotten worse every year (see Chart I). For the first 
quarter of 1999, the U.S. deficit with China was $13.6 billion, 
up 18% over the same three-month period last year. 1999's first 
quarter deficit alone is already larger than the U.S. trade 
deficit with China for the entire year of 1991.
    Of even greater concern in the 1999 first quarter numbers 
is the stunning fact that U.S. exports to China were down 15% 
from the same period in 1998, while imports from China 
increased by 10% this year over last year. In the first quarter 
of this year, the U.S. exported more to Canada, Japan, Taiwan, 
Belgium, and Singapore than to China. We also exported more to 
both Korea, which is recovering from an economic crisis, and to 
Brazil, which is still struggling with one, than we did to 
China (see Chart II).
    The most strenuous advocates of unconditional ``Normal 
Trade Relations'' with China are the handful of companies with 
access to China's market--the ``exporting elite''--or those 
companies that are using China's vast pool of cheap labor as a 
platform for production of goods exported back into the United 
States. I am neither surprised nor overwhelmed by the lobbying 
efforts of these companies to preserve NTR for China. They 
perceive that those activities are in their interests--and the 
Chinese government rewards them for their efforts. The question 
for us today should be, who is looking out for American 
workers?
    This year's debate about U.S.-China trade may be the most 
important one Congress will have. China's possible accession to 
the World Trade Organization (WTO) and Congressional action on 
permanent NTR should engender a comprehensive consideration of 
U.S.-China relations. Some will argue that the way to break 
down China's barriers to U.S. products and services is through 
China's accession to the WTO. They may be right. However, if 
China's accession is not done carefully and on commercially 
meaningful terms, it could destroy the WTO and hurt the entire 
global trading system.
    There is, unfortunately, little evidence in the U.S. 
experience with the Chinese government over at least the last 
ten years which indicates that it will honor the commitments 
that it makes in either a bilateral or multilateral forum. Any 
possible WTO agreement must be viewed against the background of 
the pattern of the Chinese government either signing 
agreements, not complying with them and requiring the 
renegotiation of the commitment which it had already made; or 
simply signing agreements and ignoring them. There is ample 
evidence of this practice in the areas of trade, proliferation 
and human rights. In addition, enforcement of existing 
agreements remains a serious problem. Merely a few examples 
follow:

                               On Trade:

Market Access

     In 1992, then-U.S.T.R. Carla Hills negotiated a 
Market Access Memorandum of Understanding. Because of Chinese 
non-compliance, and only after extensive talks, the MOU was 
renegotiated in 1994. The agreement has still not been fully 
implemented, and according to the ``1999 Trade Policy Agenda 
and 1998 Annual Report of the President of the United States on 
the Trade Agreements Program,'' (submitted to Congress March 9, 
1999) ``While China has phased-out formal measures, such as 
quotas and licenses, non-uniform application of trade rules, 
import substitution policies and use of sanitary and 
phytosanitary standards to restrict imports remain serious 
problems.''

Intellectual Property Rights

     The Administration's ``1999 Trade Policy Agenda'' 
mentioned above documents the tortured history on China's many 
agreements on IPR, including a 1992 MOU. Lack of Chinese 
compliance led to a Special 301 investigation and to the 1995 
IPR Enforcement Agreement. Lack of Chinese compliance led the 
USTR to issue sanctions target lists, legislation was 
introduced, and in June 1996, the U.S. and China signed yet 
another accord, ``outlining the steps China took to implement 
the 1995 Agreement and to provide more detailed market access 
guidelines.'' To date, according to the 1999 Trade Agenda, 
``Chinese enforcement of copyrights and trademarks is still 
uneven from province to province. Of particular concern is the 
significant level of unauthorized use of software by both 
private enterprises and government ministries.'' (emphasis 
added)
Prison Labor

     Concerns about the export of forced labor products 
into the United States, in violation of U.S. law, resulted in a 
1992 Memorandum of Understanding between the U.S. and China in 
which China agreed that it would not export such goods to the 
U.S. and would allow visits by U.S. officials to suspect sites. 
Lack of compliance forced Secretary Bentsen to renegotiate the 
MOU in 1994. The Chinese have still not complied, and, 
according to the State Department's Annual Country Report on 
Human Rights, ``...cooperation overall has been inadequate. In 
1998 U.S. Customs unsuccessfully pursued eight standing 
requests....In all the cases, the Ministry of Justice refused 
the request, ignored it, or simply denied the allegations made 
without further elaboration.''

                           On Proliferation:

    Examples of China not abiding by non-proliferation 
agreements are legion, including:
     The Chinese government's agreement with Secretary 
Baker to abide by the Missile Technology Control Regime (MTCR), 
then transfer of M-11 missile technology to Pakistan in 
violation of the MTCR.
     China acceded to the NPT in March 1992. Serious 
concerns persist about China's compliance, in light of its 
nuclear cooperation with Pakistan and Iran. Many analysts 
believe that China's transfers to those countries violates the 
spirit, if not the letter of the NPT.
     The Chinese government committed to the Clinton 
Administration to stop providing cruise missiles or WMD 
technology to Iran. Recent reports raise serious questions 
about whether the Chinese government is fulfilling this 
commitment.
     Questions also persist about China's compliance 
with the Biological and Chemical Weapons Conventions, with the 
Administration's own Arms Control and Disarmament Agency 
reporting in 1997 that, ``there are strong indications that 
China probably maintains its offensive program, `` and 
concluding that, ``in the years after its accession to the BWC, 
China was not in compliance with its BWC obligations and that 
it is highly probable that it remains noncompliant with these 
obligations.''

                            On Human Rights:

    Again, agreements signed and not honored abound. Here are 
the most recent ones.
     In March 1998 in order to head off action against 
its human rights abuses by the U.N. Human Rights Commission, 
the Chinese government said that it would sign the 
International Covenant on Civil and Political Rights (ICCPR). 
It then put off signing the Covenant until October 5. The 
ICCPR, which has not yet been ratified by the Chinese 
government, pledges governments to respect basic freedoms 
including free association, expression, assembly and religion. 
In the months following the signing, the Chinese government has 
not honored its commitment and has instead embarked on a severe 
crackdown on the very freedoms it pledged to uphold in the 
ICCPR.
     In October of 1997, the Chinese government signed 
the International Covenant on Economic, Social and Cultural 
Rights, and has since taken no steps to ratify it.
    China's compliance with a well-conceived, commercially 
acceptable and enforceable WTO agreement would be a marked 
improvement over China's wholesale violations of international 
trade practices. However, with an economy as large as China's 
and China's pattern of refusing to play by the rules, a WTO 
agreement that is not enforceable will wreak havoc on the 
international trade regime.
    Last week, the international community observed the tenth 
anniversary of the Tiananmen Square massacre. As I participated 
in events to mark this sad occasion, I was struck again by the 
short-sightedness of the choices that the Bush and Clinton 
Administrations and the Congress have made, ignoring the 
promotion of democratic reform in China for a handful of 
business deals. Some argue that trade should be separated from 
all other considerations, including human rights. I do not 
agree and I will be, once again, opposing the annual renewal of 
NTR for China. We should note, of course, that the Chinese 
government has never hesitated to link trade with other issues, 
most recently suspending the WTO talks because of outrage over 
the bombing of their embassy in Belgrade.
    While we disagree on some issues in the U.S.-China trade 
relationship, I think we should all be able to agree that, for 
the sake of the U.S. economy and U.S. workers, as well as U.S. 
businesses, the Congress must fully consider the details of any 
deal which the Administration might reach with the Chinese 
government on WTO accession. China's accession to the WTO is 
too important to be rushed. Congress should consider the annual 
renewal of MFN/NTR separately from any proposal to provide 
permanent MFN/NTR. And, in light of China's history of non-
compliance with multilateral and bilateral agreements, Congress 
should insist on a period of at least one year in which China 
must implement its accession commitments before permanent NTR 
is adopted. Finally, before we move forward with permanent NTR 
for China, we must develop alternative mechanisms to ensure 
enforcement of China's commitments and to preserve Congress' 
annual opportunity to review the state of the U.S.-China 
relationship.
    Thank you, Mr. Chairman, for this opportunity to testify 
today.
[GRAPHIC] [TIFF OMITTED] T4126.004

[GRAPHIC] [TIFF OMITTED] T4126.005

      

                                


    Chairman Crane. Thank you, Ms. Pelosi.
    With that, the Subcommittee will go into recess subject to 
call of the Chair. Mr. Rohrabacher, Mr. Dooley, Mr. Blumenauer, 
you will be immediately up as soon as we reconvene. That is as 
quickly as we can get over there, cast our recorded votes, and 
get back here. Thank you.
    [Recess.]
    Chairman Crane. Will everyone please take seats so the 
Subcommittee can resume the hearing? Please everyone, find a 
seat and take any conversation outside the door.
    With that, we will resume the testimony from our 
distinguished colleagues, starting with Mr. Rohrabacher.

    STATEMENT OF HON. DANA ROHRABACHER, A REPRESENTATIVE IN 
             CONGRESS FROM THE STATE OF CALIFORNIA

    Mr. Rohrabacher. Thank you very much, Mr. Chairman. Mr. 
Chairman, our government has been treating a hostile power, the 
world's worst human rights abuser as a strategic partner. 
Americans will pay a woeful price for this irrational, amoral, 
greed-driven policy if we do not change it. The time has long 
since passed where the United States should reexamine its 
fundamental policies toward China. That certainly includes our 
commercial policies.
    The policies of the past decade have not worked in the 
interests of our country, and have certainly not worked for the 
interests of the freedom of the Chinese people. After some 
initial progress, China has gone in exactly the opposite 
direction, especially since the end of the Reagan 
Administration and the tragic national reversal of China in 
1989 at Tiananmen Square.
    In the past 10 years, the genocide has continued in Tibet. 
The Chinese democracy movement has been wiped out, and there 
has been increasing belligerence by the clique that runs China. 
The Beijing regime is modernizing and expanding its military 
power, while threatening the United States and bullying its 
neighbors, especially Taiwan and the Philippines.
    Big business falsely claims that Communist China is a 
country that is liberalizing through commercial engagement. 
There is no evidence of that. In fact, empirical evidence 
suggests the opposite. Furthermore, the trade relationship has 
worked against the United States. The Chinese are using their 
$60 billion annual trade surplus with us to modernize their 
armed forces, including building nuclear missiles that are 
aimed at the United States, and they are continuing to 
proliferate weapons of mass destruction.
    Here are some of the facts that explain why China is not 
our strategic partner. According to Amnesty International, 
there are thousands of political prisoners who remain in the 
laogai forced labor camp prison system. There are at least 
2,000 persons imprisoned for so-called counterrevolutionary 
crimes, and some 200 Tiananmen Square protestors still in 
prison for their peaceful participation or support of pro-
democracy protests 10 years ago.
    During the past 2 months, the Chinese Government has issued 
new laws that strengthen the Communist Party and further 
restrict freedom of speech and the formation of new political 
parties. Genocide continues in Tibet, where hundreds of 
thousands have perished. Let me just say that the Communist 
Chinese Government in Beijing could incinerate the whole 
country of Tibet, and there would still be people here 
representing the financial interests in our country, the few 
financial interests in our country that are benefiting from 
this trade, telling us that we should ignore that, that that 
really isn't our business.
    Then of course in Xinjiang Province in the far reaches of 
China, Xinjiang Province, formerly called East Turkmenistan, 
the suppression of religion, and political arrests continue. 
Amnesty International in 1999 said that there were at least 190 
executions of political prisoners in that province just last 
year. In Tibet as well as in East Turkmenistan, the local 
population continues to decline, part through forced abortion 
and sterilization, and at the same time, we have millions of 
ethnic Han Chinese moving into this area. When we talk about 
ethnic cleansing, here our country has committed military force 
in the Balkans for ethnic cleansing that runs exactly parallel 
to what's going on in Tibet. Yet in China's case, we are asking 
for most-favored-nation status to be continued. We are doing 
trade with them. We are actually giving credits to people who 
invest in Communist China, while they are practicing their 
ethnic cleansing and genocide.
    China is making major military moves in the Spratley 
Islands. They are bullying other allies of ours, democratic 
allies, threatening the sea lanes in the South China Sea, and 
becoming even more clearly a hostile power.
    The resolution I introduced yesterday of disapproving the 
annual extension of normal trade relations, formerly most-
favored-nation status, does not intend to isolate China. This 
perhaps is probably the most worrisome of the arguments. That 
is, people are not arguing the real case here. No one is 
talking about isolating China. No one is talking about that. We 
are talking about people who go to invest in China should be 
doing so at their own risk for their own capital, and giving 
them normal trade relations opens them up to subsidies by the 
American taxpayers to setting up their businesses to produce 
goods and services that they export back to the United States. 
No one is talking about isolating China and not letting them 
buy our commercial goods here. In fact, it's going in exactly 
the opposite direction.
    What we are doing is through most favored nation status, 
now called normal trade relations, what we are doing is 
subsidizing American businessmen's investment in manufacturing 
units in Communist China, which then will be used to put our 
own people out of work. If there is anything--I haven't heard 
of anything more sinful, a greater sin against the American 
people than taxing them for that purpose.
    The trade imbalance reflects this, and reflects the fact 
that Americans have a low tariff on Chinese imports compared to 
a high tariff imposed by China on American exports. So the 
current trade policy with China is no good for our national 
security, and it's no good for our economic well-being. Who is 
it good for? It is good for a handful of billionaires who 
contribute heavily to both political parties. For these 
reasons, I am asking my colleagues to suspend this policy, at 
least for the coming year, to support my resolution of 
disapproval. Let's at the very least, send a message to the 
government of Communist China, this clique that runs Communist 
China, we do expect fair treatment of the United States 
commercially, and we expect some liberalization to take place. 
Why should we continue a policy that is so detrimental to the 
well-being of our own working people and to the national 
security of our country?
    Thank you very much, Mr. Chairman.
    [The prepared statement follows:]

Statement of Hon. Dana Rohrabacher, a Representative in Congress from 
the State of California

    Mr. Chairman:
    The time has long since passed when the United States 
should reexamine its fundamental policies toward China. That 
certainly includes our commercial policies. The policies of the 
past decade have not worked. After some initial progress, China 
has gone in the opposite direction, especially since the end of 
the Reagan administration and the tragic reversal in 1989 at 
Tiananmen Square.
    In the past ten years, the genocide has continued in Tibet, 
the Chinese democracy movement has been wiped out, and there 
has been increasing belligerence by the clique that runs China. 
The Beijing regime is modernizing and expanding its military 
power, while threatening the United States and bullying its 
neighbors, especially Taiwan and the Philippines.
    Big business falsely claims China is a country that is 
liberalizing through commercial engagement. There is no 
evidence of that. In fact, empirical evidence suggests the 
opposite. Furthermore, the trade relationship is not good for 
us. The Chinese are using their $60 billion annual trade 
surplus with us to modernize their armed forces, including 
building nuclear missiles aimed at the United States. And they 
are continuing to proliferate weapons of mass destruction.
    The resolution I introduced yesterday, disapproving the 
annual extension of normal trade relations [formerly MFN] does 
not intend to isolate China. Instead, it sends the Beijing 
regime a direct message that the United States will stand by 
our democratic principles. The Chinese communists have 
manipulated our openness on trade and American taxpayers have 
ended up subsidizing investment in China by private 
corporations, who largely intend not to sell commercial 
products, to set up manufacturing units that further undercut 
American industry.
    Current trade policy with China is not good for our 
national security and it is not good for our economic well 
being. It mostly benefits a handful of billionaires who 
contribute heavily to both political parties. For these 
reasons, I ask my colleagues to suspend this policy for the 
coming year and to support my resolution of disapproval.
      

                                


    Chairman Crane. Thank you, Mr. Rohrabacher.
    Mr. Dooley.

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

    Mr. Dooley. Thank you, Mr. Chairman and Members of the 
Subcommittee, for allowing me to testify today on the very 
timely issue of United States-China relationships and the 
possible accession of China into the World Trade Organization.
    Clearly the United States relationship with China is 
complicated. Recent events, including the bombing of the 
Chinese Embassy in Belgrade, China's reaction to the bombing, 
and evidence of spying at our national labs, have only added 
complexities to that relationship. We are all in agreement that 
we must take all steps necessary to protect our national 
security interests and to ensure that our counterintelligence 
programs prevent future security breaches. But at this critical 
juncture, we would be foolish to abandon our economic and 
political relationship with China and with it, our ability to 
influence their economic, political, and humanitarian policies 
in the future. We cannot afford to embrace a cold war mentality 
that would demonize and isolate China. A policy of economic and 
political engagement is the surest way to promote United States 
interests in China, to advance democracy and human rights in 
China, and to enhance future economic opportunities for United 
States workers and businesses.
    In order for the United States to remain the dominant 
economic power in the world, we cannot close the door on the 
most populous nation in the world. China will continue to have 
a growing influence on the world's economy. For United States 
businesses and workers to continue and prosper and grow, we 
need continued economic engagement with China by renewing 
normal trade relations, and finalizing a WTO Agreement that 
will bring China into the international community.
    The United States has been aggressively pursuing a WTO 
Agreement for the past 20 months, and while an agreement has 
not been finalized, the deal currently on the table represents 
a tremendous opportunity for all sectors of the U.S. economy. 
Ambassador Barshefsky as well as Ambassador Fisher and their 
negotiating team, are to be commended for reaching this 
unprecedented agreement.
    You know, there has been a lot of talk about the trade 
deficit with China that has grown in recent years. But also 
people have been implying that this has had significant and 
adverse impacts on our economy. But one should look at the 
state of our economy now. It is as strong as it has been in a 
generation. We have seen record low unemployment. We have seen 
real wages growing at twice the rate of inflation. We have seen 
inflation remaining low. While the trade deficit is important, 
it is also one of the most compelling arguments for us to move 
forward with the WTO accession of China, because in that 
agreement are significant opportunities for U.S. interests. 
Whether it's in the agriculture sector, where we will see beef, 
our exports to China in beef, tariffs being reduced from 40 to 
12 percent. Whether it's on wine, where we are going to see 
tariffs reduced from 65 to 20 percent. When we move into 
automobiles, we are going to see tariffs reduced 80 to 100 
percent down to 25 percent.
    These are all opportunities that will be available to our 
workers and our businesses if we do continue a responsible 
policy of economic engagement with China. While a WTO Agreement 
would present tremendous opportunities by bringing China into 
the WTO, it's more than just an issue of market share. China's 
accession into the WTO would lock China into a rules-based 
international organization and bring them into a legal 
framework of the international community. In addition to tariff 
reductions and other market access agreements, bringing China 
under the umbrella of the WTO would make China accountable for 
its trade practices and subject to WTO enforcement actions.
    I support the administration's policy and am encouraged by 
recent reports the negotiations will resume in the near future. 
In spite of recent strains placed on our relationship with 
China, it is in our overwhelming interest to finalize a WTO 
Agreement and maintain our policy of economic and political 
engagement. For some of the opponents in moving forward with 
NTR with China and the legitimate concern that we all share 
with human rights and the progress on religious freedoms, I 
really think that we have to answer the fundamental question: 
how can we have the greatest influence in seeing progress in 
those areas? I contend it's going to be by strengthening 
relationships. You cannot strengthen economic relationships 
without also seeing a strengthening in cultural, social, and 
political relationships. This strengthened relationship is 
going to afford this country, the United States, the greatest 
opportunity to influence the behavior and the conditions in 
China.
    Our greatest weapon to advance democracy throughout the 
world and in China is not our military might. It is in fact our 
economic might. By moving forward and maintaining a policy of 
economic engagement with China, we will be successful in seeing 
progress on an economic front, as well as a human rights front. 
I encourage this Subcommittee to reject Mr. Rohrabacher's 
resolution.
    [The prepared statement follows:]

Statement of Hon. Calvin M. Dooley, a Representative in Congress from 
the State of California

    Chairman Crane and members of the committee, thank you for 
allowing me to testify today on the very timely issue of U.S.-
China Relations and the possible accession of China into the 
World Trade Organization (WTO.)
    Clearly, the U.S. relationship with China is complicated. 
Recent events including the bombing of the Chinese embassy in 
Belgrade, China's reaction to the bombing, and evidence of 
spying at our national labs have only added additional 
complexities to that relationship.
    We are all in agreement that we must take all steps 
necessary to protect our national security interests and to 
ensure that our counterintelligence programs prevent future 
security breaches. But at this critical juncture, we would be 
foolish to abandon our economic and political relationship with 
China, and with it, our ability to influence their economic, 
political, and humanitarian policies in the future. We cannot 
afford to embrace a Cold-War mentality that would demonize and 
isolate China. A policy of economic and political engagement is 
the surest way to promote U.S. interests in China, to advance 
democracy and human rights within China, and to enhance future 
economic opportunities for U.S. workers and businesses.
    Since the reestablishment of diplomatic relations with 
China in 1979, total trade between our two nations has 
increased from $4.8 billion in 1980 to $75.4 billion in 1997. 
This makes China our fourth largest trading partner. China's 
economy is growing at an average rate of almost 10 percent a 
year, making it one of the fastest growing economies in the 
world.
    In order for the United States to remain the dominant 
economic power in the world, we cannot close the door on the 
most populous nation in the world. China will continue to have 
a growing influence on the world's economy. For U.S. businesses 
and workers to continue to prosper and grow, we need continued 
economic engagement with China by renewing Normal Trade 
Relations and finalizing a WTO agreement that will bring China 
into the international trade community.
    The United States has been aggressively pursuing a WTO 
agreement for the past 20 months, and while an agreement has 
not been finalized, the deal currently on the table presents 
tremendous market opportunities for all sectors of the U.S. 
economy including agriculture, information technology, 
financial services, and manufacturers. Ambassador Barshefsky 
and her negotiating team are to be commended for their 
extraordinary efforts in reaching this unprecedented agreement.
    As a member who represents the nation's number one 
agricultural district, I want to thank the Administration for 
negotiating an agreement that presents tremendous opportunities 
for U.S. producers. With respect to agriculture, high Chinese 
tariffs on nearly all agriculture products would be reduced 
substantially over the next four years. On beef we would see 
tariffs reduced from 45 percent to 12 percent, on citrus from 
40 percent to 12 percent and on wine from 65 percent to 20 
percent. In fact, the deal currently on the table would reduce 
tariffs for agricultural products to levels below those of most 
American trading partners. Furthermore, the agreement on the 
table would eliminate China's export subsidies for agricultural 
products including cotton, rice and corn, which will allow U.S. 
farmers to compete on a more level playing field and enhance 
U.S. efforts to curb European export subsidies.
    It is projected that by the year 2003, 37 percent of the 
world food demand will come from China. American ranchers and 
farmers are the most efficient and competitive in the world. 
The WTO agreement on the table would move to level the playing 
field and allow U.S. agriculture tremendous access to the 
world's largest agricultural market.
    Agriculture isn't the only sector that would benefit. The 
agreement would also open Chinese markets to a number of U.S. 
industrial products and services including information 
technology products, automobiles, insurance and financial 
services. Quotas on information technology products would be 
reduced from 13.3 percent to zero, and China would agree to 
adhere to the Information Technology Agreement negotiated in 
1996. In addition, the agreement offers U.S. investment in 
telecommunications and entertainment for the first time, and 
would subject China to WTO requirements on intellectual 
property protection to ensure respect for U.S. copyrights, 
trademarks and patents. Automobile tariffs would be reduced 
from 80-100 percent to 25 percent. American insurance companies 
would be able to sell a wide range or products throughout 
China, as compared to the current policy that limits life 
insurance sales to Shanghai and Guangzhou. And American banks 
would be able to operate anywhere in China.
    And while a WTO agreement would present tremendous 
opportunities for U.S. workers and businesses, bringing China 
into the WTO is more than just a matter of market share. 
China's accession into the WTO would lock China into a rules-
based international organization and bring them into the legal 
framework of the international community through the WTO. In 
addition to tariff reductions and other market access 
agreements, bringing China under the umbrella of the WTO would 
make China accountable for it's trade practices and subject to 
WTO enforcement actions.
    I support the Administration's policy, and am encouraged by 
recent reports that negotiations will resume in the near 
future. In spite of the recent strains place on our 
relationship with China, it is in our overwhelming interest to 
finalize a WTO agreement and maintain our policy of economic 
and political engagement. A policy of continued engagement is 
the most effective tool we have to protect our national 
security interests and promote our economic and political 
ideals. I look forward to working with my colleagues on the 
committee and with the Administration to advance this important 
policy.
      

                                


    Chairman Crane. Thank you, Mr. Dooley.
    Mr. Blumenauer.

STATEMENT OF HON. EARL BLUMENAUER, A REPRESENTATIVE IN CONGRESS 
                    FROM THE STATE OF OREGON

    Mr. Blumenauer. Thank you, Mr. Chairman. I am thinking back 
to where Mr. Dooley and I were here with you just a couple of 
weeks ago. We were speculating as to the best way to accomplish 
changes in the international climate. Repeatedly the discussion 
turned, as Mr. Dooley and I were talking just a few moments 
ago, to Cuba, where we had more leverage, more impact 
potentially, and it has not achieved the desired effect of some 
of our very well-concerned colleagues.
    I commend you for having this hearing today because I feel 
the Ways and Means Committee can play a vital role in helping 
guide our troubled relationship with the People's Republic of 
China. Every Member of Congress is appalled by recent 
developments in China, the continued struggle for human rights, 
the situation in Tibet, the theft of American nuclear secrets, 
alleged interference with our elections, and their clearly less 
than stellar record of economic cooperation. I do commend our 
colleagues who are deeply involved in the human rights issue. 
It does make a difference.
    But the harsh words, for instance, that we heard here just 
a few minutes ago for the business community, I think are sadly 
misdirected. We set the policy. I think it is time for us to 
take a deep breath and reflect back. The analogy to Hitler and 
Nazi Germany? Let's be realistic. I don't think any serious 
scholar thinks, or concerned observer of the international 
situation feels, that the Chinese are an active threat to world 
domination. They are active in their sphere of influence as 
they have been for millennia. Frankly, the Chinese can be 
perplexed by our action, given our recent on-again, off-again 
trade negotiations with them, and to an amazing amount of the 
world, an inexplicable bombing of their Embassy. Frankly, if 
they had destroyed one of our Embassies and killed Americans, I 
doubt that our response would have been as restrained as the 
response on the part of others.
    It is understandable that given the current uncertainty, 
Americans and a number of people in this Congress are undecided 
about exactly what our next steps and strategies should be. But 
we must make no mistake, China is a major force on the world 
stage. It has more people than any other country. The Chinese 
population living abroad represent a huge minority in a wide 
number of other countries. The Chinese have an incredibly 
strong and ancient culture, and they have the veto power, and 
they have the nuclear weapon. They have practices that have 
pre-dated our history for millennia.
    Notwithstanding all the problems we have with China, there 
have been undeniable real advances since Nixon's visit a 
generation ago. People whose judgement I respect, including 
people from the community of faith, sketch a picture of a much 
different country than 40, 25, or yes, even 10 years ago.
    It is important for Members of Congress and the American 
public to put these current controversies in perspective. I 
mean spying yes, but how many examples do we know of spying 
that's occurred by our friends and our allies, not just 
military but industrial contexts, and it's well known to every 
Member of this Subcommittee that we spy all over the world as 
well.
    Despite our differences, America and China clearly rely on 
each other. They can assist us with foreign policy objectives. 
They were a key strategic ally against the Soviet Union, which 
helped hasten the end of the cold war. They have helped us 
contain North Korea, the place we are most likely to see 
American troops engaged in ground war. Both countries have 
benefited from each other's economic cooperation. There is a 
reason why we buy all those goods from China.
    In the future with our relationship with China, we need to 
be very clear-eyed and pragmatic. Nothing about extending 
normal trade relations means we have to be goofy about it, that 
we can't be firm and strategic. I am certain that this Congress 
and people in the administration will do so. But I come down 
unequivocally on the side of the careful management of that 
policy of engagement. I firmly believe normal trade relations 
with China should be renewed. I think the Chairman asked the 
right question in terms of whether or not those strategic 
objectives are going to be advanced if we were to deny it, or 
if we were to send some bizarre confusing signal about one 
House approving, and one House disapproving, or if it has to be 
subjected to the President's veto. That is the sort of strange 
muddle that makes the practice of economic and foreign policy 
even harder.
    I will conclude at that point. I thank you for your 
courtesy. I appreciate what this Subcommittee under the 
leadership of you here on the dias can do in helping us 
continue progress with this important international 
relationship.
    [The prepared statement follows:]

Statement of Hon. Earl Blumenauer, a Representative in Congress from 
the State of Oregon

    The Ways and Means Committee can play a vital role in 
helping guide our troubled relationship with the People's 
Republic of China, and I thank you for holding this hearing 
today.
    Every member of Congress is appalled at the developments in 
China: the continued struggle for human rights, the situation 
in Tibet, the theft of American nuclear secrets, alleged 
interference in our election, and their less than stellar 
record of economic cooperation.
    I commend my colleagues who are deeply concerned about and 
involved in monitoring human rights throughout China. Their 
words will make a positive difference in the long run for the 
cause of freedom.
    However, I believe it is a mistake to direct harsh words 
towards the business community and imply they are directing 
American foreign policy. It is our solemn responsibility in the 
Congress to set what we believe to be the correct policy toward 
China, and I do not delegate my vote to anyone.
    Also, the earlier statement comparing the Chinese regime to 
Hitler and Nazi Germany is also misguided. The Chinese have no 
ambitions to dominate the world or attack the United States, 
they are very active in their own sphere of influence in Asia.
    Instead of indulging in hyperbole, we need to step back and 
take a deep breath before moving forward on what is undoubtedly 
the most important foreign policy relationship in the post-Cold 
War era. The Chinese can be perplexed by our actions, and 
understandably so, given our recent on-again-off-again trade 
negotiations with them and what was to them and many others our 
inexplicable bombing of their embassy. Frankly, if they had 
destroyed one of our embassies and killed Americans, I doubt 
our response would have been one of sustained outrage.
    It is understandable that given the current uncertainty, 
Americans and a number of people in this Congress are undecided 
about exactly what our next steps and our strategy should be. 
But make no mistake--A China is a major force on the world 
stage and will continue to be for some time. It has more people 
than any other country, and Chinese people living abroad 
represent a huge minority in a number of other countries. The 
Chinese have an incredibly strong and ancient culture, as well 
as nuclear power and a veto on the United Nations Security 
Council. They have traditions and practices that predate our 
existence and culture by millenia.
    Notwithstanding all the problems we've had with China, it 
is undeniable that real advances have been made since Nixon's 
visit a generation ago. Tremendous progress has been made in 
the last 25 years including more individual freedoms for many, 
increased prosperity, and what we would termed modernization 
and global connection for hundreds of millions of Chinese. 
People whose judgement I respect, including those in the 
community of faith, tell me they see a very different 
environment in China from what existed 40, 25 or even 10 years 
ago.
    It is important for members of Congress and the American 
public to put the current controversy into perspective. In 
regard to the spying, it is an unfortunate fact of life that 
nations tend to spy on one another. We've had a number of 
episodes where we discovered our friends and allies conducting 
both military and industrial espionage on the United States. 
Our nation in turn spies all around the world; that's no secret 
as well.
    On trade, our relations are in turmoil with our allies. We 
currently have quite a few conflicts with our friends in the 
European Union on key trade and economic issues.
    Despite our differences, China and America can help each 
other. China can assist us in our foreign policy objectives. 
They were a strategic ally against the Soviet Union, which 
helped hasten the end of the Cold War. They have helped us 
contain North Korea, the place we're most likely to see 
American troops in a ground war. Both countries have benefited 
from each other economically, and the stability we provide by 
being a reliable market for the Chinese has an invaluable 
effect. We can only look forward to more cooperation in the 
future with China on the economic front if we stay the course.
    The most important thing to keep in mind with China is that 
we have to be very clear eyed and pragmatic. Our choices are to 
isolate it, ignore China, treat it like an enemy, or, carefully 
manage how we engage China.
    Last month, I sat in front of this very same committee with 
my colleagues and argued in favor of a more reasoned approach 
to sanctions reform. I believe we have more tools at our 
fingertips than just the blunt instrument of sanctions. I 
believe we can cultivate relationships carefully without 
pulling the rug out from other countries, as revoking Normal 
Trade Relations with China would do. The United States attempt 
to isolate tiny powerless Cuba has not softened their policies 
and Castro remains in power.
    I come down unequivocally on the side of careful management 
of a policy of engagement. We should be both firm and strategic 
in our thinking when dealing with China's continuing emergence 
into the family of nations. We should avoid overreaching in 
isolating ourselves from China, not so much because of loss of 
economic opportunity but because of the risk of losing a 
valuable opportunity to connect with the Chinese. We can help 
accelerate the evolution of this ancient and proud society in a 
thoughtful and environmentally sensitive manner. Failing to do 
this, and thus freezing China into a hostile posture, is not 
good long-term policy for the United States, it is not good for 
China and it is not good for the world.
    It would be a grave mistake to approve this resolution 
disallowing Normal Trade Relations.
    I cannot stress enough the impact of this committee's 
leadership. Trade is a language that people understand. This is 
the first major item in regard to China on the agenda since all 
the furor broke out over the embassy bombing and the Cox 
Report. Your guidance and leadership is going to help set the 
tone for this next important stage of the Chinese-American 
relationship.
      

                                


    Chairman Crane. Well, we thank you, Mr. Blumenauer, Mr. 
Dooley, and Mr. Rohrabacher, and reassure you that this will be 
a bipartisan effort. We want to do the best job we can.
    We respect your differences of opinion, Dana. While we may 
not agree on everything, I think we agree on most things. But 
at any rate, we will attempt to move forward in a positive 
direction, reflecting not Republican or not Democratic 
positions, but what we conclude may be in the best interest of 
the United States. So we thank you for your testimony.
    Now we are going to bring on our next witness, who is 
already packed, I hope, and ready to run to the airport. The 
Honorable Richard Fisher, Deputy U.S. Trade Representative, and 
Hon. Stanley Roth, Assistant Secretary, East Asian and Pacific 
Affairs at the State Department.
    We will let Ambassador Fisher testify first so that if you 
have to, Richard, don't hesitate to speak and run. I would like 
to ask both of you if you will try and keep your oral testimony 
to roughly 5 minutes, and any written testimony will be made a 
part of the permanent record. With that, we yield to Mr. 
Fisher.

STATEMENT OF HON. RICHARD W. FISHER, DEPUTY UNITED STATES TRADE 
                         REPRESENTATIVE

    Ambassador Richard Fisher. Mr. Chairman, I want to thank 
you and the Members of the Subcommittee for inviting me to 
testify today. My distinguished colleague and friend, Assistant 
Secretary Roth and I are here to review with you the 
administration's reasons for granting an extension of China's 
normal trade relation status. Assistant Secretary Roth is best 
equipped to address the diverse and important nontrade specific 
issues that impact Congress' decisionmaking on this vital 
issue. As such, Mr. Chairman, with your permission, I will 
confine my remarks today to the trade-specific considerations.
    Fundamentally, American trade policy in China rests on the 
vital interests our country has in a peaceful, stable, and 
prosperous Asian-Pacific region. China's economic isolation 
during the cold war was vastly damaging to both China and the 
Pacific area. For nearly 40 years, China's economy was almost 
entirely divorced from the outside world. Asia's largest nation 
had little stake in prosperity and stability beyond its 
borders. Every Pacific nation felt the consequences not only in 
economics and trade, but in terms of peace and security.
    Our Nation's efforts to undo this isolation is a long-term, 
bipartisan, patient policy, which has continued over nearly 30 
years since President Nixon's visit to China in 1972, and the 
signing of the Shanghai Communique. It has included the lifting 
of the U.S. economic embargo in the midseventies, our initial 
commercial agreement on mutual grant of normal trade relations, 
then most-favored-nation or MFN status of 1979 and 1980, a 
decision, and let me add, Mr. Chairman, in which I participated 
as a boy during the Carter Administration, the consistent 
renewal of NTR for the past 20 years, and the market access, 
textile and intellectual property agreements we have negotiated 
in the nineties.
    The effort has had multiple goals: creation of opportunity 
for American businesses, working people, and agricultural 
producers; guarantees of fair trade principles; support for 
economic reform and the rule of law within China; and 
strengthening China's own stake in the stability and prosperity 
of its neighbors. This effort has succeeded over the years. It 
has increased China's contacts with the outside world, bringing 
new ideas and opportunities to its people and giving China 
greater common interests with its Asian neighbors and with us.
    China now sees important national interests in its good 
trade and investment relations with its neighbors. China's 
constructive approach to the Asian financial crisis may well be 
at least a partial consequence. Despite numerous trade 
barriers, some of which have been mentioned today, it has 
created a market for over $14 billion in annual sales of 
American goods exports, and $3.5 billion in sales and services 
which we seek to expand.
    In summary, Mr. Chairman, the goals of our trade policy in 
China are to advance concrete American interests. The results 
our policies have achieved over the years through Republican 
and Democratic administrations alike, have helped realize those 
interests. Thus, our trade engagement with China has won 
bipartisan support in this hallowed chamber for nearly 25 
years, and has remained stable throughout periods of warmer 
bilateral relations as well as in periods of tension.
    Renewal of normal trade relations is fundamental to any 
continuation of this policy. NTR tariffs are the standard 
tariff rates, now averaging less than 4 percent, which we 
accord virtually all of our trade partners. Under the Jackson-
Vanik provisions of our trade law, however, as you well know, 
certain economies, including China, are ineligible for these 
rates unless the President grants an annual waiver. In accord 
with this law, last Thursday, President Clinton sent to the 
Congress this waiver extending NTR to China for another year.
    Congressional support for this decision will benefit 
American consumers. It will also allow American farmers, 
manufacturing workers, and entrepreneurs to continue to benefit 
from our existing access to the Chinese market. At the same 
time, it will allow us to continue our pursuit of a more fair 
and open Chinese market.
    By contrast, Mr. Chairman, failing to renew NTR would 
severely damage American interests in a number of fundamentally 
important areas. It would harm the interests of American 
consumers, and at the same time, threaten markets and 
consequently jobs and farm incomes for American farmers and 
businessmen and women and workers. It would likely end our 
effort to create a more open rules-based China market through 
the WTO negotiations. It would do immense harm to our friends 
and allies in the Pacific, directly damaging the Hong Kong 
economy, which is experiencing a recession, and risking a new 
economic upheaval in the region, which would badly set back the 
efforts of South Korea and Thailand and the Philippines and the 
newly elected Indonesian Government, to recover from the 
financial crisis of the past 2 years.
    As we look to the future with NTR renewed, we have 
significant opportunities to improve our trading relationship 
and address many of the issues that were raised by your 
distinguished colleagues today. Today it is true that China 
retains high trade barriers and numerous unfair trading 
practices. China's formal and informal trade barriers remain 
high. Its agricultural standards are based on bureaucratic fiat 
rather than on science. Key service sectors like distribution, 
finance, and telecommunications remain closed. These create 
inefficiencies within the Chinese economy. They slow the 
process of integration with regional and world economies. They 
cause frustration and sometimes injury to American farmers, 
workers, and businesses.
    Our principal arena for addressing these vexing trade 
issues is China's pending accession to the World Trade 
Organization. To enter the WTO, China must agree on a set of 
market access commitments, and they must negotiate a protocol 
dealing with fair trade rules. This is worth underscoring, Mr. 
Chairman. WTO accession would not be a favor for China. 
Instead, WTO accession is a means of opening and reforming 
China's markets, and of holding China to the rules of the 
global trading system.
    Thus, China's WTO accession allows us to address the issues 
at the root of our trade problems in a comprehensive way. The 
administration is prepared, as you know, to work closely with 
you and with the Congress, to secure permanent NTR status for 
China, but only in the context of a commercially meaningful 
accession to the WTO.
    As to the state of the WTO accession talks, in April, as 
you well know, we substantially completed a market access 
package on agriculture, industrial goods and services, as well 
as fair trade rules. This includes a commitment by China to 
participate in the most recent WTO Agreements on information 
technology, basic telecommunications and financial services. 
Talks must continue on several unresolved market access and 
protocol issues, however, including many that must be addressed 
multilaterally.
    I would like just to say a couple of words with respect to 
our progress thus far. The set of commitments that China has 
made thus far includes four major features. First, it is 
comprehensive. It embraces agriculture, industrial goods and 
services, trade barriers, including tariffs and nontariff 
measures, transparency and others, unfair practices, including 
export subsidies, forced technology transfer, offsets of local 
content requirements, and protection against import surges. 
Second, it grants no special favors. It requires China to 
reduce its trade barriers to levels comparable to those of 
major trade partners. Third, and specifically addressing some 
key points that were made by Congressman Levin and others, it 
is fully enforceable through a combination of our own trade 
laws, through WTO dispute settlement mechanisms, and other 
mechanisms. Fourth, its results will be rapid. On accession to 
WTO, China will begin opening its market from day one.
    The central point to bear in mind is that all of these are 
essentially one-way commitments by China. China's WTO entry 
will open export opportunities and strengthen our guarantees of 
fair trade without requiring special concessions in return. 
American tariffs, together with our dumping and countervailing 
duty laws, will remain unchanged after China enters the WTO. 
Likewise, our export control policies will remain unchanged. 
Decisions on such policies will not be affected by WTO entry.
    The political environment surrounding the WTO talks of 
course, as we have heard today, is clearly complicated by 
events outside of trade policy. Most notably, we have held no 
formal negotiations with the Chinese since the accidental 
bombing of the Embassy in Belgrade a month ago. Our colleagues 
in other agencies are preparing a report on that event, which 
they will review with the Chinese upon completion of that 
report. Our hope is that negotiations on WTO accession will 
resume shortly thereafter. The rash of media accusations and 
public activity in Beijing in the aftermath of Belgrade, 
together with the release of the Cox Commission report on 
allegations of Chinese espionage, have also raised tensions.
    But this does not alter, Mr. Chairman, the fundamental 
premise of the approach to trade policy taken by Republican and 
Democratic administrations, through thick and through thin over 
the years since the Shanghai Communique in 1972. That is, that 
we believe that an open, rules-based, and reformed Chinese 
economy remains in the interest of the United States and in the 
interests of the Chinese people. We remain committed to a 
commercially meaningful accession based upon commitments China 
has made and mutually satisfactory resolution of the remaining 
issues. We intend to continue pursuing the goal of WTO 
accession.
    Let me just say in conclusion that this is an ambitious 
goal, and it requires very complex negotiations. We will of 
course, Mr. Chairman and Members of the Subcommittee, consult 
closely with you as we proceed. Let me stress in closing, 
however, that renewal of normal trade relations is central to 
our ability to achieve any of our goals in these talks. We very 
much appreciate this Subcommittee's support for NTR in the 
past. We hope to work closely with you to ensure its renewal 
once again this year. Thank you.
    [The prepared statement follows:]

Statement of Honorable Richard Fisher, Deputy United States Trade 
Representative

    Mr. Chairman, Congressman Levin, Congressman Rangel, 
Members of the Subcommittee, thank you for inviting me to 
testify on the President's recommendation to renew Normal Trade 
Relations with China.
    The past weeks have been eventful ones for our trade 
relationship. Since the beginning of this year, in the context 
of China's accession to the World Trade Organization, we have 
carried on highly productive negotiations in all major areas of 
American trade concern: agriculture, industrial goods, services 
and rules. China has made significant commitments across the 
range of sectors and issues of concern to us, but a number of 
issues remain to be resolved. At the same time, of course, 
recent events outside the trade relationship--notably the 
accidental bombing of the Chinese Embassy in Belgrade, the 
resulting demonstrations in China and damage to U.S. diplomatic 
facilities, and the release of the Cox Committee report on 
allegations of espionage in nuclear and other technological 
areas--have created new tensions in the broader relationship.
    Our colleagues in other agencies are addressing the broader 
US-China relationship. With respect to trade policy in general, 
and to the renewal of Normal Trade Relations and the WTO 
negotiations in particular, the Administration intends to 
remain focused on the long-term commercial and strategic 
interest of the United States: a more open, transparent and 
rules-based Chinese market; support for economic reform within 
China; and the accession, on commercially meaningful terms, of 
China to the WTO.
    This afternoon I will review with the Committee the role of 
trade in our broader China strategy, the basis on which the 
President has decided again to renew Normal Trade Relations, 
and the progress we have made towards China's accession to the 
WTO.

                       Trade in U.S. China Policy

    Fundamentally, American trade policy in China rests on the 
vital interest our country has in a peaceful, stable and 
prosperous Asia-Pacific region. Essential to realizing this 
interest, as a commercial goal and a complement to our 
strategic and security policies, is support for China's 
economic integration into the Asia-Pacific region and the world 
economy.
    China's economic isolation during the Cold War was vastly 
damaging to both China and to the Pacific region. For nearly 
forty years, China's economy was almost entirely divorced from 
the outside world. The consequent loss of foreign markets and 
investment impoverished China at home, and meant that Asia's 
largest nation had little stake in prosperity and stability 
beyond its borders. Every Pacific nation felt the consequences 
not only in economics and trade but in peace and security.
    Our effort to undo this isolation is a bipartisan, patient 
policy continuing over the nearly thirty years since President 
Nixon's visit to China in 1972. It has included the lifting of 
the U.S. economic embargo in the mid-1970s; our initial 
Commercial Agreement and mutual grant of Normal Trade Relations 
(NTR; then Most Favored Nation or ``MFN'' status) in 1979 and 
1980--a decision in which I participated as a member of the 
Carter Administration; the consistent renewal of NTR for the 
past 20 years; and the market access, textile and intellectual 
property agreements we have negotiated in the 1990s. The effort 
has had multiple goals: creation of opportunity for American 
businesses, working people and agricultural producers; 
guarantees of fair trade principles; support for economic 
reform and the rule of law within China; and strengthening 
China's own stake in the stability and prosperity of its 
neighbors.
    This effort has succeeded over the years. It has increased 
China's contacts with the outside world, bringing new ideas and 
opportunities to its people and giving China greater common 
interests with its Asian neighbors and with us. China's 
constructive approach to the Asian financial crisis may well be 
at least a partial consequence. And despite numerous trade 
barriers, it has created a market for over $14 billion in 
American goods exports, and $3.5 billion in services.
    In summary, the goals of our trade policy in China are 
concrete American interests; and the results our policy has 
achieved over the years have helped realize those interests. 
Thus, our trade engagement with China has won bipartisan 
support for nearly twenty-five years, and has remained stable 
throughout periods of warmer bilateral relations and periods of 
tension.

                   The Role of Normal Trade Relations

    Renewal of Normal Trade Relations is fundamental to any 
continuation of this policy.
    Normal Trade Relations tariffs are the standard tariff 
rates, now averaging less than 4%, which we accord virtually 
all our trade partners. It is a non-discriminatory, non-
preferential treatment which allows trade to proceed on an 
equal basis with virtually all our partners. Under the so-
called Jackson-Vanik provisions of our trade law, however, 
certain economies, including China, are ineligible for these 
rates unless the President grants an annual waiver.
    In accord with the law, on June 3rd, 1999, President 
Clinton sent to Congress this waiver, extending normal trade 
relations to China for another year. Congressional support for 
this decision will benefit American consumers and also allow 
American farmers, manufacturing workers and entrepreneurs to 
continue to benefit from our existing access to the China 
market. At the same time, it will allow us to continue our 
pursuit of a more open and fair Chinese market. By contrast, 
failing to renew NTR would severely damage American interests 
in a number of fundamentally important areas.
    First, ending normal trade relations would amount to the 
severing of our trade relationship. It would raise tariffs on 
Chinese products to a trade-weighted average of 44%. This would 
make American consumers pay significantly more for goods such 
as shoes, toys, clothing and small appliances. Manufacturers 
would see the cost of goods made with Chinese components rise 
sharply, reducing the competitiveness of our goods in domestic 
and international markets.
    Second, China would likely retaliate against U.S. exports 
by increasing tariffs and other measures, endangering direct 
U.S. goods exports valued at $14.3 billion last year, and 
services exports valued at $3.7 billion in 1997 (the last year 
for which we have figures). This would threaten the jobs of 
manufacturing workers, the income of farmers, the employment of 
young workers in retailing, software engineers and workers in 
every other walk of life.
    Third, ending normal trade relations would also derail our 
bilateral and multilateral negotiations. As I noted earlier, 
and as I will explain in greater detail in a moment, we have 
come very close to completion of a WTO accession agreement with 
China that would dramatically open Chinese markets to American 
goods, services and agricultural products. Revoking NTR would 
be certain to end these talks. It could also lead China to 
reduce or end enforcement of our intellectual property 
agreements; refuse to implement our bilateral Agricultural 
Cooperation Agreement of last April, which lifts long-standing 
bans on American meats, citrus and grains; and halt much of the 
human contact between Americans and Chinese, limiting the 
exchange of ideas and values across the Pacific.
    Fourth, these effects in trade would likely be matched by 
severe damage to relations, in areas from cooperation on drugs 
and international crime to human rights. And it could threaten 
cooperation in national security questions such as the four-
party talks on Korea and missile sales in the Middle East.
    And fifth, ending normal trade relations would badly damage 
many of our other Asian allies, friends and trading partners. 
Most deeply affected would be Hong Kong, whose experts have 
estimated in the past that ending NTR would slash the 
territory's trade volume by up to $34 billion, and income by 
some $4.5 billion. This would dramatically worsen the economic 
pain caused by Hong Kong's current recession. At the same time, 
the economic upheaval created by revocation of NTR would 
gravely complicate our efforts to end the Asian financial 
crisis, at the very moment when Thailand and South Korea are 
beginning to show signs of recovery, and a newly elected 
Indonesian government will begin its effort to recover from an 
extraordinarily difficult economic crisis.
    Altogether, then, the vote on whether to disapprove Normal 
Trade Relations is a vote on whether to protect fundamental 
U.S. interests from jobs and growth at home to stability and 
return to economic health in Asia. The Administration thus 
strongly supports renewal of Normal Trade Relations.

                       U.S. Trade Agenda in China

    As we look to the future, with NTR renewed, we have 
significant opportunities to improve our trade relationship.
    Today, China retains high trade barriers and numerous 
unfair trade practices. China's formal and informal trade 
barriers remain high. Its agricultural standards are based on 
bureaucratic fiat rather than science. Key service sectors like 
distribution, finance and telecommunications remain closed. 
These create inefficiencies within the Chinese economy; slow 
the process of integration with the regional and world 
economies; and cause frustration and sometimes injury to 
American farmers, workers, and businesses.
    China remains insecurely integrated, and only 
opportunistically so, with the world outside; and its economy 
faces severe challenges which, over time, more open trade could 
help to solve. Likewise, China's neighbors remain blocked from 
an economy which could be an engine of growth in the present 
financial crisis and in the future.
    Our principal arena for addressing these issues is China's 
pending accession to the World Trade Organization. To enter the 
WTO, China must agree on a set of market access commitments, 
and negotiate a Protocol dealing with fair trade rules. Thus, 
China's WTO accession allows us to address the issues at the 
root of our trade problems in a comprehensive way. And it is an 
opportunity to advance broader interests beyond trade:
    -- As a matter of trade policy, a sound agreement will open 
Chinese markets to our exports, and give American domestic 
industries stronger protection against unfair trade practices.
    -- As a matter of strategy, WTO membership will complement 
our efforts to maintain peace and stability in the Pacific by 
helping to advance economic reform within China, linking 
China's economy more closely with the world's, and 
strengthening constituencies within China for stability beyond 
its borders.
    -- And as a matter of values, WTO principles--transparency, 
fair and independent judicial practices, peaceful settlement of 
disputes, the rule of law--are those we hope to advance in 
China and worldwide.
    China, of course, is pursuing WTO membership as a matter of 
its own national interest. The reforms entailed in a strong, 
commercially meaningful agreement will help create jobs in 
labor-intensive fields such as distribution services, make 
rural and urban economies more productive, and create the 
competition necessary for innovation and sustainable growth. 
Thus, as WTO membership offers a short-term source of 
confidence, it will advance China's long-term goals of domestic 
economic reform and guarantees of access to world markets.
    We believe that to win the full range of benefits, for both 
the U.S. and China, an agreement on WTO accession must be 
commercially meaningful, addressing our concerns in a detailed, 
enforceable and rapid way. This is the principle we have 
followed in all recent WTO accessions--the most recent 
successful accessions were those of Latvia, Kyrgyzstan and 
Estonia, all of which made commercially meaningful commitments 
in the range of issues of concern to the United States. A weak 
agreement also would not yield the full potential for economic 
efficiency and growth in China. Thus, we are committed to a 
commercially meaningful accession. In the context of such an 
accession, the Administration is prepared to work closely with 
Congress to secure permanent NTR status for China.

                           Progress Thus Far

    While we have not yet reached agreement on such a package, 
in the past months we have made significant progress toward the 
goal. In April we substantially completed a market access 
package on agriculture, industrial goods, and services as well 
as fair trade rules. This includes a commitment by China to 
participate in the most recent WTO agreements on Information 
Technology, Basic Telecommunications and Financial Services. 
Talks will continue on several unresolved market access and 
Protocol issues, however, including many that must be addressed 
multilaterally.

                           1. Major Features

    With respect to our progress thus far, the set of 
commitments China has made includes four major features:
    -- It is comprehensive, covering agriculture, industrial 
goods and services; trade barriers including tariffs, non-
tariff measures, transparency and others; unfair practices 
including export subsidies, forced technology transfer, offsets 
and local content requirements; and protection against import 
surges.
    -- It grants no special favors. It requires China to reduce 
its trade barriers to levels comparable to those of major trade 
partners.
    -- It is fully enforceable. China's commitments are 
specific and will be enforceable through our trade laws, WTO 
dispute settlement and other mechanisms.
    -- And its results will be rapid. On accession to the WTO, 
China will begin opening its market from day one.
    One other essential point is that all of these are 
basically one-way commitments by China. China's WTO entry will 
open export opportunities and strengthen our guarantees of fair 
trade, without requiring special concessions in return. 
American tariffs, together with our dumping and countervailing 
duty laws, will remain unchanged after China enters the WTO. 
Likewise, our export control policies will remain unchanged, 
and decisions on such policies will not be affected by WTO 
entry.

                        2. Specific Commitments

    Let me also make a few comments on the specific commitments 
made before and during Premier Zhu's visit to the United States 
this April.
    The Protocol, which establishes broad rules and frameworks 
for trade, creates a product-specific safeguard to address 
import surges. It also bans forced technology transfer policies 
for investors, including a commitment to refuse to enforce 
these provisions in existing contracts. It will ensure that we 
continue to use ``non-market economy'' methodology in anti-
dumping cases, and take account of China's unique 
characteristics in subsidies. It will eliminate abusive 
investment requirements designed to take jobs to China: 
offsets, export performance, current-account balancing and 
local content. And it will guarantee China's state trading 
companies and state-invested enterprises operate on commercial 
terms, and that their purchases are not subject to any 
different rules. Again, we continue to discuss several issues, 
notably the duration of special provisions. While they will not 
continue in perpetuity, very rapid phaseouts are not 
acceptable.
    With respect to market access, some highlights are as 
follows:

Agriculture:

    China will apply sanitary and phytosanitary standards based 
on science. It will cut tariffs to an average of 14.5% for our 
priority items, and bind them at the applied levels. Thus, 
unlike many countries, China will not have a right to raise 
tariffs again after it enters the WTO. It will adopt a new and 
more liberal system of tariff-rate quotas in bulk commodities. 
And it will agree not to provide agricultural export 
subsidies--a major achievement in its own right, and a step 
toward our goal of totally eliminating export subsidies in the 
next WTO Round.

Industrial goods:

    China will grant rights to import and export products 
without Chinese middlemen, and to distribute products within 
China. It will cut its tariffs on average for U.S. priority 
items to 7.1%--a figure comparable to most major U.S. trading 
partners. This includes participating in the Information 
Technology Agreement, and deep cuts in everything from autos to 
wood products, chemicals and construction equipment. And it 
will eliminate all quotas.

Services:

    China has made a comprehensive set of commitments extending 
from distribution to insurance, telecommunications, 
architecture, engineering, legal, travel and tourism, computer 
and business services, environmental services, franchising and 
direct sales, and more. Talks continue in several areas--
banking, audiovisual, securities--but in several of these as 
well, China has made a set of commitments that already open 
significant opportunities.
    These are a very broad set of commitments. They may well 
bring opposition from vested interests at home in China. But 
other countries have made comparable commitments, and China is 
entirely capable of making them as well. More important, WTO 
accession on commercially meaningful terms is good for China: 
it will mean increased employment, economic growth and social 
stability in the long run.

                           3. Work Remaining

    Finally on the WTO accession, the work is not yet done. 
Some important issues remain unresolved in the services field, 
and in the Protocol as well. As in all accessions, conclusion 
depends on the acceding government, and China of course must 
meet the concerns of other WTO members apart from ourselves. 
But the issues which remain are limited, and I am confident 
that the trade policy challenges they raise can be resolved.

                               NEXT STEPS

    At the same time, however, the political environment 
surrounding the WTO talks, of course, is clearly complicated by 
events outside trade policy.
    Most notably, we have held no formal negotiations with the 
Chinese since the accidental bombing of the Chinese Embassy in 
Belgrade a month ago. Our colleagues in other agencies are 
preparing a report on the event, which they will review with 
the Chinese on completion. Our hope is that negotiations on WTO 
accession will resume shortly afterwards. We remain, of course, 
committed to a commercially meaningful accession, based upon 
the commitments China has made and mutually satisfactory 
resolution of the remaining issues.

                               CONCLUSION

    This period is a test for the broader US-China 
relationship, and the ability of leadership in both capitals to 
focus on longer-term interests. The WTO accession is a key 
component of a longer-term strategy to achieve these interests. 
Completing it, on commercially meaningful grounds, will benefit 
both countries. This remains a shared view, as we continue the 
talks with a goal of entry this year.
    Thank you, Mr. Chairman, and I will now take your 
questions.
      

                                


    Chairman Crane. Thank you, Mr. Fisher.
    Mr. Roth.

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

    Mr. Roth. Thank you, Mr. Chairman. I will be very brief, 
not only because of your offer to put my statement in the 
record as drafted, but also to enable you to have some 
opportunity to ask some questions to my distinguished colleague 
before he departs for the airport.
    Let me simply say that I think I would like to emphasize 
two points. First, this Subcommittee has made a reputation for 
itself over the past decade, in giving very measured 
consideration to the facts, what is and what isn't happening in 
China, and what are the stakes in the United States-China 
relationship. That has always influenced your decisionmaking. 
In listening to some of the presentations, I couldn't help 
think that there was a large array of, shall we say, 
overstatements of the current situation in China. No one is 
going to dispute the fact that we have very serious problems 
with China, and we have them in a large number of areas, 
whether it's human rights, trade, nonproliferation, or 
elsewhere. This can't be swept under the rug, and I don't 
intend to do so.
    But at the same time, to go to the opposite extreme, to 
make statements that China is the worst abuser of human rights 
in the world, a statement that I think, considering some of the 
murderous regimes we see elsewhere, is hard to sustain. If one 
says it is the least free society in the world, I would reply 
that I can think of several less free just within my own area 
of jurisdiction. The suggestion that we have no cooperation 
with them on any strategic issue cannot be sustained. Just at 
this time that we are meeting, there is a high level North 
Korean delegation in Beijing that we believe the Chinese are 
talking to about the missile issue that is so vital to our own 
security. I think there have been some statements that simply 
vastly exaggerate the negative side of the story, and 
underestimate the positive side of the ledger.
    In my statement, I have tried not to rebut the testimony, 
of course, that I hadn't seen prior to coming here, but rather 
to lay out the positive case for engagement, to indicate the 
benefits that we have already achieved from engagement, and 
what we hope to accomplish in addition in the future.
    The second point that I would like to make I think is even 
more fundamental, which is: would revoking NTR make the 
situation any better? Would it help us make progress on the 
problems that we care about? Or, would it in fact make things 
worse? I think that this issue was largely ignored in the 
preceding panel. But, in fact, I think there is no reason at 
all to believe that if NTR were denied to China, that the human 
rights situation would get better. It would only get worse, as 
China would undoubtedly crack down even further. Any ability we 
have to have dialog with them on these issues would vanish. I 
think our prospects for achieving strategic cooperation on any 
of the key regional issues that we're working on--whether it's 
the Korean Peninsula, South Asia, Persian Gulf, South China 
Sea, or any of these areas--would be nil in the context of the 
revocation of MFN or NTR.
    So I think we have to ask ourselves not are there problems 
in United States-China relations, but rather, is this the 
mechanism for addressing it? I believe that if we want to see 
more progress with China on a whole host of issues, that we 
have sufficient policy levers elsewhere, and that NTR is not 
the means by which we should try to affect Chinese policy on a 
number of other issues. We are more likely to do harm than 
good. Why don't I stop at that point.
    [The prepared statement follows:]

Statement of Hon. Stanley O. Roth, Assistant Secretary, East Asian and 
Pacific Affairs, U.S. Department of State

    Mr. Chairman, thank you for the opportunity to address the 
Ways and Means Committee, Trade Subcommittee, on the important 
issue of Normal Trade Relations--NTR--with China.

                              Introduction

    Last year when I addressed this topic on the eve of the 
President's state visit to China, I began my testimony by 
noting that the hearing was very timely. I then made the 
argument that engagement with China, and specifically what was 
then termed ``Most Favored Nation'' status for China, were in 
the best interest of the United States. This year, with 
circumstances clearly much more difficult, I am still persuaded 
by the fundamental reasoning in favor of engagement with China 
in general and ``Normal Trade Relations'' in particular: they 
are in America's best-interest.

                               Engagement

    In his speech of April 7, the President explained the 
purpose of engagement with China as the means to ``build on 
opportunities for cooperation with China where we agree, even 
as we strongly defend our interests and values where we 
disagree. . . . [The purpose is] to use our relationship to 
influence China's actions in a way that advances our values and 
our interests.''
    The President's words were spoken before the tragic 
accidental bombing of the Chinese Embassy in Belgrade, before 
the infliction of severe damage on the U.S. Embassy in Beijing 
by angry Chinese mobs, before the hiatus in our negotiations 
over China's accession to the World Trade Organization (WTO), 
and before the findings of the Select Committee regarding 
Chinese efforts to acquire sensitive information concerning 
U.S. nuclear capabilities. Clearly, however, the President's 
articulation of engagement is just as applicable now as the day 
it was given.
    Despite our current bilateral differences, there remains a 
lot at stake in U.S.-China relations: the U.S. and China 
continue to have compelling mutual interests in promoting peace 
and stability on the Korean Peninsula, working to minimize 
nuclear tensions on the Indian subcontinent, and advancing the 
economic well being of Asia. We need to continue serious 
discussions with the Chinese about the importance of reducing 
tensions across the Taiwan Strait, as well as potential areas 
of friction in the region, such as the South China Sea.
    China's cooperation is essential to keep under control 
technologies used in the production of weapons of mass 
destruction and their delivery systems. China has joined us in 
the Nuclear Non-Proliferation Treaty and the Chemical Weapons 
Convention, and has said it will soon submit for ratification 
the Comprehensive Test Ban Treaty. It has committed to provide 
no new nuclear assistance to Iran, joined a major international 
nuclear suppliers group (the Zangger Committee), and put into 
place comprehensive nuclear export controls. The U.S. and China 
have agreed that we will not target nuclear weapons at each 
other, and China has agreed to actively study joining the 
Missile Technology Control Regime.
    We and China should continue to cooperate on economic 
issues in APEC and other regional fora. Engagement helped 
solidify China's constructive response to the Asian financial 
crisis. China maintained its exchange rate at a time when other 
currencies in the region were extremely vulnerable and has 
accelerated the reform of its own troubled financial sector.
    Some might argue that China would take all of these 
measures regardless of U.S. policy, regardless of engagement, 
simply because these steps are in China's self-interest. I 
disagree. Persistent, principled, and purposeful engagement 
with China's leaders and China's people enables us to identify, 
and work towards, shared goals. As a result of our engagement 
we have been able to persuade China to work with us on an 
increasing number of important issues, some of which had 
previously been contentious such as South Asia, the Persian 
Gulf, and Nuclear Non-proliferation. China is acting on the 
basis of its self-interest, but we are helping to define that 
interest in ways that complement U.S. objectives.
    Earlier I mentioned some of the changed circumstances 
surrounding this NTR hearing and that of last year. Clearly, 
the issue of Chinese efforts to acquire sensitive information 
regarding U.S. nuclear capabilities is a significant factor. In 
this context, the question is whether abandonment of engagement 
with China, or specifically denial of NTR status, is the best 
and most appropriate response? It is not. Abandoning engagement 
with China will not reduce Chinese efforts to acquire sensitive 
information. We didn't have an engagement policy with the 
former Soviet Union but we certainly had a great deal of 
espionage.
    The effective response is better security. In this regard 
President Clinton has launched a comprehensive effort to 
address U.S. vulnerabilities. Punishment of the Chinese for 
their activities by disengaging, or denying NTR status, would 
come at a very high policy cost to the U.S.--we would no longer 
be able to actively pursue U.S. interests with China as we have 
over the past decade--and at a very high economic costs to U.S. 
businesses and consumers.

                           The Merits of NTR

    In his statement last week regarding his decision to seek 
renewed NTR status with China, the President urged this 
Congress to maintain NTR with China because renewal will 
promote America's economic and security interests. ``Normal 
trade relations'' is, of course, a status we have extended to 
all but a handful of nations, e.g. Cuba and North Korea.
    Exports to China and Hong Kong support an estimated 400,000 
U.S. jobs. Over the past decade, U.S. exports to China have 
more than tripled to $14.3 billion and China has now become our 
fourth largest trading partner. These gains have been fostered 
by extending NTR, or at the time ``most favored nation,'' 
status to China. A decision not to renew NTR could cost U.S. 
consumers up to half a billion dollars more per year in higher 
tariffs on shoes and clothing alone.
    And, although I have promised to leave the primary analysis 
to my colleague, I cannot help but touch on the potential 
impact on U.S.-China WTO accession negotiations. Assuming that 
China agrees to the necessary commercial changes to join the 
WTO and thereby becomes subject to standard international trade 
rules and opens its market, U.S. companies and workers could 
develop major new export opportunities. By contrast, refusal to 
renew NTR would effectively derail efforts to finish the 
necessary WTO negotiations. My colleague this afternoon, Amb. 
Fisher, is, I know, an excellent negotiator, but I would not 
want to be in his shoes if this Congress chooses not to renew 
NTR for China.
    Refusal to renew NTR would also undermine those in the 
Chinese leadership who have advocated better relations with the 
U.S. As the President recently noted, we must remember that the 
debate we are having about China today in the United States is 
mirrored by a debate going on in China about the United States. 
We have an opportunity to influence the course of China's 
development in the next century. We should use it.
    Refusing to renew NTR with China would also have 
repercussions on other Asian economies already battered by the 
1998 Asian Financial Crisis. Hong Kong and Taiwan would be 
particularly susceptible. With contracted investments of more 
than $30 billion in the mainland, much of it in export 
industries geared towards U.S. consumers, Taiwan investors 
would take a serious hit if normal trade relations status with 
China were revoked.
    More than 40% of U.S.-China trade goes through Hong Kong's 
port. Refusal to renew NTR, clearly a serious disruption to US-
China trade, would therefore severely damage Hong Kong's well 
being. In fact, Hong Kong authorities estimate that refusal to 
renew NTR with China would slash Hong Kong's trade by up to $34 
billion and reduce its income by $4.5 billion. These figures do 
not incorporate any additional damages which might be the 
consequence of retaliatory Chinese actions. Clearly, such blows 
would undermine Hong Kong's ability to maintain its open 
economy, civil liberties, and way of life. This would be 
contrary to the U.S.'s fundamental policy to support Hong 
Kong's autonomy.

                               Conclusion

    Each year when this subcommittee has reviewed the renewal 
of NTR--previously MFN--status for China, the bilateral 
relationship has experienced formidable problems in such areas 
as Taiwan, trade, human rights, and non-proliferation--to name 
only a few of the familiar issues. Each year this subcommittee 
has recognized that not renewing NTR status would only make the 
existing problems worse.
    This year, there are tough problems in our bilateral 
relationship with China. Nonetheless, continued engagement with 
China is the best path, as is renewal of NTR. A clear-eyed 
strategy of principled, purposeful engagement with China 
remains the best way to advance U.S. interests.
      

                                


    Chairman Crane. Thank you, Mr. Secretary.
    Ambassador Fisher, the Congressional Research Service 
recently completed an analysis of the potential gains for the 
United States exports that would result from Premier Zhu's 
April 8th offer on a WTO Agreement. The potential commercial 
gains for U.S. firms and workers are beyond what many of us 
believed were possible to get from China. How locked in are the 
Chinese to these possible commitments?
    Ambassador Richard Fisher. Mr. Chairman, we did note that 
study. Indeed, the numbers are impressive. I noted that the 
reduction in Chinese tariffs, according to that calculation, 
would generate $11.6 billion in additional United States 
exports, I presume annually, and $2.4 billion in increased 
United States investment in China. As you have pointed out, the 
discussion we had and the point where we had reached on April 
8th is broad, comprehensive, all-encompassing.
    As I mention in my testimony, we have some unfinished 
business. We wish to pursue that unfinished business and 
resolve this issue. Again, we are waiting for a signal to 
engage in those discussion. Once we do, we will continue down 
that path.
    Chairman Crane. Besides the few market access issues, such 
as banking, securities, and audio-visual services, that weren't 
resolved during his visit here, what are the other issues that 
must be negotiated before China's WTO accession would be 
complete?
    Ambassador Richard Fisher. Well, Mr. Chairman, we have the 
so-called protocol issues. These are what established the 
rights and obligations that are enforceable through WTO dispute 
settlement procedures, in addition to a continuation or 
completion of the market access issues that you have mentioned. 
Again, our objective here is to put these in place so that we 
may proceed.
    An important point to underscore here, however, is that we 
do not wish to move backward, we wish to move forward. We have 
reached a point of agreement as of April 8 on a vast majority, 
in Premier Zhu's words, 99 percent of the agenda in terms of 
the market access aspects of this potential agreement. A point 
I wish to underscore to you as we have talked about to this 
Subcommittee before is that what we need now at this juncture 
is to reengage in this discussion and move forward, not 
backward from that point.
    Chairman Crane. One of the questions often raised about 
China's WTO accession is whether China can be counted on to 
live up its commitments, and how will we monitor and enforce 
China's WTO commitments?
    Ambassador Richard Fisher. Mr. Chairman, first of all, I do 
wish to underscore what I said in my testimony. That is, that 
the full range of our United States laws are still available to 
us, even upon WTO accession, as long as those laws of course 
are in keeping with the rules of the road, which they are. The 
first objective we have is to obtain clear, specific 
obligations on the part of China that will be enforceable in 
dispute settlement procedures. We then will of course use the 
WTO dispute settlement process to undertake any action that 
would be necessary if they were to violate the rules of the 
WTO. I might add also that additional mechanisms are under 
consideration to include in China's WTO accession protocol. 
These include perhaps a transitional review mechanism that 
would provide a forum for monitoring China's implementation of 
its commitments. Again, on these and all issues, as we proceed, 
we will consult very closely with the Congress, because we know 
that this issue of enforceability is critical.
    We have said repeatedly, and we believe firmly, that in 
addition to having the force of U.S. law, it is important to 
have in essence, the force of the laws of 130 other nations 
being brought to bear here. The odds of enforcing agreements 
that are reached with the Chinese are much greater in its 
multilateral context and add the particular muscle which our 
own laws apply.
    Chairman Crane. Secretary Roth, I have always believed that 
getting China into the WTO would represent a huge success for 
Taiwan because WTO member countries have agreed that the two 
countries should enter the WTO together. How important do you 
think WTO membership is for the future position of Taiwan?
    Mr. Roth. Mr. Chairman, I think you have characterized the 
situation accurately. As you know, the administration's policy 
is to totally consider the applications of China and Taiwan on 
their merits, and that we have said and we mean, that whenever 
Taiwan is ready to join, we believe its application should be 
considered.
    Having said that, there is also the question of pragmatism, 
getting a consensus, which is how you get into the WTO. In that 
sense, we believe that regardless of the United States 
position, that there have been very real obstacles to Taiwan 
getting in ahead of China, regardless of when it is ready. So I 
think what you point out is simply to state the obvious, which 
is that if China gets in, it obviously makes it much easier for 
Taiwan as well.
    But I want to make it absolutely clear that from the 
perspective of the U.S. Government, as soon as Taiwan is ready, 
we support its accession.
    Chairman Crane. I would imagine that returning home without 
a successful WTO deal after he had revealed his willingness to 
make so many meaningful concessions had to be a very difficult 
experience for Premier Zhu. How are he and other Chinese trade 
officials faring politically in light of the administration's 
unwillingness to conclude a deal at that time?
    Mr. Roth. Well, leaving aside your choice of words, and I 
don't know that I would say ``our unwillingness to conclude a 
deal'' as opposed to the right deal wasn't yet available to us, 
but leaving that aside, I think we should be very careful not 
to exaggerate the implications for Premier Zhu. I think there 
has been a lot of speculation about him being seriously 
damaged. But when we look at the information, we don't see any 
indication that he is under fundamental challenge back home.
    I think the more important point is whether we can in a 
sense obviate this discussion by clinching the deal. So the 
administration has been anxious to get back to the negotiating 
table as soon as possible, and to try to finalize the 
negotiations, something which I know my colleagues at USTR are 
very anxious to have take place. The problem there has not been 
on the U.S. side. We have been willing to negotiate immediately 
almost from the day the delegation went home.
    Chairman Crane. Are you worried that opposition is building 
in China against undertaking the probably painful economic 
reforms that will have to be made for China to join WTO?
    Mr. Roth. Thus far, I must say that I have been more struck 
by the commitment of Premier Zhu and President Jiang to 
carrying out a very broad range of economic reforms, and that 
this goes well beyond just the trade issues involved in the WTO 
talks, but in terms of the privatization of state economic 
enterprises, some banking reforms, getting the military out of 
the economy, and the like.
    I think as a matter of common sense, it's obvious that when 
you undertake as many reforms as they have simultaneously, that 
there has to be some opposition to this. We would be foolish to 
think that there wasn't. But at this point, we have no 
indication that the government is undertaking a retreat from 
this policy of economic reform across the board.
    Chairman Crane. Very good.
    Mr. Levin.
    Mr. Levin. Thank you. I think your testimony has helped 
make a point that needs to be underlined. That is, even if 
there had been no Tiananmen, if there had been no Cox-Dicks 
report, if there had not been an accidental bombing--and I 
disagree with those who say the United States would have 
responded to an accidental bombing like the Chinese did. I 
think their reaction was reprehensible. But even if none of 
these events had occurred, there still would be an intensity 
about this issue. I hope we can take it out of the humdrum. We 
are talking about integrating into a market-based, rules-based, 
international organization the largest country in the world 
with the largest nonmarket, nonrules-based economy. That is a 
big set of issues and we need to understand the ramifications 
for it and build some intensity into this discussion, avoid the 
polarization.
    China is different. We talk about what has been negotiated 
and we talk about how we are going to enforce agreements. We 
are trying to enforce through the WTO Agreements in an economy, 
in an economic structure, that has virtually no transparency, 
very little flow of information. So if American entrepreneurs 
or American organizations here, business or labor, want to find 
out what is going on, it isn't easy. So just saying integrating 
China into the WTO is going to all of a sudden solve the issue 
of enforcement is just misguided. And that is why you have been 
negotiating some additional structures.
    And the same about it is not an open market. It surely 
isn't in terms of capital or in terms of labor. And that is the 
basis of the concern, a lot of the concerns. Because China as a 
nonmarket, both capital and labor, nonrules-based economy is 
not only a subject for our goods, an object for our goods, a 
consumer opportunity, but it is also going to be increasingly a 
competitor. We found that the first 2 months of this year in 
terms of their influx of steel. It was not shoes; it was steel. 
And it was bought. It was a good product, apparently.
    So maybe it has been a mistake for us to talk about 
commercially viable. We should really be talking about an 
economically viable agreement in terms of businesses and 
workers in this country. And I am optimistic we can proceed and 
reach an agreement if we are clear about this and intensive 
about this.
    And, Mr. Fisher, where you talked--and I know it wasn't the 
main subject of your topic--about the work remaining, let no 
one think this is just ho-hum, humdrum. Protocol sounds very 
unimportant or kind of routine, but these issues include 
discussions over safeguards in the event that this non-rule-
based, still nonmarket economy ends up competing with our 
businesses and workers in a way that is basically harmful to 
our economy.
    And one other thing. We have had a lot of discussions and I 
am just urging you to try to illuminate this so that we can 
have an intelligent discussion. On human rights, you heard the 
discussion here. And, clearly, we are going to have to find a 
way, an alternative mechanism--I don't think NTR effectively in 
this regard--we are going to have to find alternative 
mechanisms to press the Chinese on human rights issues. So let 
us now and for the rest of this hearing have some intensity, 
some fervor about this, about the problems as well as the 
opportunities. Because this is a big deal, to use the language 
that we all understand.
    Now let me just ask, then, just one question if I might as 
we talk about proceeding further. What do you think is the 
status of what we have negotiated so far? The United States 
issued a document. Is this, as far as you are concerned, the 
starting point for further negotiations or are we going to go 
back and renegotiate where we once were?
    Ambassador Richard Fisher. Let me make two points here, if 
I may, Congressman. And, first, let me say that I agree with 
your general statement and your plea. This is a big deal, 
hypercomplex, and we have to keep our eye on the ball in terms 
of what we are trying to achieve here and it goes beyond just 
establishing trading rights with a country. It deals with all 
the other aspects of putting together an economy that is driven 
by the rule of law, that is transparent, where we can 
distribute our products once we establish trading rights, and 
so on.
    But, addressing your specific question, in terms of what we 
achieved in April. First, we did sign an agreement. That is, 
Ambassador Barshefsky and Madame Wu Yi, who is a State 
councilor, concluded and signed a bilateral agreement on 
agricultural cooperation which addressed the sanitary and 
phytosanitary issues and barriers to the U.S. exports of citrus 
and meats and Pacific Northwest wheat. That has been done.
    Second, we reached a market-access agreement on the 
majority of the market issues affecting industrial goods and 
agriculture and services. We do, as you pointed out, have some 
unresolved issues. Congressman Crane pointed out in banking 
securities and audiovisual services and other areas.
    And the April 8 agreement is subject to verification and 
rectification. That is, we have to go through the schedule and 
have a discussion to make sure that we got every point right. 
We have released to you and to other Members of both the House 
and the Senate a 17-page summary of where we were as of April 
8. And, again, I want to underscore that we will not move 
backward from that point. We move forward from that point. We 
move forward from that point and not backward, in answer to 
your question.
    Mr. Levin. Thank you.
    Ambassador Richard Fisher. We still have to resolve these 
other issues and we have to finalize the discussion on the 
protocols, but we don't view that as a point to move backward 
from but rather to move forward from.
    Mr. Levin. All right, then, you need to, if I might say 
so--and we have talked a lot about this--describe for this 
Congress and the American public the issues that are left to be 
resolved. When Premier Zhu was here, I think it was an 
effective bargaining point to talk about 99 percent there, 
but----
    Ambassador Richard Fisher. His description.
    Mr. Levin [continuing]. But those issues that are 
outstanding are important issues that need to be resolved and 
we have a considerable ways to go and that needs to be 
understood within these halls and also by the American public. 
Because my--and I will finish with this--I am convinced that 
the majority of my constituents--and I think this is going to 
be true for most Members--in the end, when permanent NTR comes 
up, if it does--and it will have to if there is an accession 
agreement--they will ask the question: As important as these 
other issues are, what is it going to mean for my standard of 
living, in the short term and the long term? And we have to be 
in a position where we can stand up and not just repeat the 
usual platitudes or whatever they are, but point out why this 
will work most likely, economically, to the benefit of the 
American public in the short and the long term.
    So don't be inhibited about talking about the work 
remaining to be done because, otherwise, we are going to be 
talking about all the other issues except the trade, economic 
issues that are the heart of these negotiations and I think, in 
the end, will determine, more than anything else, the votes in 
this institution. Thank you.
    Ambassador Richard Fisher. Thank you, Congressman.
    Chairman Crane. Mr. Fisher, we know your time constraints, 
so you keep an eye on the clock and you let us know when you 
have to run to the airport. And, with that, I yield to Mr. 
Houghton.
    Mr. Houghton. Well, I will keep an eye on the clock and 
thanks very much for your testimony. I have the Protocol, I 
have listened and read your testimony, and I have no questions.
    Chairman Crane. Mr. Rangel.
    Mr. Rangel. Ambassador, always good to see you and I thank 
you for your eloquent testimony. I wondered whether you can 
tell me whether there was any difference in terms of the 
support and the emphasis on trading with Communist China and 
the embargoes on this little Communist country called Cuba? I 
mean, when you talk about encouraging trade and stabilizing 
government and helping people and all of the great things 
America stands for throughout the world, it just seemed to me 
that if it is good for 1 billion people in China, that it makes 
a lot sense for about 8 million in Cuba.
    Well, you don't really have to respond to that----
    Ambassador Richard Fisher. I hear that. [Laughter.]
    Mr. Rangel. It is just that the same way you have a handful 
of people being political as it relates to Cuba, we have more 
than a handful of American businesspeople being political as it 
relates to trade with China. And when the President, 
Republicans, and Democrats make a political decision, it is 
very difficult to undo those things. But it is difficult for us 
to explain why we are trading with Vietnam, and China, but we 
are afraid of the Communist menace in Cuba.
    Having said that, one of things I assume the administration 
would support is that expanded trade means expanded jobs for 
Americans and that China is a classic example. I assume, 
though, you recognize that with trade, with lower wages, with 
working conditions that are substandard or at least different 
from ours, that there has been a lot of displacement in the 
United States. My colleague mentioned steel, but certainly in 
the textile and apparel industry. Do you have any records that 
would indicate how many jobs we gained? How many jobs we have 
lost? And, more specifically, the type of jobs that this 
progress has cost us?
    Ambassador Richard Fisher. Mr. Rangel, that is always a 
very difficult calculus. We do believe that, presently, even 
with the low levels of market penetration we have achieved in 
China, that some 400,000 U.S. jobs are dependent on the current 
market access that we have. It is hard to quantify, although 
the Subcommittee has made some efforts to quantify the numbers 
that will result from a WTO accession by China. But the effort 
here is to reduce the trade deficit, to expand our penetration 
of that market, to sell more products made by American workers, 
farmers, and service providers into that economy.
    Mr. Rangel. But is there any way----
    Ambassador Richard Fisher. But, in terms of the specific 
numbers, Congressman----
    Mr. Rangel. Well, you know that certain industries have 
been hit and hit hard by Chinese textile manufacturing and by 
the apparel industry. And I don't think anyone challenges that, 
with progress, you find these types of displacements. But we 
have to know, one, which jobs are being lost but, more 
importantly, which jobs are being gained to make a case as to 
why expanded trade is good for all America and not just one 
small segment of it. And this is particularly so as it relates 
to--what do they call those state factories?
    Ambassador Richard Fisher. State enterprises.
    Mr. Rangel. State enterprises. Are there millions of 
Chinese that work in the state enterprises?
    Ambassador Richard Fisher. There are, by some estimates, 
100 million Chinese that work in state-owned enterprises and 
they are enterprises which the reformists within China----
    Mr. Rangel. The what?
    Ambassador Richard Fisher. They are enterprises in which 
the reformists in China are seeking to rationalize. They are 
extremely inefficient.
    Mr. Rangel. Yes, but my point is that these factories have 
nothing to do with the free marketplace. Right? I mean, this is 
their unemployment compensation. This is their welfare program. 
This is the antirevolution program. And I don't see how, when 
we talk about reviewing the standard of compensation and the 
standard of working conditions, we are not even saying that we 
intend to dismantle those factories, those, quote, 
``enterprises'' are we?
    Ambassador Richard Fisher. Actually, we deal with this 
specifically in what is known, as Mr. Levin said, it sounds 
obscure, but the protocol aspects of this WTO discussion.
    Mr. Rangel. That is good, but I mean----
    Ambassador Richard Fisher. And let me just talk to that 
point----
    Mr. Rangel [continuing]. We are not saying that they are 
going to have to dismantle those in order to get our support to 
go into the WTO are we?
    Ambassador Richard Fisher. Yes, we are saying that they 
will need to ensure that these enterprises act on a commercial 
basis.
    Mr. Rangel. When? What year?
    Ambassador Richard Fisher. This is part of their accession 
agreement to the WTO.
    Mr. Rangel. You mean----
    Ambassador Richard Fisher. They have agreed that----
    Mr. Rangel [continuing]. That these factories, these 
enterprises, will operate on the same way that democratic 
countries expect the free enterprise system to work? With labor 
standards and minimum wages and things that we Americans know 
what it is about? That, until they do that, we will not support 
their entry into the WTO?
    Ambassador Richard Fisher. What I am saying, Congressman 
Rangel, is that, as part of the Protocol aspects of the WTO 
accession, China has agreed that it will ensure that state-
owned and state-investment enterprises will act like commercial 
enterprises, that is, make purchases and sales based solely on 
commercial considerations such as price and quantity and 
availability and marketability, which they do not do now. That 
they will provide U.S. firms and foreign firms with the 
opportunity to compete for sales and purchases on 
nondiscriminatory terms and conditions. And that they will not 
influence these commercial decisions, either directly or 
indirectly, unless it is in a WTO-consistent manner.
    Now I am not telling you that they are saying they will pay 
the same minimum wage as the United States and so on. So it is 
not as complete and comprehensive as you requested.
    Mr. Rangel. No, I didn't mean, for instance, to suggest 
that, but I visited China many times and they have never 
indicated that they intend to commercialize these institutions 
that are basically not there for productivity but are there to 
satisfy the great unemployment that they have in China and that 
they consider this to be a social program, not a free 
enterprise program. And our labor leaders are concerned that 
the more we support a subsidized work force, much like we do in 
our prisons, that we will not be able to compete against that.
    Is there a section in the Protocol that you can direct that 
I can get more information?
    Ambassador Richard Fisher. Yes, sir. May I suggest, 
respectfully, Congressman, in the interest of time, that I send 
you that section.
    Mr. Rangel. Yes.
    Ambassador Richard Fisher. So you can see where we stand on 
that issue and I would be happy to do so.
    [The information was forwarded to Mr. Rangel and is being 
retained in the Committee files.]
    Mr. Rangel. Thank you. Thank you, Mr. Chairman.
    Chairman Crane. You bet. And let me just add a footnote to 
what you were talking about and that is I understand that there 
is a major effort underway right now to start importing labor 
since we have been at full employment for about 3 years.
    I yield now to Mrs. Johnson.
    Mrs. Johnson of Connecticut. I thank you very much, Mr. 
Chairman. I have just one question. It is my understand that in 
the agreement as it now stands that, after 5 years, the special 
mechanism that we developed for the pricing of products in 
nonmarket economies will expire. This is of some concern as it 
would make enforcement of our antidumping laws and other 
mechanisms that we have on the books to enforce fair trading 
protocol would be very difficult to enforce. Is my 
understanding of that point correct?
    Ambassador Richard Fisher. Congresswoman, the duration of 
this provision remains under discussion. We have not reached 
agreement as to its duration. We have agreed that we will be 
able to maintain our current antidumping methodology, which 
treats China as a nonmarket economy, which is, I believe, what 
you are referencing, in future antidumping cases. Moreover, 
when we apply our countervailing duty law to China, we will be 
able to take the special characteristics of China's economy 
into account when we identify and measure any substantive 
benefits that may exist.
    That much we have established. What we have not 
established, Mrs. Johnson, is the duration period.
    Mrs. Johnson of Connecticut. It does seem to me that 
duration is not the issue, that market structure is the issue 
and, perhaps, the phasing-out of this could be paired with the 
phasing-in of transparent pricing mechanisms in China. But I am 
glad to know there isn't a 5-year limit and I would hope that 
there wouldn't be.
    Ambassador Richard Fisher. And we would be happy to, again, 
discuss this further with you.
    Mrs. Johnson of Connecticut. Thank you.
    Ambassador Richard Fisher. Again, I am a little worried 
about missing my plane, to be honest with you. Although I don't 
want to be disrespectful.
    Chairman Crane. You are not being disrespectful, you are 
being properly respectful by making your son's graduation. So 
you run to the airport, unless, Richie----
    Mr. Neal. I have a question for Mr. Roth.
    Chairman Crane [continuing]. You or Xavier have specific 
questions for----
    Mr. Neal. Mr. Roth.
    Chairman Crane [continuing]. Ambassador Fisher?
    Mr. Neal. No, I have a question for Mr. Roth.
    Chairman Crane. OK. Well, then, you are excused and thank 
you for your testimony.
    Ambassador Richard Fisher. Thank you.
    Chairman Crane. Have a good graduation ceremony.
    And, with that, then, I would yield to Mr. Neal to pose a 
question to Secretary Roth.
    Mr. Neal. Thank you, Mr. Chairman. Mr. Roth, I have been a 
consistent supporter of normal trade relations. You said that 
if we were not engaged in normal trade relations with the 
Chinese or we did not have what is formally known as MFN, that 
human rights conditions would be far worse in China. Yet if you 
listen to the testimony earlier this afternoon of Mr. Frank, 
Mr. Rohrabacher, and Mr. Wolf, I think the consistent theme 
that they offered was that, in their judgment at least, human 
rights conditions in China are indeed worse than they were a 
few years ago, even though we are engaged in the process of 
attempting, once again, to elevate normal trade relations.
    Mr. Roth. I don't think there is a contradiction between 
those two things. I think that the human rights situation, 
unfortunately, in China, we have seen, has gone up and down 
over the years, depending on internal developments within 
China. And I would like to emphasize that I think a lot of what 
is happening in China right now has nothing to do with United 
States policy and a lot to do with internal political dynamics 
within China itself.
    At the same time, I think that it still remains clear that, 
as bad as the current human rights situation is, it could 
certainly get significantly worse and that aspects could get a 
lot worse. This includes things such as: further rounding up of 
dissidents; longer prison sentences; denial of additional 
access from the outside community to some of the people within 
China; denial of access to areas such as Tibet, where we have 
had some delegations allowed to go. China could withdraw from 
its commitments to ratify the two covenants that we have talked 
about.
    So, again, without any way trying to suggest that the human 
rights situation is satisfactory in China, I think it is just a 
matter of common sense that it could be still be far worse and 
I think that we have no prospects of getting better progress 
for it if we revoke NTR.
    Mr. Neal. What about Mr. Wolf's assertion today that normal 
trade relations, if once again passed by the Congress, will 
only prolong the current regime in China? Is there any basis in 
fact to that or would you challenge that statement?
    Mr. Roth. I would certainly challenge that statement simply 
by saying that I think we have seen a pattern, throughout Asia 
and in some other regions of the world, where economic 
modernization has ultimately led to a process of political 
modernization. Not in the kind of straight-line fashion that we 
would like or in a predictable fashion so that I could tell you 
in x years China will be democratic like us, but I think that 
we have seen already enormous changes in Chinese society. And I 
think back to my first trip to China 19 years ago and what it 
looks like now, it is not the same China. And a lot of that 
relates to the economic modernization that has taken place and 
China's exposure to the outside world. And so I think that, in 
fact, it is the opposite of what Mr. Wolf suggested.
    Mr. Neal. You are arguing that reform in the marketplace 
will generate greater demand for democratic reforms as well.
    Mr. Roth. Over time.
    Mr. Neal. Thank you, Mr. Roth.
    Chairman Crane. Mr. Becerra.
    Mr. Becerra. Thank you, Mr. Chairman. Actually, I just have 
one question, I believe, and perhaps a couple of quick 
comments. First, my recollection of the hearing we had not long 
ago on the whole issue of unilateral sanctions probably has a 
lot of relevance to what we are discussing here today, although 
we are not talking about full sanctions upon China and we are 
talking more about whether we reinstitute normal trade 
relations. Certainly, some of the same aspects of the 
discussion on unilateral sanctions applies to this discussion 
as well.
    And, given that, it seems to me that, since we are such a 
high-tech, short attention span society when we operate under 
these 20-second sound bites, if you look at it from that 
perspective, the relationship with China can, at times, look 
very bad. We have a $57 billion trade deficit, if you believe 
the numbers that we have. The human rights situation, the 
espionage, all of those things, obviously, make it difficult 
for us, in 20 seconds, to make the relationship between the two 
countries seem healthy.
    But one of the things I have discovered in this 
Subcommittee is that you have to try to look beyond some of 
that and I would be interested in asking you a question, hoping 
that you can give me a response that, to the degree possible, 
reflects a neutral position or an objective observation of 
this. If you look at the fact that we have a $57 billion 
deficit in our trade with China and you extract only the fact 
that, in terms of imports from China, we provide them with some 
$71 billion worth of capital resources, funding, dollars for 
the goods that they provide us, you would have to admit that 
there is a case to be made that that is real leverage. That 
could be a stick that could be used to try to force China to 
change its ways in other matters.
    If you could give me a quick comment there, because then I 
would like to ask you about what happens, actually, if we were 
to go to that stage of actually closing those doors, 
economically, and would we really find that we would have that 
big a stick?
    Mr. Roth. It is an awfully hard question to answer with a 
pat formula. I think you have to answer it at several different 
levels. I think, one, you have to answer it at the systemic 
level. What does it mean when we stop, when we change from our 
commitment to open-trading regimes that has been our global 
policy and that has enormously benefited the United States 
overall and, instead, go to a situation where we try to use 
this kind of leverage, whether it is against China or some of 
the other countries with which we have large deficits. Is that 
going to get us into a pattern of tit-for-tat retaliation with 
other countries and cause the disintegration of the current 
regime that has been so beneficial. So I think you have to deal 
with it on a global level first.
    Second, I think you have to deal with it on the China-
specific level and ask yourself the question: Is China 
necessarily going to allow itself to be pushed around? Is China 
going to be an economic determinist and, for the sake of our 
access to markets, do anything that we ask? Those of us who 
have seen Chinese nationalism at work would suggest that the 
answer to that is no. We have some leverage but to make it into 
the categorical assertion that we can use our market access to 
get anything we want from China, I think, simply won't hold up 
in terms of the facts.
    Mr. Becerra. And that is probably where the example that 
Mr. Rangel brought up is very telling. Those who support this 
economic embargo on Cuba feel that there could be some success 
there, yet, over the last 40 years and for a country as small 
as it is, both in terms of population and its economic ability, 
it hasn't caved in to some of these United States demands, what 
would cause us to believe that a country that is 4 times as 
large as we are populationwise and, probably, in the next 20 
years, will surpass us in its economic productive capacity, 
would yield as well?
    Let me ask you a couple of quick questions in that regard 
to this discussion. I believe that I have read that China is 
the second-largest recipient of foreign investment after the 
United States. And if you were to categorize it only with 
developing countries--which it is--it would be the largest 
recipient of foreign capital investment in the world. It would 
seem to me that, given that what they are importing from us are 
things like aviation--actually, let me look at this chart here 
to be specific--electric machinery, power generation, air and 
spacecraft, if we were to stop trading those products, sending 
those products to China and stop them from sending over to us 
the toys, the electrical machinery, the footwear, the power-
generation equipment, would China be closed to all markets to 
obtain those same goods and would China be closed to its 
markets to sell its goods?
    Mr. Roth. I think it is obvious that if we blocked what we 
were willing to sell, others will be more than happy to move 
into the breech. And I think it is equally obvious that if 
China feels that we have barred access to our markets, they 
could decide to punish us in terms of whom they decide to 
purchase from. To use your example of aviation, I think it is 
pretty obvious that we don't have a monopoly on that market. So 
I think we have to be very careful in terms of our actions and 
the retaliation it might provoke.
    Mr. Becerra. Thank you. Thank you, Mr. Chairman.
    Chairman Crane. Thank you. And we want to express 
appreciation to you, Ambassador Roth, for your testimony. And 
let me add just a footnote to what you were asking about, 
Xavier. Our population in our entire hemisphere, North and 
South America and Central America, is equal to about two-thirds 
of the population of China. A big market.
    Mr. Becerra. And, by the way, Mr. Chairman, if I could 
just--for the record, you made a comment that I hate to see go 
without some response. You stated that we have been operating 
for the last 3 years at close to no unemployment and that we 
are close to having to import workers. I would be very cautious 
about that because that 4.2 percent unemployment rate still 
translates to about 6 million people in this country who are 
unemployed. They would not see that as no unemployment and 
certainly I hope, before we get to the stage of thinking of 
importing people to do the work in this country, we would look 
closely to the folks that are still seeking work or those we 
are going to kick off the welfare rolls before we start talking 
too seriously about the fact that we have near-full employment.
    Chairman Crane. Yes, that 4.2 percent figure is the 
government figure of what is defined as full employment.
    All righty. I would now like to invite our next panel of 
witnesses and I am going to yield to colleagues here on the 
Subcommittee who have special parochial interests in 
introducing some of our distinguished panelists. And I would 
yield first to my good friend and colleague from New York. Is 
that the State? New York?
    Mr. Houghton. That is right.
    Chairman Crane. Mr. Houghton.
    Mr. Houghton. Thank you very much, Mr. Chairman. Not a 
parochial interest, an international interest. I would like to 
introduce George Fisher. He is sitting down here to my right. 
He is chairman and chief executive officer of Eastman Kodak, 
one of the outstanding business people in the country and is a 
distinguished citizen for a variety of reasons, one of them 
being that he lives in upstate, rather than downstate, New 
York.
    Mr. George Fisher. Thank you, Mr. Chairman.
    Chairman Crane. And introducing our next panelist is our 
good friend from I think also that little State up east there. 
Mr. Rangel, you want to welcome our next panelist?
    Mr. Rangel. Thank you, Mr. Chairman. While all of the 
panelists are welcome, being from New York City, I want to 
particularly welcome two, Harold McGraw, who is the president 
and chief executive officer of The McGraw-Hill Companies in New 
York, as well as my old friend Sy Sternberg who is the chairman 
and president and chief executive officer of the New York Life 
Insurance Company. As I said earlier I am concerned with the 
good jobs we have lost, as we see in New York City, but I also 
believe it is important one talk, as this panel may, about some 
of the jobs that we have gained.
    Thank you, Mr. Chairman.
    Chairman Crane. And next to welcome a panelist is our 
distinguished colleague from Michigan, Mr. Camp.
    Mr. Camp. Thank you, Mr. Chairman. I also would like to 
welcome Mr. Steve Van Andel, the chairman of Amway Corp. of 
Ada, Michigan who will be testifying on behalf of the United 
States Chamber of Commerce. Thank you.
    Chairman Crane. And I also would like to welcome Steve 
because I served on the board of trustees at Hillsdale with his 
dad. A remarkable gentleman and he is part of Steve's history, 
a major part, in the development of Amway and I think Steve in 
his testimony comments that it started in the basement, didn't 
it? And built up to a $7 billion enterprise.
    And I would like to welcome also two other panelists and 
that is George David, chairman and chief executive officer of 
the United Technologies Corp., and Frederick Smith, chairman 
and president and chief executive officer of FDX Corp. And, 
with that, gentlemen, will you proceed in the order that you 
are listed on the panel? Mr. Fisher, you kick off. And try and 
keep your oral testimony, if you will, to 5 minutes. Any 
written testimony will be made a part of the permanent record.

STATEMENT OF GEORGE M. C. FISHER, CHAIRMAN AND CHIEF EXECUTIVE 
OFFICER, EASTMAN KODAK COMPANY, ROCHESTER, NEW YORK, ON BEHALF 
           OF BUSINESS COALITION FOR U.S.-CHINA TRADE

    Mr. George Fisher. Thank you, Mr. Chairman. I appreciate 
the opportunity to speak to all of you today. I thought I would 
use my time today to briefly describe why having China as a 
member of the World Trade Organization would be good not only 
for the United States and for China, but also for my company, 
Eastman Kodak. Then I would like to spend a few moments 
addressing some of the arguments of those who would suggest 
that we put our trade relationship with China on ice.
    Let me focus immediately on the most important point. As I 
see it, the largely complete WTO market access agreement would 
be a great deal for this country. To illustrate, just consider 
industrial tariffs as an aspect alone, which are quantifiable 
and therefore easy for us to measure. Under the Uruguay round 
GATT Agreement, final average bound tariffs in developing 
countries like India, Brazil, and Indonesia ended up between 27 
percent and 32 percent. Under the current draft, China WTO 
Agreement, overall average tariffs for industrial goods would 
be about 10 percent. That is a two-thirds reduction from the 
current rates and would put China's average tariffs lower than 
the WTO commitments of many other developing countries. And 
this is just one example of how the proposed China WTO 
Agreement provides better market access than we now have with 
some current WTO members.
    Second, I would like to suggest that the proposed WTO deal 
would in fact be very good for Kodak in five important ways. 
First, it would lower tariffs on input materials that we will 
export to China, such as raw materials and sensitizing goods. 
Duties in these areas would drop by about 50 percent over 5 
years.
    Second, in a growth area like digital cameras, China has 
agreed to completely eliminate those tariffs, going from 45 
percent to 0 by 2005.
    Third, and for the first time, Kodak will be able to 
provide after-sales service on medical imaging equipment sold 
to Chinese hospitals because of China's bold commitments to 
open its service sector.
    Fourth, our motion picture film business would also be 
helped by a significant increase in the number of foreign 
movies that can be shown every year and mostly on Kodak-print 
film.
    And, fifth, WTO membership would, I believe, stabilize the 
commercial environment so that our $1 billion investment in 
China can proceed more effectively. This would facilitate more 
exports of Kodak materials and high-end products from our 
United States factories to China for finishing and final 
assembly. In fact, 80 percent of our current exports from Kodak 
from the U.S. go to one of our foreign subsidiaries for further 
work, making overseas factories our best customers for made-in-
USA products and materials.
    I would like to now turn, for a moment, to some of the 
criticisms of trade with China. In recent weeks, some have said 
that China should not be allowed to join the WTO because of 
concerns over national security or perhaps human rights issues. 
We cannot and should not minimize the importance of those very 
important issues which must be addressed as part of an overall 
United States-China relationship.
    But I believe those critics who would link these issues 
with WTO membership proceed with a slightly flawed assumption. 
They view WTO membership for China as a reward for improved 
behavior. I would suggest that is wrong. China's entry into the 
WTO is not a reward, but rather a challenge. WTO membership 
will, in fact, require China to make difficult and sometimes 
painful economic reforms. For China, joining the WTO is, I 
believe, the hard part. Staying out would be the path of least 
resistance and also the one that would harm the U.S. the most.
    Then there are other critics who would argue that China 
will not comply with its WTO obligations and, therefore, 
shouldn't be allowed. Well, as many of you on this Subcommittee 
know, I have had considerable firsthand experiences with 
countries that skirt their WTO obligations. And if, in fact, 
that becomes the chief test, it is going to be a big party of 
outcasts. Moreover, China's accession protocol is already more 
comprehensive than the obligations of some of the current WTO 
members and China's leaders, and unlike others--and I might 
suggest Japan--are aggressively restructuring their economy 
with actions and not just promises.
    In sum, getting China into the WTO is strongly in this 
country's best interests. But please remember that without 
permanent NTR, all of the hard-won benefits of this agreement 
would accrue to our foreign competitors from Europe and Japan 
while American companies and workers sit on the sidelines. With 
your Subcommittee's leadership, I am really confident that the 
ultimate logic of free trade with China will continue to 
prevail. Thank you.
    [The prepared statement follows:]

Statement of George M.C. Fisher, Chairman and Chief Executive Officer, 
Eastman Kodak Company, Rochester, New York on behalf of Business 
Coalition for U.S.-China Trade

    Thank you, Mr. Chairman; I appreciate the opportunity to 
speak with you today in my role as CEO of Kodak and as a 
participating member in the Business Coalition for U.S.-China 
Trade.
    I thought I would use my time to briefly describe why 
having China as a member of the World Trade Organization (WTO) 
would be good for the United States and for Kodak. Then I'd 
like to spend a few minutes answering the arguments of those 
who have recently suggested that we put our trade relationship 
with China on ice.

                     Benefits to the United States

    Let me focus immediately on the most important point: the 
largely-complete WTO market access agreement would be a great 
deal for America.
    In fact in many ways, the draft agreement with China would 
be a model for other developing countries to follow, and would 
provide U.S. firms with even better market access than we have 
in some countries which are already members of the WTO.
    To illustrate, consider industrial tariffs, which are 
quantifiable and therefore easy to measure. Under the Uruguay 
Round GATT agreements, which Congress passed overwhelmingly in 
1994, final average bound tariffs in developing countries like 
India, Brazil and Indonesia were between 27% and 32%.
    Under the draft China WTO agreement, overall average 
tariffs for industrial goods would be about 10%. That's a two-
thirds reduction from current rates, and would put China's 
tariff average considerably lower than the Uruguay Round 
commitments of comparable developing countries.
    But there is much more to this deal than industrial 
tariffs. In other critical areas like financial services, 
telecommunications, distribution and retailing, the China WTO 
agreement is a model for reform that would open markets, foster 
change in inefficient state enterprises, and force local firms 
to meet expanded competition from foreign companies.

                           Benefits to Kodak

    Let me turn to Kodak specifically. Five years ago, China 
was Kodak's 17th largest market and we trailed Fuji in market 
share for film and photographic paper. Today, China is our 
third largest market and may soon pass Japan to be the world's 
second-largest photographic market. Kodak is now the Chinese 
market share leader in consumer film and paper, and there are 
about 4,000 Kodak Express retail outlets in China, with new 
ones being added every day.
    Our growth in China is due in large measure to a $1 billion 
investment we're making there. In a novel approach to state-
enterprise reform that was championed by Premier Zhu Rongji, 
the Chinese government essentially allowed Kodak to acquire a 
major portion of its state-owned photographic products 
industry. We're upgrading the facilities, building new 
factories, and will soon have the capacity to produce 100 
million rolls of film per year in China. Importantly, as we buy 
and upgrade old state-run factories, Kodak is already making 
significant improvements in worker safety and environmental 
compliance.
    The proposed WTO deal would help Kodak grow in China even 
more dramatically in the future, in five important ways:
    1. It would substantially lower tariffs on critical input 
materials that we will export to China, such as raw chemicals 
and sensitizing emulsions: duties in these areas will drop by 
about 50% over five years.
    2. In important growth areas like digital cameras, China 
has agreed to completely eliminate tariffs on digital cameras-- 
going from 45% today to zero by 2005.
    3. For the first time, Kodak will be able to provide after-
sales service on medical imaging equipment sold to Chinese 
hospitals, because of China's bold commitments to open its 
service sector.
    4. Our motion picture film business would also be helped by 
a significant increase in the number of foreign movies that can 
be shown in China every year... on Kodak print film, of course.
    5. Finally, a WTO deal and permanent normal trade relations 
would stabilize the commercial environment so that our $1 
billion investment in the Chinese market can proceed.
    I want to emphasize that our Kodak factories in China will 
be important customers for Kodak exports made in the United 
States, as we ship raw materials and high-end products to China 
for finishing and final sale. In 1998 alone, we exported more 
than $100 million in goods and materials to China, mostly to 
our own facilities. In fact, about 80% of Kodak's U.S. exports 
go to our own foreign subsidiaries for finishing and final 
sale, making Kodak's overseas factories our best customers for 
Made-in-USA products and materials.

                Answering Criticisms of Trade With China

    Now, let me turn to the critics of trade with China. In 
recent weeks, some have said China should not be allowed to 
join the WTO because of concerns over national security or 
human rights issues.
    We cannot minimize the importance of these issues, which 
must be addressed as part of the overall U.S.-China 
relationship. But I believe critics who would link WTO to these 
issues proceed from a fundamentally flawed assumption. They 
view WTO membership for China as a reward for improved 
behavior. That's wrong. China's entry to the WTO is not a 
reward, but a challenge. WTO membership will require China to 
make difficult and sometimes painful economic reforms. The hard 
work is on China's side. The U.S. has to give up very little.
    It simply makes no sense to look at WTO entry as a 
political weapon to pressure China on non-trade issues. Denying 
WTO membership would only strengthen the hand of those in China 
who oppose economic reform, who want to protect Chinese 
industry, or who prefer to isolate Chinese people from Western 
influences. For China, joining WTO is the hard part. Staying 
out would be the path of least resistance.
    The record of trade with China provides strong evidence 
that economic engagement produces positive results. China's 
entry to WTO would accelerate a trend toward market-driven and 
more open foreign investments--an approach exemplified by 
Kodak's acquisition of Chinese state-owned assets. Ten years of 
involvement by U.S. companies in China demonstrates that the 
presence of American companies helps to improve the living 
standards of Chinese workers. And American firms bring with 
them practices that improve China's environment and worker 
safety. In Kodak's case, we bought very old state-owned 
photographic plants in Wuxi, Shantou and Xiamen, upgraded them, 
significantly improved environmental compliance, and recently 
celebrated 5 million safe work hours at our new plant under 
construction in Xiamen.
    Finally, there are some who argue that China won't comply 
with its WTO obligations, and therefore shouldn't be allowed 
in. Well, Mr. Chairman, I have some first-hand experience with 
countries that skirt their obligations to the WTO, and if this 
is the chief test for membership we'll have a long list of 
outcasts. In China's case, there are two important factors to 
consider. First, China's protocol is already more comprehensive 
than the existing obligations of some current WTO members. And 
China's leaders--unlike Japan's--are restructuring their 
economy with tough actions, not words.

                                Summary

    In sum, Mr. Chairman, getting China into the WTO is 
manifestly in America's interests. But please remember that the 
greatest irony would be for the Administration to conclude a 
China WTO deal, but then see Congress reject permanent NTR. 
This would deliver all of the market access benefits won by our 
negotiators into the hands of America's foreign competitors, 
while leaving American firms and workers standing on the 
sidelines. With your committee's leadership, I'm confident that 
the ultimate logic of free trade with China will prevail.
    Thank you.
      

                                


    Chairman Crane. Thank you.
    Mr. McGraw.

 STATEMENT OF HAROLD ``TERRY'' MCGRAW III, PRESIDENT AND CHIEF 
 EXECUTIVE OFFICER, MCGRAW-HILL COMPANIES, NEW YORK, NEW YORK, 
      ON BEHALF OF EMERGENCY COMMITTEE FOR AMERICAN TRADE

    Mr. McGraw. Thank you, Mr. Chairman. And, Members of the 
Subcommittee, thank you for this opportunity as well to be here 
today. I am Terry McGraw. I am the president and chief 
executive office of The McGraw-Hill Companies and I am here 
today on behalf of the ECAT, the Emergency Committee on 
American Trade, an association of the heads of the major 
American firms with international operations. ECAT was formed 
over three decades ago to support measures that expand U.S.-
international trade and investment. In addition, Mr. Chairman, 
ECAT and McGraw-Hill Companies are strong supporters of the 
Business Coalition for United States-China Trade.
    The McGraw-Hill Companies is a global information services 
provider and one of the world's leading providers of financial 
information and rating services and publishers of educational, 
business, and professional information. We employ 16,500 men 
and women in 400 offices in 32 countries. I think you probably 
best know us through the McGraw-Hill imprint in education, 
Standard and Poor's, and Business Week, to name some of our key 
brands. The McGraw-Hill Companies have a relatively modest 
business interest in China, accounting for less than 1 percent 
of our total companies' revenues, but for our company, like 
many others, the commercial opportunities are tremendous.
    As exciting as the future prospects may be, let us first 
consider the impact and success of engagement with China in 
recent years. The changes have touched nearly every aspect of 
Chinese society: Government, technology, finance, and 
education. In terms of government, there has been a devolution 
of power to local authorities. There have been elections in 
China. Hundreds of millions of rural Chinese go to the polls 
every 3 years. And although they are only local, the elections 
have introduced such democratic concepts as the secret ballot, 
a choice of candidates, and a public vote count.
    The technology revolution has brought 2.2 million Chinese 
users to the Internet, even though it only became available 3 
years ago. Earlier this year, China launched its own government 
on the Internet project. More than 60 percent of the government 
departments are expected to be online by the end of this year 
and 80 percent are expected to be online by the year 2000.
    In the financial arena, it was not too long ago that ``red 
chips'' referred to something other than a red poker game. Now 
red chips mean large, publicly traded, Chinese companies with 
growth potential. In fact, there are now between 25 million and 
30 million individual stockholders in China.
    While there is a long way to go, obviously, in the 
liberalization of financial services, there has been 
significant change. And, in terms of education, there are 
equally important changes. Did you know, for example, that in 
1984, only one university in China offered MBA courses and by 
the end of 1997, more than 56 universities were licensed to 
offer MBAs in China? And, speaking of education, I am proud to 
say that a teacher education delegation from China organized by 
the Chinese Ministry of Education is visiting our elementary 
school division today to learn about the American system of 
teacher education.
    Our challenge now is to find a way to encourage continued 
changes in China, especially on the human rights front, while 
we address other bilateral and multilateral issues.
    Another issue is enforcement. There is an urgent need to 
get China to play by the rules of international commerce. China 
must be subject to the rules of the multilateral trading system 
and its enforcement mechanisms. In 1995, I joined then-U.S. 
Trade Representative Mickey Kantor in Beijing for the signing 
of a historic intellectual property bilateral agreement with 
China. We fully understood then that it would take some time to 
halt the piracy of intellectual property but we were hopeful 
the agreement would be honored. It has been a deep 
disappointment. In 1998, United States book publishers alone 
lost $125 million to China book piracy. This is obviously a 
serious matter and it cannot continue.
    We need to bring China into the world trading system and 
use the binding dispute resolution mechanism to protect United 
States intellectual property rights. As a WTO member, China 
would be required to protect those rights. If we do not bring 
China into the world trading system, there is certain to be 
continued loss for United States companies and the support 
mechanisms necessary to keep engagement moving forward will 
diminish. Countless opportunities will never be realized.
    Finally, I want to stress the need for action. There will 
always be issues between our two countries. There is no such 
thing as a perfect time in a relationship as complex and 
multifaceted as ours. Change is a process. It takes time. The 
changes in China have been huge and have happened in a 
relatively short period of time. But we are under no illusions. 
China still has a long, long way to go. If we want changes in 
China to continue, we must remain engaged on all levels: 
Diplomatically, commercially, culturally, socially. Further 
engagement will mean further changes and it will mean having a 
way to enforce laws and ensure fair play.
    Finally, our discussion today is not one of commerce versus 
values. Rather it is about what is in the long-term best 
interests of America and the rest of the globe. Let us build on 
the momentum of the positive changes already underway in China. 
To do that, ECAT calls on the Congress to support the 
continuation of China's normal trade relation status; to 
endorse the swift conclusion of our negotiations with China on 
WTO membership, based on a commercially acceptable protocol of 
accession; and to move forward with consideration of permanent 
NTR treatment for China as soon as we conclude.
    Mr. Chairman and Members of the Subcommittee, you have long 
understood the benefits of engagement with China. By holding 
these hearings today, you are demonstrating your commitment to 
a thoughtful and careful approach to the entire issue of United 
States-China relations. Thank you for the opportunity to be a 
part of this discussion.
    [The prepared statement follows:]

Statement of Harold ``Terry'' McGraw III, President and Chief Executive 
Officer McGraw-Hill Companies, New York, N.Y., on behalf of Emergency 
Committee for American Trade

                            I. INTRODUCTION

    My name is Terry McGraw, and I am President and Chief 
Executive Officer of The McGraw-Hill Companies. The McGraw-Hill 
Companies is a multi-media publishing and information company 
headquartered in New York City. We employ 16,500 people in over 
40 states and 30 countries. We provide financial services 
through our global network of offices for Standard & Poor's, 
educational and professional publishing, and information and 
media services. McGraw-Hill's textbooks and multi-media 
learning materials are used in classrooms around the world and 
our publications--such as Business Week, the fastest growing 
business publication in Asia--appear on newsstands here at home 
and abroad.
    As an information provider, the expansion of the global 
economy and the progress of technology are keys to our growth 
into the twenty-first century. The Chinese market is a good 
example of this. Our company currently has relatively modest 
business interests in China. But for us and many other U.S. 
companies, the potential for commercial opportunities in the 
Chinese market is significant. Maintaining stable bilateral 
commercial relations with China through continuation of its NTR 
status and broadening market access in China for U.S. goods and 
services through a strong WTO market-access agreement are 
important to ensure continued global economic expansion and 
greater opportunities for The McGraw-Hill Companies and other 
American companies in China.
    I am appearing before the Trade Subcommittee today on 
behalf of the Emergency Committee for American Trade, an 
association of the heads of major American companies with 
global operations representing all principal sectors of the 
U.S. economy. The annual sales of ECAT member companies total 
over $1 trillion, and the companies employ approximately four 
million men and women. Building stable, bilateral commercial 
relations with China is a priority for ECAT member companies. 
In addition, ECAT and The McGraw-Hill Companies are strong 
supporters of the Business Coalition for U.S.-China Trade, an 
ad hoc group of America's leading companies and major 
associations working for China's accession to the WTO on strong 
market terms and congressional extension of permanent NTR 
treatment to China.
    ECAT recognizes that current U.S.-China relations are 
severely strained by the weight of serious diplomatic and 
security issues. Times of trouble, however, can be times of 
great opportunity. As the United States seeks to deal with the 
difficulties in its relations with China, strong commercial 
links can continue to serve as the backbone which reinforces 
bilateral ties. ECAT commends the Chairman and members of this 
Committee who have expressed clearly and forcefully the 
importance of moving forward with commercial relations with 
China.
    To strengthen bilateral commercial relations with China, we 
in ECAT believe that China's NTR treatment must remain 
uninterrupted while efforts are made to conclude negotiations 
as expeditiously as possible on the terms of China's WTO entry. 
At the same time, we must prepare the way for the extension of 
permanent NTR treatment to China if the United States is to 
finally enjoy the full fruits of China's WTO membership.

II. IMPORTANCE OF MAINTAINING CHINA'S NTR STATUS AND THE U.S. POLICY OF 
                               ENGAGEMENT

    The U.S. policy of engagement with China has contributed to 
the dramatic transformation of the Chinese economy over the 
past two decades. It has enabled significant growth in U.S. 
trade and investment in China, provided the basis for U.S.-
China cooperation on efforts to alleviate the Asian financial 
crisis as well as on foreign policy and security issues, and 
spurred greater individual economic freedom, higher living 
standards, and greater access to outside information for the 
average Chinese citizen. Engagement has also supported the 
continued economic health of Hong Kong.
    Maintaining China's NTR status is the cornerstone of the 
U.S. policy of engagement and the commercial, foreign policy, 
and security objectives that it supports. Interruption of 
China's NTR treatment would undermine these key objectives.
    NTR treatment does not confer any special status on China. 
It simply means that we are agreeing not to discriminate 
against China's goods in favor of those of a third country. In 
return, China must agree to extend NTR treatment to the United 
States. NTR treatment is most-favored-nation status, a well-
established principle under international law and the WTO 
rules. The United States grants NTR treatment to virtually all 
of its trading partners, with the exception of Afghanistan, 
Cuba, Laos, North Korea, and Vietnam. Therefore, the extension 
of NTR status to China simply confers what is normal trade 
status for the majority of U.S. trading partners.

 The Contribution of China's NTR treatment to U.S. Trade and Investment

    Since the normalization of U.S.-China relations two decades 
ago, U.S. exports to China have increased nearly 20 times, 
totaling $18 billion in 1998 and directly supporting over 
200,000 American jobs in the manufacturing and agricultural 
sectors and indirectly supporting tens of thousands of 
additional U.S. jobs in retailing, distribution, and other 
sectors. During the same time period, U.S. investment in China 
has grown to roughly $21 billion. China is already the fourth 
largest market for U.S. agricultural exports, and the American 
agricultural community has called China its most important 
growth market for the 21st century.
    There is also vast potential for further sales of U.S. 
services and manufactured goods in China over the next decade 
as its 1.2-billion-person economy expands and China spends more 
than $700 billion on infrastructure projects to support its 
growing population and commerce. A foothold in the China market 
is also key to expanding access to other Asia-Pacific markets 
that, in the long term, hold important potential for growth in 
U.S. trade and investment. Disrupting China's NTR treatment 
would jeopardize existing U.S. trade and investment in China 
and cut off opportunities for future growth.
    The McGraw-Hill Companies sees significant growth 
opportunities in China for our information products and 
services. We want to provide Chinese workers and consumers with 
our educational and information products and services. The 
McGraw Hill Companies' subsidiary, Standard & Poor's, recently 
established a relationship with Xinhua Financial Consultancy, 
through which real-time international financial data and news 
is provided to the Chinese investment community. The McGraw 
Hill Companies' School Division is hosting a visit from a 
Chinese Ministry of Education delegation as we speak. The 
delegation is here to learn about the American system of 
teacher education. Through these and many other activities, we 
believe we can help the Chinese improve their standard of 
living and assure economic growth. We want the opportunity to 
continue and expand our activities in China.

    China's NTR Treatment, U.S. Security Interests, and Efforts to 
   Encourage Greater Economic Freedom and Openness in Chinese Society

    The continuation of China's NTR treatment is critical to 
far more than just commercial interests. It is also essential 
to strengthening China's strategic cooperation and promoting 
greater openness in Chinese society. Our commercial ties with 
China have contributed to China's willingness to play a 
constructive role in encouraging North Korea to end its nuclear 
weapons program, brokering a peace agreement in Cambodia, and 
trying to halt the arms race between India and Pakistan. China 
is also playing a major role in restoring Asian financial 
stability by maintaining the value of its currency and 
contributing to IMF recovery packages for Asian economies. 
Withdrawal of China's NTR treatment would disrupt these vital 
areas of strategic cooperation and further weaken our already 
damaged diplomatic ties.
    China's NTR status and the U.S. policy of engagement should 
also be maintained to help fuel the remarkable ongoing 
transformation of Chinese society that has occurred over the 
past 20 years. As China's internal markets have opened and 
foreign investment has increased, Chinese government control 
over the lives of average Chinese citizens has decreased. As a 
result, the Chinese people now enjoy higher living standards, 
greater economic freedom, and more access to outside 
information than ever before. The Chinese government is now 
actively encouraging private home ownership. Use of the 
Internet by average Chinese citizens is burgeoning with over 2 
million Chinese Internet users, bringing an even greater flow 
of outside information and ideas into China. In addition, 
several hundred million Chinese have participated in village-
level elections.
    Despite this tremendous progress, Chinese society is not 
fully open and much work remains to be done. The Asian 
financial crisis and ongoing efforts to restructure China's 
state-owned enterprises have contributed to rising 
unemployment, civic disturbances, and, unfortunately, renewed 
government efforts to repress political dissent. We must 
continue to press China to respect the rule of law and to honor 
its commitments under the International Covenant on Civil and 
Political Rights which it recently signed. Engagement and 
continuation of China's NTR status provide the basis for 
continuing progress on these issues.

  China's NTR Treatment and the Continued Stability of Hong Kong and 
                                 Taiwan

    Hong Kong remains a vitally important gateway to Mainland 
China, and trade with Mainland China is a fundamental part of 
its economy. Its economy is an ongoing positive influence on 
Mainland China. The continuation of China's NTR treatment is 
therefore critical to the health of Hong Kong's economy. 
Withdrawal of China's NTR treatment would decrease Hong Kong's 
trade by tens of billions of dollars, result in a loss of tens 
of thousands of jobs in Hong Kong, and destabilize its 
financial markets.
    Maintaining China's NTR treatment is also an important part 
of supporting our nation's ``One-China'' policy, under which 
the United States formally recognizes the People's Republic of 
China, acknowledges that Taiwan is part of China, and maintains 
only unofficial commercial relations with Taiwan. This policy 
has enabled the United States to move forward with its 
commercial and political relationship with China while 
preserving commercial ties with Taiwan, which remains an 
important U.S. export market.
    The ``One-China'' policy has also encouraged China and 
Taiwan to develop their trade and investment ties and to move 
toward renewal of their bilateral dialogue. Trade flows between 
China and Taiwan have grown to over $17 billion, and Taiwanese 
companies have invested over $35 billion in China over the last 
decade. The disruption of China's NTR status would undermine 
U.S. efforts to allow Taiwan to prosper as a vibrant democracy. 
It would also threaten Taiwan's efforts to join the WTO, as 
there is an informal understanding that Taiwan will not be 
admitted to the WTO until after China has acceded. If China's 
NTR status were withdrawn, it is unlikely that further progress 
could be made in our bilateral negotiations with China on its 
WTO accession, thereby stalling both China's and Taiwan's WTO 
membership indefinitely.

  III. THE UNITED STATES BILATERAL TRADE DEFICIT WITH CHINA DOES NOT 
                  WARRANT DENIAL OF CHINA'S NTR STATUS

    While our bilateral trade deficit with China is of concern, 
it would only be exacerbated by the removal of China's NTR 
status. Denial of China's NTR treatment would result in the 
erection of additional barriers to U.S. goods and services in 
the form of high tariffs and other retaliatory measures that 
would lead to a worsening of the trade deficit. The best means 
to address our trade deficit with China is pursuing the removal 
of market access barriers in our bilateral negotiations with 
the Chinese on the terms of their WTO accession. Until 
negotiations are completed on China's WTO accession, we must 
stand firm in insisting that China adhere to its existing 
bilateral market access commitments.
    It is also important, however, to put our bilateral trade 
deficit with China in perspective. The trade deficit reflects a 
shift in production of low-wage consumer products, such as 
footwear and toys, to China from economies such as Taiwan. A 
portion of the bilateral trade deficit is also due to U.S. 
unilateral sanctions against China, such as restrictions on the 
export of high-speed computers. In addition, although they are 
reported separately, a large portion of U.S. exports to Hong 
Kong, as much as 40 percent, is ultimately destined for China. 
Finally, alternative approaches to the Department of Commerce 
methodology used to compile trade data suggest that the China 
trade deficit may be one-third lower than indicated in official 
U.S. Government statistics.

IV. SECURING CHINA'S WTO MEMBERSHIP AND THE EXTENSION OF PERMANENT NTR 
                       STATUS TO CHINA THIS YEAR

    ECAT believes that the United States has a unique window of 
opportunity this year to move beyond annual NTR renewal to 
create a more stable commercial relationship with China. If an 
agreement is not reached on China's WTO accession in the near 
future, there is a real risk that a final agreement will be 
delayed for years. Of course, China must do its part and agree 
to resume the bilateral negotiations with the United States on 
WTO accession.

                   Benefits of China's WTO Membership

    It is in the U. S. interest to bring China into the WTO on 
the basis of a commercially-acceptable protocol of accession. 
The McGraw-Hill Companies and other ECAT member companies 
cannot gain a secure foothold in the Chinese market until China 
is subject to WTO rules and dispute settlement. We cannot build 
a solid commercial foundation in China based on piecemeal 
enforcement of bilateral commitments through counterproductive 
unilateral sanctions. We must ensure that China abides by 
uniform multilateral rules, and we must be able to enforce 
those rules through WTO dispute settlement.
    In our case, we will not be able to extend our information 
services and distribute our publications in China until 
existing foreign investment and distribution restrictions are 
liberalized and China agrees to abide by the WTO Trade-Related 
Aspects of Intellectual Property Rights (TRIPS) Agreement. 
Currently, our ability to do business in China is severely 
limited by restrictions on distribution rights and foreign 
investment. Piracy of our textbooks and educational materials 
is also a serious problem, as China accounted for the highest 
level of book piracy in the world last year, costing U.S. book 
publishers an estimated $125 million in lost sales.
    China's WTO membership is also a critical part of fully 
integrating China into the global economy and encouraging China 
to play a more positive role in ensuring future global economic 
stability and growth, particularly in Asia. China's WTO 
membership would help to bolster China's commitment to 
maintaining the value of its currency, which has been key to 
restoring stability to Asian financial markets. China's WTO 
membership would be a significant vote of confidence in the 
multilateral trading system.
    Securing China's WTO membership is also the best means to 
stem our rising trade deficit with China in that it would 
comprehensively address Chinese market access barriers. 
Achieving binding WTO market access commitments enforceable 
under WTO dispute settlement procedures is the way to deal with 
such barriers. The longer China's WTO accession is delayed, the 
more U.S. business opportunities are lost.
    In addition, China's WTO membership will further structural 
reform in China through the fundamental changes in China's 
economic regime that will be required as part of the process of 
joining the WTO and accepting its obligations. This in turn 
will create a more open climate for trade and investment in 
China that will spur economic growth, create new jobs, and 
improve the living standards of average Chinese citizens.

            Concluding WTO Bilateral Negotiations with China

    This past April during the U.S. visit of Chinese Premier 
Zhu Rongji, the United States and China achieved major 
breakthroughs in bilateral market access negotiations on the 
terms of China's WTO entry which would dramatically open 
China's markets to American goods, services, and agriculture. 
The breakthroughs announced by the Administration in April 
will:
     Be comprehensive, covering agriculture, industrial 
goods and services, elimination of quotas, removal of sanitary 
and phyto-sanitary barriers to agriculture, export subsidies, 
tariff elimination, removal of limits on trading rights and 
distribution, and restrictions on services;
     Grant no special favors to China and require China 
to reduce its trade barriers;
     Be fully enforceable under U.S. trade laws, WTO 
dispute settlement procedures, and special enforcement 
mechanisms to be included in China's protocol of accession; and
     Be implemented swiftly upon China's accession, 
with the exception of China's commitments to remove its 
sanitary and phyto-sanitary standards barriers to agricultural 
products, as they are already being implemented.
    It is also important to note that China's market access 
concessions are one-way and do not require the United States to 
make any concessions in return.
    The April negotiations have put the United States at the 
doorstep of a commercially-acceptable WTO protocol of accession 
with China. For The McGraw-Hill Companies, the WTO bilateral 
agreement being negotiated with China will mean that 
restrictions on market access to books, periodicals and 
magazines will be removed, restrictions on investment will be 
eased, and protection of our intellectual property rights will 
be improved. Most importantly, the United States will be able 
to enforce these commitments through binding WTO dispute 
settlement.
    We cannot afford to lose this opportunity, and ECAT 
believes that both the U.S. and Chinese governments must 
redouble their efforts to resolve any outstanding issues to 
further open markets and to conclude a market access agreement.

            Need to Extend Permanent NTR Treatment to China

    The United States cannot take full advantage of the 
benefits of China's WTO membership and its market access 
commitments unless it extends permanent NTR treatment to China. 
Permanent NTR or MFN treatment is a core obligation under 
Article I of the GATT and the WTO. The Jackson-Vanik provisions 
of Title IV of the Trade Act of 1974 prohibit the United States 
from granting permanent MFN treatment to China. Once China is 
admitted to the WTO, if the United States extends WTO benefits 
to China, the Jackson-Vanik provisions could immediately be 
challenged by the Chinese as denying MFN treatment in violation 
of Article I. The United States has therefore taken the 
position that it would not apply WTO benefits to China until 
the Jackson-Vanik provisions have been amended to allow the 
permanent extension of NTR treatment to China.
    ECAT urges the Congress to begin to consider extending 
permanent NTR treatment to China as soon as the bilateral 
negotiations on market access and the protocol of accession 
have been completed between the United States and China.

                             V. CONCLUSION

    The continued extension of China's NTR status clearly 
advances our national interest. The McGraw-Hill Companies and 
other ECAT member companies believe that the United States 
should take advantage of the historic opportunity before us to 
conclude negotiations with China on a commercially-acceptable 
protocol of accession as expeditiously as possible. Based on 
such an agreement, The McGraw-Hill Companies and ECAT are 
committed to working with the members of this Committee and 
other members of Congress to build bipartisan support for the 
permanent extension of NTR treatment to China.
    I appreciate the opportunity to appear before the Trade 
Subcommittee on behalf of ECAT.
      

                                


    Chairman Crane. Thank you, Mr. McGraw.
    Mr. David.

    STATEMENT OF GEORGE DAVID, CHAIRMAN AND CHIEF EXECUTIVE 
      OFFICER, UNITED TECHNOLOGIES CORPORATION, HARTFORD, 
CONNECTICUT, AND MEMBER, U.S.-CHINA BUSINESS COUNCIL, ON BEHALF 
           OF BUSINESS COALITION FOR U.S.-CHINA TRADE

    Mr. David. Mr. Chairman, thank you and thank you for the 
opportunity to appear before your Subcommittee. This 
Subcommittee is already thoroughly informed on the issues, so I 
thought I would take my time today, brief as it is, and offer 
simply some data on United Technologies Corporation and our 
experiences in China, which may be helpful to you.
    First of all, we are a large American manufacturer, ranking 
number 21 on Fortune's list of industrial companies. We are 
America's ninth largest exporter. We also have had a good sized 
and long-time presence in China with sales there of about $1 
billion a year. And about a fifth of those sales to China are 
high-technology exports from the United States, principally 
aerospace products. You will also recognize our company by its 
principal trademarks, Pratt and Whitney aircraft engines, Otis 
elevators, Carrier Corp. air conditioning, and Sikorsky 
Aircraft helicopters.
    Our history in China is rich. We first sold elevators there 
in the year 1900. We sold air conditioners there in the 
thirties, and, Pratt and Whitney's then ``piston'' engines in 
the same decade. Our ventures in China today number 21 and we 
employ about 10,000 people locally.
    I have four points to make today: First, we are a big 
exporter to China, and an exporter of high-technology products, 
which support America's best jobs. UTC's exports to China 
supported 3,000 jobs altogether last year, based upon the 
Commerce Department's guidelines. Pratt and Whitney jet engines 
are the largest portion of our exports. They have totaled over 
$500 million over the 3 years 1996 to 1998. Most of these jobs 
for aircraft engines are in Connecticut, and Pratt's paid 
manufacturing wage in Connecticut is $20.64 per hour, which is 
more than half again above the average U.S. manufacturing wage. 
These are great jobs at great wages.
    Now, we don't manufacture aerospace products to any 
material degree in China, but we do manufacture our commercial 
products like elevators and air conditioners because they don't 
ship economically. But the fact that we have a manufacturing 
presence for those commercial products there certainly helps us 
to be able to export our top-of-the-line equipment from the 
United States. Sales in that category have approached $200 
million over the last 3 years.
    Let me give you a couple of good examples of our sales in 
China: One is the chiller equipment in the Great Hall of the 
People. Carrier Corp. provided it, chlorine-free, ozone-
friendly, and it is manufactured in Syracuse, New York, at a 
wage rate of about $18.16 per hour. Again, that is way over the 
average U.S. manufacturing average. Another example is that we 
have the elevators in the Shanghai TV Tower, which is the third 
tallest structure in the world. Those elevators were built in 
Bloomington, Indiana, and, again, at way over the average U.S. 
wage rate. The bottom line is that our exports generate great 
U.S. jobs at great wages, which is why we so much strongly 
endorse this WTO accession agreement.
    In China, we employ 10,000 people. We are, I believe, an 
effective force for change and this is the reason why. First, 
we pay our employees good wages. For example, one of our 
subsidiary companies in Shanghai, Hezhong Carrier, employs more 
than 300 people. It pays just slightly less than twice the 
prevailing wage in Shanghai which is not unusual for American-
controlled ventures in China.
    My second point is that we apply UTC's environment, health, 
and safety standards uniformly across the entire world 
including China. The same standards for environment, health, 
and safety apply in Shanghai or in Beijing that apply in 
Connecticut or Indiana.
    Third, many of our employee benefits are available 
globally. There is one I would like to mention just briefly, 
and that is UTC's employee scholar program, which has been 
publically recognized by President Clinton and Labor Secretary 
Herman. That program today supports 11,000 Americans in college 
in advanced degree course work, and that is 15 percent of our 
U.S. population, 100 percent on UTC's nickel. In China, we have 
100 people in the same program. Our belief is that an educated 
work force is a great work force; an educated people are 
thoughtful people, pro-reform and advance the ideals that we, 
as Americans, hold dear.
    My fourth and final point is that China has already made a 
lot of progress, I believe, in opening itself to the world. The 
average inbound foreign direct investment (FDI) in China is $44 
billion a year, which is second after only our country in the 
whole world. The cumulative total of FDI in China is $269 
billion, which is 5 times more than in Japan at any time. Japan 
is a closed economy in terms of investment while China is open. 
And imports into China are currently $140 billion a year, which 
is 14 percent of China's GDP. That is a percentage that is even 
higher even than in the U.S. China is in that sense, more open 
to imports than we are.
    Now we know that there have already been important and even 
unique concessions negotiated by Ambassador Barshefsky's WTO 
team. Two of them apply to us: One has been mentioned earlier, 
which is the reduction of the external tariff to a flat 9 
percent rate. That compares to tariff rates today in the 30 
percent to 40 percent range for our elevator and air 
conditioning equipment. And the second is the agreement to 
eliminate restrictions on distribution companies. Today we 
control the distribution of Carrier products made in China. 
However, Carrier's only United States-made product may not go 
through our distribution channels in China, and the Barshefsky 
agreement, we believe, eliminates that problem.
    In summary, therefore, not only does engagement with China 
generate great U.S. jobs, it also brings the Chinese to embrace 
and reaffirm the reform agenda that we as a Nation properly 
seek. There is no better way to teach than by example and by 
participation. History also shows that windows of opportunity 
are rare, and that when presented, they are to be treasured and 
seized. For countless reasons--and this is the experience of 
one employer--this seems to be the window of opportunity right 
now, to approve a WTO agreement, if negotiated by our 
government on satisfactory terms, and also for Congress to 
grant permanent NTR and, at a bare minimum, to extend NTR for 
another year.
    [The prepared statement follows:]

Statement of George David, Chairman and Chief Executive Officer United 
Technologies Corporation, Hartford, Connecticut, and Member, U.S.-China 
Business Council, on behalf of the Business Coalition for U.S.-China 
Trade

    Good afternoon. My name is George David. I am Chairman and 
Chief Executive Officer of United Technologies Corporation and 
a board member of the U.S.-China Business Council. I am also 
appearing today on behalf of the Business Coalition for U.S.-
China Trade.
    At UTC, we sell each year about a billion dollars of our 
products and services in China. Two hundred million of this 
total is exports from the United States, principally aerospace 
products, and these exports support some of the best jobs in 
America. We also employ 10,000 people in China, provide wages 
and working conditions there we can be proud of, and are 
consequently an effective force for change in that vitally 
important country and economy.
    I know this group is substantially partial to pro-China 
trade arguments. You are also highly informed legislators on 
this subject. I propose to limit myself therefore mostly to 
facts about our company and our experiences in China, saving 
the rhetoric for the end of these remarks and with only a few 
words then.
    I feel I am informed personally about China. I went there 
first in 1985, and have returned every year since and typically 
more than once. I am acquainted individually with a cross 
section of China's leadership and have negotiated business 
deals with Chinese counterparts, met countless employees in our 
ventures, and traveled widely throughout the country. My views 
reflect these personal experiences.
    United Technologies Corporation is one of America's largest 
and most international companies. Fortune magazine ranks us 
number 21 among all industrial companies, and the United 
Nations identified us several years ago as one of only four 
American companies with more than 100,000 employees outside the 
United States. We are also a high technology company, with our 
subsidiaries including Pratt & Whitney (jet engines), Otis 
(elevators), Carrier (air conditioning), Sikorsky 
(helicopters), and Hamilton Standard (aerospace systems). We 
are also just about to complete our acquisition of Sundstrand 
Corporation, along with Hamilton Standard a premier aerospace 
systems provider.
    Our history in China dates to 1900, when we shipped the 
first Otis elevators there. We provided Carrier de-
humidification and cooling systems for industrial applications 
in China as early as the 1930s, and Pratt & Whitney's then 
piston engines to China also in the 1930's.
    More recently, Pratt & Whitney's JT-3D engines powered the 
Boeing 707's delivered to China following President Nixon's 
visit in 1972, and today Pratt & Whitney powers more than a 
third of all large commercial aircraft in China.
    We returned to China in 1984. Since then, we have formed 21 
ventures, all of them UTC majority owned. These are the 
centerpieces of our $1 billion in sales there, and of the $200 
million of exports accompanying and caused by this presence. 
Taking the Department of Commerce's recently revised figure of 
$65,000 per job, these exports equate to 3,000 U.S. jobs.
    These exports are also of high value added products, and 
the 3,000 jobs are among the highest wage and best ones our 
country has anywhere. Our largest export category in fact is 
jet engines, with sales over the three years 1996-1998 totaling 
more than half a billion dollars. For reference, the hourly 
wage at Pratt & Whitney is $19.32 per hour, more than 40% above 
the average U.S. manufacturing wage of $13.66.
    The second largest category is air conditioning. We are a 
manufacturer in China, because air conditioning equipment is 
physically large and typically doesn't ship economically. But 
the top of the line equipment comes from the United States, 
with these Carrier exports to China totaling almost $140 
million over the same three years. A great example is the 
chiller equipment just replaced in the Great Hall of the 
People. It's Carrier for sure, manufactured in Syracuse, New 
York, and it's chlorine free and ozone friendly to boot. 
Carrier's wage rate in Syracuse is $18.16, again well above the 
average U.S. manufacturing wage.
    It is also perfectly clear to us as an exporter and 
competitor in China that our local and joint venture presence 
is what got us the Great Hall of the People job. Without one, 
we don't have the other, and it is the foreign direct 
investment that comes first, always.
    Otis exports to China too, and these exports again are made 
possible by its local joint venture presence there. The 
signature building in China is Shanghai's TV Tower, the third 
tallest in the world, and the elevators taking us to the top 
were built by Otis in Bloomington, Indiana. Otis' wage rate in 
Bloomington is $15.12, again well above the U.S. average.
    The bottom line to these exports is great U.S. jobs at 
great wages.
    We do build products and provide services in China that 
don't ship economically from the U.S. or that can't physically 
be done here. But in working directly in China, we are a 
powerful and effective force for change. I offer three points 
in support. First, our local joint ventures pay significantly 
more than competing and locally owned enterprises. For example, 
Hezhong Carrier in Shanghai, which we acquired in 1986 and 
which makes commercial air conditioning systems, employs more 
than 300 people at a rate twice the prevailing Shanghai level.
    Second, we apply UTC's environment, health and safety 
standards uniformly across the world and specifically in China. 
These standards are set against U.S. law and regulation, and we 
flatly do not export dangerous or environmentally abusive work. 
One example that I am personally proud of is our company's dual 
redundancy standard for safety devices for presses, brakes and 
shears, and the more dangerous tools in factories. Not only is 
this UTC standard unusually high as compared to U.S. industry 
in general, it is also worldwide in its application and at a 
cost to us of about $50 million. To be specific to one of our 
China factories for a moment, I have shut down personally a 
non-compliant tool, and will do so again, anywhere, anytime.
    A third program for which UTC has received recognition and 
even from President Clinton is our Employee Scholar Program. 
Today, almost 11,000 of our U.S. employees are in school and 
taking college and advance degree coursework, all entirely at 
our cost and with some special features, including a graduation 
award of UTC stock, that cause us to enroll three times the 
U.S. national average. But the point specific to China is that 
we extended this program worldwide a little over a year ago, 
and today 62 of our Chinese employees are in colleges and 
universities under this program. This is less than one percent 
of our China workforce and a small figure indeed as compared 
with our U.S. number of 15%, but it is a start and we can be 
confident of steady increases. And we have learned that 
educated employees are the best employees, and educated people 
are characteristically democratically inclined people, people 
open to change, people open to the ideals we as Americans hold 
dear.
    In short, this is no race to the bottom.
    Taking a broader view, I believe the Chinese experience 
over the last twenty years is different from that of many other 
countries, and remarkably so. The bottom line, and contrary to 
views held by many, is that China has been open indeed to 
foreign direct investment and to moving from a closed economy 
with little or no external trade to trade levels that as 
percentages of GDP already exceed our own. The society has also 
used this openness to fuel and continue reforms.
    I don't for a minute believe this is starry eyed idealism, 
nor that the Chinese economy is as open as it must or will be. 
Instead, the hard statistics confirm that there has been 
progress, important progress, and it behooves observers and 
critics to recognize this. For foreign direct investment, China 
is already the second highest destination country, after only 
our own. Inflows there have averaged $44 billion annually over 
the last three years, and the cumulative total since 1979 is 
$269 billion. Note please that I use the more conservative 
definition of funds expended as compared with funds contracted. 
This compares with Japan at $50 billion cumulatively over all 
time, a hardly noticeable excess over the Chinese annual rate. 
Rough estimates are that these Chinese foreign direct 
investments now support a million jobs, and inside this total, 
American investment support 200,000 jobs. The point is that we 
want the Chinese to embrace a change agenda and an open markets 
and democratic agenda, and there can be no better way than 
showing them how Western systems work, right inside their own 
markets and country.
    On trade, there has also been important progress, although 
the large bilateral deficit between our two nations remains a 
difficult problem, and one that must be corrected. But let's 
not lose sight, in the controversy over the deficit, of one 
fundamental point. The first is that China has moved from an 
essentially wholly closed economy twenty years ago to today 
importing $140 billion annually, 14% of GDP and a level already 
higher than our own. Exports are higher, at $184 billion and 
19% of GDP, and it is unfortunate that more than all of this 
surplus is concentrated on and reciprocally becomes our deficit 
with China. This is why there must be continuing market opening 
pressures from the U.S. side, and why significant further 
concessions are required from the Chinese. Yet from effectively 
zero to 14% over twenty years is no small accomplishment and 
worthy of recognition.
    These trade and investment data make a key point, and I 
believe make it decisively. The Chinese have made progress and 
important progress on the opening agenda. At the same time, we 
and the Chinese must both recognize a long road ahead.
    We need China in the WTO, and this Trade Subcommittee knows 
and supports this as much as any body in our Government. China 
is today a trillion dollar economy, the seventh largest in the 
world, and by many forecasts will be the third largest in the 
world within a decade or shortly thereafter. China has also 
made progress on liberalizing trade and investment, and will 
make significantly more under this WTO accession agreement. 
Following the line of UTC specifics to be helpful to you, I 
recite here the two principal points we understand to have been 
negotiated successfully by our Government's team to date.
    First is the general Chinese external tariff reduction to a 
flat 9% rate, by the year 2005. For comparison, our elevators 
today face 38% tariffs as complete systems and 19% as component 
parts. Our air conditioning equipment faces tariffs varying by 
product category but typically in excess of 30%. The impacts 
will be fundamental for us, will increase our exports to China, 
and will augment those totals for great U.S. jobs I recited 
earlier.
    Second is the reportedly agreed elimination of restrictions 
on trading and distribution rights. Carrier does have majority 
control of its joint venture distribution company and network 
in China. However, current regulations prohibit us from selling 
imported U.S. equipment and parts through this company and 
network, instead limiting us to Chinese manufactured products. 
This restriction elimination, which we understand to have been 
agreed already, covers distribution for all foreign investors 
in China, and will be a tremendous plus to U.S. exporters.
    However, any recommendation to complete the China WTO 
accession agreement must be contingent upon our Government's 
satisfaction with this agreement, and with its containing the 
levels of Chinese concessions reported. The World Trade 
Organization is about rule and compliance with rules, and the 
Chinese as all other countries need to step up to these.
    To come to the rhetoric, China is a critically important 
economy and country to our nation's future. Already the world's 
seventh largest economy, it may well become the third largest 
within the foreseeable future. America's exports to China today 
total $15 billion, are typically of America's highest value 
added products, and support 220,000 of our country's best jobs.
    China has also already been remarkably open to foreign 
direct investment and to increasing trade. It has used these 
devices more than most other emerging societies to start and 
maintain the reform and open markets and open society agenda we 
as Americans so badly want.
    Our WTO negotiators have reportedly succeeded in securing 
unprecedented concessions in the WTO accession agreement, and, 
if the specific reports are accurate, this is certainly the 
case for the products we as UTC know best.
    Finally, history shows that windows of opportunity are 
rare, and that when presented they are to be treasured and 
seized. Just because of the current events and environment, 
this is the opportunity. Along with so many others, I urge us 
to seize it, approving a WTO accession agreement and granting 
permanent NTR if the Chinese concessions are even close to 
those reported, and alternatively and at the barest minimum 
extending NTR for a further year.
      

                                


    Chairman Crane. Thank you, Mr. David.
    Mr. Van Andel.

STATEMENT OF STEVE VAN ANDEL, CHAIRMAN, AMWAY CORPORATION, ADA, 
      MICHIGAN, ON BEHALF OF THE U.S. CHAMBER OF COMMERCE

    Mr. Van Andel. Thank you, Chairman. And I am chairman and 
chief executive of Amway Corp., as you so rightly indicated, 
was started by my father 40 years ago in the basement of his 
house. It has now grown substantially to a multinational 
company that has over $6 billion in retail sales and, of 
course, we go through the direct selling industry to the direct 
selling business. But today, actually, I am here on behalf of 
the U.S. Chamber of Commerce where I serve as a board member 
and have a direct role in shaping their international 
positions.
    The Chamber is the world's largest federation representing 
more than 3 million businesses in different regions and I am 
pleased to have the opportunity to talk a little bit about the 
United States-China trade relations for the Chamber. In the 
interest of time, I am going to summarize those remarks by 
highlighting three major positions in support of normalizing 
trade relations with China on a permanent basis within the 
context of China's accession to the WTO.
    First and most critically, China has recently committed to 
open its markets as a condition of the WTO accession. The 
Chinese have offered to remove barriers to United States 
products by lowering tariffs, by eliminating quantitative 
restrictions, and by opening sectors that previously were 
unavailable for foreign participation. This would allow 
companies not only to market their products, but also service 
their products throughout China. Last year, the United States 
exported over $14 billion in goods and services and, while that 
is significant, I think it could be much higher. United States 
companies can only reap the benefits of this agreement when 
China is accepted into the WTO and Congress extends permanent 
NTR status to China.
    Second, WTO membership will encourage economic and 
ultimately political reforms in China. Foreign investment 
requires stability that can be achieved only with rule of law. 
With the WTO membership, China will need to abide by the 
international trade rules that include protection of foreign 
investment. Because it is the rule of law the ultimately 
guarantees human rights, it follows that, with the economic 
advancement, we also will see a strengthening of those basic 
principles that advance personal or individual freedom in 
China.
    I don't want to leave you with the impression that China 
does not now respect laws. In fact, my company can attest to 
the fact that China does try to apply laws in a fair and 
responsive manner. China recently enacted a ban on direct 
selling and our experience shows that the government responds 
both to the demands of its citizens as well as to foreign 
investors. I won't go through all of the details of the ban 
that briefly halted our operations, but I do want to stress 
that the Chinese Government worked with us to develop 
regulations that protected its citizens from fraud while 
allowing us to honor our commitment to our distributors.
    Some critics portray China as a totalitarian dictatorship 
obsessed with control. Our experience has given us an insight 
into a far more complex situation. China is striving to adapt 
to modern global challenges in a way that respects its 
complicated history. We believe it is possible to work with the 
Chinese Government, provided that it is done with respect for 
their internal political priorities. Many outstanding issues 
can be resolved in a manner that advances U.S. interests if we 
remember that solutions must be politically acceptable to both 
sides.
    And, finally, the Chamber recognizes that there are serious 
questions regarding national security and our relationship with 
China. I am not going to address the substance of those or the 
substance of the charges that are in the report filed by Mr. 
Cox, other than to say that it is a serious study of the issues 
worthy of careful consideration by Congress. Yet, even in the 
context of that report, we see no reason to forego the 
commercial opportunities presented by China's offer to open its 
market. That opening is in our best interests. We lose nothing 
by accepting it, but if we fail to act, we lose the opportunity 
to bring China more fully into a world trading system.
    To conclude, the U.S. Chamber believes that the time has 
come to finalize those negotiations, so that U.S. companies can 
take full advantage of the market opening measures. We believe 
that Congress should join with U.S. businesses to press the 
administration to move more rapidly to this agreement before 
the next WTO administerial meetings. It is our judgment that 
China's membership in WTO will ensure that modernization of its 
economy occurs in a manner consistent to the international 
standards. If China is not a member prior to the next round of 
trade negotiations, it will be more difficult than ever to 
bring them into an international trading system. We have got a 
window of opportunity to secure access to the Chinese market 
and the ability to advance rule of law in China. It would 
certainly be a tragic mistake to forego this opportunity. Mr. 
Chairman, thank you.
    [The prepared statement follows:]

Statement of Steve Van Andel, Chairman, Amway Corporation, Ada, 
Michigan, on behalf of the U.S. Chamber of Commerce

    Thank you, Mr. Chairman, for the opportunity to testify 
today before this Subcommittee on Trade on the critical issue 
of US trade relations with China. I am Steve Van Andel, 
Chairman of Amway Corporation, a Michigan-based company known 
for its quality products and use of the direct selling system 
that encourages people around the world to succeed by owning 
their own businesses. Amway has proudly maintained a 
partnership with its distributors that has enabled the company 
to grow from a tiny operation in the basement of my father's 
home into a multinational enterprise with annual retail-
equivalent sales nearing $7 billion.
    Today, I am appearing on behalf of the US Chamber of 
Commerce, where I serve as a member of the Board of Directors 
and have a direct role in shaping the Chamber's international 
policy positions. The US Chamber is the world's largest 
business federation, representing more than three million 
businesses and organizations of every size, sector and region. 
I am pleased to have this opportunity to present the views of 
the Chamber on US-China trade relations at this critically 
important time.
    The US Chamber has long supported normalization of US-China 
commercial relations. The Chamber supports permanent and 
unconditional extension of normal trade relations (NTR) status 
to China. We support its entry into the World Trade 
Organization (WTO) under commercially viable terms. We also 
advocate the removal of unilateral economic sanctions on China. 
Those of us who are involved in or associated with the US 
Chamber believe that a strong commercial foundation will 
enhance our relationship with the People's Republic of China. 
Moreover, we are convinced that it will foster cooperation on a 
range of issues including controls on proliferation of weapons 
of mass destruction, human rights and global financial 
management.

                    Increasing Public Understanding

    Before turning to the subject at hand, I want to thank you, 
Mr. Chairman, for holding this hearing, which affords the 
American public an opportunity to give due consideration to 
this critical issue. The Chamber is committed to increasing 
public understanding of the benefits to the United States of 
enhanced trade with China. The Chamber is drawing on its state 
and local chamber of commerce affiliates as well as small-and 
medium-sized member companies to strengthen public 
understanding of the importance of our commercial relationship 
with China.
    As part of its education efforts in 1998, the US Chamber 
issued a report on Small Business Success Stories in China, 
which highlighted the successes of just a sampling of 30 small 
US companies that have developed markets for their products in 
China. This year the Chamber released an educational brochure 
on US-China issues that explains why stronger relations are in 
the interest of the United States. The document offers a brief 
history of trade between the two countries and answers some 
commonly asked questions about our commercial relationship. 
That report was sent to each member of the House and Senate, to 
over 650 state and local chambers of commerce and to selected 
Chamber member companies small and large.
    Greater public understanding about the many facets of our 
relationship with China is critical to an informed debate on 
trade policy issues because understanding brings an 
appreciation of the vast opportunities that exist for US 
companies and workers. As US manufacturers, workers, farmers, 
service providers and others learn the extent to which China 
has offered to open its markets, they have become convinced 
that China should be admitted to the WTO. Moreover, I can tell 
you that the US Chamber will campaign to inform the American 
people that this market-opening agreement is in their interest. 
I am confident that there will be strong grassroots support for 
China's WTO accession and for those Members of Congress who 
back this agreement.

           China's Accession to the World Trade Organization

    For well over a decade, China has been negotiating to gain 
admission into the world trading body. Without regard to the 
length of these negotiations, US and Chinese negotiators agree 
that significant progress has been made. While differences 
remain concerning specifics, China has committed to open its 
markets and abide by the rules of the international trading 
system that apply to WTO members. These moves are part of the 
modernization of the Chinese economy and will benefit both the 
Chinese people and China's trading partners. The Chinese people 
will find that their economy will become more dynamic and its 
growth potential will increase. We will benefit because a WTO 
agreement rooted in commercially viable principles will result 
in the removal of barriers to US products by lowering tariffs, 
eliminating quantitative restrictions, opening sectors 
previously closed to foreign participation and allowing US 
companies to distribute their goods and to service products 
after sales throughout China.
    The US Chamber believes that the time has come to conclude 
these negotiations so that US companies can take full advantage 
of these market-opening measures. We believe that Congress 
should join with US businesses to press the Administration to 
move rapidly and complete this agreement before the next WTO 
ministerial meeting. In our judgment, China's membership in the 
WTO will ensure that the modernization of its economy occurs in 
a manner consistent with international norms and standards. If 
China is not a member prior to the start of the next round of 
trade negotiations it will be ever more difficult to bring 
China into this international trading system on mutually 
acceptable terms. Simply put, there could be no better time 
than the present to resolve these issues.

               Permanent Normal Trade Relations for China

    I must stress the importance of pushing this agreement to 
its conclusion. Permanent NTR status is critically important to 
securing China's commitments. US companies can only reap the 
market-opening benefits of this agreement when China is 
accepted into the WTO. The Congress will then be asked extend 
permanent Normal Trade Relations (NTR) status to China under 
standard WTO terms. If the Congress does not permanently extend 
NTR or normal US tariff levels to China, their government will 
not be bound to honor its market-opening commitments to the 
United States. Our competitors, however, will benefit from 
China's market-access policies.
    Last year, the United States exported over $14 billion in 
goods and services to China. These exports supported hundreds 
of thousands of jobs in the United States that pay 10 to 15 
percent more than the US average. Trade with China also 
supports tens of thousands of jobs at ports, retail 
establishments and consumer good companies. While $14 billion 
in exports is not insignificant, US exports to China can and 
should be much higher given the quality of our products and 
China's need for what the United States has to sell. China's 
membership in the WTO and removal of annual NTR review by 
Congress will eliminate barriers to US exports and will help 
improve our trade imbalance with China.
    The greatest potential increase in exports to China will be 
in the agriculture and infrastructure sectors. China is the 
sixth largest export market in the world for US farmers. That 
market is expected to grow significantly in the coming years 
thanks to the bilateral agreement on agriculture that took 
effect in April. In that agreement, China pledged to use only 
science-based standards to evaluate agricultural imports from 
the United States. When combined with tariff cuts pending in 
the WTO negotiations, it promises very significant 
opportunities for US farmers doing business with China.
    China's market-opening commitments would also increase the 
likelihood that US companies will benefit from China's massive 
infrastructure development needs. China is undertaking major 
infrastructure projects in sectors where US companies are 
particularly competitive. Given the chance to bid on equal 
terms with firms from other countries, US companies will be 
very competitive.
    US consumers and small shop owners have much to gain from 
the increased trade that China's WTO accession and permanent 
NTR status would likely generate--and also a great deal to lose 
without that NTR status. Without NTR, tariffs on US imports 
from China would increase by at least 30 percent and in some 
cases as much as 50 percent. Based on 1996 import data, these 
tariff hikes would impose a tax increase of at least $300 on 
the average family in the United States. This burden would have 
the greatest impact on low-income and working households who 
would pay more for consumer goods such as apparel, footwear, 
and toys. Small and medium-sized US companies selling these 
goods would also be hard-hit.
    Beyond the direct commercial benefits of WTO accession and 
permanent NTR for China, expanding US-China trade is in our 
broader national interest. Trade has been a pillar of a 
relationship that brings together two of the most powerful 
countries on earth. US-China trade has fostered and accelerated 
dramatic economic reforms in China. These in turn are 
generating internal political reforms. By our operations in 
China, US Chamber members establish benchmarks for corporate 
practice in such areas as personnel management, corporate 
citizenship, fairness and equal opportunity. Many members have 
made their commitments to ethical business practices explicit 
through a corporate statement of principles. US Chamber members 
have been and will continue to be forces for positive change in 
China.
    Some critics argue that by extending permanent NTR, the 
United States ignores China's human rights record. We disagree. 
Our operations establish standards that Chinese citizens then 
begin to demand from other employers in China. Removing NTR 
will not lead to progress on human rights. It would erode our 
economic relationship, harm the forces in China that are most 
sympathetic to political reform and isolate Chinese officials 
who argue for an improved relationship with the United States. 
The US Chamber and all others who support human rights should 
recognize that the best way for the United States to promote 
political reform in China is to maintain a policy of commercial 
engagement.
    It is my firm belief that progress in the area of human 
rights and democratic reform will be hastened by adherence in 
China to the rule of law. Moreover, it is the rule of law that 
ensures that both citizens and business are treated fairly. My 
company can attest to the fact that China is striving to 
formulate and apply laws in a manner that is responsive to the 
demands of its citizens as well as foreign investors.

                      Amway's Experience in China

    Permit me to recount for you our experience in China during 
the past year, as doing so will provide a vivid example of 
improvements in the rule of law and the commercial environment 
for foreign companies that have already been made in China. 
Amway is one of the largest direct selling companies in the 
world. We manufacture more than 400 home and personal care 
products as well as the Nutrilite line of vitamins and food 
supplements. Amway only sells products through a network of 
independent contractors who own and operate their own 
businesses.
    We initiated operations in China as Amway (China) Company, 
Ltd.--or ACCL--in 1995, and soon developed strong business 
growth and acceptance within the Chinese public. Amway has 
invested US$100 million in China, making us one of the largest 
investors in China. Our plant was the first chemical facility 
in China to be given ISO 9000 certification. By providing 
business opportunities to Chinese citizens, Amway is helping to 
meet the country's employment and income needs while training 
people in basic business skills. ACCL consolidated sales 
reached US$178 million in 1997 with over half-a-million Chinese 
distributors.
    As Amway began to succeed in China, others tried to emulate 
our operations and direct selling companies began to 
proliferate. Although most of these were legitimate operations, 
several con-artists established operations that included 
``pyramid'' schemes and inventory-loading scams. In April 1998, 
responding to demands from Chinese citizens who had lost large 
sums of money in what is called chuan xiao--literally ``chain 
selling''--the Chinese government announced a ban on all forms 
of chuan xiao in China. Because Amway was licensed under chuan 
xiao regulations, we were forced to halt operations.
    We were told that we could resume operations by opening 
retail shops. However, because the founders of the company had 
been distributors, they understood the hard work and effort 
that goes into building a successful business. They had long 
operated the company with a pledge to distributors that the 
company would not compete with them. To ``go retail'' would 
have caused the company to break faith with three million 
distributors around the world.
    Amway worked with the Chinese government to explain to 
officials that a properly regulated direct selling industry 
could contribute to economic growth without exposing Chinese 
citizens to fraud. In June, two full months after the ban was 
imposed, Chinese officials announced new regulations that 
permitted us to reopen in a manner that allowed us to maintain 
our obligation to our distributors. Amway was the first company 
to be re-licensed under these rules. Our business is again 
growing and we now operate in more than 20 provinces and four 
direct municipalities in China.
    Although this was a difficult challenge, we came away from 
it with greater respect for and a better understanding of the 
Chinese government. The government demonstrated that it would 
respond to the demands of both its citizens and foreign 
investors. Notwithstanding the sudden imposition of the ban, 
the process demonstrated a commitment on the part of Chinese 
officials to the rule of law.
    Some critics portray China as a totalitarian dictatorship 
obsessed with control. Our experience has given us an insight 
into a far more complex situation. China is striving to adapt 
to the modern challenges in a way that respects a complicated 
and conflicted history. In this context, it is possible to work 
with the Chinese government, provided that you do so with 
patience, sophistication and respect for internal political 
priorities. It is axiomatic that all politics is local. Our 
problem was resolved because the solution was consistent with 
internal political realities as well as the operational 
imperatives of direct selling companies. By the same token, we 
must now proceed to address both the problems and opportunities 
in US-China relations with patience, sophistication and respect 
for the political dynamics in China as well as the United 
States. All of these issues can be resolved in a manner that 
advances US interests if we remember that the solution must be 
politically acceptable both here and there.

                           Current Challenges

    Allow me, Mr. Chairman, to say a few words about the 
recently released report on US national security concerns with 
respect to China as outlined in the report filed by Congressmen 
Cox of California and Dicks of Washington. These concerns about 
Chinese espionage and illegal transfers of US technology are 
quite grave. We believe that the allegations are the result of 
a serious investigation and that they should be analyzed 
carefully. Make no mistake: The business community is strongly 
committed to protecting US national security interests. 
Individuals or companies that have compromised our security 
must be held accountable to existing laws.
    The Chamber strongly believes that a healthy and 
competitive technology industry is essential to enhancing 
national security. Revisions to our export control regime must 
be carefully calibrated to ensure that essential and critical 
technology is safeguarded. Yet, in that regard, we must not 
allow our reach to exceed our grasp. A control regime that 
strangles US industry not only saps our economic strength, it 
wastes precious national security resources on efforts to 
control technologies that are freely available in the 
international marketplace. Congress faces a clear challenge: It 
must strengthen the regime that guards critical technologies 
while permitting sales of those products that do not put our 
national security at risk.
    Our relationship with China, as with other nations, will 
always remain dynamic. While there are problems at present, 
such as the evidence of apparent espionage and the NATO bombing 
of the Chinese embassy in Belgrade, it is important to note 
that there are opportunities as well.
    I was encouraged by a letter that Senator Max Baucus and 29 
other Senators recently sent to the President. The message in 
that letter was compelling. While the United States must not 
ignore the challenges of our relations with China, we must 
examine each aspect of the relationship in an objective manner 
to determine what is in the best interest of the United States 
and then act accordingly. The letter concludes that our best 
interest is served by the rapid conclusion of the WTO talks and 
extension of permanent NTR status to China. These actions will 
secure an unprecedented opening of China's market to US 
agricultural products, services and manufactured goods.

                               Conclusion

    The US Chamber believes we have a window of opportunity to 
conclude the negotiations on China's accession to the WTO, 
extend permanent NTR status and secure broader and more 
consistent access to China's market. As I noted at the 
beginning of my remarks, these have been longstanding goals of 
the US Chamber. We believe it would be a tragic mistake to 
forego this opportunity.
    Mr. Chairman, this concludes my formal presentation. Thank 
you. I would be happy to respond to any questions.
      

                                


    Chairman Crane. Thank you, Mr. Van Andel.
    Mr. Sternberg.

   STATEMENT OF SY STERNBERG, CHAIRMAN, PRESIDENT, AND CHIEF 
       EXECUTIVE OFFICER, NEW YORK LIFE INSURANCE COMPANY

    Mr. Sternberg. Thank you, Mr. Chairman. I am Sy Sternberg, 
chairman and chief executive officer of New York Life, a 
Fortune 100 company and one of the largest U.S. life insurance 
companies. I am honored to be here today to discuss the 
importance of international trade with China for United States 
insurance companies.
    The U.S. insurance industry is at a crossroads. The 
domestic life insurance market is mature with annual growth in 
the purchase of insurance policies averaging 1.5 percent over 
the past 10 years. Some of our peer companies are responding to 
market realities by expanding into financial services, 
brokerage, and banking. We have determined, however, to stick 
to what we know best, insurance. We intend to leverage our 
skills in actuarial science, in underwriting, in insurance 
sales to expansion into international markets. Over the next 3 
years, New York Life will invest more than $1 billion in high-
growth, emerging, international markets.
    We have already established businesses in Taiwan and Hong 
Kong, Korea, Indonesia, Argentina, and Mexico. Our highest 
expansion priorities are China and India. China is by far the 
largest insurance market in the world. It is currently closed 
and underserved. With more than 20 percent of the world's 
population, only 30 percent of the Chinese currently have any 
type of insurance. There is an emerging middle class with a 40 
percent savings rate and increasing disposable income. China is 
an ideal market for life insurance.
    If New York Life were to gain just 1 percent of the 
potential market in China, we would more than double our 
existing client base. Today we cannot do business in China 
because the market is closed to insurers that do not have 
licenses. Only 3 U.S. life insurance companies have been 
granted licenses over the past 10 years. They have been 
restricted to two cities, cannot sell group life, health, or 
pension products, and must partner with a Chinese insurance 
company. We need a WTO Agreement to open the market.
    The good news is that Ambassador Barshefsky has negotiated 
an outstanding agreement. Upon accession, licenses will be 
available to all companies based on established, prudent, and 
published criteria. Twenty-four of our highest priority cities 
will be open by January 2003 and all of China by 2005. Foreign 
insurers will be able to offer a full range of products by 
January 2005. Joint venture partners will no longer be narrowly 
restricted to Chinese insurance companies. Life insurers will 
be able to own 51 percent of joint ventures by January 2001.
    This is a world-class, very forthcoming agreement with high 
standards for market openness and rules-based discipline. 
Frankly, it offers some concessions that are better than those 
available from existing WTO members. This deal should be done. 
It is a win-win. We hope that the United States and China will 
shortly resume negotiations and conclude the bilateral 
agreement and, if they do, we urge Congress to extend permanent 
NTR status to China so that America's insurance companies can 
reap the benefits of the agreement.
    We recognize that there are extremely important issues 
other than trade that are on the table now. There are serious 
issues regarding U.S. national security, the accidental bombing 
of the Belgrade Embassy, and human rights and religious freedom 
in China. Responsible business leaders cannot ignore the very 
real problems between our two countries. However, we are 
convinced that problems in one area can be resolved on their 
own merits without damaging our overall policy of engagement or 
undermining our position on issues still in conflict.
    WTO is not a gift to China. Let me repeat that. WTO is not 
a gift to China. American businesses across the board will 
directly benefit from China's accession to the WTO. And we also 
believe the benefits in the trade arena will actually advance 
the broader agenda of political, legal, and economic reforms 
which we all want to see. Accession to the WTO will facilitate 
the development of the regulatory infrastructure necessary for 
an open and competitive market in China. Agreeing to live by 
the rule of law will facilitate a legal system in which claims 
between competing business entities can be fairly adjudicated. 
Submitting to competition and regulation will help advance 
democracy as China becomes part of the global economy. WTO 
accession will introduce an international set of standards that 
will facilitate the development of the rule of law and a legal 
infrastructure throughout China.
    I would like to thank Chairman Crane and Ranking Members 
Levin and Rangel for their leadership in holding today's 
hearing and giving me the opportunity to present the position 
of New York Life and the insurance industry. Thank you.
    [The prepared statement follows:]

Statement of Sy Sternberg, Chairman, President, and Chief Executive 
Officer, New York Life Insurance Company

    I'm Sy Sternberg, and I'm Chairman, President, and Chief 
Executive Officer of New York Life Insurance Company. We are a 
Fortune 100 company and one of the nation's largest insurance 
firms. We have operations in all 50 states and overseas through 
a network of 12,000 employees and 10,000 agents. Our assets 
under management in 1998 were $122.6 billion and our revenues 
topped $19 billion.
    We are committed to strengthening New York Life's presence 
in the international marketplace and believe strongly that 
United States leadership on international trade is essential to 
achieving our goal. For this reason, I'm honored to be here 
today to discuss the importance of international trade with 
China for U.S. insurance companies; our assessment of China's 
WTO offer; the very significant benefits for the United States 
once China enters the WTO, and, equally critical, the granting 
of permanent Normal Trade Relations (NTR) status with China.

           The Importance of International Insurance Markets

    To appreciate the importance of international trade with 
China to companies like New York Life, it is critical to 
understand the nature of the United States insurance business 
and its trends for the future. We have a very mature domestic 
market with the vast majority of American families already 
depending on life insurance to provide economic protection. The 
most recent data available indicates approximately 85 percent 
of all married couples in the United States own some form of 
life insurance to protect their families.
    With this level of market penetration and the demographics 
of our aging population, it's understandable that industry-wide 
trends for life insurance sales in the United States are 
modest. For example, the face values of life insurance 
purchases over the past 10 years have increased only 3.8 
percent annually. During this same period, the annual growth in 
the purchase of individual policies has been just 1.5 percent.
    These low rates, combined with flat growth projections over 
the next 25 years for United States insurance sales, would not 
allow us to expand our businesses and to strengthen our future 
financial competitiveness. New York Life, and most other major 
American insurance firms, must look to the global market to 
achieve those goals.
    That is why after 154 years of successful operations, we 
are interested in doing business in a country half a world 
away. New York Life needs to become a significant international 
player to sustain our financial strength well into the next 
century.
    We are financially well positioned for expansion. In 1998, 
New York Life had a banner year. We added more than $1.3 
billion to our surplus and investment reserves, the largest, 
single-year increase in our Company's history. With our surplus 
and investment reserves totaling $7.7 billion, we have one of 
the industry's highest surplus-to-assets ratios -8.5 percent. 
In addition, we were number one in the country in new life 
insurance sales in 1998.
    In addition, we have the core skills needed to build life 
insurance businesses in emerging, high-growth, foreign markets. 
Since 1845, life insurance has been our most vital and valued 
product. It fulfills a unique social responsibility for which 
there is simply no substitute. New York Life's core 
competencies--actuarial expertise, underwriting and marketing--
are unmatched and will be leveraged in emerging global markets.

      The Importance of China as an International Insurance Market

    Working from our international base of operations in 
Argentina, Hong Kong, Indonesia, Mexico, South Korea and 
Taiwan, we began in 1997 to pursue a number of initiatives to 
give our Company a stronger international presence. We 
conducted a comprehensive review of potential overseas markets 
with emphasis on demographics and market size; competitive 
intensity of the insurance marketplace; and, the regulatory and 
political environments. Worldwide, we identified seven 
countries as having immediate potential for New York Life. 
China was one of these prime markets.
    China is by far the largest insurance market in the world 
that is currently both closed and under-served. Its 
demographics of 1.2 billion people--with 26 percent under age 
14 and 68 percent ages 15 to 64--make it the world's premiere 
market for financial security in the form of life insurance, 
annuities and pensions. Only 30 percent of the Chinese 
population currently have any type of life insurance. And while 
the 1997 per capita GDP was $3,460, the annual savings rate has 
averaged more than 40 percent. Thus, with more than 20 percent 
of the world's population, China accounts for less than .02 
percent of the world's current life insurance market. Were New 
York Life to capture just one percent of the potential market 
in China, we could more than double our existing customer base. 
And a strong global presence will inevitably enhance our 
ability to serve domestic markets.
    Unlike most of my colleagues here today, New York Life does 
not currently do business in China. Since 1994, we have been 
engaged in a series of preliminary steps to demonstrate our 
qualifications and our long-term interest in the country. We 
have concluded that our ability to secure a license is 
considerably increased by China's entry into the World Trade 
Organization (WTO).
    It is within this context that I come before this committee 
to express my strong support for the completion of the U.S.-
China WTO bilateral negotiations, the accession of China to the 
WTO and the granting by Congress of permanent NTR status to 
this country.

                 The Importance of U.S.-China Relations

    We fully recognize that this is a critical time in our 
relations with China. The public policy debate surrounding the 
aftermath of the accidental bombing of the Chinese Embassy in 
Belgrade and the release of the Cox Committee report has raised 
legitimate questions about Chinese intentions and how the 
United States should interact with the world's most populous 
nation. Some voices are suggesting that these concerns are 
reason not to proceed with China's WTO accession. At New York 
Life we believe these issues should be resolved on their own 
merits and in their own arenas.
    The arena for economic and commercial issues is the WTO. 
There is no question that it is in America's strategic interest 
to bring the world's largest emerging economy into the WTO 
legal framework. The WTO is the foundation of an open, rules-
based international trading system, and membership is a 
privilege not a right. WTO membership requires a country to 
meet standards of market openness and agree to apply WTO rules, 
including the rules of dispute settlement. They provide a 
credible and effective tool to enforce United States rights, 
backed up by the threat of WTO-authorized sanctions for non-
compliance.
    WTO accession is America's best means of opening the 
Chinese market and ensuring the continued development of 
China's legal infrastructure. It's a vast improvement over our 
current trade destabilizing approach to gaining market access 
in China--an approach that relies on piecemeal, bilateral 
agreements and the threat of unilateral sanctions. It 
permanently locks China into an open, transparent, non-
discriminatory trade regime enforced by dispute settlement 
procedures.
    Reducing the trade deficit and guaranteeing that it lives 
up to its agreements does not require us to punish China by 
keeping it outside of the system of global trade rules. As the 
largest emerging economy in the world, China's integration into 
the rules-based international trading system is essential to 
ensuring that it undertakes the obligations and 
responsibilities of the trading system from which it benefits. 
Its accession into the WTO's legal framework will create new 
incentives and pressures for it to undertake economic and 
regulatory reforms and to abide by international trade rules.
    New York Life also maintains that if China and the United 
States conclude an acceptable accession agreement, we will 
firmly support the extension of permanent NTR status to it. NTR 
status is not a favor for China. It simply provides to that 
country the same treatment the United States offers virtually 
all of its trading partners. More importantly, the United 
States will not receive the full benefits of China's WTO market 
access commitments until it takes this step. WTO accession 
requires the reciprocal extension of permanent NTR status by 
the United States and China, and with that reciprocity we can 
end the need for the divisive annual debate in Congress on NTR 
status renewal.

                      The Recent WTO Negotiations

    New York Life, like most observers of the China WTO 
accession process, was discouraged last year when it appeared 
Beijing was reluctant to make the hard decisions necessary to 
complete the negotiations. We had hoped the momentum in 
bilateral relations sparked by the exchange of state visits in 
October 1997 and June 1998 would create the impetus needed to 
conclude the decade-long negotiations. But we also had 
consistently maintained that China should not be allowed into 
the WTO for political reasons, nor should it be kept out of the 
WTO solely on that basis.
    To ensure the Administration understood our position, the 
insurance industry developed a priority agenda for the USTR to 
pursue. We developed this agenda working with the American 
Council of Life Insurance, the U.S. Chamber of Commerce, the 
U.S.-China Business Council, the Emergency Committee for 
American Trade (ECAT), the Coalition of Service Industries and 
the U.S. Committee of the Pacific Basin Economic Council (PBEC-
US).
    By working with organizations representing a broader 
coalition of American trade interests with China, New York Life 
is confident that the insurance industry's objectives were 
consistent with the principles sought by other United States 
industries. These include full market access, national 
treatment, transparency, and high levels of WTO discipline.
    We believed our objectives would enable us to be 
competitive in China and allow our potential Chinese 
policyholders to enjoy the full benefits of our insurance 
products. We also believed and made clear to the Administration 
and the Chinese that an agreement satisfying one industry, but 
failing to address the issues of other core industries, such as 
agriculture or telecommunications, would not win broad support. 
Finally, we made it a point that negotiations yield immediate 
real benefits on market access to all sectors of the United 
States economy.
    Ambassador Barshefsky has secured Chinese commitments that, 
pending WTO accession, will address the great majority of our 
industry's market access objectives. For example:
    Today, New York Life and most other American insurance 
companies are not allowed access to the Chinese market. The 
process by which China has awarded insurance licenses has been 
both unpredictable and non-transparent. But once the WTO 
agreement is implemented, China will award licenses on the 
basis of established, prudent and published criteria without 
imposing an economic needs test. Insurance firms will know in 
advance the process for securing a license.
    Today, insurance firms with licenses in China can pursue 
business in only two cities--Shanghai and Guangzhou. But once 
the WTO agreement is implemented, all of China will be opened 
to foreign insurers by January 2005. In the interim, 24 of our 
highest priority cities will be opened by January 2003.
    Today, foreign insurance firms operating in China are not 
allowed to offer the full range of their products. But once the 
WTO agreement is implemented, foreign insurers will be able to 
sell group life, health and pension lines of insurance by 
January 2005.
    Today, foreign insurance firms in China are limited in 
their form of ownership and are restricted in their choice of 
joint venture partner. But once the WTO agreement is 
implemented, joint venture partners will no longer be narrowly 
restricted to Chinese insurance companies and foreign firms 
will be able to select their own joint venture partners. In 
addition, life insurers will be able to own 51 percent of a 
joint venture by January 2001 and non-life insurers can have 
100 percent ownership by January 2002.
    This forthcoming agreement represents an historic 
breakthrough for the United States insurance industry in China. 
Did we get everything we wanted as quickly as we wanted it? No. 
But the nature of negotiations is predicated on compromise, and 
this agreement is truly a ``win-win.'' American insurance firms 
will have the opportunity to enter the Chinese market and to 
compete. Chinese consumers will benefit from this competition 
and from the wide range of new products and services we will 
offer. Even the Chinese insurance firms, which have enjoyed the 
protection of the current restrictions on foreign firms, will 
benefit from the professionalism and innovations we will bring 
to their marketplace.
    Finally, through its market opening commitments, China is 
sending a strong signal to foreign investors that it is moving 
toward the rule of law in trade matters. China's current WTO 
offer eliminates an array of Chinese barriers and creates new 
opportunities for American businesses, farmers and workers. 
China's offer is a comprehensive market opening agreement on 
agriculture, sanitary and phyto-sanitary barriers, industrial 
products and services. It has agreed to a series of bold steps 
including significant and permanent tariff cuts, elimination of 
most import quotas, application of national treatment, 
extension of trade and distribution rights, greater access for 
information technology and telecommunications firms, and 
resolution of longstanding agricultural disputes over meat, 
citrus and wheat.
    But we face one problem. The incredible progress achieved 
by USTR cannot begin to be translated into market access for 
American exports unless and until the United States bilateral 
agreement is completed and the remaining negotiations on 
China's accession are finalized. Over the past several weeks, 
in our meetings with the Administration, Members of Congress 
and with Chinese officials, New York Life has communicated our 
clear position that both sides should wrap up the talks on the 
bilateral market access package as quickly as possible. 
Otherwise, the concessions gained from China could be lost, the 
momentum of the negotiating process could be lost, and the 
Chinese agreement to play by the rules could be lost. Frankly, 
a great deal is at stake here.
    My Company has been actively involved the Business 
Coalition for U.S.-China Trade. We have also been working with 
members of Congress to increase understanding of the benefits 
that would accrue to the United States economy from an 
agreement. We look forward to working with members, including 
those of this committee, to develop a broad bipartisan 
coalition in support of China's WTO accession and extension of 
permanent NTR status.

                               Conclusion

    We have not adopted our position lightly. New York Life 
acknowledges the serious issues regarding United States 
national security, Asia-Pacific stability, and human rights and 
religious freedom in China. But as I've said, we believe that 
these issues should be resolved on their own merits, in their 
own arenas, and that it's a false choice to suggest our 
relations with China are a zero-sum game.
    Few business decisions or life decisions are black and 
white, and I believe leaders in the business community and the 
American public will reject this either/or mindset. The choices 
facing the United States and China are complex and nuanced. 
Solutions will not be found at the polar ends of the debate.
    No matter how strongly some may suggest that American 
business is seeking profits at the expense of other important 
American interests, we believe it would be a mistake to turn 
back the clock on the 25 years of improvements in U.S.-China 
relations. Major gains have been made on security, trade, 
nonproliferation and human rights issues precisely because of 
the engagement policy pursued by all Administrations and 
Congress since 1973.
    Responsible business leaders do not ignore the very real 
problems between the United States and China. However, we are 
convinced that problems in one area can--and should--be 
resolved without damaging our overall relations or undermining 
our position on issues still in conflict.
    The common ground that has been achieved on economic and 
commercial issues between the United States and China should 
not be held hostage to other important, but unresolved, issues. 
Moving forward in areas where both sides can and do agree might 
well improve the chances of success on issues where agreement 
has not been reached. In fact, China's accession to the WTO 
will significantly advance the broader agenda of political and 
legal reforms which we all want to see in China.
    Promoting American values does not require us to cut off 
interaction with China. Indeed, moving China toward 
internationally accepted standards of conduct is more likely to 
be achieved if China is exposed to Western values, ideas and 
commerce. Such exposure will strengthen further the economic 
and political forces that are changing Chinese society.
    The WTO understanding announced in early April is the 
culmination of 12 years of hard work and constant pressure. It 
is not a ``political deal'' or a gift to China. The concessions 
are all China's--a fact perhaps not yet fully understood. China 
will earn its place at the table in Geneva the ``old-fashioned 
way,'' by providing genuine access to its market and by its 
commitment to accept the rules and standards of the 
international trade regime.
    There seems little doubt that if we do not conclude the 
bilateral agreement, prospects for China's WTO membership will 
fade for several years. The next global trade talks, set to be 
launched in Seattle next December, would take place without the 
benefit of China's participation and it would remain outside 
the system of trade rules for an indefinite period of time.
    Finally, we urge members to recognize that even with 
China's market access offer in place, America's firms, farmers 
and workers--your constituents--will not reap fully the 
benefits of the agreement unless we extend permanent NTR status 
to China.
    Thank you.
      

                                


    Chairman Crane. Thank you, Mr. Sternberg.
    Mr. Smith.

STATEMENT OF FREDERICK W. SMITH, CHAIRMAN, PRESIDENT, AND CHIEF 
     EXECUTIVE OFFICER, FDX CORPORATION, MEMPHIS, TENNESSEE

    Mr. Frederick Smith. Thank you, Mr. Chairman. We have 
submitted a written statement. My name is Frederick W. Smith. I 
am the founder of Federal Express and the chief executive 
officer of FDX, which owns Federal Express and a number of 
other transportation companies. On behalf of our 185,000 
employees, who are, like those UT employees, very high wage 
earners, we appreciate the opportunity to appear before you.
    We have a major interest in China as the largest United 
States all-cargo air transportation company. In fact, we are 
the world's largest all-cargo carrier operating some 625 
airplanes, 60,000 trucks, and handling some 5 million shipments 
per day throughout the FDX companies. The primary things which 
we transport are all of the high-tech and high-value-added 
items that are making America prosper: The electronics and 
computers, the fiberoptics, the pharmaceuticals, the medical 
drugs, hospital supplies, and so forth.
    Although air transportation only accounts for about 2 
percent of the pounds moved in worldwide trade, it accounts for 
about 40 percent of the value. And if you take out petroleum 
and agriculture, it is almost 60 percent. So when you think 
about international trade and trade to China, you should think 
more about our airplanes as the clipper ships of the computer 
age rather than container ships.
    In China where we operate as one of three United States air 
carriers and the only all-cargo air transportation company--the 
other two carriers being Northwest and United--we face 
formidable barriers doing business. Particularly in our ground 
operations, our interface with customs, all of the distribution 
problems that have been commented upon earlier by some of the 
panelists. We congratulate Ambassador Barshefsky and her team 
on negotiating this WTO Agreement because, at the end of the 
day, it would eliminate many of the problems that we have 
experienced, including our current difficulty in getting our 
joint venture for the integral ground operations for our air 
system approved.
    It seems to me that in the last 10 years since the 
Tiananmen incident there has been significant progress in 
liberalization in China and I noted the other night, watching 
some of the student leaders of that period of time on 
television, how adamant they were about those improvements in 
China. And we feel very strongly that the proper approach for 
the United States is to continue to engage China, not to try to 
turn them into an enemy, and to use trade and business 
relationships as a liberalizing force which will correct many 
of the problems that have been brought up here today.
    So we very much appreciate the opportunity to appear before 
you and I take pride in quitting before the green light goes 
out. [Laughter.]
    [The prepared statement follows:]

Statement of Frederick W. Smith, President, Chairman, and Chief 
Executive Officer, FDX Corporation, Memphis, Tennessee

    Mr. Chairman and Members of the Committee, I am pleased and 
honored to have the opportunity to speak before you today on 
China's accession to the WTO. I can think of no single issue of 
greater importance to the long-term health and viability of the 
world trading system. The direct and indirect implications for 
American business and the America economy are profound.
    At the outset, let me state that the position of Federal 
Express is unequivocal. FedEx supports China's accession to the 
WTO and, with it, the extension of permanent Normal Trade 
Relations (NTR) rights by the United States to China--just as 
we have with every other major trading partner. Simply put, 
China's accession to the WTO will move China's economy toward 
integration with the global economy, and this is good for 
American business. I have conveyed this view to Ambassador 
Barshefsky, whom I want to commend for having done an 
outstanding job in concluding this agreement.
    I am particularly encouraged at the liberalization 
scheduled for the distribution field. With China's WTO 
accession, FedEx will be able to sell our services directly in 
the market place in four years, instead of leaving it to 
agents. Whether we choose to exercise that right, would depend 
of course on market conditions. But that's the point, isn't it? 
With China integrated into the WTO, our decisions on how to 
operate in China would be based on commercial considerations, 
not determined by government fiat.
    Let me try to describe my perspective on the question of 
China's WTO accession by briefly relating the role of the air 
express industry to trade facilitation; outlining the obstacles 
we face now in China; and assessing how WTO accession affects 
our situation.
    Even within our own country many do not realize the rapidly 
changing nature of world trade and the increasingly critical 
role of integrated air express. At present almost 40 percent of 
the value of all world trade goes by air. Representing only 
some two percent of the tonnage of trade, air shipments clearly 
account for the high value end of production.
    Today's trends in e-commerce and just-in-time logistics 
underlie the phenomenal expansion of the integrated air express 
industry and reinforce growing requirements for fast, time-
definite transportation of cargo from door-to-door. Air express 
is both a cause of, and a response to, the changing nature of 
competition in international markets. The ability to ship 
packages to destinations around the world in only hours or days 
widens the field of competition in all industries and 
accelerates the pace of commerce.
    No country can expect to operate a modern economy of be at 
the forefront of trade in the 21st century without a strong air 
express service. China is no exception. At present, outside of 
WTO discipline, China is a hodgepodge of regulatory barriers to 
efficient air express service. Let me cite a few.
    Currently, foreign-owned companies are not allowed to 
conduct customs brokerage and clearance, ground transportation, 
warehousing, consolidation, forwarding, or related services. 
These functions, which lie at the heart of an integrated air 
express carrier's operations, all have to be conducted through 
joint ventures or agents and this means that the foreign 
integrated carrier loses control of the process. For a company 
like FedEx, the lose of control over these functions, 
jeopardize our ability to guarantee time-definite service, the 
essence of our products.
    Joint venture regulations raise further disincentives. We 
are prohibited from taking a majority share of a joint venture 
and are limited geographically in where and how fast we can 
expand joint venture operations. As a non-majority partner, we 
do not control the sales force, must negotiate investment 
decisions and have no guarantee that introduction of new 
technology will yield optimum returns.
    There may be good reasons to have an agent of JV partner 
for some functions in the distribution chain, but the decision 
should rest on commercial interest not regulatory restrictions. 
The net result of these artificial barriers is increased prices 
for our customers, lower quality of service and limits on 
growth--for the integrated express carrier and the Chinese 
economy.
    How does China's WTO accession affect this? Simply put, the 
restrictions I have noted above in the distribution field would 
be removed within four years. FedEx would be able to set up 
wholly-owned subsidiaries and, for the first time have the 
opportunity to provide the same standard of service to 
customers in China that we do in the United States and 
elsewhere in the world.
    Of course, some will say that the Chinese may not keep 
their commitments. But, at least, if China were a WTO member, 
it would have to justify its actions before that body. The more 
a part of the system China becomes, the more the outside 
factors influence its behavior. In other words, the costs of 
non-compliant behavior go up. That is no guarantee of 
implementation, but it is an important, even critical, step in 
creating a more open, user-friendly economic environment in 
China. At present, if we encounter problems, there is no 
recourse to any system other than the homegrown variety. I 
prefer to take my chances in the more transparent WTO 
environment.
    Finally, let's consider the alternative: a world trading 
system which excludes China. Does a China less subject to the 
discipline of the World Trade Organization transform itself 
more or less quickly into a responsible member of the world 
community? Does more or less contact with China influence it in 
a positive direction? Does attempting to isolate China from the 
responsibilities of WTO membership advance anyone's interest 
but those who oppose reform and a more modern, open China?
    I think the answers to these questions are self-evident. 
Few would dispute that China has changed for the better in the 
past twenty years and that the lives of individual Chinese have 
improved. Livelihood, freedom of choice and, gradually, even 
human rights have become better not than at any time in modern 
Chinese history. The trend toward openness and reform is in the 
right direction, and American business has been a positive 
force for change.
    I believe the continuation of this trend is in the interest 
of everyone and that China's accession to the World Trade 
Organization and the establishment by the United States of 
permanent, normal bilateral trading relations with China is 
fundamental to its achievement.
    Thank you.
      

                                


    Chairman Crane. Well, we thank you for your testimony, all 
of you. Out of curiosity, Mr. Smith, I had heard you folks had 
the address of the Chinese Embassy in Belgrade. Is that 
correct? [Laughter.]
    I am not kidding.
    Mr. Frederick Smith. We could have probably found it, Mr. 
Chairman.
    Chairman Crane. Seriously, you and the UPS had it and the 
CIA couldn't update it in 6 years.
    Well, at any rate, we appreciate your testimony. I have a 
question for all of the Members of the panel and we have heard 
some input about labor conditions and worker rights 
deteriorating in China and, on the other hand, American 
businesses that have been operating in China have come back 
with much more positive comments on worker conditions, in no 
small measure because of our presence there. What is your 
general assessment of that?
    Mr. George Fisher. I might comment on that. I think George 
David appropriately said when we, in fact, put up factories in 
these countries, we bring with us the environmental standards 
that we practice in this country, the labor standards, all the 
general good conditions that exist in this country are carried 
with us. Safety, for instance. We are building a factory now 
where we have 5 million hours without any lost time from 
injury, which is an all-time record in putting up a factory in 
China. And some of our environmental records now on the 
chemical side are unlike anything China has ever seen. And they 
have set new standards of performance. I think all of these 
companies that deal there--all of the Western companies--can 
probably say about the same thing.
    Chairman Crane. Would you all concur with what George just 
said?
    Mr. David. Yes, sir.
    Mr. McGraw. Yes, sir, Mr. Chairman. I would only add that 
they are representing for the most part the heavy manufacturing 
and agricultural side. From the information business side, it 
is still very, very thin. We have no problems in terms of the 
types of workers that we are able to attract. Our concerns here 
are much more in the intellectual property rights and the 
enforcement of those property rights.
    Chairman Crane. Well, here's the reason I posed that 
question. I have Motorola's corporate headquarters in my 
district and they told me some time ago the same thing you just 
said, George, that you have to maintain clean working 
conditions, health benefits for employees, and pay for overtime 
work. And they went a step beyond and built a huge apartment 
complex that their employees can move into after 5 years. After 
10 years they can own their own apartments. And I asked them at 
the time, did you impose these conditions from back home? Just 
unilaterally bring them here? And they said, no, that was 
Chinese law for companies that were coming in from the outside.
    But my understanding is that it doesn't apply universally 
to domestic Chinese companies. And the observation I made at 
the time and have made many times since is that if I am working 
for Motorola in that kind of a situation and Sandy's working in 
some grungy Chinese factory that doesn't have to live up to any 
of those standards and we are having Tsingtaos after work and 
he is moaning about his working conditions, I would say, 
logically, hey, Sandy, why don't you come work for Motorola?
    And Ben Franklin made that observation: A good example is 
the best sermon. And my contention has been that our presence 
over there is that good example that is the best sermon, 
helping to get that message out. So I want to just pay tribute 
to all of you. Keep the faith. Fight the good fight. And, with 
that, I will yield to my distinguished Ranking Minority Member 
Mr. Levin.
    Mr. Levin. Well, now that you have opened the subject, let 
us talk a little more about it because it is one of the issues 
here and I think we need to be very clear. And I say this with 
all respect. Some of us know each other pretty well and I 
admire the efforts we have worked on trying to break down 
barriers in Japan, for example, and some other trade issues. 
But when we talk about bringing environmental standards to 
another country, that may be one thing. But when we talk about 
bringing labor standards, worker rights, I do think we ought to 
understand the limitations and the differences. You are not 
bringing the ability of workers to associate. Right?
    Mr. George Fisher. Is that your question? What we try to 
bring is a basic value system, which is, perhaps, thought to be 
very Western, but respect for the dignity of the individual, 
uncompromising integrity in everything all of our employees do, 
trust, credibility, and continuous improvement. It is based on 
this very basic set of human values that we build a culture.
    Mr. Levin. And I deeply respect that, George, but I think 
part of the issue here is as we integrate this huge Chinese 
economy, which is structured so differently, I think we ought 
to be very open about the differences and the challenge. 
Because the workers within your plants don't begin to have the 
rights that is true of American workers. So I think there 
should be----
    Mr. George Fisher. Well, Sandy, I think you should ask the 
people in our factory before you assert that, because----
    Mr. Levin. Well, I have been in some of the factories--not 
yours--and in no factory I have been in China do the workers 
have the full right to associate, the full right to bargain 
collectively. In most of these factories, the union is 
government-dominated. In several factories that I have been in, 
the State enterprise has shadow--at least one of them--has 
shadow participation in business decisions, let alone a free 
labor market set of circumstances. And so I do think that we 
need to understand these differences, and they are vast between 
China and the United States in terms of labor market issues.
    In terms of capital, there is no doubt progress was made in 
the negotiations, in terms of ownership of joint ventures. 
There is a reference here to movies. It is 40 movies. And I 
agree that it is better than zero. Foreign films, right, Mr. 
McGraw? There is a limit, 40, and it goes up a certain number 
every year. But this is not a free society.
    But let us go back to the labor market issues. There was a 
reference here to twice the prevailing wage. Mr. David, the 
prevailing wage is what? In your factories?
    Mr. David. The figure is twice the average wage, which is 
about $2.50 an hour.
    Mr. Levin. All right. So let us put that in perspective 
because, for example, in the steel import surge, you were 
talking about steel that was being produced in China when 
workers were being paid $1.25, $1.50 an hour. And they are 
being paid $15, $20, or $25 here. And the question becomes for 
the typical worker in the business that feeds into the American 
steel industry that can't lift up and go immediately to another 
country, how am I going to compete? And that raises the whole 
issue of dumping and countervailing duties, and so forth.
    And I raise it because I don't want us to ignore the 
challenges of putting together these two very different 
structures. And I wish that, in a sense, this panel were mixed 
with the next panel so that you would have the kind of 
discussion that I think needs to be sparked.
    Let me suggest the same is true--and I wanted to ask, in 
terms of enforcement--and maybe Mr. McGraw or Mr. Fisher or 
somebody wants to comment on this. It is true that there will 
be fewer barriers on paper than Japan, I think, at least in 
some areas. Japan is going to have a tighter--still has a 
tighter set of informal restrictions. I am not sure how 
strongly the informal restrictions would be in China. But there 
is a vast difference in transparency. And----
    Mr. George Fisher. Which way?
    Mr. Levin. I think we are going to have more trouble 
figuring out what is going on in China, in many respects, than 
we do in Japan. I mean, it is not a rule-based society. It has 
a restrictive flow of information. I think that is of concern 
to all of you. It is in terms of intellectual property, right?
    To this day, we are not exactly sure--when I was there last 
time, it isn't really clear what is going on in terms of 
pirating, right?
    Mr. McGraw. But we have some numbers. Just in terms of U.S. 
book publishing activities, we are estimating that somewhere 
around $685 million is pirated in the world today. But, of 
that, $125 million--that was just in the last year--$125 
billion of that was coming out of China. So the proportion is 
so much higher.
    Mr. Levin. All right. And it is not easy to gather 
information in China.
    Mr. McGraw. It is difficult.
    Mr. Levin. I just want to alert you--I want everybody to be 
realistic. You bring them into the WTO. Mr. Fisher, as we found 
out--you found out better than anybody else--in the Kodak case, 
it is one thing to have a right, it is another to be able to 
enforce it. And the problems that related to Kodak in Japan, as 
misguided as I think the WTO was, they exacted a level of 
information that is going to be very hard to obtain when you 
enforce rights in China.
    Mr. George Fisher. Sandy, I think you are right on how 
complex some of this could be. But I must say, at a very 
microlevel, both in my experiences with Motorola and with Kodak 
in China, that whenever I have had a good agreement, a good 
agreement being defined as not a lopsided one, good for both 
sides, that it has been very easy to get both sides to honor 
that agreement and I have never, never had a situation yet in 
China where I thought I was told one thing and it went the 
other way.
    Mr. Levin. With intellectual property, that is really what 
has happened.
    Mr. George Fisher. Well, intellectual property, as we all 
know, is one of the more serious issues. And it wasn't a 
question of having the laws, it was the question of enforcement 
on intellectual property. But I can tell you this, at least 
from the electronic side, it is getting better and better. And 
that is the whole story in China. 10 years ago, we would have 
this discussion and there would be horror stories all over the 
place. There still are. But things are a lot, lot better, even 
on intellectual property, today.
    Mr. Van Andel. I know even with our organization--I am a 
little different than others around the table because I am 
probably more low-tech and everybody else is a little more 
high-tech--but I know that is really the point with our 
organization, too. I look at what we did. We built a factory in 
Guangdong province. We basically built a duplicate of what our 
factory is in Michigan. So we have some very good comparisons 
that we can make. Sure the labor rates per person may be lower 
in terms of the actual dollar amount. But the quality of life 
of our workers has improved compared to the quality of life 
that they had last year or the year before. And I think that is 
the point.
    Mr. Levin. And I will finish because my time is up. I think 
there is no doubt that when someone is paid $2.00 an hour, it 
is better than $1.00 an hour. And I think that is a plus for 
the worker there. But let us remember, in arenas that will be 
increasingly competitive, there is legitimate reason for 
concern about the differential and whether, over time, market 
conditions will allow that differential to narrow. And that is 
why we need to talk this through and not have closed minds or 
just automatic polarization on these as well as other issues. 
And it is different, to some extent, in the service industries 
than it is in the industrial sectors. Thanks.
    Chairman Crane. Mr. Houghton.
    Mr. Houghton. Thanks, Mr. Chairman. Well, you know, there 
are always going to be differentials, no matter where we go. 
The differentials between New York State and the Deep South, 
Canada and the United States.
    I think one of the most important things that I remember 
Mr. Fisher saying is that if you have a job here and you have a 
job there, it doesn't mean if you have a job there you are 
taking one away from here. You are actually creating a 
customer. So if you transfer a job overseas, you are putting 
that there, but also you are doubling the capacity--or some 
sort of increment--in this country. And that is a basic 
economic philosophy that is at work here.
    We have several issues here. We have got the temporary 
approval vote, which will be a Full Committee vote, not this 
Subcommittee, for normal trading relations. And then we will 
have the adjustment, hopefully, of Jackson-Vanik. Because if 
Jackson-Vanik is not adjusted, then exceptions will be taken 
and we will not be able to enjoy the opportunities of the World 
Trading Organization. And then, ultimately, we will have the 
vote on a permanent normal trading relation.
    But I think the critical question to me is to flip this 
thing around. Suppose we don't do this? What happens to your 
businesses? What happens to the jobs in this country? Maybe you 
would like to answer that question.
    Mr. George Fisher. I'll--do you want to jump in? OK, let me 
just say, one aspect of the whole agreement being negotiated, 
really what we are talking about in many ways is a one-way 
agreement. The United States market is open to the Chinese. The 
Chinese market is not fully open to us. What we are talking 
about is really, I think, what Congressman Levin was talking 
about in terms of beginning a process. By starting and getting 
the World Trade Organization, we are starting to build toward 
that rules-based, market-based, trading kind of economy. If we 
don't do this, U.S. business is going to be seriously impaired 
in terms of being able to treat that economic growth in a 
region that is so populous and is going to have such 
opportunity.
    So, I agree that we don't want an agreement of any sort. We 
want a good agreement, but not at any price. We don't want to 
oversell this. We are at the beginning of a process. But we 
want one in terms of engagement and one where we can begin to 
build toward a higher level of enforcement to make sure that we 
are all benefiting from this economic growth.
    Mr. McGraw. And, Congressman----
    Mr. Van Andel. When you look at this agreement, it is an 
agreement for U.S. business. Absent permanent NTR status, we 
are excluded from the benefits while other countries gain are 
advantage. With permanent NTR we start on an even playing 
field. So it is really an agreement for us to have the same 
rules as the rest of the world.
    Mr. David. I would comment, if I may, as well, that first, 
I think the principal impact on UTC individually would be the 
aerospace sector. The aerospace sector in the U.S. runs about a 
$2 billion annual trade surplus with China. I think it must 
easily be the sector with the biggest trade surplus. There are 
alternate foreign suppliers for engines and air frames and I 
think that in the event that NTR is not extended, that work 
would all migrate to Europe and the ultimate suppliers to China 
will be Rolls Royce and Air Bus.
    Second, to reinforce the point I made earlier, there is a 
lot in this agreement for U.S. business. I think that the 
reduction in tariffs from basically the 30-percent to 40-
percent range down to below 10 percent is a tremendous plus for 
U.S. exports in the future. Also, not to minimize it, the 
provisions that would allow distribution companies to be 
American-owned and allowed to distribute U.S. imports into 
China, is a fundamental change. The current situation is a huge 
disadvantage for us today. These are two, very special features 
of the WTO agreement Ambassador Barshevsky has negotiated, 
which is a great agreement.
    Mr. Sternberg. Congressman, there are 70 insurance 
companies now waiting for licenses to do business in China and 
the process is not a transparent process, so without WTO, we 
might very well get the next license in a year or 2 or we might 
have to wait 10 years for a license. With WTO, that licensing 
would be transparent and most of the insurance companies that 
are requesting licenses would immediately get access to the 
Chinese market.
    Chairman Crane. Mr. Camp.
    Mr. Camp. Thank you, Mr. Chairman. I want to thank all of 
you for your testimony this afternoon, but I would like to 
direct my question to Mr. Van Andel. And I understand that the 
Chinese Government has limited your operations in China to the 
extent that you cannot sell merchandise to distributors for 
resale. And do you believe that the Government of China either 
directly or indirectly is sending the signal that it objects to 
the entrepreneurial nature of your company or is objecting to 
its citizens being exposed to the concepts of entrepreneurship?
    Mr. Van Andel. You know, when they enacted the ban on 
direct selling, after the ban, they would allow us to open 
through traditional retail channels, through stores. They would 
allow us to operate back through stores. But in discussions 
with them, he showed them, actually, how our business enhanced 
the quality of life for citizens and that our distributors 
gained valuable business and entrepreneurship skills. After 
that they recognized that what we did for the citizens of China 
was what they needed. The training that we gave to the people 
in China was what they were looking for.
    And so we worked with them to create an ability to come 
back in and restart under a new mode that allowed us to keep 
our distributors in place. They recognized the quality, I 
think, of entrepreneurship or business fundamentals or training 
as a very important quality for them. And we were proud that we 
were able to do that.
    Mr. Camp. Your answer seems to say the government officials 
may have recognized some of that. What about the average person 
there and the whole concept of free enterprise and being 
exposed to free markets? Do you have any comment on that?
    Mr. Van Andel. Well, you know, it is amazing. As I have 
gone through different countries in different parts of the 
world, I always wondered whether our concept of free enterprise 
would translate into different markets. And I have watched it 
in China. I have watched it translate, although we talk about 
it a little bit differently. But the whole concept of owning a 
business for yourself, doing something for yourself. Owning 
your own business and becoming successful based on that is a 
concept that I have seen translate into every culture, 
including China.
    Mr. Camp. Well, thank you very much. Thank you, Mr. 
Chairman.
    Chairman Crane. Mr. Becerra.
    Mr. Becerra. Thank you, Mr. Chairman. I think before you 
even get to the whole question of accession to the WTO, to 
where we stand with normal trade relations with China, these 
days, because of all the other issues that cloud the 
relationship, we have to address that shadow that lurks there. 
I think we would be deceiving ourselves to believe that the 
politics of this country at this time, so close to a 
Presidential election, will allow us to talk solely in terms of 
pure economics and trade matters, with regard to what we do 
with China in the future and, obviously, with the WTO as well.
    Having said that, I would associate myself with some of the 
remarks made earlier by Mr. Levin. But let me focus a bit on 
another aspect of the trade question which I think we can do 
something about, and I believe is essential for us to move in a 
very bipartisan, more conciliatory fashion in this country 
toward a healthy trade agenda. That would be dealing with the 
domestic components of trade.
    This year we are supposed to reauthorize the Trade 
Adjustment and Assistance Act. The TAA has always been 
something that has been used domestically to try to offset the 
difficulties caused by our expansion of trade abroad. The 
problem is, it has never really worked very well, nor have many 
training programs for that matter. It has always made it 
difficult for anyone who has promoted trade to be able to point 
to the ability of our country and our economy to soften the 
impact for those that will lose jobs. I don't think anyone 
denies that we will lose jobs. We can't deny that we are going 
to gain a whole bunch of jobs as well as a result of trade. I 
think we all do ourselves a disservice by not doing more 
through private enterprise and certainly through the public 
means to try to address the concerns of those who may be 
dislocated.
    At this stage, it seems to me that it would behoove those 
who are going to benefit most directly, most immediately from 
any expansion of trade, in this case with China, to look 
closely at the whole issue of TAA and how we can improve it to 
make it work, working with government, but also again, I think 
the private sector is such an important component of this. If 
the voice of the two can be merged so that we do a better job 
domestically of addressing the needs of those workers who do 
become dislocated, it will be in those lower skilled areas. We 
are talking mostly about folks who will be very difficult to 
retrain and placed in positions that will pay well. But if we 
don't deal with it, of course we'll deal with those very 
partisan on both sides of the aisle who produce 20-second 
commercials that show that American worker who lost his or her 
job, and use that loss as a reason we should not expand our 
relations with other countries.
    I would hope that one of the things that we can all do, 
both those of us in government and those of us in the private 
sector, especially those who stand to gain by increased trade, 
would be to find a way to come together, merge some good ideas 
and see if we can try to improve on what we have right now with 
TAA so that at the end of the day, at least domestically, we 
can deal with some of those issues that are within our grasp. I 
don't know if we will be able to close the door on the issue of 
espionage any time soon, the whole issue of the bombing of the 
Chinese Embassy is going to haunt us for a time. But certainly 
when it comes to a displaced American worker, I would hope that 
there might be some ideas brewing among those who are in the 
private sector to help us come up with some ways to try to deal 
with this as well.
    If government is left to its own devices to try to do this, 
we will fail. We don't have the resources, nor do I think we 
have the ingenuity in government to do it by ourselves. It 
really will take the efforts of the private sector. Those that 
are most likely to gain, who don't have to worry so much about 
displacing workers in their own industry, I would hope would 
recognize that opening up that trade will benefit you all very 
much and bring back a little bit home, you know, put a little 
back in the domestic market. This will help you help all the 
rest come to terms with the whole issue of expanded trade. 
Hopefully it will be freer and it will be fairer for everyone.
    I don't really have a question there. If anyone wishes to 
comment, I would open up the rest of the time that I have. If 
not, Mr. Chairman, I'll yield back.
    Chairman Crane. Mr. Ramstad?
    Mr. Ramstad. Thank you, Mr. Chairman.
    I want to thank all the distinguished business leaders on 
this panel for being engaged in this important issue. I think 
Mr. Sternberg, you best summed up the issue of WTO accession 
for China by saying that this deal should be done. It is a win-
win. Of course it is. As one who has worked as a member of the 
bipartisan WHIP team to try to get this legislation passed, I 
do appreciate your active involvement as corporate leaders.
    Let me ask any of the members of the panel a question, 
whether the annual uncertainty that we experience with the 
renewal of NTR for China hurts United States' businesses. This 
wouldn't obviously apply to any of you, but those businesses 
trying to enter the Chinese market--whether the uncertainty 
associated with renewal of normal trade relations each year is 
detrimental to those businesses trying to enter the Chinese 
markets.
    Mr. Sternberg. Congressman, it's not the uncertainty, but 
unless Congress grants permanent status, we cannot bring China 
into the WTO. WTO requires permanent NTR status. So all of the 
concerns that we have raised or the opportunities that we have 
identified that this country would get and our industry would 
get because of WTO entry by China, would not be available 
unless we moved from this annual approach to permanent NTR 
status.
    Mr. Ramstad. I understand that, but hasn't over the past 
several number of years, hasn't the uncertainty created havoc? 
Certainly that's another reason why we need to pass permanent 
trade relations.
    Mr. Sternberg. Yes.
    Mr. Ramstad. I don't think anybody would disagree with 
that.
    Mr. Sternberg. No.
    Mr. Ramstad. Let me also ask, I think all of you, I would 
assume also do business in Hong Kong and Taiwan. Can any of you 
comment on what impact would it be on Hong Kong and Taiwan if 
the United States does not grant normal trade relations to 
China, or if China doesn't accede to the World Trade 
Organization.
    Mr. McGraw. Well I would only comment that I think 
Ambassador Fisher said it correctly. I think that on the issue 
of Taiwan, as soon as they fully met the requirements, I think 
the push is going to be to have Taiwan go for the WTO. So I 
don't see any problem from that standpoint. I just think it 
would be such a damaging blow to United States business 
interests to be locked out of such a major market like China, 
that that would be the overriding factor. But the influence on 
Taiwan I think would be a separate issue. Hong Kong is part 
of----
    Mr. Van Andel. Just to address Hong Kong, although Hong 
Kong is obviously a much smaller market than China. China talks 
about Hong Kong in terms of--even though Hong Kong is now a 
part of China--they talk about it in terms of being a single 
market but two systems, having the Hong Kong system and the 
China system. Hong Kong really operates economically 
independently as it did before. So I don't know whether there 
will be any impact one way or the other, depending on what 
happens with China, because it does operate independently.
    Mr. Ramstad. Let me ask a final question of you, Mr. David, 
if I may, please. You touched on, I guess in response to the 
Chairman's line of questioning, the protection of intellectual 
property rights, which has been a real problem in China for a 
number of constituent businesses in Minnesota, which I 
represent. Certainly such protection is critical. Do you 
believe, and if so, how would China's WTO accession help in 
this regard, in terms of protection of intellectual property 
rights?
    Mr. David. I think the first comment I would make is that 
our own experience with intellectual property rights in China 
has not been adverse. In fact, we had one interesting and 
notable litigation over pirating of the Carrier trademark with 
five start-up, Chinese companies. Carrier, of course, is a 
proud name in air conditioning. We were able to get an 
administrative ruling with teeth that took effect within 6 
months time. So our experience with intellectual property has 
not been adverse at all. I think that whatever we can do to 
continue to apply the pressure to bring China into the WTO, and 
thereby bring them up to Western standards, is going to be 
highly beneficial in the area of intellectual property 
protection, as in every other area.
    Mr. Ramstad. A final comment before my time expires, Mr. 
Chairman. Thank you again for your active involvement. It is 
important. We need it to get this passed, to educate not only 
members of this panel, but the entire Congress. When we come, 
if we do, to action on fast track again, I hope the business 
community is similarly engaged, because last year the silence 
of business leaders was deafening in terms of fast track. 
That's one of the reasons we don't have fast track authority 
today. So thank you for your engagement on this issue. I hope 
you and your counterparts in American business are as active 
when it comes time for fast track.
    Thank you, Mr. Chairman.
    Chairman Crane. Thank you.
    Mr. Herger.
    Mr. Herger. Thank you, Mr. Chairman. I thank each of you 
for being here on this panel. This is an incredibly complex, 
controversial issue, certainly here in the United States and 
certainly with the electorate that all of us represent. But it 
is also, I believe, one of the most important issues to face 
our Nation, not only economically, but certainly with our 
relations with a country that represents 20 percent of the 
population of the world. I believe really the decision we have 
to make is are we able to stand isolated as the most powerful 
country in the world, as the leader of the free world, are we 
able to isolate ourselves? Is that in our advantage to isolate 
ourselves, basically? Or is it in our advantage to allow 
individuals like yourself to be able to enter into their 
society, to share with them, to assimilate into their society 
basically, the groundwork, the Judeo-Christian type of 
foundation that we have in our country that brings about the 
lessening of the human rights abuses that we see. I really see 
this as so much of the issue.
    The area I represent in northern California is probably one 
of the most agriculturally rich, productive areas any place in 
the world. We grow a number of specialty crops, a very large 
percentage of them, including rice, a large percentage of 
peaches, walnuts, almonds, prunes. We cannot eat all the 
products that we grow. We are dependent on being able to export 
to other countries. It certainly seems to me that at a time 
when our duties for other countries, including China, to be 
able to export into our country are very low, the fact that we 
do not have agreements, that we are not working there to be 
able to bring their tariffs down, to be able to allow us equal 
access, I believe is completely and totally unacceptable.
    So I believe there are a number of reasons why we need to 
be moving in a direction, hopefully that we are presently 
moving, and that I believe each of you is advocating. But with 
that, we certainly have our challenges. I would like to maybe 
just ask a general question. Given the large and growing trade 
deficit that we have with China, how do you respond to critics 
who argue that normal trade relation treatment has benefited 
China but not the United States? Would either of you like to 
comment on that?
    Mr. George Fisher. I think that that would get at the 
essence of why we say the WTO Agreement is really a challenge 
to China. In fact, under the tariff reductions, our products 
become much more competitive. The opening of services in 
various markets, means we could sell more products. I think a 
good WTO Agreement like the one whose draft we are aware of, 
will in fact help us sell a lot more products there, and hence, 
have a significant impact on the trade deficit.
    Mr. David. Congressman, of course the agreement is still 
private, and so we are operating on some degree of inference, 
guesswork and rumor. But the flavor of everything that any of 
us has read is that the WTO draft agreement is decidedly pro 
U.S. That is, there are multiple, multiple concessions by the 
Chinese and practically none by ourselves. In fact, this 
agreement is a means of redressing part of this historic 
imbalance, where we faced 30 percent external tariffs going 
into China while they have had MFN or NTR tariff status on our 
side. I think that the important point is that NTR status is 
the device to get China into the WTO, which is the device to 
redress this historic imbalance.
    Mr. McGraw. Congressman, I would just add a few points to 
that. The trade deficit can only get worse without resolution 
here and getting this agreement, and getting China into the 
WTO. I would also say that the United States has probably been 
the most active in use of the binding dispute resolution 
mechanisms. I think that it's there, that you are going to 
start to begin to see more of the equity that you are talking 
about in terms of a level field.
    Mr. Van Andel. I would completely agree, that the WTO is 
what begins to level the playingfield with everyone. NTR is the 
means by which we get WTO benefits from China.
    Mr. Herger. Thank you. Those are the answers I was looking 
for. I mean basically it would seem like we have virtually 
everything to gain and very little to lose on almost all these 
scores. Hopefully again, we are looking at a nation that's been 
around for 5,000 years. It takes a bit of time to get them to 
evolve to the point where we are now. But I appreciate your 
involvement, both for what it will do, I believe, to help our 
economy and certainly the economy for my northern California 
district. But also I believe it is the right thing to do and 
helps speed up an improvement on human rights more than the 
other way. So thank you very much.
    Chairman Crane. Thank you.
    Mrs. Johnson.
    Mrs. Johnson of Connecticut. Thank you very much. Thank you 
all for your testimony. Welcome, Mr. David, it is a pleasure to 
have you before our Subcommittee.
    I just want to say as an aside, after all of those attacks 
that I have taken on how do we compete with 25 cents an hour, 
it is very nice to know that we pay $15 and $18 an hour and 
export to China, and thank you very much, that we will export 
more if we can reduce tariffs of 38, 30 and 12 percent on a lot 
of our products and parts.
    I also think it is very interesting that you really 
demonstrated quite clearly that more exports will flow to China 
as a result of this agreement as it appears to be shaping up 
rather than fewer. Your comment that China now imports a 
greater percent of its GDP than we do I think is very 
important, that over a short number of years, they have really 
become big importers. If they drop these barriers, they will 
become even bigger importers. That is very much in our 
interest.
    But this issue of human rights is in the minds of many of 
my colleagues. I would like to hear each of you just talk 
briefly about how you believe the practices of your companies 
affect your employees' view of their rights and 
responsibilities as individuals. I thought, Mr. David, your 
comment about your enormous education project in China--
certainly people with good education do see themselves 
differently and believe their future is different. But I know 
that a number of you are doing quite different things in the 
area of benefits, fostering home ownership and other things 
like that. So if you would just give us a little sense of what 
you see in your experience as the way in which people's view of 
their own self and their rights and opportunities is changing 
as a result of American policies in China and American 
corporate presence in China. I think that would be helpful to 
us.
    Mr. David, do you want to start?
    Mr. David. Nancy, I might respond with a couple of 
anecdotes. I recall addressing employees at our elevator joint 
venture in Tianjin, which is the fourth largest city in China, 
about 3 years ago. That venture started in 1984. This was a 
typical Chairman's speech. About halfway through, just because 
of the way the speech went, I had occasion to ask employees how 
long they had all worked for this company. I started out by 
asking, ``how many of you were here from the beginning? '' 
Every hand in the room went up. Every single one. The point of 
that, which I am subsequently going to rant about a little is 
that our employees never leave us in these companies. They love 
American employers.
    I have a second story. I recall meeting the shop steward of 
one of Carrier's companies in Shanghai in 1986. She was rather, 
shall we say, hard-edged with me. I think she thought I was one 
of these ``imperialist, yellow running dogs from America,'' or 
something like that. Today she is the deputy general manager. 
She was a ranking Communist Party official in 1986, and today I 
think she is pretty pro-capitalist, pro-Western, and pro-
democratic. The reason is because her family has benefited from 
her participation and exposure to Western institutions and 
systems and beliefs. I think the way you do this, and I have 
seen it so much, is by rewarding seniority and commitment, and 
when people see it they like it. We know they are persuaded 
when they say, ``We would like to see more of this.'' That's 
how we will change the minds of the Chinese people.
    Mrs. Johnson of Connecticut. Does anyone else care to 
comment?
    Mr. George Fisher. I think as I said earlier, that 
practicing of certain, you might call them Western values, but 
they are universal values, but particularly respect for the 
dignity of the individual in everything you do as a practice 
and continue personal renewal through education and training 
where people gain self respect, I think there is nothing more 
powerful than really continually relentlessly practicing and 
preaching those values. It works.
    Mrs. Johnson of Connecticut. I was very interested in the 
comment about your experience with intellectual property rights 
problems. What about contract enforcement? China doesn't have a 
very strong contract law. So don't you find yourselves arguing 
about contracts all the time? Does arguing about it help 
gradually to build understanding of the mutual obligations 
under contract law?
    Mr. McGraw. There's no question about that, Congresswoman. 
The whole issue of enforcement has been a very difficult one. 
The comments I made earlier about the signing of the 
intellectual property bilateral agreement in 1995, we have seen 
nothing but abuse in terms of the continuation of piracy. We 
believe, and our hope is, that as part of the World Trade 
Organization, that you are going to have further leverage and 
further muscle to be able to get resolution there.
    On the question of employees and the understanding of basic 
common values, I would echo the same as both Georges. From my 
standpoint, you know, we have a very strong code of business 
ethics that we make sure that each employee knows and 
understands, and we routinely go through those kinds of issues. 
We have management forums and employee forums around the world. 
We just make sure that there's a continuous effort in terms of 
making sure people understand those kind of values.
    I would agree as well that a lot of the employees that we 
have, some of our most loyal employees, are people that you 
would have thought years ago would have been just the opposite. 
They are so thankful for the opportunity to be able to get 
ahead.
    Mrs. Johnson of Connecticut. Thanks. Thanks, Mr. Chairman.
    Chairman Crane. Thank you. The Subcommittee is going to go 
into recess.
    Mr. Rangel. I have one question.
    Chairman Crane. Oh yes. Mr. Rangel.
    Mr. Rangel. If expanded trade with China is so important to 
move that great country into a democratic form of government, 
should not those same principles apply as it relates to Cuba? 
Is there anyone that challenges that, if it's good for a 1.3 
billion people that those same principles should apply for 8 
million people that are 90 miles from our border? Does anybody 
here support the embargo against Cuba?
    Chairman Crane. It's a unanimous vote, Charlie.
    Mr. Rangel. We're going to need some help here because 
democracy is not a part-time job, you know. If it makes a lot 
of sense for those Communists in China and Vietnam and North 
Korea, then I think we ought to give our friends in the 
Caribbean a break, too.
    Chairman Crane. Let me add, free trade is not a part-time 
job. Having communications from presidents and chief executive 
officers is vitally important. More important as individual 
votes come up, however, are your transmission of the importance 
of free trade to your employees and the communication from 
those employees to their elected representatives. So please get 
the message out.
    Again, thank you for putting up with us. You did an 
outstanding job.
    We stand in recess, subject to call of the Chair.
    [Recess.]
    Chairman Crane. I now would like to reconvene the 
Subcommittee for our final panel. That includes John Sweeney, 
president of the AFL-CIO, Jack Valenti, president and chief 
executive officer of Motion Picture Association, Neil Gambow, 
president of Post Glover Resistors, Inc., and Robert Kapp, the 
president, United States-China Business Council. If you 
gentlemen will take your seats and proceed accordingly. Try and 
keep your oral testimony to 5 minutes. Any printed statements 
will be made a part of the permanent record.
    Mr. Sweeney.

STATEMENT OF JOHN J. SWEENEY, PRESIDENT, AMERICAN FEDERATION OF 
         LABOR AND CONGRESS OF INDUSTRIAL ORGANIZATIONS

    Mr. Sweeney. Thank you, Mr. Chairman, for this opportunity, 
and Members of the Subcommittee, to be able to present the 
views of the AFL-CIO on China's accession to the World Trade 
Organization. The AFL-CIO believes strongly that we have a 
responsibility to work to strengthen democratic forces, improve 
economic conditions, and advance human rights in China. In the 
long run, we believe the ties between our countries will be 
strengthened rather than weakened by such efforts.
    An overriding concern for the labor community is China's 
horrendous record of human and workers' rights violations. 
There should be no accession or grant of permanent or annual 
normal trade relations until China makes material progress to 
protect the rights of workers. Furthermore, any accession 
agreement must effectively address serious unresolved issues 
with the draft commercial terms, and ensure that the United 
States retain broad and effective tools to address problems 
with compliance.
    China repeatedly and flagrantly violates internationally 
recognized core labor standards by denying Chinese workers 
freedom of association and the right to organize and bargain 
collectively, as well as by the abuse of prison labor. The end 
result, as the 1998 State Department Human Rights Report 
confirms, is that no independent labor unions are allowed to 
function in China. Existing unions are completely controlled by 
the Communist Party, and many are not independent of 
management.
    A recent report by the International Confederation of Free 
Trade Unions documents two disturbing trends. First, many labor 
activists have been jailed or sentenced to reeducation camps 
for the crimes of advocating free and independent trade unions, 
protesting corruption, embezzlement, and nonpayment of wages by 
managers and for providing information on workers activities to 
journalists.
    Second, there have been increasing confrontations, 
sometimes violent, between protesting workers and the police. 
In January of this year, for example, police attacked 100 
retired factory workers who were protesting unpaid pensions. 
Ten of the elderly activists were beaten, including a 70-year 
old man, who was knocked unconscious.
    It is clear that the Chinese Government is implementing an 
economic policy based on strategically restricting access to 
its home market, while aggressively promoting exports. The 
systematic violation of internationally recognized workers' 
rights is a crucial component of this strategy. Often, China's 
actions represent an explicit violation of bilateral agreements 
between China and the United States. At the 1996 WTO 
Ministerial in Singapore, WTO members committed themselves to 
observe core labor standards, including freedom of association, 
the right to organize and bargain collectively, and 
prohibitions on child labor, forced labor and employment 
discrimination.
    The next WTO Ministerial will take place later this year in 
Seattle. This will be a crucial opportunity to press for 
further progress in strengthening the WTO's commitment to 
promote core labor standards. Labor leaders from all over the 
world will gather in Seattle to press the trade ministers and 
heads of state, to incorporate enforceable workers' rights and 
environmental standards into WTO rules.
    Given the current workers' rights and human rights problems 
in China, it is therefore essential that United States 
negotiators insist on three conditions prior to China's 
accession to the WTO. First, that the Chinese Government 
observe and effectively enforce core labor standards as a 
condition of accession. Chinese workers must be allowed to join 
together, organize, and bargain for better working conditions 
and wages. Second, the Chinese Government must immediately free 
all jailed human and labor rights activists. Third, the Chinese 
Government must agree to support United States efforts to 
incorporate enforceable workers rights into WTO rules, 
including establishing a working party on workers rights, which 
would allow a constructive dialog on workers rights to take 
place at the WTO.
    In addition, the AFL-CIO continues to have serious concerns 
about the unresolved commercial terms of accession, as well as 
the enforceability of any agreement with China, given China's 
poor record of compliance with past bilateral agreements and 
the failure of the United States Government to aggressively 
enforce these agreements. The central enforcement issue is 
whether bringing China into the WTO will improve or worsen the 
United States Government's ability to enforce China's 
compliance with the letter and the spirit of the international 
trading and workers' rights norms. While accession will in 
principle bring China under the discipline of WTO rules and 
dispute settlement, the United States will forfeit its ability 
to use some U.S. trade measures unilaterally. For example, the 
trade measures available under section 301 are very limited as 
applied to WTO members.
    Human rights, worker rights, and compliance with 
internationally recognized trading norms are necessary 
components of a well-functioning international trade system. 
Thank you, Mr. Chairman.
    [The prepared statement follows:]

Statement of John J. Sweeney, President American Federation of Labor 
and Congress of Indutrial Organizations

    Thank you, Mr. Chairman and members of the Subcommittee, 
for this opportunity to present the views of the AFL-CIO on 
China's accession to the World Trade Organization (WTO).
    The AFL-CIO believes strongly that we have a responsibility 
to work to strengthen democratic forces, improve economic 
conditions, and advance human rights in China. In the long run, 
we believe the ties between our countries will be strengthened, 
rather than weakened, by such efforts.
    An overriding concern for the labor community is China's 
horrendous record of human and workers' rights violations. 
There should be no accession or grant of permanent or annual 
normal trade relations (NTR) until China makes material 
progress to protect the rights of workers. Furthermore, any 
accession agreement must effectively address serious unresolved 
issues with the draft commercial terms and ensure that the 
United States retain broad and effective tools to address 
problems with compliance.
    China repeatedly and flagrantly violates internationally 
recognized core labor standards, by denying Chinese workers 
freedom of association and the right to organize and bargain 
collectively, as well as by the abuse of prison labor. The end 
result, as the 1998 State Department's Human Rights Report 
confirms, is that no independent labor unions are allowed to 
function in China today. Existing unions are completely 
controlled by the Communist Party, and many are not independent 
of management.
    The State Department's report notes that the Chinese 
government's ``human rights record deteriorated sharply 
beginning in the final months of [1998] with a crackdown 
against organized political dissent.'' Restriction of religious 
freedom intensified in 1998, according to the report. The 
repression of workers' rights likewise worsened in late 1998 
and early 1999.
    A recent report by the International Confederation of Free 
Trade Unions (ICFTU) documents two additional disturbing 
trends. First, many labor activists have been jailed or 
sentenced to reeducation camps for the crimes of advocating 
free and independent trade unions; for protesting corruption, 
embezzlement, and non-payment of wages by managers; and for 
providing information on workers' activities to journalists. 
According to the ICFTU, at least 78 people have been detained 
in connection with independent labor activities since 1989. 
Second, there have been increasing confrontations, sometimes 
violent, between protesting workers and the police. In January 
of this year, for example, police attacked one hundred retired 
factory workers, who were protesting unpaid pensions, in Wuhan. 
Ten of the elderly activists were beaten, including a 70-year 
old man who was knocked unconscious.
    The ICFTU notes that many workers are being penalized for 
protesting unpaid wages or unpaid pensions. The ICFTU warns 
that this trend is likely to increase with China's economic 
slowdown, as workers increasingly face situations where wages 
or pensions cannot be paid due to mismanagement or embezzlement 
of funds from defunct state enterprises.
    It is clear that the Chinese government is implementing an 
economic policy based on strategically restricting access to 
its home market, while aggressively promoting exports. The 
systematic violation of internationally recognized workers' 
rights is a crucial component of this strategy. Often China's 
actions represent an explicit violation of bilateral agreements 
between China and the United States.
    In a 1992 Memorandum of Understanding on market access, for 
example, the Chinese government agreed to eliminate ``all 
import substitution regulations, guidance and policies.'' Two 
years later, according to the United States Trade 
Representative's 1997 National Trade Estimate Report on Foreign 
Trade Barriers, China announced an automotive industrial policy 
that explicitly called for ``production of domestic automobiles 
and automobile parts as substitutes for imports'' and 
established local content requirements, which forced companies 
to use domestic products, even when less expensive or better-
quality foreign products were available. This policy caused 
U.S. exports of auto parts to China to plummet, from $218 
million in 1993, the year before the policy went into effect, 
to $132 million in 1998. U.S. imports of auto parts from China, 
meanwhile, rose from $339 million to $1.036 billion during the 
same period. It is unlikely that WTO accession, in and of 
itself, will bring about the necessary changes in China's 
domestic economic policies that have been promised, 
particularly in light of past compliance problems.
    The skewed U.S.-China trade relationship continues to 
worsen. Last year, the United States racked up a merchandise 
trade deficit with China of $57 billion, up from $50 billion 
last year and balance in 1980. The United States imported $71 
billion worth of goods from China in 1998, while exporting only 
$14 billion worth, a ratio of more than 5 to 1, by far our most 
asymmetrical trade relationship.
    At the 1996 WTO ministerial in Singapore, WTO members 
committed themselves to observe core labor standards, including 
freedom of association, the right to organize and bargain 
collectively, and prohibitions on child labor, forced labor, 
and employment discrimination.
    The next WTO ministerial will take place later this year in 
Seattle. This will be a crucial opportunity to press for 
further progress in strengthening the WTO's commitment to 
promote core labor standards. Labor leaders from all over the 
world will gather in Seattle to press the trade ministers and 
heads of state to incorporate enforceable workers' rights and 
environmental standards into WTO rules.
    Given the current workers' rights and human rights problems 
in China, it is therefore essential that U.S. negotiators 
insist on three conditions prior to China's accession to the 
WTO. First, that the Chinese government observe and effectively 
enforce core labor standards as a condition of accession. 
Chinese workers must be allowed to join together, organize, and 
bargain for better working conditions and wages. Second, the 
Chinese government must immediately free all jailed human and 
labor rights activists. Third, the Chinese government must 
agree to support U.S. efforts to incorporate enforceable 
workers' rights into WTO rules, including establishing a 
working party on workers' rights, which would allow a 
constructive dialogue on workers' rights to take place at the 
WTO.
    In addition, the AFL-CIO continues to have serious concerns 
about the unresolved commercial terms of accession, as well as 
the enforceability of any agreement with China, given China's 
poor record of compliance with past bilateral agreements and 
the failure of the U.S. government to aggressively enforce 
these agreements.
    In order to adequately address these commercial concerns, 
the accession agreement should include:
    -- a safeguard provision against unpredicted import surges 
that will remain in place for at least 15 years and/or until a 
review determines that Chinese conditions no longer warrant 
such a measure.
    -- provisions ensuring that parties other than the U.S. 
government can take action when imports cause market 
disruption. Unions, among others, should have standing to bring 
cases or appeal when the U.S. government fails to act.
    -- an effective general safeguard, with multilateral 
surveillance measures, including periodic reviews with accurate 
and adequate information provided.
    -- measures to address the problem of company-to-company 
offset agreements, in addition to those addressing government 
requirements.
    -- provisions to ensure that labor unions will have access 
to the information necessary to make complaints regarding 
performance requirements and offsets, especially since many of 
these deals are secret, and the parties involved do not have an 
incentive to make them public.
    -- a review process to determine when the period during 
which China will be considered a non-market economy for 
purposes of calculating dumping margins will end.
    -- a ten-year phaseout on the quotas on Chinese apparel and 
textiles. The longer phaseout is necessary to prevent 
disruption of U.S. and other countries' apparel and textile 
markets.
    -- a guarantee that the U.S. will retain the ability to use 
Section 301 and other trade remedies effectively in the event 
that China fails to comply with the accession agreement.
    The central enforcement issue is whether bringing China 
into the WTO will improve or worsen the U.S. government's 
ability to enforce China's compliance with the letter and the 
spirit of international trading and workers' rights norms. 
While accession will in principle bring China under the 
discipline of WTO rules and dispute settlement, the U.S. will 
forfeit its ability to use some U.S. trade measures 
unilaterally (for example, the trade measures available under 
section 301 are very limited as applied to WTO members).
    Since the WTO does not allow trade sanctions based on 
workers' or human rights violations, the U.S. will clearly lose 
the ability to withdraw trade benefits (or threaten to do so) 
in response to China's egregious and persistent violation of 
internationally recognized workers' rights. The annual 
congressional debate over renewing normal trade relations has 
at least succeeded in keeping public attention focused on these 
problems.
    These issues must be addressed before China is allowed to 
join the world trading community. Human rights, workers' 
rights, and compliance with internationally recognized trading 
norms are necessary components of a well-functioning 
international trade system.
    Mr. Chairman, members of the Subcommittee, thank you for 
your time and attention.
      

                                


    Chairman Crane. Thank you.
    Our next witness, Jack Valenti.

   STATEMENT OF JACK VALENTI, PRESIDENT AND CHIEF EXECUTIVE 
      OFFICER, MOTION PICTURE ASSOCIATION OF AMERICA, INC.

    Mr. Valenti. Thank you, Mr. Chairman. I want to say that 
the Motion Picture Association strongly supports the granting 
of normal trade relations with China. We think that it would be 
useful for this Subcommittee to consider the fact that you 
should grant permanent NTR to China. It would be frustrating 
for U.S. industries for China to have accession to the World 
Trade Organization and not get NTR because then industries that 
should benefit from WTO accession would be left out. That 
doesn't make any sense at all.
    I have made four trips to China in the last 20 months. I 
think I have a little better grasp of what is going on there 
than I did before I visited, though I don't come back as an 
expert. I don't think four trips to China makes you an expert. 
But let me tell you something about why intellectual property 
is important in a long-term relationship with China.
    I don't have to tell this Subcommittee that intellectual 
property: movies, television, home video, books, music, and 
computer software, represent today the largest gatherer of 
international revenues of any industry in the United States, 
bigger than automobiles and auto parts, larger than aircraft, 
larger than agriculture. We are riding a rising curve into the 
future. Intellectual property will become even more of a great 
trade prize in the next 5 years than it is today. In China we 
are making some headway. I am hopeful that as part of the WTO 
accession and the granting of NTR, that the U.S. Trade 
Representative can make some gains which I think were in 
progress at the time that the premier was here, Zhu Rongji, and 
went back to China without the WTO in his knapsack.
    We know that there is one issue that we have to get 
settled. That is, we need more movies accessible to the Chinese 
marketplace. Right now, there is a de facto, unwritten, 
unofficial, unspoken quota of 10 films per year in what we call 
revenue sharing, which is the norm all over the world. That is, 
we split the box office with the theater, 50 percent goes to 
the threater owner, 50 percent to the distributor. Ten films is 
too small. I have made suggestions that they go 17 films next 
year, and then 24 after that until we reach a level that I 
think would be normal.
    We have made great progress in reducing tariffs from 6 to 
15 percent down to zero to 6 percent as part of the agreement--
I don't know where it stands now. When the WTO negotiations 
were in progress, for the first time, the Chinese were willing 
to let us come in and own and operate and control cinemas. 
China is very underscreened, one screen for every 122,000 
people. In the U.S., we have one screen for every 8,600 people, 
so you can see the disparity.
    I believe that we can make larger headway. Now our revenues 
from China are pathetic, about $18 million in 1997. We are 
losing about $80 million, we estimate, from box office as a 
result of this 10-film quota. We are losing about $120 million 
a year in piracy. So we have got a $200 million market there 
that we could gather in quickly.
    I do have to say that the Chinese have been very fruitful 
in the way they have responded to our pleas to combat piracy. 
They ran a lot of the pirates out of Guangdong Province in the 
south. They migrated over to Macao, where they are operating 
now, but the Chinese will take over Macao later this year. I 
have been very pleased with the fact that when they have made a 
promise, they have redeemed it; when they have made a pledge, 
they have kept it.
    So I believe overall, that our prospects for a progressive 
trade relationship with China are going to grow exponentially. 
We just have to get through this difficult and frustrating, and 
even lacerating period, but I think we will. I am hopeful that 
we keep our eye on the distant objective and not the one 
nearest us. Mr. Chairman, I'll give you back the time.
    [The prepared statement follows:]

Statement of Jack Valenti, President and Chief Executive Officer, 
Motion Picture Association

    ``I urge you to consider providing authorization now to the 
President to extend permanent NTR status upon the President's 
certification that he has completed an acceptable WTO accession 
package for China. It is difficult to imagine anything more 
frustrating than having the U.S. Government conclude a good WTO 
accession package with China, but not being able, as U.S. 
industries, to benefit from the agreement.''
    I am pleased to have the opportunity to share with you the 
views of the Motion Picture Association on U.S.--China trade 
relations and the possible accession of China to the World 
Trade Organization
    The Motion Picture Association is a trade association 
representing seven of the largest producers and distributors of 
filmed entertainment (theatrical motion pictures, television 
programming and home video) in the United States. Its members 
include Buena Vista International, Inc. (The Walt Disney 
Company), Columbia TriStar Film Distributors International, 
Inc., Metro-Goldwyn-Mayer Inc., Paramount Pictures Corporation, 
Twentieth Century Fox International Corporation, Universal 
International Films, Inc., and Warner Bros. International 
Theatrical Distribution.
    The U.S. copyright-based industries, which include the 
motion picture, sound recording, computer software, and book 
industries, were America's number one export sector in 1996. 
These industries together achieved foreign sales and exports of 
$60.18 billion, surpassing every other export sector, including 
automotive, agriculture and aircraft.\1\ The U.S. filmed 
entertainment industry alone earned about $12 billion in 
foreign revenues in 1997, 40% of the total revenues earned by 
the U.S. film industry.
---------------------------------------------------------------------------
    \1\ Siwek, Stephen E. and Mosteller, Gale, Economists Incorporated, 
``Copyright Industries in the U.S. Economy: The 1998 Report,'' prepared 
for the International Intellectual Property Alliance, 1998.
---------------------------------------------------------------------------

              MPA SUPPORTS RENEWAL OF NTR STATUS FOR CHINA

    MPA strongly supports renewal of normal trade relations 
(NRT) for China this year. Moreover, MPA urges you to consider 
providing authorization now to the President to extend 
permanent NTR status upon the President's certification that he 
has completed an acceptable WTO accession package for China. It 
is difficult to imagine anything more frustrating than having 
the U.S. Government conclude a good WTO accession package with 
China, but not being able, as U.S. industries, to benefit from 
the agreement. Yet, this is what could happen unless Congress 
authorizes unconditional NTR by the time China joins the WTO. 
If the U.S. were not in a position to extend unconditional NTR 
to China, the U.S. would have to invoke the non-application 
clause of the WTO. The end result would be that every other 
country in the world would enjoy the full benefits of China's 
accession--but the United States would be left out.

 MPA SUPPORTS PROMPT CONCLUSION OF NEGOTIATIONS ON OUTSTANDING ISSUES 
                       FOR CHINA'S WTO ACCESSION

    MPA strongly supports the goal of China's accession into 
the World Trade Organization.
    MPA believes that it would be substantially more effective 
for the U.S. and China to manage their trade relationship from 
within the agreed standards of the global trading community.
    However, it is important as part of the accession process 
that China agrees to improve access to its market in sectors 
that are important to the U.S. economy--including the filmed 
entertainment sector. China has taken some important steps 
toward this goal, but one critical piece is still missing--some 
liberalization of the restrictions on exports of US films under 
revenue sharing conditions.
    MPA member companies currently face market access problems 
in China that severely limit the size of U.S. filmed 
entertainment exports. Total U.S. revenues earned in China in 
1997 were only around $18 million. We conservatively estimate 
that losses due to restrictions in import and distribution of 
motion pictures cost the U.S. industry at least $80 million 
annually. This estimate does not include the potential growth 
in the export of filmed entertainment, if the infrastructure 
were significantly expanded, for example, through 
liberalization of foreign investment in cinemas or broadcast, 
cable or satellite television. In addition to the losses 
resulting from market access restrictions, the U.S. filmed 
entertainment industry lost $120 million to piracy in China 
last year. In short, if the barriers to film distribution were 
lifted, and if a legitimate video sales and rentals market 
captured the market now lost to piracy, an increase in US 
revenues in China in excess of $200 million is achievable. That 
number could grow even higher, if additional reforms were 
undertaken to expand the distribution of films and television 
programming.

Access for motion pictures--the missing piece:

    American motion pictures face quantitative limits on access 
to China's market. Before the WTO accession negotiations are 
completed, it is essential that the USG secure a commitment 
from China to relax restrictions on import of foreign films 
under revenue sharing \2\ conditions in a modest way. There is 
a de facto limitation of 10 films per year on the first-run 
films that may be brought into China under revenue-sharing 
conditions. MPA's main goal in the accession negotiations is to 
secure a gradual increase in the number of films.
---------------------------------------------------------------------------
    \2\ Revenue-sharing refers to the commercial terms that are the 
industry standard for MPA member companies. Under ``revenue sharing'' 
the distributor and the cinema owner negotiate the percentage of the 
box office receipts each will receive, such as a 50/50 split.

---------------------------------------------------------------------------
Cinemas:

    China has made useful commitments in the WTO accession 
negotiations to allow foreign investment in joint ventures to 
build, own, operate, and manage cinemas. This could help build 
up the infrastructure and expand the total market for motion 
pictures in China--for US films, as well as Chinese films. At 
present, foreigners are not permitted to own or operate cinemas 
in China.
    China remains one of the more under-screened markets in the 
world. There are about 3000 cinemas exclusively dedicated to 
exhibition of motion pictures. In addition, there are 
approximately 7000 others theaters that exhibit motion pictures 
on a part-time basis; included in this number are theaters that 
also host live exhibitions (dance, concerts, opera) and 
theaters that serve specialized clientele, such as the workers 
in a large factory, rather than the general public. The ratio 
of screens per person is only 1 screen per 122,000. This 
compares to a total of 30,825 screens in the United States and 
a ratio of screens per person of 1 per 8,600 people.
    However, the value of this commitment is limited, at 
present, by the restrictions on access for foreign films. 
Without knowing that more foreign films will be available to 
fill all the new screens, investors are unlikely to be 
interested in building new cinemas in China.

Tariffs:

    China made meaningful commitments in its accession package 
to reduce the heavy burden of import duties on filmed 
entertainment products. Some technical work remains on the 
valuation method for assessing those duties. Prevailing world 
practice is to value films on the basis of the ``material 
substrate.'' U.S. duties, for example, are expressed in terms 
of cents per meter of film, or, in the case of optical media 
products, on the value of the blank diskette. Chinese valuation 
practices remain unclear.

Protection Of Intellectual Property:

    Since 1996 China has achieved a remarkable record in an 
important area of intellectual property protection. China has 
stemmed the unauthorized reproduction and halted the export of 
Video Compact Discs and other forms of pirated optical media 
products. China's domestic market continues to be plagued with 
extremely high levels of piracy -90 percent for home video 
entertainment in 1998. Based on China's record for combating 
export piracy and the good working relationship that MPA has 
developed with China's copyright enforcement authorities, MPA 
is confident that China can make rapid progress in 
significantly lowering domestic piracy rates to meet the 
standards contained in the WTO's Agreement on Trade Related 
Intellectual Property (TRIPS.)

                               CONCLUSION

    MPA strongly supports renewal of normal trade relations 
(NRT) for China. If the vote on annual renewal is the vote that 
first comes before this body, then MPA urges support for annual 
renewal. But, a better approach would be to provide 
authorization now to the President to extend permanent NTR 
status, to be effective upon the President's certification that 
he has completed an acceptable WTO accession package for China.
    China has made commitments in the accession negotiations 
that could potentially benefit MPA's member companies, but only 
if these commitments are supplemented by some liberalization of 
access for U.S. motion pictures distributed on a revenue 
sharing basis. As soon as this final step is taken, MPA looks 
forward to supporting strongly China's accession into the WTO.
      

                                


    Chairman Crane. Thank you, Mr. Valenti.
    Our next witness, Mr. Gambow.

   STATEMENT OF NEIL E. GAMBOW, JR., PRESIDENT, POST GLOVER 
               RESISTORS INC., ERLANGER, KENTUCKY

    Mr. Gambow. Thank you, Mr. Chairman and Members of this 
Subcommittee, for giving me the great privilege of placing 
testimony before you today. My name is Neil Gambow, and I am 
president of Post Glover Resistors Co. We can trace our roots 
back to 1892. We are a small company in Erlanger, Kentucky, 
employing about 110 people, making heavy-duty power resistors 
for the industrial power distribution market.
    We have export sales of about 10 percent of our output with 
China, the ASEAN countries and Mexico being our principal 
export markets. In 1989, we began export trading, with our 
first customers being the ASEAN countries. We developed that 
market over the past, up until 1993, when we actually 
established a small manufacturing and assembly operation in 
Johore Bahru in Malaysia. Today that operation employs about 10 
people.
    In 1995, we identified China as the next market to attract 
our attention. The Chinese Government was going to spend a lot 
of money on electrification projects, creating a very bright 
market for our neutral grounding resistor products. Entry into 
the market, however, seemed very difficult, especially for a 
small company with limited resources. Some of the barriers we 
saw were language, vague import regulations, identification of 
the potential customer base, definition of product, certainly 
the duties as we found out later on, difficult banking 
relationships, and so on.
    While studying our entrance strategies, we were approached 
by a company called the Shenzhen Farad Complete Equipment Co., 
who found us as a result of an article we had published in an 
Asian electricity trade journal. From that first meeting in 
mid1995, we have developed a partnership with that company. 
Today, our company in the USA produces the basic parts of these 
power resistors and their company in turn buys them from us, 
assembles them into the final product, and sells them to the 
power authorities in China throughout the entire country. 
Members of our staff, both myself and the people from our 
plant, and from the Malaysian operation, have visited their 
operations in Shenzhen, China, a total of 20 times in the last 
4\1/2\ years to develop that relationship. Our relationship has 
even helped create a few jobs in their factory.
    Outside of the USA, China certainly is the largest single 
market in the world, a fact that we just can't ignore. As a 
company that has a dominant position in the USA, although we 
are a small company, we look to export sales as being a 
significant engine of growth for our company. We have found 
that in China, the American products are very well received. 
They are received as being high quality, premium price of 
course, but certainly well received. We feel that the Chinese 
market will pay these prices, especially to get the kind of 
quality they are looking for. I think when the quality is 
there, we absolutely see a welcome embrace for the products 
that we produce. I think this is a terrific opportunity not 
only for big companies, but for small companies like ourselves 
it is a terrific opportunity.
    Many small companies are afraid to try China, to try to 
enter the market because of the seemingly huge barriers that 
have to be overcome, as I mentioned earlier. Good, stable trade 
relationships will help to minimize some of those barriers, and 
maybe create an environment for smaller companies to give it a 
try and try to get to the Chinese market. I believe that the 
World Trade membership for China is a big step in this 
direction. It appears to us now that Ambassador Barshefsky has 
hammered out a good initial position toward the expansive 
bilateral market access agreement in preparation for approving 
membership in the WTO. I think this is the time to press hard 
in Congress to get the approval to endorse China for this full 
membership. I think continuing to delay risks the loss of all 
these relationships and the possibility of not getting anything 
done.
    Of particular interest to Post Glover are the world trade 
issues of technology transfer, protection of intellectual 
property, and the dropping of import duties. By dropping these 
and making it easier for smaller companies to get into the 
market, I believe a number of us and a number of my colleagues 
would be very happy to really make an entrance to those 
markets.
    I am also concerned about the huge trade imbalance. You 
know, lack of permanent long-term trade relationships, I 
believe, are keeping our exports to China artificially low. 
Reducing these barriers and making it less expensive for 
smaller companies to get to this country, I believe, is a good 
way to start chipping away at this trade imbalance. There are 
thousands of small companies out there that I think could 
actually help do that.
    If we are to chip away at this trade imbalance, the World 
Trade membership for China and a stable long-term policy are a 
must. I think without these two elements, we are doomed to 
relive each year the same as the prior one, much as the movie 
Groundhog Day, where the main character lived the same day 
every day until he decided to make a big change. I think this 
is time to make the big change in Congress.
    We are a small company. We have many small companies in the 
USA. We are all ready to give a try to entering the Chinese 
market. I urge you in the strongest way to do what's necessary 
to bring China into the WTO. We believe that this would also 
help in facilitating progress on all the issues like the human 
rights discussions we have just heard about. Trade is an 
enduring legacy which can be leveraged to keep relationships 
between our countries on a much more even keel. Thank you very 
much.
    [The prepared statement follows:]

Statement of Neil E. Gambow, Jr., President, Post Glover Resistors 
Inc., Erlanger, Kentucky

    Thank you, Mr. Chairman, for allowing me to place this 
testimony before this Subcommittee on Trade. I am Neil Gambow, 
President of Post Glover Resistors Inc. Today I am appearing on 
behalf of our company in support of annual renewal of normal 
trade relations (NTR) with China, and eventually permanent NTR 
with China.

History Of Post Glover Resistors Inc. (PGR) And The Development Of The 
               Heavy Duty Power Resistor Market In China

    Post Glover Resistors Inc., established in 1892, is a small 
company located in Erlanger, KY employing 110 people in the 
design and manufacture of heavy duty power resistors for 
industrial power distribution and other electric power 
management markets. While our products are used throughout the 
world, we find countries with emerging infrastructure the best 
candidates for market penetration.
    In 1989, we recognized the infrastructure building going on 
in the ASEAN countries as a great opportunity to expand our 
export sales. That year we began serving the ASEAN market with 
Neutral Grounding Resistors which sell for prices in the range 
of $5,000-$30,000 per unit. This sales success of this business 
endeavor led to the establishment of Post Glover Sdn. Bhd. in 
1993. It is an assembly operation located in Johore Bahru, 
Malaysia employing 10 people. As this business developed, we 
began to look at the market for Neutral Grounding Resistor 
products in China. After evaluating investment goals put forth 
by the Chinese government for developing the electrical power 
generation and distribution systems, we concluded that China 
represented a significant market opportunity for this product 
line. Entry into the market, however, seemed to be very 
difficult especially for a small company with limited 
resources. Some of the barriers we saw included language, vague 
import regulations, lack of knowledgeable market contacts, 
identification of a potential customer base, definition of the 
exact product for the local market, difficult banking 
arrangements and so on.
    In 1995, while studying market entry strategies, we were 
approached by the Shenzhen Farad Complete Equipment Company 
located in Shenzhen, China. Their engineering staff had need 
for our Neutral Grounding Resistors and were not satisfied with 
local products. A key engineer had heard about us through a 
technical article we published on the subject in a regional 
trade journal.
    We quickly agreed to a meeting in Shenzhen where it became 
obvious very quickly that there was a good match of skills for 
a successful business venture. PGR had the technical know how 
and product quality. Shenzhen Farad had the market knowledge 
and product definition background. Our partnership began with 
an initial order for a number of units placed during that first 
meeting. As our relationship grew, we agreed to jointly 
manufacture products. PGR now manufactures the resistor 
components in the USA and sells them to Shenzhen Farad who, in 
turn, manufactures enclosures, assembles the final product and 
sells the finished product to the Chinese power authorities. 
Members of my staff and I have made about 20 trips to China to 
support our market penetration in these last four years.
    Our joint effort has grown to the point where sales in 
China through Shenzhen Farad will represent 3-4% of our USA 
volume this year. These sales provide employment for 4 people 
here and at least 10 people at Shenzhen Farad.

  The Importance Of Maintaining A Solid Trade Relationship With China.

    Our trading experience in China over the last four years 
has demonstrated the value of a solid trading relationship. 
China presents many challenges to companies wishing to access 
the market there. In addition to language barriers, many of the 
challenges stem from radically different cultural paradigms. To 
be successful in a foreign company, a healthy respect and 
understanding of cultural differences is critical. This is not 
something that can be learned by reading books and playing 
tapes. You must visit and form personal relationships. These 
relationships will transcend any trade or political problems 
that ebb and flow over time.
    The relationship with Mr. Tu Fankui, Managing Director, and 
his associates at Shenzhen Farad have smoothed over the 
inevitable bumps in the road. Open and frank communications 
have overcome disparities in technical knowledge, slow sales 
times, differing views of cost sharing and so on. We trust one 
other to look out for individual interests while respecting and 
accommodating the other's interest. Much should be applied from 
this in dealing with the accidental bombing of the Chinese 
Embassy in Yugoslavia and the Cox report. Understanding and 
communication get participants much further than confrontation 
and aggressive retaliation.
    An example of improving understanding and communication is 
our support for technical seminars demonstrating the use of 
Neutral Grounding Resistors. Mr. Tu values of having a 
representative from our company at these seminars and feels 
that his company's credibility is significantly enhanced by our 
presence. At the same time he recognizes the impact on a small 
company of the high cost of travel from the USA to China so we 
work out the most effective travel schedule to help control our 
costs and get the most impact from our visits. This means his 
people handle many of the local seminars and we support him at 
large regional and national seminars where our presence will 
result in orders which help pay for a trip.
    We have also found out just what it means to have an 
American product that is in demand. Compared to like products 
produced in China, American products are generally perceived as 
high quality with a premium price especially with freight and 
duty added. However, the Chinese market will pay these prices 
to get the quality where local products are deemed to be of a 
significantly lesser quality. There is an underlying desire for 
high quality products which minimize service problems. It is 
our opinion that China as a whole is moving towards higher 
quality products and is willing to pay for them. This is a 
solid opportunity for both small and large US companies.
    Many companies are afraid to try the Chinese market because 
of the perceived barriers to overcome. Good trade relations at 
top levels help minimize these barriers and encourage companies 
to jump in. The markets are huge and ready for American 
products.

    What Would Unconditional Normal Trade Relations Status and WTO 
                   Membership For China Mean To PGR?

    It appears to us now that Ambassador Barshefsky has 
hammered out a good initial position towards an expansive 
bilateral market access agreement. This is the time to press 
hard in Congress to get approval to endorse China for full 
membership in the WTO. Again, we would not have gotten this far 
in penetrating the market without solid personal relationships 
in China. We cannot afford to have our efforts to establish 
these relationships squander this even in the harsh light of 
the accidental bombing of the Chinese Embassy in Yugoslavia and 
the Cox report.
    Of particular interest to PGR are the WTO issues of 
technology transfer, protection of intellectual property and 
dropping of import duties. Currently, we are offering product 
technology that is one generation behind that of current US 
products. We fear that we will see our products copied and 
coming back to the US as a competing product. With more 
protection of intellectual property, we will be able to offer 
our latest technology with some assurance our investments would 
yield an acceptable return.
    Our sales growth in China has been slow but steady. With 
China having full WTO membership, the import duties would be 
reduced and make us even more competitive. This would be true 
for many US products. We have supported admission of China to 
the WTO since we became involved there and view this as a solid 
step to allow further penetration of the market with our 
products. In fact, we estimate that our business in China would 
double in a year with this approval.
    The job impact on our company is obvious. Not only will our 
employment increase but we would be in a position to offer more 
of our products to the China market. But the impact on Shenzhen 
Farad and its employees may not be so obvious. Employment is an 
important element of raising living standards for Chinese 
citizens. Each time we help employ a local Chinese citizen, we 
make human rights issues that much smaller. And, believe me, we 
are happy to do our part in this.
    For other small companies, any improvements which would 
make it more affordable to enter the market would be 
advantageous to trade growth. The emphasis is on the word 
``affordable.'' Small companies often have good products for 
the China markets but cannot afford to enter the market. WTO 
membership would lower market entry expense reducing the costs 
of paperwork to get goods into the country, enable banking 
relationships to be established to insure prompt payment for 
goods. Many small companies cannot afford to wait 60-90 days to 
be paid. I believe WTO membership for China would open the 
doors for more small companies to enter the China market.
    I am also concerned about the huge trade imbalance between 
our countries. Lack of permanent long-term trade relationships 
keeps our exports to China artificially low. If we are to 
improve this, WTO membership for China and a stable, long-term 
trade policy must be in place. Without them, we is doomed to 
relive each year the same as the prior one much like in the 
movie ``Groundhog Day'' in which the main character relives the 
same day every day until he finally decides to make a big 
change. This is the time for Congress to make the big change.
    PGR and many other small US companies have product ready to 
serve the market and anything Congress can do to facilitate the 
movement of our products into China helps reduce this trade 
imbalance and facilitates progress on many fronts including 
Human Rights discussions..

                              Conclusion:

    I urge you to push as hard as you can for unconditional 
normal trade relations (NTR) status and full WTO membership for 
China. I know we are in a difficult time with the bombing of 
the Chinese Embassy in Yugoslavia and the Cox report. But these 
fences will, no doubt, be mended by people who know we cannot 
afford a poor relations between our countries for any length of 
time. Let's allow the politicians solve these problems within a 
framework of support based on solid trade relationships. I 
believe this works.
    China is the largest single market in the world outside the 
USA. By maximizing access to the China markets, we give our 
respective countries and business sectors the opportunity to 
grow and prosper. This, in turn, provides a solid foundation 
for nurturing the necessary mutual trust and respect needed 
between China and the USA.
    Thank you for your time and attention.
      

                                


    Chairman Crane. Thank you, Mr. Gambow.
    Our final witness, Mr. Kapp.

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

    Mr. Kapp. Thanks, Mr. Chairman. I am delighted to be here 
today. I want to start by saying that this Subcommittee has 
hued very closely to its mandate and has discussed the issues 
before us principally on trade grounds. That is what we need to 
do. But I think we all recognize that right outside the door of 
this room, there is a very challenging environment with regard 
to United States-China relations generally which cannot be 
entirely ignored when it comes to any vote on trade with China.
    Therefore, in my own written testimony, I have tried to 
open by pointing out that it is time for the Congress to 
readdress issues of a positive and constructive and forward-
looking nature in the relationship with China, even as the 
Congress exercises its responsibility to address those areas of 
enormous dispute and difficulty with the PRC. Obviously, the 
economic and commercial issues that Congress may address this 
year, including the possibility of a vote to establish a full 
WTO member status for China, are an area in which I would hope 
that the Congress could restore that element of positive 
forward-looking balance in the relationship which unfortunately 
is largely absent from the environment today.
    I want to take a couple of minutes to try to respond to 
specific points made by individual Members earlier in today's 
hearing. Let me start with Congressman Crane, who imagined 
himself a worker in China drinking a beer with fellow worker 
Congressman Levin, and saying, ``Why don't you come over and 
join my company? After all, I work for a good American company, 
we pay good wages, and so forth, in China.''
    The thing we Americans don't want to see is, if you will 
pardon the expression, sir, Sandy Levin working for that 
decrepit old state industry, saying to Phil Crane, ``Why do I 
want to work for your company? It's an American company and 
working for an American company is a career-buster.'' That is 
implicit in the high level of acrimony and in the sort of 
potentially self-propelling negativism that now envelopes the 
United States-China relationship.
    We must not reach a time when Americans and Chinese alike 
conclude that individual decisions by people in all levels of 
work--bureaucrats, Committee Members, Chief Executive Officers 
both here and in China, in large organizations and small--to 
work for a better, more positive, more profitable, more 
beneficial relationship with each other's connter part is no 
longer good for one's health. We must avoid the time when, 
after work, the worker in the Chinese enterprise says to the 
worker in the American enterprise, ``I would never go to work 
in your plant here in China. You are an American company, and 
that's so bad for us and so bad for me, that it is no longer 
something we want to do.'' That is an issue that this entire 
relationship needs to deal with.
    To Congressman Levin on the basic differences, as you have 
pointed out, between the market orientation and the rules-based 
system that the United States and many WTO members, to 
different degrees, embody, and which in your view China does 
not embody, it does strike me that that is the very point of a 
world system. That is to say, of course the world does not 
consist of countries all of which have exactly the same 
traditions and political and social and economic institutions, 
legal frameworks, customs, and so forth. That is why we have 
world institutions in the first place. That is why we have what 
we consider to be universally accepted systems of commitments 
and obligations; of rules of the road for all nations. There 
might be something to be said in that regard with respect to 
the value of WTO precisely because of the conditions that you 
adduced.
    To Representative Barney Frank, who is no longer here, let 
me tell you what China is reading today. I refer to his comment 
about what China's leaders might be reading. Here are this 
week's best sellers at the best bookstore in Beijing. The first 
one this week: New Capitalism. The second one: The Coming 
Conflict with China by Dick Bernstein and Ross Huuro, 
translated into Chinese. The third one: Class: a Guide to the 
American Status System, by Paul Fascell, translated. The fourth 
oneThe New China Transportation Map. The fifth one: The SAS 
Survival Manual, a Chinese translation of a British commando 
wilderness survival manual. The sixth one: The Poetry of Wang , 
the great Chinese linguist. The seventh: From Hippies to 
Yuppies, a Personal Account of the Sexual Revolution, by James 
Clifden, in translation. Number eight: a book full of the 
cartoons of a particular Chinese cartoonist. Number nine: Old 
Photographs from 19th and 20th Century China. Number 10: The 
Contract Law of the People's Republic of China.
    So lest we still be stuck with the image of a China in 
which everybody reads the Little Red Book and is told what to 
read and what to think, this suggests something very different.
    Now, to the trade issues themselves.
    The key issue, it seems to me, if we do get permanent NTR 
this year, that needs to be defined for every Member, and in 
this Committee I think it will be obvious, is this: Is the 
United States going to say to China after successfully 
negotiating from China a range of commercial commitments which 
are in, in many ways fundamentally transformative of the way 
China runs its own economy and deals with the rest of the world 
economically, are we going to say to the Chinese when it comes 
to the PNTR vote, ``thanks for making all those concessions, 
but on second thought, we don't want them. We want you to give 
them to the Japanese. We want you to give them to the 
Europeans. We want you to accord them to everybody else in the 
WTO. But as you join the WTO, we have decided that we would 
rather not have these benefits, even though we are the ones who 
squeezed them out of you in the first place.''
    Ultimately, the PNTR vote is the vote, necessary only in 
the United States because of existing law, which will either 
bring to the United States these tremendous benefits and 
opportunities or else will turn them away.
    If we are fortunate enough to face that vote this year, 
that is the essence of the question that Members of Congress 
will have to face. If we are at that vote, it means that China 
has closed its negotiation with the United States. If they are 
closing them with Japan, Europe, and their other trade partners 
and moving toward accession this fall, that PNTR vote will mean 
that either we take the benefits home to the communities and 
the factories and the companies and the farmers and the workers 
of America, or we say ``thanks; we don't want the benefits. 
Give them to Japan, Europe, and everybody else instead.''
    I will close only by mentioning that agriculture is not 
represented on today's panel. But I think as Members of 
Congress, you know that the revelation by the United States of 
what is at the brink of acceptance in the WTO negotiations, 
when added to the agricultural agreements already signed on 
wheat, meat, and citrus, has wrought a tremendous response from 
U.S. agriculture. You have received letters from 40 or 50 major 
agricultural associations, from the Farm Bureau Federation on 
down to the specific commodity associations and product 
associations. I know that if anyone from agribusiness were here 
today, that he or she could make that point far more 
effectively than I.
    Thank you for your time. We appreciate very much the chance 
to be here.
    [The prepared statement follows:]

Statement of Robert A. Kapp, President, United States-China Business 
Council

    Mr. Chairman, members of the Subcommittee:
    Thank you for permitting me to offer testimony before this 
hearing on US-China Trade Relations and the Possible Accession 
of China to the World Trade Organization.
    I am Robert Kapp, President of the United States--China 
Business Council. The Council is a private, nonprofit and 
nonpartisan business association headquartered in Washington. 
We support the business development efforts of more than 250 
leading American companies in a broad range of commercial 
fields. Founded in 1973, the Council is the principal 
organization of US firms engaged in trade and investment with 
China. Many of our member companies have been working hard on 
their businesses in China for two decades; others are newer to 
the field, and approach opportunities for productive commerce 
with China with the innovativeness and energy that 
characterizes America's young, creative, and rapidly 
internationalizing business sectors.

           I. U.S.-China Relations: The River and the Rapids

    Mr. Chairman, we have had difficult moments over the past 
year on the China front, particularly in the very recent past. 
Both the United States and China have found, especially in the 
past few months, occasions to doubt each other's intentions, to 
wonder about the other's motivations, and above all to 
criticize the other's actions harshly and publicly.
    Two months ago, the intense US-China effort to reach a 
decisive WTO package by the time of Premier Zhu Rongji's visit 
to the United States came tantalizingly close, but fell short; 
the past two months have apparently been unproductive. The 
shocking bombing of China's embassy in Yugoslavia took place a 
month ago; events within China in supposed response to the 
bombing have, not been helpful, to say the least. Two weeks ago 
came full publication of the Report of the Select Committee on 
U.S. National Security and Military/Commercial Concerns with 
the People's Republic of China, and with it not only renewed 
attention to the apparent chronic failings of American 
management of national secrets but also another ear-splitting 
exchange of media and political salvoes, some with truly 
apocalyptic overtones and some--in both countries--with gritty 
racial insinuation. Last week came the tenth anniversary of the 
Tiananmen violence, whose date happens to fall only one day 
after the legally-mandated deadline for presidential renewal of 
standing U.S. tariff policy toward China, and which continues 
to galvanize both public memory and media attention.
    And yet, as I write this testimony on Sunday, June 6, 
momentary silence reigns. There appears not a single news 
report, feature article, opinion essay or editorial relating to 
China in those three news organs that sometimes seem to define 
the attention of the nation's policy-makers--the Los Angeles 
Times, the Washington Post, and the New York Times. The Sunday 
TV talk shows, too, have moved on to other topics. For the 
moment, China is ``off;'' other stories are ``on.''
    Mr. Chairman, U.S.-China relations are volatile, and they 
are spasmodic. On the surface, they are characterized by sudden 
eruptions of public, media, and political attention. They are, 
as people say, ``event-driven.'' Time and again, the U.S. and 
China remind me of two people stuffed into a single kayak, 
running the rapids of a turbulent stream.
    But the U.S. and China are heavyweight players in a very 
big game that does not live by news cycles, legislative 
calendars, Central Committee schedules, or other domestic 
rhythms alone. The task of policy makers in both countries, who 
do live in a world of such pulsing rhythms, is to build 
structures and forge enduring policies aimed at advancing 
national and shared interests over the long term. They must 
navigate a broader, and longer, river.
    The U.S. and China have a big and growing relationship--
bilaterally, in the Asia-Pacific Region, and globally; 
economically, politically, culturally, and even ecologically. 
Beneath the jagged, seismograph-like lines of day-do-day events 
in the US-China relationship, there is and must be a quieter 
flow of longer-term involvement between the world's most 
powerful nation and largest economy on the one hand and the 
world's most populous and most rapidly-developing society on 
the other. Sustained, stable, and growing economic relations 
are a key element in this deeper process.
    This hearing by the Trade Subcommittee of the House Ways & 
Means Committee provides a crucial opportunity, on Capitol 
Hill, for us all to remember the longer-term flow of U.S.-China 
involvement from which neither country can, or should in its 
own national interest, turn away.

         II. NTR Renewal and China's Prospective WTO Membership

    Mr. Chairman, I appear before the Subcommittee this year 
for the sixth time. In past years, the Trade Subcommittee 
hearing has been built around one thing: the Resolution of 
Disapproval offered annually in the House with the stated 
intention of overturning the action of the president in 
retaining for one extra year the ordinary tariffs (so-called 
``NTR,'' or ``Normal Trade Relations'' levies) on Chinese 
imports. Current U.S. law leaves these tariffs open to 
cancellation every summer. Passage of the Resolution would 
rupture U.S.-China economic relations and much, much more.
    Members of this Committee need no reminders of the 
intensity of views that has usually accompanied this annual 
exercise; or of the intensity of the legislative and political 
maneuvering occasioned by the yearly NTR campaign; or of the 
ensuing feelings of resignation and futility that many Members 
of Congress have expressed as the annual NTR mini-drama has 
played itself out.
    The U.S.-China Business Council has never, and will never, 
take for granted the renewal of these plain-vanilla tariffs on 
Chinese imports; we will never assume that this lowest-common-
denominator baseline for the continuation of normal trade with 
our country's fourth-ranked trade partner, is immune to 
derailment, so long as the annual review mandated by a 1974 law 
written to force a now-defunct Soviet Union to permit the free 
emigration of Soviet Jews remains pointed at the heart of 
nearly $100 billion in legitimate US-China merchandise trade 
and more than $20 billion in legitimate American investment in 
China.
    And yet, Mr. Chairman, as you have pointed out in calling 
this hearing, and as the comments by leaders of a set of key 
U.S. corporations (several of them members of the Board of 
Directors of the U.S.-China Business Council) have suggested 
today, this Annual NTR Renewal hearing of the Ways & Means 
Trade Subcommittee might--just might--turn out to be the last 
hearing of its kind.
    With luck, with perseverance, and above all with a clear-
eyed rededication to the stabilization and development of US-
China relations by leaders and policy makers in both nations, 
the Congress may in coming months face the opportunity--and the 
challenge--of bringing home to America a majestic array of 
economic and commercial benefits achieved by U.S. negotiators 
after nearly thirteen years of tough engagement with China.
    That opportunity, of course, will lie in the Congressional 
decision on whether to provide full WTO-member treatment to the 
People's Republic of China, and thus ensure for the United 
States full WTO-member treatment from China, as the PRC accedes 
to the global trading system's rules and obligations embodied 
in the World Trade Organization.
    From evidence already in hand, it is apparent that the 
United States and China have made massive progress, much of it 
in the weeks and days preceding the visit of Premier Zhu Rongji 
to the United States in April, on a package of market-opening 
provisions that add up to the biggest advancement of U.S. 
commercial interests with China since the dawn of U.S. trade 
with the PRC in the 1970s. The remarks of business leaders 
earlier in today's hearing, and the numerous written statements 
addressed to Congress and the president in recent weeks from 
Members of the House and Senate as well as from dozens and 
dozens of companies and associations in agriculture, 
manufacturing, services, and consumer business, attest to the 
breadth of economic benefits to our country expected to flow 
from successful conclusion of negotiations over China's entry 
into the WTO.
    Should the United States and China together rally the 
wisdom and the far-sightedness needed to return to the table, 
resolve outstanding issues, and complete the U.S.-China 
bilateral agreement on PRC accession to the World Trade 
Organization, it will fall to Congress to answer the question:
    Having secured China's agreement to the broad menu of 
market-opening and other measures that we have fought for in 
the name of a ``commercially viable'' agreement for so many 
years, will the U.S. act to bring those benefits home to our 
companies, our manufacturing producers, our farmers, our 
consumers, and our communities? Or will we, instead, turn 
inexplicably away, spurning the very commercial and economic 
concessions that we have fought successfully to achieve, while 
those benefits flow to every other WTO member--including our 
bitter competitors in Europe, Japan, and elsewhere?
    We hope, Mr. Chairman, that if this historic opportunity 
does materialize this year, Congress will decisively choose the 
first of those two options.
    Mr. Chairman, in the Annual MFN/NTR review process over the 
years, this hearing of the Trade Subcommittee has heard 
thoughtful comments from witnesses within and outside the 
Congress, not only about the specifics of U.S.-China commercial 
relations but about almost every aspect of U.S.-China relations 
and about many aspects of China's domestic affairs. The hearing 
has served as a useful opportunity each year to put both 
immediately-related and more broadly relevant issues on the 
table for Members, in the weeks preceding the annual vote on 
elimination of ordinary U.S. tariffs on Chinese imports.
    Each year, for nearly a decade, Members of the House have 
listened, read, discussed, and sometimes argued these issues 
with all parties willing to engage them. I know personally how 
much time Members of Congress and their staffs have been 
willing to make available to me and others from the US-China 
Business Council, and to my colleagues from other associations 
and companies as well, under the broad rubric of the Business 
Council for U.S.-China Trade, whether each Member has been 
entirely to our views or not. We know that Members have 
listened with equal courtesy to other views on NTR renewal and 
on U.S.-China relations, sometimes expressed with great 
intensity of feeling. Each time we meet and engage on these 
questions, I feel a sense of excitement and pride at the unique 
openness of our system of government and the good will of those 
elected to make our laws.
    And each year, the House has ultimately chosen to maintain 
the simple baseline of a normal economic relationship between 
ourselves and China--not a favor to China, not the preferential 
tariff treatment we grant to several dozen other nations, but 
simply standard tariffs. The House's decision has not been 
unanimous, but it has been commanding; it has been thoughtful, 
and it has been bipartisan.
    That decision to sustain--or perhaps better, not to 
rupture--our country's massive economic interaction with China, 
has been a critical prerequisite to the powerful progress that 
the U.S. has managed to achieve this year on the hundreds of 
issues surrounding China's admission to the WTO; without NTR 
over the years, it is impossible to imagine the two countries 
moving as far as they apparently now have done on the bigger, 
more structural changes that WTO imposes on China.

                            III. Conclusion

    Thus, Mr. Chairman and Members of the Subcommittee, the 
decision to maintain NTR tariffs for the coming year is as 
fully justified as it has been in the past: it is the 
cornerstone of a normal bilateral trade and economic 
relationship and the precondition for gradual expansion of the 
broad stream of positive U.S.-China contacts. Make no mistake: 
the continuation of normal economic intercourse between China 
and the U.S. augurs well for China's continued movement in 
directions that virtually all Americans would applaud, while 
the rupturing of economic ties as a result of NTR elimination 
would, in our view, contribute nothing to the elimination of 
conditions within China to which many Americans take exception.
    Beyond that, though, NTR renewal is a humble but critical 
prerequisite for something far bigger, and something far more 
promising for the long-term interests of the United States: 
conclusion of US-China bilateral negotiations on the terms of 
China's accession to the rights, rules, and obligations 
embodied in the World Trade Organization. We urge the 
Subcommittee, the House Ways & Means Committee, and the 
Congress to support vigorously annual NTR extension by 
defeating the Resolution of Disapproval. The US-China Business 
Council urges the Congress to support with equal vigor, when 
presented with the opportunity, the extension of full WTO-
member status to China, so that we can enjoy the fruits of what 
promises to be a very significant victory for the American 
economy and for global economic progress.
    Thank you for including these remarks in the record. I have 
attached a few additional items, by way of illustrating the 
dimensions of current US-China commercial relations and by way 
of illustrating an example of what we believe is the 
constructive role American business plays in the broader US-
China Relationship. The recent announcement of grants from the 
U.S.-China Legal Cooperation Fund is a small but promising 
example of support--in this case by member companies in the US-
China Business Council--for the kind of long-term building-
block work that US-China relations require. To date, the 
Congress has declined to provide any support for similar work 
at the government-to-government level, in spite of repeated 
annual requests. We hope that the Congress might in the future 
be willing to do its part to help with this and other positive 
programs of US-China cooperation in areas of truly shared 
interest.
    [Attachments are being retained in the Committee files.]
      

                                


    Chairman Crane. Thank you, Mr. Kapp.
    Mr. Sweeney, you suggested that labor conditions and worker 
rights are deteriorating in China. How would a failure to renew 
NTR improve the conditions for the Chinese people?
    Mr. Sweeney. Well, I think that we have to address the 
issues of core labor standards, environmental protection. They 
are all, as I suggest in my full testimony, there are different 
approaches to how we do that in terms of the question of 
China's accession to the WTO, how we consider a working group 
to explore these issues, and work in conjunction with the ILO. 
There are basic conventions from the ILO that have been adopted 
at the ILO regarding all of these basic rights that workers 
have.
    We are not talking about the same wage for Chinese workers 
as American workers, but we are talking about some freedoms. 
There are sufficient studies that show the abuses of what is 
going on in China in terms of wages. We can protect our 
intellectual property. It is about time we took some concern 
and care for workers.
    Chairman Crane. Well, our immediate vote that will be 
coming before us of course is the disapproval resolution on NTR 
renewal. We don't vote on WTO.
    Mr. Sweeney. I understand.
    Chairman Crane. I am wondering if you have any views on NTR 
renewal.
    Mr. Sweeney. We are opposed.
    Chairman Crane. You are opposed to renewing NTR?
    Mr. Sweeney. Yes.
    Chairman Crane. Does that help Chinese working conditions?
    Mr. Sweeney. Until the conditions of workers in China are 
addressed, yes.
    Chairman Crane. All right. Thank you.
    Mr. Levin.
    Mr. Levin. Mr. Kapp, thanks for raising this subject and 
let me lobby you, try to persuade you. You say we have a global 
organization because there are differences. What I have been 
urging, and I feel deeply about this, is that China represents 
a set of very considerable differences. It presents the supreme 
challenge of how do you integrate a nonmarket, a still very 
nonmarket economy, nonmarket in terms of capital or labor, and 
a nonrule based economy, by far the largest, into an 
organization whose very premises are market's and rules.
    So I don't want you to define away the issue. I don't think 
you can cite any country that is in the WTO of any real size 
that has anything close to the combination of China's nonmarket 
economy and nonrule based system. India, which I have had some 
chance to spend some time in, is not fully a market economy, 
but compared to China, it is really very different. That is 
surely true in terms of the rules. Indonesia, we can argue. But 
China represents the supreme task. So therefore, it is a 
difference not of degree, but of kind.
    The gentleman sitting next to you raises one set of those 
issues. There is no country that begins to approach China in 
size that has its tight control over its labor markets. So we 
need to face these sets of issues. To some extent, the 
discussions have. For example, and this was raised by Mr. 
Sweeney, is the commercial issue, but I think it's also a labor 
market issue, the discussion about a general safeguard 
mechanism that the USTR has raised, is presented by them in 
part because of the huge differentials in labor market 
conditions. The notion is if the impact of those conditions is 
very harmful in general to the U.S. economy, we would have a 
general safeguard protection. I think that is part of the gist.
    So I urge you, as we face this, not to narrow the 
differences so much that Members here don't become engaged in 
the discussion. By widening them, by being realistic, I don't 
think it means they are unsolvable or that we accomplish 
everything over night. Mr. Sweeney said we don't expect the 
wage differentials to disappear overnight. That's not the 
issue. That isn't going to happen. The question is whether 
there is going to be the fluidity in their system so that over 
time there will be the kind of progress that we want.
    Mr. Kapp. Congressman, if I can just quickly respond. First 
of all, I thank you for your goodwill on this. I think your 
point, that there needs to be the fullest possible dialog 
between people of somewhat different views, is absolutely 
correct. My earlier comment was not meant as a kind of a 
dismissal of the whole question, although I certainly stand by 
the point I made.
    I do think that the fact that China is systemically very 
different needs to be balanced, however, by the fact that China 
is a system in enormous change, as you and everyone in this 
room knows very well.
    There is more of a labor market already than there was 20 
years ago, when everybody was told where to go to school, and 
what to study, and what job he or she would have for the rest 
of his or her life. This is a society in the midst of a vast 
transition.
    There are some who would argue that until the transition is 
done, China should not be accepted into world institutions. 
That, I think, is probably not an argument that I or perhaps 
even you would subscribe to.
    Mr. Levin. I doubt if many do really subscribe to that.
    Mr. Kapp. I do think that the forces of what Americans 
would consider more progressive change in China are the very 
forces that are the best, if you will, allies that we can seek 
as China enters the world trading system.
    Let me call your attention to today's Wall Street Journal 
article about the man who set out, almost accidently, to break 
up the Chinese telecom monopoly. It is a fascinating story. It 
is suggestive of the kind of change which is already happening 
in China and which I think will be assisted and aided by 
China's integration under the rules and with the obligations 
and enforcement mechanisms of the WTO, into the norms of the 
world system.
    Mr. Levin. I think that should be the arena to debate, not 
trying to settle it by narrowing the challenge and the 
differences.
    Just quickly 30 seconds to Mr. Valenti. I don't think it 
will happen, as you suggest, that we will give authorization 
now.
    Mr. Sweeney. If I may, Mr. Chairman, there are no rules in 
the WTO at the present time for addressing labor-related 
issues.
    Mr. Levin. That is why I think the suggestion about Seattle 
is so important. We need to have discussions of that with some 
open minds on it and move it into the forefront. That gets to 
my point with Mr. Valenti, and I'll finish.
    I think we are not going to do that, authorize now, and 
also I think it would have the negative effect of misleading 
the Chinese as to what they need to agree to further, including 
in the area that you suggest. I think it would weaken our 
bargaining position. Also, I think it would reduce the 
engagement of Congress in these issues, these last critical 
months. We need to be fully engaged. So we'll work hard on the 
issue you raise.
    Chairman Crane. Thank you. Mr. Houghton?
    Mr. Houghton. Thanks, Mr. Chairman. Well, gentlemen, thank 
you very much for being here. I think this is the best panel we 
have heard so far. Mr. Sweeney is trying to protect American 
workers. Mr. Valenti and others are trying to protect American 
products. They are both worthy causes.
    But let me just sort of hone in on a couple of things. 
Jack, if I can ask you first. We heard Michael Eisner a few 
weeks ago talking about the movie, is it Mulan, that he said 
was one of the great movies that was just right for China and 
thought it was going to be a barn burner, and it didn't sell a 
copy because it was printed. How are you going to stop 
something like that without a judicial system?
    Mr. Valenti. It didn't sell as many as they wanted to, 
let's put it that way. There are two things I want to say. 
First, overall in our foreign policy, I think it would be a 
grave blunder if we disengaged from China. Its population of 
1.5 billion people is growing fast, and it is undergoing 
radical change in the political system and in the business 
climate. You cannot judge one culture by the standards of 
another. We have to keep in mind that China is vastly different 
from us. They are going through a revolution, unlike Mao 
Zedong's revolution, the Great March from Chongqing. They are 
going through a revolution of the marketplace. Anybody who has 
spent any time in China is struck almost bewilderingly by the 
change that has taken place in the last several years. Once you 
unbottle the genie of change, you can't stuff it back in. The 
leaders of China know that.
    That is why I think in the long-term thinking of this 
country, we have to have relationships with China. I can 
understand where Mr. Sweeney is coming from. He represents the 
working man in this country. It is shameful what things go on 
there. But we have a lot of things in our country that we find 
a little bit shameful too. The fact is, we cannot disengage.
    Second, piracy is not just indigenous to China. The theft 
of our copyrighted material is a cancer in the belly of our 
business. I must say that every day I deploy forces all over 
this world in 41 different countries, a constabulary that's 
dealing with this problem of thievery. If you add in all 
intellectual property, we probably lose about $20 billion a 
year. When the Internet gets in full bloom and with broad ban 
access, I shutter to think, unless we are able to find some 
magical technological armor plate which will protect our 
property when it goes into cyberspace.
    But the Chinese have been very good, Mr. Houghton, in 
responding to our pleas to deal with piracy. They have been far 
more responsive than some other countries with whom we have a 
warmer relationship, but who I will not name at this table. 
They have been very good about that. I am hopeful that that 
will increase. But I do believe that we have to deal with China 
as a full-fledged equal. That means NTR on a permanent basis, 
accession to the WTO, and then we'll compete with them as best 
we can.
    Mr. Houghton. Thank you very much. I know time is going on. 
I would just like to ask Mr. Sweeney a question very briefly. 
You know obviously we don't want to see American jobs leave 
this country unfairly. Obviously we don't want to have the 
increased trade deficit. Certainly we don't want to have 
Chinese military companies strong arm American companies for 
technology and all sorts of things like that. But you know, I 
was struck by Cal Dooley's testimony. Although we're not there 
yet, he said, ``Bringing China into the World Trade 
Organization''--I'm quoting now--``is more than just a matter 
of market share. China's accession into the WTO would lock 
China into a rules-based international organization.'' How do 
you feel about that?
    Mr. Sweeney. As I said a few minutes ago, Congressman, the 
rules aren't there within the WTO at the present time for 
addressing labor, any issues around labor rights or core labor 
standards. There has been this discussion going back and forth 
between the WTO and the ILO as to who should really be 
addressing these issues. Until the WTO introduces some process 
such as a working group, which we tried to get in Singapore and 
we're hopeful there may be some more attention paid to it in 
Seattle, but until we get some process where these issues can 
be taken up and addressed, there are no rules for this.
    Mr. Houghton. OK. Thanks very much. Thank you, Mr. 
Chairman.
    Chairman Crane. Thank you.
    Mr. Rangel.
    Mr. Rangel. Thank you. Well, Mr. Sweeney, I worked very 
hard in Singapore. We had hoped that we would get some 
standards, some international standards at the WTO. Because Ms. 
Barshefsky was so aggressive it could be that in Seattle we 
could see something. But you've speaking about having labor 
standards, freedom of association, right to organize, 
collective bargaining, political, religious freedom, and quite 
frankly, I don't know how in the world we could ever monitor 
that in China when we don't monitor that in Washington Heights 
in the Lower East Side. When we have prisoners--and one out of 
three black kids between 18 and 35 in this country ends up in 
the criminal justice system--we have them doing work competing 
with the private sector. We have sweat shops. We have welfare 
workers replacing civil servants right here in this country by 
the government making these decisions.
    I just don't believe that most of our businesspeople really 
think that they are going to take these hundreds of millions of 
workers in these factories and tell them that they are going to 
have to go to the marketplace and earn a living like most 
people do in other industrialized countries. Have you ever 
talked to the Chinese yourself in terms of dealing with the 
problems they have and the transitions that they would have to 
go through? Have you dealt with them yourself as a national 
labor leader?
    Mr. Sweeney. We have had meetings with Chinese government 
officials, but it has been a one-way conversation. We have 
attempted to bring international union delegations to China, 
but the Chinese government refuse to allow us to see or meet 
with any of the political activists or the labor activists who 
are in prison. That is one of the criteria that we set for our 
trip.
    Mr. Rangel. I would like to sit and meet with you to see 
what tools we have to work with, because when they talk about 
dismantling these factories, the Chinese are talking about 
transition. It sounds to me like they are talking about 100 
years. Thank you.
    Mr. Houghton [presiding]. Mr. Becerra.
    Mr. Becerra. Thank you, Mr. Chairman. I'm going to be 
brief, because we have to run to vote. Let me first thank 
everyone for their presentations and I appreciate the comment 
that Mr. Sweeney made with regard to the WTO and the fact that 
at this stage, we don't have anything that does deal with the 
issue of labor, at least nothing that is binding that would 
deal with the issue of labor.
    Let me limit my question to one, and address it to Mr. 
Kapp. You went through and commented on some of the remarks 
that others had made previously. Give me, if you can, just a 
real quick response to my comments with regard to domestic 
concerns of folks who lose their jobs here, and TAA, and if we 
are going to reauthorize it, what we can do to make it better 
and how we could partner with the private sector to see it 
work.
    Mr. Kapp. Mr. Becerra, I have the pleasure of not running a 
company. I run an association with 22 employees. It's not only 
nonprofit, it's not even--well, I won't bore you with my 
finances. So, to speak as though I represent by experience 
large American business organizations and their views on 
something like trade adjustment is beyond my ability.
    I will tell you what I did think. The fact that you chose 
to raise that subject, I think, is indicative of a very 
important underlying issue that Mr. Levin has also touched upon 
that goes to, if you will, the politics of the WTO and the 
politics of permanent NTR. Underlying the comments of Mr. 
Levin, I believe, and the point you particularly chose to 
mention on TAA, is the idea that there has got to be some way 
for those who are actually or who perceive themselves to be at 
risk as China fully enters the world trading system to have 
their needs addressed, and that that is a political reality 
that exists right in this building and in the two adjoining 
buildings every day of the week. In that regard, I take your 
comments very seriously.
    Exactly how trade adjustment ought to be rewritten or how 
to make it work, when as I'm sure Mr. Sweeney would attest or 
agree with you, it has not worked perfectly at any time in the 
past, I cannot even begin to suggest. But the importance of the 
substratum of what you are talking about, which is, how we deal 
with the perceived spinoffs of this historic change in the 
relationship of the United States and China with each other and 
within the world trading system is something that I listen to 
very carefully and take very seriously. I do the same with Mr. 
Levin's repeated injunctions today and at earlier meetings that 
there be a dialog, and that nobody operate with closed minds, 
that nobody go in so armored with his views on these issues 
that he is impervious to the ideas of others. I take your 
comments in the same vein.
    Mr. Becerra. Thank you, Mr. Chairman. I yield back.
    Mr. Houghton. Thank you, gentlemen, Mr. Kapp, Mr. Sweeney, 
Mr. Valenti, Mr. Gambow, thank you very much for being with us. 
The meeting is adjourned.
    [Whereupon, at 5:45 p.m., the hearing was adjourned.]
    [Submissions for the record follow:]

Statement of American Apparel Manufacturers Association

    Thank you for providing this opportunity to comment on US/
China bilateral commercial relations.
    The American Apparel Manufacturers Association (AAMA) is 
the national trade association for the US apparel industry. Our 
members are responsible for about 85 percent of the $100 
billion worth of garments sold at wholesale in this country 
every year. Our members manufacture every type of garment and 
are located in nearly every state. Many also import from nearly 
every part of the world. Our industry employs about 700,000 
Americans.

                             WTO Accession

    Our members have been closely following the discussions 
regarding China's possible accession to the World Trade 
Organization (WTO). Our members have a strong interest in the 
provisions of any China WTO accession protocol--both those that 
deal with textile and apparel as well as those that deal with 
other elements of China's trading regime.
    Some of our members view China as a competitor. Many rely 
solely upon domestic production while others base their 
production and sourcing strategies on partnerships with the 
Caribbean Basin. At the same time, a number of our members view 
China as a potential partner. They either source products from 
China now or, pending a liberalization of the trading regime, 
would like to do so in the future.
    Uniting these diverse views is the belief that China's WTO 
accession bid should proceed in a manner that is transparent, 
consistent with international trading rules, and based on 
commercial, and not political, grounds.
    Accordingly, our association recently approved a resolution 
supporting an accession protocol for China to join the WTO on 
the following commercially meaningful terms:
     Textile and apparel imports from China shall be 
integrated in the Multilateral Fiber Agreement (MFA) phaseout 
on the same schedule as those from other current WTO members.
     China shall provide market access for textile and 
apparel products on a priority and non-discriminatory basis. 
Such market access shall include liberalization of tariffs, 
elimination of non-tariff trade barriers, establishment of non-
discriminatory trading rights, and implementation of non-
restrictive investment policies. Liberalization shall commence 
upon implementation of an accession protocol and must be 
achieved by January 1, 2005.
     China shall ensure currency convertibility.
     China shall, on an expedited basis, implement the 
Trade Related Intellectual Property (TRIPs) agreement.
     The United States shall extend permanent, 
unconditional normal trade relations (NTR) to China.
    This position is consistent with the terms of the 1997 
Memorandum of Understanding (MOU) which provided for Chinese 
integration into the Agreement on Textiles and Clothing. It is 
also consistent with our obligations under the WTO, which is to 
afford unconditional NTR to member countries. We believe 
keeping the quotas on China long after they have been discarded 
for the rest of the world--as some have advocated--is an 
invitation for transshipment. Moreover, prolonging the apparel 
quotas on China creates a disincentive for China to adopt the 
commitments and reforms necessary to ensure greater 
transparency and access for its market.
    China represents too large a participant in the world 
market to be left out of the disciplines of the international 
trading regime. Yet, Chinese accession is not an end in itself. 
Although we believe such accession is important, and is not a 
goal that should be readily discarded, we would be equally 
dismayed if an unsatisfactory or unsustainable agreement were 
adopted merely to meet an arbitrary timetable or a narrow 
political end.
    For China's accession to the WTO to work, it must be done 
in a way that permits China to assume both the benefits and the 
responsibilities of full WTO membership.

                         Normal Trade Relations

    AAMA supports the President's action to extend normal trade 
relations for another year. We believe this step was necessary 
to comply with the Jackson-Vanik provisions. However, we 
believe this annual review of China's trading status is 
disruptive and unnecessary. Unfortunately, the WTO negotiations 
were not completed in time to avoid the annual debate over NTR 
this year. As noted above, we would support, in conjunction 
with a WTO accession agreement, legislation to grant permanent 
NTR to China.
      

                                


Statement of American Textile Manufacturers Institute

    This statement is submitted by the American Textile 
Manufacturers Institute (ATMI), the national association of the 
domestic textile mill products industry.
    ATMI opposes and urges Congress to oppose the accession of 
the People's Republic of China to the World Trade Organization 
(WTO) unless major reforms are implemented by China. This 
opposition is not based on China's egregious behavior with 
respect to human rights, espionage, or nuclear proliferation--
all of which are important matters which can be better 
addressed by others--but on China's abysmal record with respect 
to market access, trade policy, investment, and intellectual 
property protection. China's behavior in these regards 
disqualifies it from WTO membership. These concerns, as well as 
China's market distorting fiscal policies and relentless 
dumping and subsidization, are shared by many other sectors of 
U.S. industry and ATMI would like to add its voice to those 
demanding real reform in these areas before (emphasis added) 
China is admitted to the WTO.??
    In addition to the above-mentioned, ATMI wishes to call 
attention to two aspects of trade with China which are unique 
to the domestic textile industry, its suppliers and apparel 
producing customers. These are the schedule of phaseout of the 
quantitative restraints (quotas) maintained by the United 
States on China's exports of textiles and apparel and China's 
illegal transshipments of textiles and apparel in order to 
evade those restraints.
    With regard to the first of these, the Uruguay round 
Agreement on Textiles and Clothing (ATC) stipulates a ten-year 
phaseout of quotas, beginning on January 1, 1995. We are now at 
the halfway point of that process, with one-third of total 
textile and apparel imports declared quota-free and remaining 
quotas increasing, on average, a generous 8.7 percent 
annually.\1\ All WTO members will have waited ten years before 
attaining quota-free trade: Thailand has to wait ten years; 
South Korea has to wait ten years; Turkey has to wait ten 
years; Bangladesh has to wait ten years. But China does not 
want to wait ten years. China has flatly rejected the United 
States' call for a ten-year phaseout and, instead, has insisted 
that, upon its accession to the WTO, it has the right to join 
in at the same stage of the phaseout process as all other 
members. China, the world's largest textile and apparel 
producer and exporter; China, the world's worst violator of the 
former Multifiber Agreement; China, the world's biggest 
subsidizer and dumper, is demanding a five year (or four year, 
or three year, depending on the date of accession) phaseout.
---------------------------------------------------------------------------
    \1\ Approximately five times the annual growth rate of U.S. 
consumption.
---------------------------------------------------------------------------
    This is clearly wrong, inequitable and unfair, and 
therefore should not be permitted. It is wrong for China to be 
granted a truncated phaseout when all others have to wait ten 
years, particularly in view of the fact that China is willing 
to pay nothing for this extraordinary benefit. It is simply bad 
trade policy and an abnegation of the principles of equity and 
equal treatment which are (or should be) the cornerstones of 
the WTO.
    It is wrong also because China has repeatedly demonstrated 
that it can wreak havoc in any market it exports to, not just 
the United States. In negotiating the ATC, WTO members agreed 
that ten years was necessary for both developed and developing 
countries to make the adjustments needed to a quota-free 
trading environment. The presence of the world's largest 
exporter entering that environment on terms more favorable than 
other WTO members was not factored into that decision. Now that 
China is a factor, WTO members (including and especially the 
United States, the world's largest textile and apparel 
importing nation) must be allowed ten years to make the further 
adjustments newly required. Many WTO members have indicated 
support privately to U.S. officials for a 10-year phaseout for 
China, while remaining silent publicly--usually as a show of 
developing country solidarity or out of fear of China's 
retaliation.
    China's transshipments of textiles and apparel to the 
United States are not an imaginary or sometime occurrence. They 
have all been well and repeatedly documented. On more than a 
dozen occasions, CITA (the Committee for the Implementation of 
Textile Agreements) has published notices in the Federal 
Register advising of reductions to China's textile and apparel 
quotas as punishment for transshipping. The U.S. Customs 
Service has said on several occasions, most notably in 
Congressional testimony, that the value of textile and apparel 
products transshipped by China to the U.S. most likely exceeds 
$2 billion annually. Customs has published the names of 
hundreds of firms in Hong Kong and Macau which have been found 
guilty by their governments (emphasis added) of transshipping 
Chinese goods to the United States. The government of Taiwan 
has stipulated that some of its exporters have been similarly 
engaged. Then, there is the matter of Peter Yeung, a citizen of 
Hong Kong, who has pleaded guilty in federal court in New York 
to violations of U.S. law by transshipping Chinese textiles and 
apparel.
    China's transshipments are no minor irritant. They take 
jobs away from U.S. workers. They are a violation of U.S. law, 
the U.S.-China bilateral trade agreement and, more to the 
point, the WTO Agreement on Textiles and Clothing. One is 
forced to ask how in the world China can be admitted to an 
international organization, one of whose basic tenets China 
repeatedly and grievously violates. The answer is that China 
cannot be admitted until it changes its behavior. Reform and 
change first; then admission.
      

                                


Statement of International Mass Retail Association

    This statement is submitted on behalf of the International 
Mass Retail Association (IMRA), which represents the mass 
retail industry--consumers' first choice for price, value and 
convenience. IMRA's membership includes the fastest growing 
retailers in the world--discount department stores, home 
centers, category dominant specialty discounters, catalogue 
showrooms, dollar stores, warehouse clubs, deep discount 
drugstores, and off-price stores--and the manufacturers who 
supply them. IMRA retail members operate more than 106,000 
American stores and employ millions of workers. One in every 
ten Americans works in the mass retail industry, and IMRA 
retail members represent more than half a trillion dollars in 
annual sales.
    All of IMRA's members are dependent upon imports to provide 
American consumers with quality and value. Many IMRA members 
import products directly from China. Others sell products that 
have been imported by American brand-name consumer product 
suppliers. China is an important source of supply for such 
every-day products as clothing and toys. In addition, a handful 
of IMRA member companies operate stores in China.
    Consequently, IMRA's member companies have a strong 
interest in seeing stable U.S.-Sino relations, both political 
and economic. IMRA therefore strongly supports renewal of 
China's Normal Trade Relations (NTR) in 1999; but, more 
important, supports the eventual accession of China into the 
World Trade Organization (WTO), and the granting of permanent 
NTR status.

             Revoking NTR will seriously disrupt Christmas

    Should Congress revoke China's NTR status suddenly, under 
the terms of the Jackson-Vanik provision of U.S. trade law, 
serious economic repercussions will result that will harm U.S. 
consumers, retailers and manufacturers. The loss of NTR status 
would mean markedly higher import tariffs on a wide range of 
products, from roller blades to kitchenware. Tariffs would 
increase on from an average of about 4% to an average of 60%. 
In some cases, the duty would jump as high as 100%. It has been 
estimated that revoking NTR would cost American households $300 
per year.
    More important, tariffs of 60% or more would result in 
products simply disappearing from the marketplace. Suppliers 
would not be able to shift production swiftly; and in many 
cases alternate suppliers cannot product products at the same 
value price. By eliminating NTR in June or July--during the 
peak months for entering Christmas merchandise--the result will 
be significantly higher prices and shortages of key Christmas 
1999 products.. This obviously would hurt American families 
more than it would the Chinese. Christmas sales account for 
well over one-third of U.S. retail sales for the entire year. 
Taking this action, now, will have a significant impact on 
annual retail sales figures--one of the main drivers of the 
current economic prosperity.
    Consider the following holiday products that could be 
affected:
    China accounts for more that 50% of all toy imports. 
Revocation of NTR would sharply increase the price of toys in 
the U.S. This would lead to a reduction in the variety of toys 
available on IMRA members' shelves. Many of today's most 
popular toys might not be affordable for American consumers if 
NTR is revoked.
    China is also a major exporter of portable tape and compact 
disc players to the United States. The average price for these 
products is about $84. Without NTR, these products would jump 
to a price of about $110. That's a 31% jump. Importers might be 
able to shift supply to Malaysia, but the average price for 
this product is about $98.
    Apparel is another important Christmas product for mass 
retailers. China is an extremely important source of value-
priced cotton and man-made fiber products. They are also one of 
the only sources of silk apparel products such as high-quality 
women's silk blouses. A loss of NTR would mean a price increase 
of over 50% for these products. This dramatic increase would 
affect many consumers' ability to afford these products and 
would force value-priced silk and cotton products off the 
shelves of mass retailers.
    Over 60% of the footwear sold in the United States is 
produced in China. Many U.S. consumers rely on the inexpensive 
footwear produced in China and sold in mass retail stores. The 
inexpensive boys leather sports footwear, such as high tops, 
tennis shoes and snow boots would all increase by an average of 
15%. This could be devastating to the low-income consumer, 
preparing to outfit their kids for back-to-school this fall.
    Loss of NTR would also hurt IMRA's catalog store members. 
Many of these companies are putting the finishing touches on 
their Christmas catalogs right now. By August, their catalogs 
will be printed with final prices. Should NTR be revoked, these 
companies, along with their suppliers would be unable to 
fulfill orders; and would be precluded, under state fair 
advertising laws, from raising prices. Holiday catalogs cost 
millions of dollars to print, and their shelf life is very 
long.

          Revoking NTR now will jeopardize WTO accession talks

    China's market is currently closed to American retail 
stores. It is exceptionally difficult for American retailers to 
open stores because in China, because of Chinese licensing 
requirements. Obtaining a license can take months or even 
years. Large-scale retail operations, with many stores, are 
impossible, because each store location must be separately 
licensed and financed with unique local partners.
    In addition, American companies can only distribute goods 
that they manufacture in China and cannot own or manage 
distribution networks or warehouses. The ability to control the 
distribution process is the lifeblood for an American mass 
retailer.
    During the WTO accession negotiations which took place in 
April, the Chinese agreed phase out all restrictions on 
distribution services within three years. This means that 
American retailers will be able to import and distribute 
American made products to their stores in China. The easiest 
way for American products to penetrate the Chinese market is to 
be sold through an American mass retail store in China. 
American mass retailers can act as a beach head for American 
products. It is very important the Chinese do not reneg on 
their commitments made in April.
    It is also important to remember that once China becomes a 
member of the WTO, they would be obligated to play by the rules 
or be subject to the WTO's dispute settlement process. This 
process has proven to be very successful for the U.S. (e.g., 
WTO ruling on the EU banana dispute). What's more, Chinese 
membership in the WTO provides ample opportunity for further 
negotiations to liberalize their trade regime.
    Unilateral sanctions will not result in widespread 
democratic change in China; they certainly will not enhance the 
reciprocal trade relationship; and they will harm U.S. economic 
interests. However, a strong economic and trade relationship--
based on mutually agreed-upon rules such as those embodied by 
the WTO--will result in change. One has only to look at the 
progress being made in places like South America to see how 
economic relationships foster democratic processes.
      

                                


Statement of Bernard D. Brill, Executive Vice President, SMART

    RE: China's Desire to Join the WTO
    Congressman Philip Crane, Chairman, Subcommittee on Trade
    As Chinese Prime Minister Zhu Rongji campaigns to gain 
entrance to the WTO, our association members are asking a 
simple question, ``If goods from China are allowed into the 
U.S. without special rules and tariffs, why aren't U.S. goods 
being given the same consideration? ''
    Believe it or not, recycled clothing is officially banned 
in China at the same time millions of pounds of new clothing is 
exported to the U.S. SMART asks that the U.S. Government inform 
Chinese officials that only when there is ``fair'' trade will 
there be ``free'' trade.
    SMART, the Secondary Materials and Recycled Textiles 
Association, represents nearly 300 businesses involved with the 
recycling of pre and post recyclable textile materials. Our 
industry employs approximately 25, 000 unskilled and semi-
skilled people. Most of these companies are small, family owned 
business located in our country's inner cities--where jobs are 
often most difficult to find. In fact, many of our members have 
hired people off the welfare rolls and other disadvantaged 
individuals!
    While members of this industry agree with the premise of 
allowing China into the WTO, why should U.S. companies be 
banned from this market? This is an excellent opportunity to 
completely open the trade lanes for U.S. exporters and help 
offset our country's growing trade deficit. Please do not miss 
the opportunity to settle this matter once and for all.

                               Background

    Members of SMART are capable of shipping large quantities 
of recycled clothing, fabric, and other household textile 
products to developing countries. According to the U.S. 
Department of Commerce, recycled textiles are this countries 
eighth most exportable item--just behind automobile parts and 
wheat! This ``environmentally correct'' industry has existed 
since the industrial revolution and provides important products 
and services while providing thousands of jobs.
    While this industry does not generate a great deal of 
publicity, it is responsible for providing clothing to those in 
non-OECD countries. However, certain countries like China 
forbid the importation of recycled clothing!
    As you decide on whether to include China as a partner in 
the World Trade Organization, please give this matter serious 
consideration. While SMART encourages and believes free trade 
is in the best interest of all concerned, we urge the U.S. to 
maintain a ``level playing field'' in this endeavor.
    Please insist that China and all countries deal fairly with 
U.S. exporters to encourage free trade in today's global 
marketplace.
    Submitted by,
    Bernard D. Brill
    Executive Vice President

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